[Federal Register Volume 90, Number 3 (Monday, January 6, 2025)]
[Rules and Regulations]
[Pages 746-895]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29824]
[[Page 745]]
Vol. 90
Monday,
No. 3
January 6, 2025
Part II
Department of Housing and Urban Development
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24 CFR Parts 91, 92, 570, et al.
HOME Investment Partnerships Program: Program Updates and Streamlining;
Final Rule
Federal Register / Vol. 90, No. 3 / Monday, January 6, 2025 / Rules
and Regulations
[[Page 746]]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 91, 92, 570, and 982
[Docket No. FR-6144-F-03]
RIN 2506-AC50
HOME Investment Partnerships Program: Program Updates and
Streamlining
AGENCY: Office of the Assistant Secretary for Community Planning and
Development, Department of Housing and Urban Development, HUD.
ACTION: Final rule.
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SUMMARY: HUD's HOME Investment Partnerships Program (HOME program or
HOME) provides formula grants to States and units of general local
government to fund a wide range of activities to produce and maintain
affordable rental and homeownership housing and provides tenant-based
rental assistance for low-income and very low-income households. This
final rule revises the current HOME regulations to update, simplify, or
streamline requirements, better align the program with other Federal
housing programs, and implement recent amendments to the HOME statute.
This final rule also includes minor revisions to the regulations for
the Community Development Block Grant and Section 8 Housing Choice
Voucher Programs consistent with the implementation of the changes to
the HOME program. This final rule follows the publication of a proposed
rule on May 29, 2024, and takes into consideration the comments
received in response to that proposed rule.
DATES: Effective February 5, 2025.
FOR FURTHER INFORMATION CONTACT: Virginia Sardone, Director, Office of
Affordable Housing Programs, Office of Community Planning and
Development, Department of Housing and Urban Development, 451 7th
Street SW, Room 7160, Washington, DC 20410; telephone number (202) 708-
2684 (this is not a toll-free number). 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
The HOME program is authorized by title II of the Cranston-Gonzalez
National Affordable Housing Act \1\ (``NAHA'' or the ``Act'') and has
been in operation since 1992. The HOME program provides grants to
States, local jurisdictions, and consortia of local jurisdictions
(collectively, participating jurisdictions or PJs) and is used, often
in partnership with local nonprofit groups, to fund a wide range of
activities to build, buy, or rehabilitate affordable housing for rent
or homeownership or to fund direct rental assistance to low-income
people.\2\ HOME program funds are awarded annually as formula grants to
PJs. After the Department obligates funds to a PJ, the Department
establishes a HOME Investment Trust Fund \3\ for each PJ, providing a
line of credit that a PJ may draw upon as needed.
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\1\ 42 U.S.C. 12721 et seq.
\2\ See HUD's HOME Investment Partnerships Program web page at
https://www.hud.gov/program_offices/comm_planning/home.
\3\ HUD's regulations for the HOME Investment Trust Fund can be
found at 24 CFR 92.500.
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The HOME program is the largest Federal block grant to States and
local governments designed exclusively to create affordable housing for
low-income households. Each year, the HOME program allocates
approximately $1.5 billion among States and approximately 600
localities nationwide. In fiscal year 2023, PJs completed 6,848 rental
housing units and 4,051 homebuyer units, assisted 2,717 low-income
homeowners to repair their homes, and provided tenant-based rental
assistance to 13,016 low-income households. HOME funds are most often
used as gap financing for rental projects, particularly for projects
that have been awarded Low-Income Housing Credits (LIHTC).\4\ As of
late 2024, there are 237,767 HOME-assisted rental units operating in
their periods of affordability (i.e., subject to ongoing HOME income
and rent requirements).
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\4\ See 26 U.S.C. 42.
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The HOME program is designed to reinforce several important values
and principles of community development. First, the HOME program's
flexibility empowers people and communities to design and implement
strategies tailored to their own needs and priorities. Second, the HOME
program's emphasis on consolidated planning expands and strengthens
partnerships among all levels of government and the relationship with
the private sector in the development of affordable housing. Third, the
HOME program's technical assistance activities and set-aside for
qualified Community Housing Development Organizations (CHDOs) help to
build the capacity of, and partnerships, with these community-based
nonprofit organizations. Fourth, the HOME program's requirement that
PJs match 25 cents of every dollar in program funds helps mobilize
community resources in support of affordable housing.
II. The Proposed Rule
On May 29, 2024, HUD published the ``HOME Investment Partnerships
Program: Program Updates and Streamlining'' proposed rule (the proposed
rule) in the Federal Register, available at 89 FR 46618. In the
proposed rule, HUD proposed numerous changes to 24 CFR part 92. The
proposed changes included significant revisions to the CHDO
requirements, a change in the approach to HOME rents, simplified
requirements for small-scale rental projects, enhanced flexibility in
HOME tenant-based rental assistance (TBRA) programs, and simplified
provisions and new flexibilities for community land trusts (CLTs). The
proposed rule also proposed to significantly strengthen and expand
tenant protections by requiring that a HOME tenancy addendum with a set
of uniform tenant protections be appended to the leases of all tenants
of HOME-assisted rental housing units. HUD also proposed requiring that
a HOME tenancy addendum with a streamlined set of uniform tenant
protections be appended to the leases of all tenants receiving TBRA.
Additionally, HUD proposed to create incentives for meeting a more
advanced property standard that incorporates green building standards,
higher levels of energy efficiency, and innovative building techniques
in new construction, reconstruction, and rehabilitation of housing. The
proposed rule also sought to clarify the resale requirements for
homeownership housing and proposed technical amendments and
simplifications to conform provisions to certain changes made in the
2013 HOME Final Rule.\5\
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\5\ HOME Investment Partnerships Program: Improving Performance
and Accountability; Updating Property Standards, (78 FR 44628, July
24, 2013).
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The proposed rule also included changes made by the Housing
Opportunity Through Modernization Act of 2016: Implementation of
Sections 102, 103, and 104 final rule, published in the Federal
Register on February 14, 2023 (88 FR 9600) (the HOTMA Final Rule) and
the Economic Growth Regulatory Relief and Consumer Protection Act:
Implementation of National Standards for the Physical Inspection of
Real Estate (NSPIRE) final rule, published in the Federal Register
[[Page 747]]
on May 11, 2023 (88 FR 30442) (the NSPIRE Final Rule). The proposed
rule also proposed further revisions to the changes made to 24 CFR part
92 by the HOTMA and NSPIRE Final Rules. In addition, the proposed rule
proposed updates to citations, in paragraphs where other changes are
being made, to conform with recent changes to the Office of Management
and Budget (OMB) regulations at 2 CFR part 200.
See the proposed rule for a full description of all the HOME
program proposed regulation changes associated with this rulemaking.
III. This Final Rule
HUD reviewed and considered all public comments submitted in
response to the proposed rule, which are summarized and addressed in
the next section of this final rule. After considering the public
comments received in response to the proposed rule, this final rule
incorporates a majority of the proposed regulatory changes described in
the proposed rule; however, in response to public comments received,
HUD is making certain revisions to the HOME program regulations from
those described in the proposed rule at this final rule stage. HUD is
also making certain non-substantive revisions to the proposed
regulatory text at this final rule stage.
In response to comments received during the proposed rule stage of
this rulemaking, HUD is making the following revisions to the final
rule:
24 CFR Part 91--Technical Revisions
HUD is making certain technical revisions in 24 CFR part 91 to
replace the term ``affordability period'' with ``period of
affordability.'' These revisions are consistent with the technical
revision proposed in 24 CFR part 92 to make the same terminology
replacement. Further, these revisions are consistent with public
comments HUD received noting that these revisions are appropriate.
24 CFR Part 92--Technical Revisions
HUD is making certain technical revisions in 24 CFR part 92 to
improve clarity and readability of certain language throughout the
part. While HUD is not summarizing each of these technical changes
because the changes are minor and non-substantive, a sampling of these
revisions are described in the paragraphs that follow.
The Department received comments indicating that it had not fully
revised all references from ``downpayment assistance'' to
``homeownership assistance.'' The Department is revising Sec. Sec.
92.203(d), 92.209(c)(2)(iv), 92.250(b)(4), 92.251(c)(3),
92.254(b)(1)(ii), 92.300(a)(6)(i), 92.351(a)(1), 92.504(c)(1)(i), and
92.504(c)(2)(i) accordingly. The Department declined to revise certain
references in the regulation that were specific to the downpayment
provided by a homebuyer (e.g., for purposes of the resale or recapture
methods used in Sec. 92.254).
Commenters noted that there were a number of areas where the term
``dwelling'' had not been replaced by ``housing.'' Accordingly, the
Department is revising Sec. Sec. 92.219(a)(4), 92.254(a)(5)(ii)(A),
and 92.258(a) to standardize the use of ``housing.''
The Department noted several instances where it had not corrected
the term ``single-family'' to read ``single family.'' Accordingly, the
Department is revising Sec. Sec. 92.220(a)(5)(ii), 92.254(a)(6),
92.504(c)(1)(i), and 92.504(c)(2)(i) to include the standardized term
``single family.''
Several commenters noted that the Department failed to change all
the references from ``affordability period'' to ``period of
affordability.'' The Department has further revised the term for
consistency in Sec. Sec. 92.251(f), 92.252(d)(3),
92.254(a)(5)(ii)(B)(2), 92.258(c) and (d)(3), 92.359(f), and
92.508(c)(1) and (2).
The Department is also revising the first sentence of Sec.
92.201(b)(3)(i) to clarify that States must require that State
recipients use HOME funds in accordance with 24 CFR part 92. This is
also stated in the written agreement section in Sec. 92.504 and is a
revision for consistency.
24 CFR 92.2 Definitions
A. Commitment
As explained in greater detail in the preamble describing the
revisions in Sec. 92.209, the rental assistance contract requirements
in the HOME tenant-based rental assistance program are being revised to
require that the PJ enter into a rental assistance contract with the
owner and the tenant, either as separate agreements or a single tri-
party agreement. The Department is therefore revising the definition of
Commit to a specific local project in paragraph (2)(iii) of the
definition of Commitment to accurately state that the rental assistance
contract, which is the committing document for HOME tenant-based rental
assistance, is the contract with the ``owner and the tenant'' instead
of the contract with the ``owner or the tenant.''
A new paragraph (2)(ii)(C) was added under Commit to a specific
local project in the definition of Commitment to provide the
requirements for commitments to a family to acquire single family
housing for homeownership that does not meet the PJ's property
standards, as described in Sec. 92.251(c)(3). The requirements include
the same requirements for standard housing, i.e., that the PJ (or State
recipient or subrecipient) and the family must have executed a written
agreement under which HOME assistance will be provided for the purchase
of the single family housing, which requires the property title to be
transferred to the family within six months of the agreement date. In
addition, the paragraph will also require that the written agreement
require the property to meet the standards in accordance with Sec.
92.251(c)(3). This revision is being made because the current
definition of Commit to a specific local project only contemplates that
the homebuyer will be purchasing housing in standard condition and not
housing that requires rehabilitation. This allows the written agreement
to count as a commitment when it complies with the requirements in
Sec. 92.251(c)(3), thereby providing consistent application of the new
rules permitting homebuyers to rehabilitate their units to meet
property standards post-acquisition.
B. Community Housing Development Organizations
In response to public comments received, HUD is making multiple
changes to paragraph (8)(i) of the definition of community housing
development organization in Sec. 92.2. Paragraph (8)(i) of the CHDO
definition describes board membership requirements to maintain
accountability to low-income community residents. Many commenters were
concerned that the language of the proposed rule would reduce the
accountability of CHDO boards. As described further in the following
paragraphs, HUD is addressing the concerns expressed in the comments by
strengthening the accountability structures.
HUD is revising paragraph (8)(i) of the CHDO definition to add
``low-income beneficiaries of HUD programs'' as an explicitly named
group of eligible board members to meet the accountability to low-
income community residents board requirement. HUD recognizes that 42
U.S.C. 12704(6)(B) requires that a CHDO ``maintain[], through
significant representation on the organization's governing board and
otherwise, accountability to low-income community residents and, to the
extent practicable, low-income beneficiaries with regard to decisions
on the design, siting, development, and management of
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affordable housing . . . .'' By adding ``low-income beneficiaries of
HUD programs'' to the regulation, HUD believes it is more closely
matching the intent of the statute and emphasizing that, whenever
possible, board members of CHDOs should include low-income
beneficiaries of HUD programs.
HUD is also revising paragraph (8)(i) of the CHDO definition to use
the term ``designees of nonprofit organizations'' instead of
``authorized representatives of nonprofit organizations.'' This
revision of the term ``designee'' is being made because of confusion
expressed by commenters regarding when a person is considered an
``authorized representative.'' HUD recognizes that the inconsistent
terminology is confusing and believes that using a consistent term to
describe individuals representing ``low-income neighborhood
organizations'' and the ``nonprofit organizations'' described in
paragraph (8)(i) brings additional clarity to paragraph (8)(i) of the
CHDO definition.
HUD is further revising paragraph (8)(i) of the CHDO definition to
specifically reference the designees of nonprofit organizations in the
community that address the housing or supportive service needs of
``low-income residents or residents of low-income neighborhoods.'' This
revision is in response to commenters who stated that HUD had not
sufficiently connected the term ``nonprofit organizations'' to low-
income residents of the community in paragraph (8)(i) of the CHDO
definition. The commenters urged HUD to use clearer language to show
that individuals representing organizations serving low-income persons,
even if those persons do not live in low-income neighborhoods, should
be able to meet the requirement that the CHDO board is accountable to
low-income community residents. HUD believes this revision will better
enable designees that directly serve low-income residents to be CHDO
board members. In response to significant comment from the public, the
Department is revising paragraph (8)(i) to prohibit an organization
from being considered a CHDO if its service area is the entire State.
Though the Department had proposed removing this restriction from the
current regulation to better enable rural PJs and states to use their
CHDO set-aside funds, the public comments were quite clear that
allowing an organization to have a statewide service area was not the
solution to addressing the shortage of CHDOs with capacity in rural
areas.
In response to public comments received, HUD is also making
multiple changes to paragraph (9) of the definition of community
housing development organization in Sec. 92.2. These specific changes
are described in the paragraphs that follow.
HUD is revising the introductory text of paragraph (9) of the CHDO
definition to add ``Federal Home Loan Bank Affordable Housing Program
(12 U.S.C. 1430) funds'' to the list of housing programs that
demonstrate a CHDO's capacity to carry out a housing project. This
change is made in response to public comments to provide clarity
because these grant funds are frequently layered with HOME funds in
housing development projects.
HUD is revising paragraph (9)(i) of the CHDO definition by changing
the first sentence of the paragraph to require that a CHDO have ``paid
employees'' with housing development experience who will work directly
on the HOME-assisted project. HUD is making this revision in response
to public comments that correctly noted that the way the proposed rule
phrased this portion of paragraph (9)(i) of the CHDO definition allowed
a CHDO to have no paid employees at all and still meet the capacity
requirement. HUD's intent with the proposed rule was to allow
volunteers to supplement the capacity of paid employees, not to allow a
CHDO to meet the capacity requirements while having no paid employees.
HUD is making a similar revision in the last sentence of paragraph
(9)(i) of the CHDO definition to read as ``key, paid staff of the
organization'' for the same reasons.
HUD is further revising paragraph (9)(i) of the CHDO definition to
add an additional sentence to clarify that where the paid employees of
a CHDO alone do not demonstrate capacity, that experience can be
supplemented with volunteer board members or officers. For additional
clarity, HUD is also making minor revisions to paragraph (9)(i) of the
CHDO definition to more directly state the requirement that a volunteer
board member or officer may not be compensated by or have their
services donated by another organization.
C. Community Land Trust
In response to public comments received, HUD is making multiple
changes from the proposed rule to the definition of CLT in Sec. 92.2.
These specific changes are described in the paragraphs that follow.
HUD is revising paragraph (1) of the CLT definition to read ``[h]as
as its primary purposes acquiring, developing, or holding land to
provide housing that is permanently affordable to low-income persons.''
Commenters noted that CLT ownership models vary nationwide and, while
some CLTs do develop and maintain their properties, other CLTs acquire
and hold properties as affordable housing in perpetuity but are not
otherwise involved in maintenance or development work. HUD recognizes
that its proposed definition was too narrow to consider many of these
organizations as CLTs and is revising it accordingly. In addition,
HUD's proposed rule stated that a CLT must have a primary purpose of
serving both low- and moderate-income persons. After reviewing the
comments and the various CLT models provided by commenters, HUD is
revising the CLT definition to recognize that the primary purpose of a
CLT participating in the HOME program must be to serve low-income
persons. HUD is also making a similar change to remove ``moderate-
income'' from paragraph (3) of the CLT definition.
D. Homeownership
In response to public comments received, HUD is making certain
changes to the definition of homeownership in Sec. 92.2. Public
commenters noted that the Department had not changed the term
``dwelling'' in the definition of homeownership in Sec. 92.2. After
considering the best way to clarify the requirement, the Department
determined that it would be easier to replace to term ``1-4 unit
dwelling or in a condominium unit'' with the term ``single family
housing,'' which is defined as ``a one-to four- unit residence,
condominium unit, cooperative unit, combination of manufactured housing
and lot, or manufactured housing lot.'' The final rule text is clearer
and uses a common term that is also defined in the regulation. It also
provides additional clarity for homeownership projects involving
manufactured homes, which are more explicitly referenced in the
definition of single family housing. HUD believes that this clarifying
change is therefore also responsive to comments requesting that HUD
clarify the treatment of manufactured homes in HOME homeownership
projects.
HUD notes that in its review of the public comments, the Department
identified significant confusion by some commenters about the time
periods in the definition of CLT and homeownership in Sec. 92.2 and
the housing education and organizational support requirements in Sec.
92.302. HUD is committed to better addressing the needs of CLTs and its
revisions to the homeownership definition in Sec. 92.2 clarify the
intent of the definition and how it is meant to apply to HOME
homeownership projects. The specific changes to the definition of
[[Page 749]]
homeownership are described in the paragraphs that follow.
HUD is revising paragraph (1) of the definition of homeownership to
further clarify the explanatory text to state that the land upon which
housing is located may be owned in fee simple or through a ground lease
if the housing was owned in fee simple. The paragraph was also revised
to give a rule of construction so that PJs and homeowners understand
that the minimum term of a ground lease is the lowest time period if
more than one condition applies. For example, if a ground lease was
part of a CLT-developed project, the minimum term for the ground lease
to be considered homeownership is 50 years, but if that CLT-developed
project was in an insular area, the minimum term for the ground lease
to be considered homeownership would be 40 years because the minimum
term for a ground lease to be considered homeownership in insular areas
is 40 years (See Sec. 92.2(1)(ii)).
HUD is further revising paragraph (1) of the definition of
homeownership to remove the latter portion of the introductory text of
paragraph (1) that addressed 99-year ground leases. Paragraph (1) is
instead being revised to create a new paragraph (1)(i) to make clear
that a 99-year ground lease is one of multiple options for ground lease
length. The original paragraphs (1)(i), (1)(ii), and (1)(iii) are being
redesignated as (1)(ii), (1)(iii), (1)(iv), respectively.
HUD is also making other minor, non-substantive revisions to the
introductory text and paragraph (1) to the definition of homeownership
to improve the readability of the text.
E. Housing
HUD is revising the definition of housing in Sec. 92.2 to replace
the term ``dwellings'' with ``housing units.'' Commenters noted that
there were certain areas in the proposed rule where ``dwelling'' had
not been replaced with the updated term. HUD is updating the housing
definition to correct this issue.
F. Single Room Occupancy (SRO) Housing
HUD is revising the definition of single room occupancy (SRO)
housing in Sec. 92.2 to replace the term ``dwelling'' with
``housing.'' Commenters noted that there were certain areas in the
proposed rule where ``dwelling'' had not been replaced with the updated
term. HUD is updating the SRO housing definition to correct this issue.
G. American Dream Downpayment Initiative References
The Department intended to remove all American Dream Downpayment
Initiative (ADDI) regulations as part of this rulemaking.
Unfortunately, the Department inadvertently retained language in the
definition of ``State'' that described deviations between the term
``State'' in the HOME program and in the ADDI program. The Department
is revising the definition of ``State'' to remove all ADDI-related
language in this final rule.
24 CFR 92.3--Applicability of 2025 Regulatory Changes
In response to the proposed rule, HUD received comments requesting
that the Department specify the effective date of the regulatory
changes associated with this final rule. To address these comments, HUD
is revising Sec. 92.3 to provide the applicable effective dates for
the regulatory changes associated with this final rule instead of the
applicable effective dates associated with the 2013 regulatory
revisions. The header is being revised to describe the applicability of
2025 regulatory changes.
The introductory language of Sec. 92.3 is being replaced by a
provision explaining that the regulations in 24 CFR part 92 apply based
on when an income determination is made or when the HOME funds for the
project were committed. The provision goes on to explain that projects
where the HOME funds were committed before a certain date may be
subject to previous versions of these regulations. The provision also
explains that the intent of Sec. 92.3 is to provide instruction
regarding which version of these regulations applies to which project
based on when the funds were committed.
Paragraph Sec. 92.3(a) is being replaced with a new paragraph (a).
Paragraph (a) establishes the effective date for the 2025 final rule.
The paragraph explains that the final rule is applicable to projects
for which HOME funds are committed on or after February 5, 2025. The
paragraph goes on to state that a PJ must perform income determinations
in accordance with Sec. 92.203 after February 5, 2025.
Paragraph Sec. 92.3(b) is being revised to explain that while the
effective date of the rule is 30 days after publication, PJs are
permitted to continue to comply with the HOME regulations as they
existed immediately before the effective date for commitments made up
to one year after the rule's effective date. This allows PJs time to
change their policies and procedures, forms, and systems, so that they
can effectively implement the provisions of the final rule.
Paragraph (c) describes how the income regulations will be
implemented for existing tenants and new projects that are coming
online. This is because the income requirements of Sec. 92.203 are
applied to tenants of existing projects pursuant to their written
agreements. The Department wants to clarify that for up to one year
after the effective date of the rule, PJs may calculate income in
accordance the income requirements that the PJs was implementing
immediately prior to the publication of the final rule. This allows PJs
to transition to determining income in accordance with the new
requirements, as many income reexaminations may be underway when the
rule becomes effective.
In some cases, PJs may wish to amend existing written agreements to
take advantage of certain flexibilities or impose new requirements.
While most of the rule may be applied immediately on the effective
date, the Department is clarifying that certain provisions may not be
implemented when a commitment has already been issued for a project.
These relevant provisions are listed in Sec. 92.3(d)(1) through (5).
Section 92.3(d)(1) explains that the written agreement cannot be
revised to allow for certain predevelopment costs as well as certain
project related soft costs currently contained in Sec. 92.206(d)(2) to
be reimbursed in accordance with the newly revised Sec. 92.206(d)(1)
if the HOME funds were committed to the project prior to the effective
date of the final rule. Commitments were made after underwriting the
project with assumptions that these costs were not going to be paid
with HOME funds and the Department determined that the written
agreements should not be amended to include those costs as payable from
HOME when it was not the source that had already been identified to pay
for the cost.
Similarly, Sec. 92.3(d)(2) states that the new flexibility to
obtain a higher maximum per-unit subsidy increase should only be
included for projects where funds were committed to the project after
the effective date of the final rule. While the Department fully
supports green building requirements, the Department determined that
projects with current commitments should not undergo additional
underwriting and cost allocation. When a PJ committed HOME funds to
projects before the effective date of the rule, they underwrote and
sized the assistance based on the assumption that the maximum per-unit
subsidy was the
[[Page 750]]
limit in effect. The Department believes that this should continue to
be the case and that current projects should not be amended. If a PJ
were to amend its written agreement with an owner to add the new
requirements at a later time, it can be disruptive, cause delays in
production of badly needed affordable housing units and is not the
behavior that the Department is attempting to incentivize by providing
the increase in maximum per-unit subsidy.
Section 92.3(d)(3) states that the revised dollar thresholds for
periods of affordability in Sec. 92.252 and Sec. 92.254 will not
apply to projects where the PJs had already committed HOME funds.
Similar to paragraphs (d)(1) and (2), a PJ already agreed with an owner
on the applicable periods of affordability, just like they had agreed
to a maximum per-unit subsidy, or which type of funds were used to pay
which costs. To allow the owner and PJ the ability to reduce the period
of affordability for a project that has already been agreed upon
through amending the written agreement would be perverse and counter to
the purposes of the Act.
Section 92.3(d)(4) states that the new tenant protection provisions
cannot be imposed upon owners that are already under a current written
agreement or tenants and owners under a current rental assistance
contract or receiving security deposit assistance. Owners should have
appropriate notice before imposing substantial changes in landlord-
tenant relations. The HOME program provides development subsidies to
owners to build affordable housing but does not provide ongoing
operations assistance. Owners must consider the costs of compliance in
determining whether to participate in the HOME program. This includes
the costs of complying with tenant protections. Moreover, the
Department received numerous comments indicating that imposing the
tenant protections on current owners would amount to a regulatory
taking. While the Department does not believe that this is the case and
would strenuously object to any characterization of improving tenant
protections as a form of taking or violation of an owner's due process
rights, the Department does believe it is important to establish clear
compliance requirements within the written agreement between the PJ and
the owner, and to allow those requirements to remain consistent for the
life of the agreement. To prevent potential litigation and loss of
affordable housing, the Department is requiring that the new and
revised tenant protections provided in Sec. 92.253 only be effective
for projects with commitments of up to one year after the effective
date of the rule and not be applied to projects with commitments prior
to the effective date of the rule.
Finally, Sec. 92.3(d)(5) was added to state that the revisions to
the role of CHDOs in owning, developing, and sponsoring affordable
housing in Sec. 92.300 only apply to projects where the PJ committed
CHDO set-aside funds on or after the effective date of the final rule.
The new flexibilities in Sec. 92.300 should be used for new projects.
If a PJ has already entered into an agreement with a CHDO to own,
develop, or sponsor a project, then it is inappropriate for the PJ to
amend the agreement and enter into an agreement with a new party
because of the new flexibilities provided in Sec. 92.300. The
Department is expanding the way in which CHDOs can be involved in a
HOME project but is not encouraging PJs to terminate or significantly
restructure existing CHDO projects.
The Department also believes that it may be helpful to place the
date and the triggering action into a chart to better assist PJs,
owners, and the public in understanding when the 2025 final rule's
requirements are applicable.
24 CFR 92.201 Distribution of Assistance
The Department is also revising the first sentence of Sec.
92.201(b)(3)(i) to clarify that States must require State recipients
use HOME funds in accordance with part 92. This is also stated in the
written agreement section in Sec. 92.504 and is a revision for
consistency.
24 CFR 92.203 Income Determinations
The Department is making a technical revision to the first sentence
of Sec. 92.203(a) to remove the dash between ``income'' and
``eligible'' to maintain consistent usage of the term. The Department
is revising the ``must'' to a ``may'' in Sec. 92.203(a)(1) in response
to public comments recommending that HUD allow PJs to always retain the
right to determine annual income in accordance with the process
described in paragraphs (b)-(e). This change will allow PJs the choice
of accepting the income determinations made in Federal or State
project-based rental subsidy programs instead of requiring PJs to
accept those determinations.
In response to public comments, the Department is revising the
language in Sec. 92.203(a) to create a new paragraph (a)(3) and
redesignate the current paragraph (a)(3) as paragraph (a)(4). The new
paragraph (a)(3) provides additional burden relief for PJs and owners
by expanding a safe harbor that is currently located in Sec.
92.203(b)(1)(iii). The current safe harbor in Sec. 92.203(b)(1)(iii)
is limited to government programs and not forms of public assistance,
which is a broader term that encompasses tax credits and other forms of
assistance that are not ``programs.'' The Department uses this broader
term ``public assistance'' in the safe harbor provisions in 24 CFR
5.609(c)(3) for 1937 Act programs but does not use this term in the
current HOME regulations. The current safe harbor in HOME regulations
cannot be used for initial annual income and eligibility
determinations, or in calculating annual income for a family in years
6, 12, and 18 of a HOME rental housing project's period of
affordability. The safe harbor also cannot be used for individuals
applying for or renewing tenant-based rental assistance.
Public commenters recommended that PJs be able to accept income
determinations made under other forms of public assistance, including
LIHTC income determinations for families living in tax credit units.
The Department recognizes the utility in expanding the safe harbor to
include other forms of government assistance and allowing its use for
initial annual income determinations or annual income determinations
made in years 6, 12, and 18 of a HOME rental housing project's period
of affordability as well as for individuals entering into or renewing a
new rental assistance contract for tenant-based rental assistance.
Therefore, the Department is moving the safe harbor into paragraph (a)
as a new paragraph (a)(3) to enable a PJ to use the information for
initial annual income and subsequent income determinations for HOME
rental housing tenants as well as for tenant-based rental assistance.
The Department is also expanding the applicability of the safe harbor
to include an annual income determination made under another form of
Federal, State, or local public assistance. Accordingly, the Department
is also removing Sec. 92.203(b)(1)(iii) and revising the last sentence
in paragraph (b)(1) to indicate that there are only two methods of
determining income under paragraph (b)(1).
The Department provides several examples to enhance the public's
understanding of the types of assistance that could be accepted under
the new paragraph (a)(3). These examples include TANF, Medicaid, LIHTC,
and local rental subsidy programs. These programs all calculate annual
income but do not make the adjustments that are made in HUD programs
that are subject to 24 CFR 5.611.
[[Page 751]]
To obtain the relief of the safe harbor under new Sec.
92.203(a)(3), the PJ must be able to obtain a statement that indicates
the family size and income. This can be provided by an administrator of
a Federal, State, or local form of public assistance, even if that
administrator is not the administrator at the Federal or State level.
The Department considered whether to allow, as the current safe harbor
provision in Sec. 92.203(b)(1)(iii) does, a government administrator
to provide a PJ with a statement indicating that the family's income
does not exceed the current dollar limit for very low-income or low-
income families for the family size of the tenant. The Department
decided against including this language.
The Department drafted this safe harbor partly in response to
public comments requesting that the Department accept a statement made
by an administrator of public assistance without further review of
income documentation for the tenant. The Department agrees that it is
possible to use a statement from a government administrator to
determine income, though verification is left to PJ policies and
procedures. However, the Department decided that if it was expanding
the safe harbor to enable PJs to accept a statement, then the statement
must contain a statement of family size and income and not just a
statement that the family was below the applicable income limit for the
family's size. This is especially true because, in many cases, the PJ
must still calculate adjusted income in accordance with paragraph (f).
To provide the maximum amount of burden relief to both the PJs and
tenant, and best address the concerns of the commenter, the statement
must have the family's annual income on it so that the PJ need only
adjust the income (if applicable) from a known amount of annual income.
Accordingly, the Department is also removing Sec. 92.203(b)(1)(iii)
and revising the last sentence in paragraph (b)(1) to indicate that
there are only two methods of determining income under paragraph
(b)(1).
The Department is requiring in the new Sec. 92.203(a)(3) that the
statement accepted by the PJ must be for an income determination made
within the previous 12-month period. This aligns with how similar safe
harbor provisions are used in other HUD programs, such as the safe
harbor in 24 CFR 5.609(c)(3) that is used for certain programs governed
under the U.S. Housing Act of 1937. The Department considered whether
to provide a shorter period, such as the 6-month requirement under
Sec. 92.203(e)(2) for income determinations made prior to providing
homeownership or tenant-based rental assistance to a family. However,
after consideration of the comment and how to align this safe harbor
with other safe harbors in HUD regulations, HUD has determined that 6
months is inappropriate. When a family applies to a PJ for assistance
and the PJ determines the family's income, there is a reasonable
expectation that this income examination is close in time to when the
family will receive the HOME assistance from the PJ. When a person was
determined income eligible with these other forms of public assistance,
it may not be at the same time as when the PJ's tenant-based rental
assistance program waiting list opens up for the public to apply or
when a person is next up on an owner's waiting list. To establish a
shorter period in which the income determination will remain valid for
purposes of the new safe harbor would therefore disadvantage those
families and PJs and so the Department chose to allow income
determinations made within a 12-month period to qualify for purposes of
the safe harbor at Sec. 92.203(a)(3).
As part of the revisions made to lift and expand the safe harbor in
Sec. 92.203(a)(3), the Department is making conforming changes to
paragraph (b)(2) and adding paragraph (b)(3) to explain that only
families applying for homeownership activities must calculate income
using 2 months of source documents. Before paragraph (a)(3) was added,
both families applying for homeownership assistance and families
applying for or receiving tenant-based rental assistance were required
to solely use source documents. However, with the expansion of the safe
harbor to tenants applying for, renewing, or for assisted families
required to enter into a new rental assistance contract, the Department
had to make conforming changes to explain how income is calculated for
tenant-based rental assistance. The new paragraph (b)(3) does this by
explaining that, for families applying for or receiving tenant-based
rental assistance, the PJ may determine annual income in accordance
with the new safe harbor provision or through the use of source
documents. The paragraph also clarifies that income will be calculated
at the times specified in Sec. 92.209(e)(3), which provides explicit
instructions on when income must be determined for a family applying
for or receiving tenant-based rental assistance.
The Department received negative comments on Sec. 92.203(e)(2).
While the Department is declining to revise the six-month limit on when
income is valid, the Department recognizes that the provision itself
could be clearer. The Department is therefore clarifying that a PJ is
not required to redetermine income for a family unless 6 months have
elapsed since the PJ determined the family is income eligible. The term
``re-examine'' is confusing given that the provision is about
determining a family's income eligibility in advance of being provided
assistance. This is different than when income is reexamined for
families living in a rental housing project or families entering into
or renewing a rental assistance contract. As the Department is revising
income reexamination provisions for small-scale rental housing and in
the context of tenant-based rental assistance, the Department believes
it is important to remain consistent and is therefore revising this
provision as well.
Paragraph 92.203(e)(2) is also being clarified to explain that when
the regulation refers to ``HOME assistance,'' the regulation means
homeownership assistance and tenant-based rental assistance. In the
HOME regulations, the term ``HOME assistance'' is used in a variety of
contexts. The term means the assistance provided to a subrecipient,
State recipient, or contractor to run all or a portion of a PJ's HOME
program; the assistance provided to a developer, owner, or sponsor to
develop a HOME rental or homeownership project; assistance provided to
a family for tenant-based rental assistance; homeownership assistance
provided to a family to purchase and/or rehabilitate a home; or
assistance provided to a CHDO. The Department believed it was important
to clarify which type of assistance is meant in the provision given the
various ways in which the term is used. Paragraph (e)(2) was also
revised with a clarifying edit to say that a family ``is income
eligible'' instead of ``qualifying as income eligible.'' This is a non-
substantive revision for readability.
The Department is revising Sec. 92.203(f)(1)(ii) to remove two
references to Sec. 92.252(a)(2)(iii), which is being removed by this
rulemaking. The Department is also revising Sec. 92.203(f)(2) to make
corresponding revisions now that PJs are given the option of accepting
a public housing agency, owner, or rental subsidy provider's
determination of the family's adjusted income under that program's
rules instead of being required to do so under Sec. 92.203(a)(1). This
change is in response to public comments, as described earlier in this
preamble.
[[Page 752]]
24 CFR 92.206 Eligible Project Costs
In response to public comments, HUD is making certain changes to
Sec. 92.206(d) regarding related soft costs that may be considered
eligible project costs. The Department proposed and received comments
requesting that HUD allow environmental reviews or other environmental
studies or assessments to be reimbursable costs incurred prior to the
commitment of funds to a project. Commenters requested that the
provision be expanded to also include environmental fees, which the
Department agrees can be included in the provision. The comments urged
the Department to also consider expanding the types of costs that would
be allowed to be incurred to include ``pre-development'' and other
related soft costs.
In response to the comments, HUD is making changes to paragraph
(d)(1) to expand the project soft costs that may be incurred prior to a
commitment. The final rule moves certain soft costs from paragraph
(d)(2) into paragraph (d)(1), including costs to process and settle
financing for the project, such as private lender origination fees,
credit reports, fees for title evidence, legal fees, private appraisal
fees, and fees for independent cost estimates. By moving these soft
costs into paragraph (d)(1), HUD is allowing the costs to be paid so
long as they were incurred no more than 24 months before the date of
commitment and included in the written agreement committing the funds.
Note that ``legal fees'' is a more expansive term than the current term
``attorney's fees'' and the Department is intentionally expanding the
term to be more inclusive of the different legal costs that are
associated with a project in response to public comment.
The Department determined that soft costs contained in the other
provisions in paragraph (d) could not be moved into paragraph (d)(1) as
there is no reasonable expectation that such costs would occur prior to
commitment of HOME funds. Those provisions include building permits,
which can only be obtained after completion of the HUD environmental
review; fees for recordation and filing of legal documents, as
recordation of documents related to an acquisition, rehabilitation, or
new construction contract should occur after commitment of HOME funds;
and building or developer fees, as those fees should not be earned or
chargeable to the HOME grant for work performed prior to the
environmental review and commitment of the HOME funds to a project.
In response to public comment, HUD is also revising Sec. 92.206 to
add ``accounting fees'', ``filing fees for zoning or planning review
and approval'', and ``other lender-required third-party reporting
fees'' to paragraph (d)(1). The Department added these fees, as
recommended by the commenter, because the Department agrees that these
fees, which are generally incurred prior to applying to a PJ for HOME
assistance, are directly related to meeting underwriting and
construction feasibility criteria that are required in the definition
of Sec. 92.2 Commitment. They may be payable with HOME funds if a PJ
agrees to pay these costs in the written agreement.
24 CFR 92.208 Eligible Community Housing Development Organization
(CHDO) Operating Expense and Capacity Building Costs
The public comments indicated confusion over the proposed use of
capacity building funds for CHDOs. The new Sec. 92.208(c) describes
how PJs may provide HOME assistance to CHDOs for operating costs under
Sec. 92.300(a). The paragraph is not intended to describe the use of
capacity building funds, which is described in the previous paragraph
at Sec. 92.208(b). HUD inadvertently included reference to ``capacity
building costs'' in the proposed Sec. 92.208(c) and understands that
this may have led to confusion for commenters. Consequently, HUD is
removing the reference to ``capacity building costs'' in Sec.
92.208(c) to eliminate this confusion.
24 CFR 92.209 Tenant-Based Rental Assistance: Eligible Costs and
Requirements
The Department revised Sec. 92.209(c)(3) to correct the term
``tenant-based rental assistance'' in the third sentence of the
paragraph. The regulation had previously read ``tenant-based
assistance.'' This is a non-substantive change.
The Department made several revisions to Sec. 92.209(e) in
response to public comment. The Department redesignated Sec. 92.209(e)
as Sec. 92.209(e)(2) and revised the provision as described below. The
Department also revised the header for paragraph (e) to describe the
rental assistance contract more broadly and not just the term rental
assistance contract. The Department then made four new subsections.
The first subsection, Sec. 92.209(e)(1), defines the parties to
the rental assistance contract, which is also the header for this
provision. Based on public comment to specific solicitation of comment
#10, the Department is requiring the PJ to have a rental assistance
contract with both the owner and the tenant. This can take the form of
a single tri-party agreement or two separate agreements. There is
precedent for this model in HUD programs. In the Housing Choice Voucher
program, the tenant has an agreement with the public housing agency
where the tenant agrees to the rules of the program (See Form HUD-
52646), and the owner has an agreement with the public housing where
the owner agrees to the terms of the housing assistance payments agency
(See Form HUD-52641). The Department also believes that this is the
best method for the PJ to enforce HOME requirements on tenant and owner
alike.
The Department revised the redesignated Sec. 92.209(e)(2) to
provide that a rental assistance contract does not need to start on the
first day of the lease so long as the contract commences at the
beginning of the first month in which tenant-based rental assistance is
provided. The Department revised the provision to decouple the
execution of the rental assistance contract from the tenant lease
because with the imposition of the tenancy addendum, which must be
executed and attached to the tenant lease, the need for the rental
assistance contract to begin on the first day of the lease is
significantly lessened. This is because the terms of the HOME tenant-
based rental assistance tenancy addendum will control in the event of a
conflict between the preexisting lease and the tenancy addendum, and
therefore the risk that the lease would contain prohibited lease terms
or would otherwise not comply with the HOME program requirements is
eliminated. The Department is also revising this requirement in
response to public comments that stated that it disadvantages families
to require that the rental assistance contract begin on the first day
of the lease because current very low-income tenants would have to
break their lease to obtain rental assistance, which is not always
possible. The Department does not wish to disadvantage tenants that are
housing insecure or rent burdened by requiring they enter a new lease
in order to receive tenant-based rental assistance under HOME.
The Department also revised the redesignated Sec. 92.209(e)(2) to
explain that a rental assistance contract can be amended subject to the
availability of funds. This revision is made in response to a public
commenter that requested HUD explain whether an amendment to a rental
assistance contract would require a new income determination. The
Department is drawing a distinction
[[Page 753]]
between new contracts, amendments, and renewals of rental assistance
contracts first in paragraph (e)(2) and then further in the new
paragraphs (e)(3) and (e)(4).
The new Sec. 92.209(e)(3) explains under what conditions a
contract may be amended or renewed. The new Sec. 92.209(e)(3)(i)
explains that all parties must consent to an amendment to the rental
assistance contract. The new Sec. 92.209(e)(3)(i)(A) explains that a
rental assistance contract may be amended because the lease between the
family and owner has been amended or renewed, as long as the lease term
or amount charged under the lease are the only terms of the contract
being changed. The new Sec. 92.209(e)(3)(i)(B) explains that
amendments to the rental assistance contract may extend the original
term of the rental assistance contract up to 24 months from the
original date of execution, which is the maximum term allowable under
Sec. 92.209(e)(2). The new Sec. 92.209(e)(3)(i)(C) also allows for
the amendment of the rental assistance contract when a family is moving
within the same building or development, but the parties to the lease,
family size, and the number of bedrooms are all the same. With respect
to Sec. 92.209(e)(3)(i)(C), the Department believes these are
reasonable restrictions on tenants and owners, as changes to the
parties to a lease, family size, and the number of bedrooms in a unit
are all significant enough such that allowing a PJ to amend an existing
rental assistance contract is not appropriate, and the PJ should
instead be required to enter into a new rental assistance contract with
the family and owner.
The new Sec. 92.209(e)(3)(ii) explains that, subject to the
availability of HOME funds, a rental assistance contract may be renewed
after the expiration of its initial term. The new Sec.
92.209(e)(3)(iii) explains that in all other instances, the PJ must
enter a new rental assistance contract with the family and owner in
accordance with Sec. 92.209(e). This includes when family size
changes, when the family moves to a different address with a different
owner, or when the number of bedrooms in the unit changes.
The Department explains the differences between when a new contract
must be entered, when a contract can be amended, or when a contract can
be renewed primarily to provide greater clarity in tenant-based rental
assistance requirements as well as to explain when an income
determination must be performed. The new paragraph (e)(4) whose header
is ``initial and subsequent income determinations'' explains that a PJ
must perform an income examination each time a new rental assistance
contract is entered into (see Sec. 92.209(e)(4)(i)) or renewed (see
Sec. 92.209(e)(4)(iii)). The Department believes that this change is
appropriate because it permits PJs to amend current rental assistance
contracts to extend their term to the maximum 24-month period without
requiring additional income examination, providing burden relief to
tenants receiving tenant-based rental assistance. The Department
declines to extend this burden relief to new rental assistance
contracts or renewals as material terms of the lease or the number of
persons in the housing are changing (in the case of new rental
assistance contracts) or the rental assistance contract is being
extended for more than twenty-four months (in the case of renewals). In
these situations, income should be redetermined because it factors so
heavily into the sizing of the rental assistance.
The Department is adding a new Sec. 92.209(e)(4)(iv) to explain
that if a family is participating in a HOME lease-purchase program and
receiving tenant-based rental assistance, then the family's income will
only be determined at the time of execution of the lease purchase
agreement. This is because the statute states that a family must be
income-eligible at the time the lease-purchase agreement is signed,\6\
and because this will better enable tenants to save up for the purchase
of the housing in accordance with the lease-purchase agreement and the
HOME lease-purchase program. This type of treatment is only when the
family is participating in a HOME lease-purchase program and not for
other non-HOME lease-purchase programs because those programs may have
different rules and restrictions, and their program design may vary
significantly from HOME requirements. In those instances where a family
is receiving tenant-based rental assistance and participating in a
lease-purchase program, the family's income will be examined when the
family enters into the rental assistance contract and again if the
family's assistance is renewed.
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\6\ See 42 U.S.C. 12745(b)(2)(B).
---------------------------------------------------------------------------
The Department is revising Sec. 92.209(g) to refer to Sec. 92.253
instead of specific paragraphs within Sec. 92.253. This is because
Sec. 92.253 has been revised to directly state its applicability to
tenant-based rental assistance and the requirements of the HOME tenant-
based rental assistance tenancy addendum. The Department is also
revising Sec. 92.209(h)(3)(ii) to better identify the Section 8
Housing Choice Voucher Program payment standard that may be used by a
PJ, which is the payment standard established in 24 CFR 982.503(a)
through (c) and not the exception payment standard established in 24
CFR 982.503(d). The exception payment standard is, by its nature, an
exception to the rule and the Department has not allowed its use in
HOME in the past. This change is therefore just a clarification of
HUD's existing interpretation of the HOME and Section 8 regulations.
The Department also made clarifying revisions to Sec. 92.209(j)(6)
to use the language ``[s]urety bonds, security deposit insurance, or
instruments similar to surety bonds or security deposit insurance . .
.'' instead of the proposed phrasing of ``[s]urety bonds or security
deposit insurance and similar instruments . . . .'' HUD believes that
this revision improves the clarity and readability of the paragraph.
Consistent with changes made throughout the section, the Department
is revising the last two sentences of paragraph (k) to reference
paragraph (e) and making technical revisions. The current provision
requires that a PJ enter into an agreement with either the owner or the
family. The final rule will require that the PJ enter into an agreement
with the owner and the family.
24 CFR 92.210 Troubled HOME-Assisted Rental Housing Projects
In response to public comment that suggested the Department was
establishing an unreasonably high bar to evidence that a HOME project
is no longer financially viable and able to obtain the relief in Sec.
92.210, the Department has revised and reorganized Sec. 92.210(a).
The first sentence in the paragraph remains unchanged from the
proposed rule. Revised Sec. 92.210(a)(1) now states that a project is
not financially viable through the period of affordability if one of
the conditions in Sec. 92.210(a)(1)(i)-(iii) exists.
In response to public comments, the Department provides in Sec.
92.210(a)(1)(i) that a project is no longer financially viable through
the period of affordability if the project's operating costs exceed its
operating revenue considering project reserves. The Department has
revised this sentence to remove the term ``significantly'' and to make
this and the other conditions listed in Sec. 92.210(a)(1)(i)-(iii) be
independent conditions. In Sec. 92.210(a)(1)(ii), the Department is
creating a new condition that the project is no longer financially
viable through the period of affordability if an owner is
[[Page 754]]
unable to pay for necessary capital repair costs or ongoing expenses
for the project. In the proposed rule, the owner being unable to pay
for necessary capital repair costs was another condition that needed to
be satisfied instead of an independent condition. However, given the
comments, the Department believed it was best to expand the ground to
include inability to pay operating expenses and to make the ground an
independent ground for demonstrating that a project is no longer
financially viable through the period of affordability.
Lastly, if project reserves are insufficient to operate the
project, then the Department also believes that the project is no
longer financially viable through the period of affordability and is
therefore making that a separate ground for relief under Sec.
92.210(a)(1)(iii). The Department also revised Sec. 92.210(a)(3) to
clarify that HUD may approve the actions in Sec. 92.210(b) and (c) to
``strategically preserve the affordability of a rental project.'' The
Department had proposed to add the modifier ``in preserving
affordability'' at the end of the sentence in the proposed rule but
believes it is better for readability to move the language to describe
the type of preservation action that is occurring for troubled housing
rental housing projects under Sec. 92.210. Similarly, the Department
is revising Sec. 92.210 to explain that the PJ may be permitted to
reduce the ``total'' number of HOME-assisted units or change the
designation of the units. This is a non-substantive clarifying change.
24 CFR 92.212 Pre-Award Costs
The Department revised Sec. 92.212(b)(2) to clarify the provision.
The provision, as proposed, had initially stated that, if a given
year's appropriation were not timely, then a PJ may incur
administrative and planning costs as of the earlier of the beginning of
their program year or the date that HUD receives the PJ's consolidated
plan. The provision then defined when an appropriation was not timely
as when it occurs less than ninety days before a PJ's program year
start date.
After further consideration, the Department decided that it is
inappropriate to characterize appropriations as timely or not timely in
a regulation. The Department also believed this language detracted from
the overall clarity of the provision. Instead, the last sentence is
being deleted and the first sentence is being revised to state that in
any year in which an appropriation is less than 90 days from a PJ's
program start date, the PJ may incur administrative and planning costs
as of the earlier of the beginning of their program year or the date
that HUD receives the PJ's consolidated plan. This is a clearer
sentence that doesn't characterize the timeliness of appropriations and
it aligns with the related final rule text in Sec. 570.200(h)(3).
24 CFR 92.214 Prohibited Activities and Fees
For certain paragraphs in Sec. 92.214, HUD made clarifying
revisions to use the language ``[s]urety bonds, security deposit
insurance, or instruments similar to surety bonds or security deposit
insurance . . .'' instead of the proposed phrasing of ``[s]urety bonds
or security deposit insurance and similar instruments . . . .'' HUD
believes that this revision improves the clarity and readability of the
paragraph. In response to public comment, HUD also clarified that HOME
rental housing project owners may not charge tenants fees for normal
wear and tear.
24 CFR 92.219 Recognition of Matching Contribution
HUD is revising Sec. 92.219(a)(4) to replace the term ``dwelling''
with the term ``housing.'' HUD is making this revision to standardize
the use of the term ``housing'' in part 92 and in response to
commenters that noted that the Department failed to make this
terminology replacement in the proposed rule. The Department also made
technical revisions to Sec. 92.221(b)(1) to remove a dash, add section
symbols, and add the word ``through'' when citing Sec. Sec. 92.218
through 92.221.
The Department is making conforming regulatory revisions to Sec.
92.219(b)(2)(ii) and (iii) to remove the pinpoint citations to Sec.
92.253(a)-(c) and (d)(2) and replace them with more general citations
to the tenant protection provisions, as the provisions have moved and
are now contained in the applicable tenancy addendum (HOME rental
housing tenancy addendum, HOME TBRA tenancy addendum, and HOME security
deposit assistance tenancy addendum). The Department also made non-
substantive revisions to Sec. 92.253(b)(2)(ii) for readability and to
reduce confusion. The revised provision explains that the written
agreement must impose and enumerate all requirements applicable to the
project, including affordability requirements in Sec. Sec. 92.252 or
92.254 (as applicable based on the type of project being carried out),
any applicable tenant protections due to operation of a rental housing
project (or lease-purchase project), any applicable property standards
based on the type of project (e.g., new construction, rehabilitation,
acquisition, etc.), and income determination requirements that apply to
the family through Sec. 92.203. The revisions of the section should
make it easier for PJs to know what items are necessary for the written
agreement, but no substantive changes were made from the current
requirements.
24 CFR 92.250 Maximum Per-Unit Subsidy Amount, Underwriting, and
Subsidy Layering
The Department received comments stating that a five percent
increase in the maximum per-unit subsidy was insufficient to cover the
associated costs with meeting nationally recognized green building
standards. In response, the Department is increasing the percentage in
the final rule up to ten percent in Sec. 92.250(c). The Department
understands that many commenters requested increases that were
significantly higher, especially in the context of rehabilitation. The
estimates provided by commenters ranged significantly from ten percent
to well over twenty-five percent depending upon the market, the
standard the project owner is attempting to meet, and whether the
project was new construction or rehabilitation. The Department
understands that rehabilitation of existing housing units and meeting
significantly higher energy efficiency thresholds than what is required
under section 212(e) of the Act can add significantly higher costs.
However, the Department must balance the benefits from more
sustainable, energy-efficient housing against the potential that fewer
units will be created or fewer families served if the subsidy increased
beyond ten percent. Given the level of annual appropriations that the
HOME program receives, the Department believes it can only move to ten
percent at this time but will reevaluate in the future.
24 CFR 92.251 Property Standards and Inspections
A. Carbon Monoxide and Smoke Detection
In response to public comments on carbon monoxide and smoke
detection, including comments received in response to specific
solicitation of comment #3, which requested comment from the public on
new requirements for smoke alarms, the Department is making revisions
to Sec. 92.251(a)(3)(vi), Sec. 92.251(b)(1)(xi), Sec. 92.251(c)(3),
and Sec. 92.251(f)(1)(iv).
[[Page 755]]
First, the Department is adding the carbon monoxide requirement
applicable to the Section 8 voucher program as a new requirement for
the HOME program at Sec. 92.251(a)(3)(vi)(A), Sec.
92.251(b)(1)(xi)(A), and Sec. 92.251(f)(1)(iv)(A), which HUD will more
fully describe through a publication in the Federal Register. The
Department is also revising Sec. 92.251(c)(3) to reference the
requirement at Sec. 92.251(b)(1)(xi)(A) and revising Sec.
92.251(f)(1)(i) to clarify that the carbon monoxide requirements in 24
CFR 5.703 do not apply because the ones in Sec. 92.251(f)(1)(iv)(A)
apply instead.
Second, the Department is adding smoke detection requirements to
Sec. 92.251(a)(3)(vi)(B), Sec. 92.251(b)(1)(xi)(B), and Sec.
92.251(f)(1)(iv)(B). The Department is also revising Sec. 92.251(c)(3)
to reference the requirement in Sec. 92.251(b)(1)(xi)(B). The revised
smoke detection requirements are tailored to the type of HOME activity
and work being performed, based on public comments and informed by
implementation considerations.
For new construction projects under Sec. 92.251(a)(3)(vi)(B)(1), a
hardwired smoke detector must be installed on each level of each
housing unit, in or near each sleeping area in each housing unit, in
the basement of each housing unit, and in each common area of a
project. However, a hardwired smoke alarm is not required in crawl
spaces or unfinished attics of housing units. In addition, a hardwired
smoke detector must also be installed within 21 feet of any door to a
sleeping area measured along a path of travel and, where a smoke alarm
installed outside a sleeping area is separated from an adjacent living
area by a door, a smoke alarm must also be installed on the living area
side of the door. The Department believes that it is appropriate to
require that the smoke alarm be hardwired, as HOME funds are being used
in the new construction of the projects and therefore the building
designs and electrical systems can be tailored to meet the HOME
requirements.
In response to HUD's consideration of public comments, the
Department added Sec. 92.251(a)(3)(vi)(B)(4) to establish that
following the relevant specifications of either the International Code
Council (ICC) or the National Fire Protection Association (NFPA)
Standard 72 satisfies the requirements of Sec. 92.251(a)(3)(vi)(B).
Originally, the Department considered only codifying installation in
accordance with the NFPA Standard 72 but received comments urging the
Department to make its revisions consistent with the U.S. Housing Act
of 1937, as amended by the Consolidated Appropriations Act, 2023 (Pub.
L. 117-328, div. AA, title VI, Sec. 601)). The Consolidated
Appropriations Act, 2023 requires that units occupied by tenants living
in public housing, living in units and receiving Section 8 Housing
Choice Vouchers, or living in unit that receives project-based
assistance comply with the applicable codes and standards published by
the International Code Council or the National Fire Protection
Association and the requirements of the National Fire Protection
Association Standard 72 or any successor standard. Therefore, the
Department is codifying Sec. 92.251(a)(3)(vi)(B)(4) to allow property
compliance with either standard for new construction in the HOME
program which is consistent with other HUD programs.
The Department also added paragraph (a)(3)(vi)(B)(2) to require
that smoke alarms have an alarm system designed for hearing-impaired
persons. The Department is adding this language to ensure that
individuals with hearing impairments are adequately warned in the event
of smoke or a fire. The addition of this paragraph also makes the
requirements of this section more consistent with the requirements
contained in the Consolidated Appropriations Act, 2023.
The Department also added paragraph (a)(3)(vi)(B)(3) to describe
that the Secretary may establish additional standards related to Sec.
92.251(a)(3)(vi)(B) through a publication in the Federal Register.
Additionally, the Department considered requiring hardwired smoke
detectors for rehabilitation projects but understood that
rehabilitation projects may require different considerations. As a
result, while the Department is adopting the same requirements from
Sec. 92.251(a)(3)(vi)(B) for Sec. 92.251(b)(1)(xi)(B). In addition,
the Department is also adding Sec. 92.251(b)(1)(xi)(B)(4), which will
allow a PJ to provide a written exception to an owner to allow the
owner to install a smoke detector that uses 10-year non rechargeable,
nonreplaceable primary batteries as long as the smoke detector is
sealed, tamper-resistant, contains a means to silence the alarm, and
otherwise complies with the requirements of this section. This relief
may only be provided where the use of hardwired smoke detectors places
an undue financial burden on the owner or is infeasible. It is the PJ's
responsibility for making and documenting this determination for their
records. The Department is declining to define the terms ``undue
financial burden'' or ``infeasible'' because it believes that PJs
should have the flexibility to develop their own standards and to make
their own determinations based on the fact-specific circumstances.
For homeownership activities, the Department is revising Sec.
92.251(c)(3) to require that housing acquired for homeownership meet
the same carbon monoxide and smoke detection requirements required
under Sec. 92.251(b)(1)(xi). And, similar to the exception that the
Department is allowing at Sec. 92.251(b)(1)(xi)(B), the Department is
allowing a PJ to provide a written exception to an owner to allow the
owner to install a smoke detector that uses 10-year non rechargeable,
nonreplaceable primary batteries as long as the smoke detector is
sealed, tamper-resistant, contains a means to silence the alarm, and
otherwise complies with the requirements of this section. The
Department is also requiring that the same grounds which justify an
exemption from being required to use hardwired smoke detectors, i.e.,
undue financial burden, be the applicable grounds in Sec.
92.251(c)(3).
Finally, as for the ongoing property standards for existing rental
housing projects and the property standards for tenant-based rental
assistance, the Department is creating new requirements in Sec.
92.251(f)(1)(iv)(B), which will mandate that smoke detectors meet the
standards in 24 CFR 5.703(b) and (d). These are the NSPIRE smoke
detection standards that apply to the Section 8 program and elsewhere.
The Department believes it is appropriate to treat existing rental
housing and units with tenants receiving tenant-based rental assistance
the same as those receiving Section 8 HCV assistance or project-based
Section 8 assistance, as these programs are sufficiently similar.
For these existing rental housing units and units with tenants
receiving tenant-based rental assistance, the inside area must include
at least one battery-operated or hard-wired smoke detector, in proper
working condition, on each level of the property. For the unit, there
must be at least one battery-operated or hard-wired smoke detector, in
proper working condition on each level of the unit, inside each
bedroom, within 21 feet of any door to a bedroom measured along a path
of travel, and where a smoke detector installed outside a bedroom is
separated from an adjacent living area by a door, a smoke detector must
also be installed on the living area side of the door. Additionally, if
the unit is occupied by any hearing-
[[Page 756]]
impaired person, the smoke detectors must have an alarm system designed
for hearing-impaired persons. For both the inside area of the building
and the unit, the Secretary is able to establish additional standards
through Federal Register publication.
B. Accepting NSPIRE Inspections
The Department is revising Sec. 92.251(b)(1)(viii)(A), Sec.
92.251(f)(3)(i)(B), and Sec. 92.251(f)(4)(ii) in response to
commenters that stated HUD should not restrict the acceptance of NSPIRE
inspections to only those made under another HUD program. The
Department understands that there are other projects using non-HUD
funding, such as LIHTC projects, that may use inspections to the NSPIRE
standards to demonstrate compliance with the requirements for those
funding sources. The Department will allow a PJ to accept inspections
to the NSPIRE standards or another alternative inspection standard HUD
may establish through Federal Register publication. The inspections
must be in satisfaction of another funding source's requirements and
conducted within the timeframes established for the applicable
regulations.
C. Meeting Property Standards After Acquisition of Homeownership
Housing
In response to comment, the Department is revising Sec.
92.251(c)(3)(ii)(C) and adding Sec. 92.251(c)(3)(ii)(D) to give PJs
the ability to provide homebuyers an extension of the six-month
deadline for bringing a substandard homeownership unit into compliance
with the PJ's property standards.
While the Department strongly encourages PJs to provide
homeownership assistance to homebuyers purchasing housing that already
meets their property standards, this is not always possible. Because
there will be times where homebuyers wish to purchase properties that
do not meet the PJ's property standards, the Department is revising its
regulations to be flexible enough to allow PJs and homebuyers to bring
a unit up to the PJ's property standards after purchase.
The Department continues to believe that six months is the
appropriate amount of time to provide a homebuyer to comply with a PJ's
property standards. However, every construction project is different,
and each jurisdiction has local requirements for permitting. In the
past, due to national emergencies or disasters, homebuyers have also
been affected by materials shortages. Therefore, in light of the
variety of factors that can affect even minor repairs needed to bring a
unit up to a PJ's property standards, the Department's revisions to
Sec. 92.251(c)(3)(ii)(C) and addition of Sec. 92.251(c)(3)(ii)(D)
will allow PJs to provide homebuyers an extension lasting up to 12
months from the date of acquisition with HOME funds to bring their unit
up to the PJ's property standards. If an extension is granted, the PJ
must inspect the unit within 12 months of acquisition and determine
that it meets the PJ's property standards.
D. Clarifying the Application of Property Standards
In response to public comments requesting clear requirements for
when a unit must be inspected under the new construction property
standards and when a unit must be inspected under the PJ's
rehabilitation standards, the Department is adding a new Sec.
92.251(d) that explains that if a project includes both rehabilitation
of housing units and either new construction or reconstruction of
housing units, then the PJ must apply the rehabilitation standards to
the housing units that are rehabilitated and the new construction
requirements to housing that is either newly constructed or
reconstructed.
E. Sample Size for Property Inspections
The Department solicited comment on the correct sample size for
HOME project inspections in specific solicitation #4 of the proposed
rule. After considering the comments received in response to this
solicitation, the Department developed a chart that will provide
greater clarity on how many units must be inspected in a project based
on the number of HOME-assisted units within the project. Accordingly,
the Department is revising Sec. 92.251(f)(3)(iii) to require that
inspections be performed in accordance with the chart. The Department
is also adding clarifying text to indicate that the PJ must inspect the
inspectable areas for each building containing HOME-assisted units and
not just the units themselves.
To determine the appropriate sample size for each project, the
Department started with its minimum requirement that four units be
inspected for all projects that have up to twenty units. This is
because all units in small-scale housing (1-4 unit projects) must be
inspected once every three years, and projects of a larger size should
not be required to inspect fewer units than a small-scale housing
project. This is counter to the statutory intent of the monitoring
flexibilities provided for small-scale housing projects.\7\
Additionally, the Department examined other sampling techniques in
response to public comment, including the LIHTC and NSPIRE sampling
methods (see 26 CFR 1.42-5 for LIHTC and 88 FR 43379 and 43380 for
NSPIRE). The Department found that even with the four-unit minimum
sample size requirement for projects with up to twenty units, HOME was
still less burdensome than other programs and required fewer units to
be inspected than did other programs.
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\7\ See 42 U.S.C. 12756(c).
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The Department has therefore adopted its proposal for a 20 percent
sample for projects containing between twenty and one hundred and
thirty HOME units. Then, in response to comments requesting that the
Department provide burden relief similar to that provided in LIHTC or
HUD programs subject to NSPIRE, the Department adopted the sampling
method that it uses under NSPIRE for projects containing greater than
one hundred and thirty units. The Department believes that this
approach strikes the correct balance by providing burden relief for
smaller and larger projects while still requiring an appropriate amount
of unit inspections occur. It also provides a clearer standard for PJs
because the unit sampling for the inspection is not required to be
based on a statistically valid sample.
F. Miscellaneous Revisions to Sec. 92.251
The Department is adding State and local requirements back into
Sec. 92.251(a)(3)(iii), which lists the various standards that housing
must, where relevant, meet with respect to disaster mitigation. The
Department believed it had provided clarifying technical revisions to
this section, but did not mean to remove any additional requirements
not contained in State and local codes or ordinances from the list of
applicable standards. The Department also did not intend to change the
meaning of that provision in any other way.
The Department is revising paragraph (a)(3)(iv) to make the
requirement described in that paragraph more consistent with the
requirements in Sec. 92.504(c). Instead of requiring that a PJ ensure
construction contracts and documents describe the work to be
undertaken, the PJ must require this to be the case. This non-
substantive change will increase clarity and will make the language in
paragraph (a)(3)(iv) consistent with that of the monitoring
requirements provided in the written agreement provisions in
[[Page 757]]
Sec. 92.504 and of the cost principles contained in 2 CFR part 200,
subpart E.
The Department is revising Sec. 92.251(a)(3)(vii) to state that
the green building standards will be published through a Federal
Register publication.
Similar to how the Department is revising Sec. 92.251(a)(3)(iv) to
make the requirements in this section more consistent with the
requirements in Sec. 92.504(c), the Department is also revising Sec.
92.251(b)(2). Instead of requiring a PJ to ``ensure'' that construction
meet the PJ's rehabilitation standards, the PJ must ``require'' this to
be the case. This is already required in other regulations including
the monitoring requirements provided in the written agreement
provisions in Sec. 92.504 and the cost principles contained in 2 CFR
part 200, subpart E, and so is a non-substantive change made to
increase clarity. Sec. 92.251(b)(1)(vi) is being revised to align the
language with the same language contained in Sec. 92.251(a)(2)(iii).
24 CFR 92.252 Qualification as Affordable Housing: Rental Housing
In response to public comment, the Department has determined that
the rent limits do not apply to Federal, State, or local rental
assistance or subsidy payments and is revising the third sentence of
Sec. 92.252(a) accordingly. The Department also revised the first
sentence of Sec. 92.252(a)(1) to state that if a family is
participating in a program where the person pays thirty percent of
their monthly adjusted income or ten percent of their monthly income as
a contribution to rent, then the maximum rent due from the family is
the family's contribution under that program. Commenters requested
clarity on whether an owner could accept the full contract rent for a
tenant in a HOME-assisted rental housing unit that was also receiving
Section 8 or other forms of rental assistance even if the tenant was
low-income and governed by the High HOME Rent provisions of Sec.
92.252(a)(1).
After careful consideration, the Department determined that the
changes in the Housing and Economic Recovery Act of 2008 (HERA) (Pub.
L. 110-289, 122 Stat. 2654, approved July 30, 2008) not only revised
the Section 8 statute, but fundamentally changed the relationship
between the two programs. It is clear from HERA that the HOME Rent
Limits were not meant to apply to recipients of Section 8 assistance or
similar recipients of rental assistance or living in subsidized units.
Prior to the passage of HERA, the only way that the Secretary was
permitted to increase the rent limits was provided by 42 U.S.C.
12745(a)(1)(A). After passage of HERA, HUD determined the Secretary
could also make such determination based upon misalignment between HOME
rent requirements and the rent requirements of Section 8 and other
similar rental assistance or subsidy programs. The Secretary determined
that this change is appropriate and promotes greater alignment between
the HOME program and HUD's other rental assistance programs and is
revising Sec. 92.252(a)(1) and Sec. 92.252(a)(2) accordingly. Where a
family is participating in a program where the family pays as a
contribution toward rent no more than thirty percent of the family's
monthly adjusted income or ten percent of the family's monthly income,
then the maximum rent due from the family is the family's contribution,
regardless of whether the family is occupying a High or Low HOME Rent
unit. Thus, under the HOME program as changed by HERA, the HOME-
assisted rental housing project owner may now accept the rent due from
the tenant and the assistance or subsidy payment made under the
applicable assistance or subsidy program.
The Department is revising Sec. 92.252(a)(2)(i) to clearly
reference the fair market rent being described in Sec. 92.252(a)(1)(i)
and to revise the term ``fair market value'' to ``fair market rent'' to
more accurately describe the rent. Sec. 92.252(a)(2)(ii) is also being
revised to more accurately state that the rent contribution of the
family in a Low HOME rent unit is 30 percent of the family's adjusted
income. This is not a substantive change from the proposed rule or the
current regulatory text, but it is a more accurate description of the
Low HOME rent applicable to a family.
In response to comments about aligning with LIHTC on income and
rents, the Department is adding the statutory language contained in 42
U.S.C. 12745(a)(1)(B)(ii) into the new Sec. 92.252(a)(2)(iii). The
provision will state that if a HOME-assisted unit ``is a LIHTC unit and
has rents not greater than the gross rent for rent-restricted
residential units as determined under section 42(g)(2) of title 26''
then it shall be a Low HOME Rent unit.
The Department is revising Sec. 92.252(a)(3)(i) and (ii) to add
explicit reference to how the zero-bedroom fair market rent is
determined. This rent is established under 24 CFR part 888. In revising
the rent limits, the Department also realized the requirement in Sec.
92.252(a)(3)(ii), which currently requires that SRO units without
sanitary or food preparation facilities meet the occupancy requirements
of Low HOME rent units, could be identified in plain language. Instead
of referring to the occupancy requirements, the provision is being
revised to explain that the units are to be occupied by very low-income
tenants. This is a non-substantive change to provide a clearer
regulation.
In response to public comments received, HUD is clarifying in Sec.
92.252(b) that ``cable and broadband'' are not included in utility
allowances. Commentors asked for clarity regarding whether broadband is
a utility and whether tenants can be required to pay for cable and
broadband as a condition of occupying a HOME-assisted rental housing
unit. The Department agrees the regulation could be clearer and
included language in Sec. 92.252(b) to clarify that in addition to
telephone, ``cable and broadband'' are not included in utility
allowances.
Paragraph Sec. 92.252(b) was also revised to add the term
``applicable'' when describing local public housing authority utility
allowances. The Department understands multiple public housing
authorities may serve a particular geographic location (e.g., State,
county, city, etc.) and the Department believes that the public housing
authority providing Section 8 project-based voucher assistance (if the
project is assisted) or the one serving the jurisdiction that the PJ
believes is most reflective of the utility consumption in the community
in which the project is located should be the one used for the HOME
project.
The Department is making a non-substantive change to replace the
word ``ensure'' with ``require'' in Sec. 92.252(c). This change better
explains the requirement that PJs must not allow owners to charge
tenants in excess of the rents in Sec. 92.252.
The Department is revising the dollar thresholds that define the
periods of affordability in Sec. 92.252(d) in response to public
comments. Commenters stated that the thresholds had not been adjusted
for inflation and the increase in the cost of construction. The
Department agrees that the thresholds have not been revised since 1991
and must be revised to account for the increase in costs.\8\ See 42
U.S.C. 12745(a)(1)(E) of the Act. requires that HOME projects ``will
remain affordable, according to binding commitments satisfactory to the
Secretary, for the remaining useful life of the property, as determined
by the Secretary, without regard to the term of the mortgage or to
transfer of ownership, or for such other period that the Secretary
determines is the longest feasible period of time
[[Page 758]]
consistent with sound economics and the purposes of this Act . . .''
The Department cannot adjust the thresholds to fully account for the
differences in inflation \9\ because the Department must balance the
need for adjusting the periods of affordability to account for the
increase in costs (i.e., sound economics) with the purposes of the Act,
which are to produce and maintain affordable housing units.\10\ Given
the significant decrease in appropriations that the HOME program has
had in both real and inflation-adjusted dollars since the inception of
the current dollar thresholds, the Department can only revise the
thresholds to partially account for the increase of costs.\11\
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\8\ The HOME thresholds came into effect in 1991 (see 56 FR
65312-01).
\9\ By one measure, the Consumer Price Index, the dollar has
increased by over 200% since the establishment of the dollar
thresholds used to determine the period of affordability for the
HOME program. See the CPI Inflation Calculator at https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1%2C000%2C000.00&year1=199201&year2=202310.
\10\ See 42 U.S.C. 12722(1) and (7).
\11\ In 1992, the Department was appropriated $1,500,000,000 for
HOME, the first year of annual appropriations for the program. (See
105 STAT. 744 for Pub. L. 102-139). For Fiscal Year 2024, the
Department received $1,250,000,000 for HOME. In current dollars,
this is a decrease in investment in affordable housing of only
$250,000,000 but when using the Consumer Price Index to calculate
the inflation-adjusted decrease, it is a decrease of over 50% of the
initial investment made in affordable housing.
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Accordingly, the Department will revise the initial threshold for
rehabilitation or acquisition of existing housing per-unit amount of
HOME funds from $15,000 to $25,000. If the per-unit cost of
rehabilitation and/or acquisition of existing housing is below $25,000,
then the minimum period of affordability for each HOME-assisted housing
unit is five years. The Department is revising the second threshold
from $40,000 to $50,000. If the per-unit cost of rehabilitation and/or
acquisition of existing housing is from $25,000 to $50,000, then the
minimum period of affordability shall be ten years for each HOME-
assisted rental housing unit. For rehabilitation and/or acquisition of
existing housing, if the per-unit cost is over $50,000 for each HOME-
assisted rental housing unit, then the minimum period of affordability
is fifteen years.
While the Department is revising the dollar thresholds for the
periods of affordability involving rehabilitation and/or acquisition,
the Department has chosen to maintain the period of affordability for
new construction and for rehabilitation involving refinancing. The
Department believes that the useful life of the property or the longest
feasible period of time is consistent with sound economics and the
purposes of this Act is still twenty years for HOME rental housing
projects involving new construction. Similarly, the Department believes
that properties where rehabilitation involves refinancing should also
continue to be subject to a period of affordability of fifteen years,
as the refinancing and rehabilitation of the property to the PJ's
rehabilitation standards should adequately extend its useful life to a
period of fifteen years. If the rehabilitation and refinancing action
cannot ensure that the property remains capable of operating as
affordable housing for a period of fifteen years, then the project is
not feasible or furthering the purposes of the Act.
The Department is revising the first sentence of Sec. 92.252(g)
and Sec. 92.252(g)(3) to include reference to the new safe harbor in
Sec. 92.203(a)(3). This revision allows a PJ to use the safe harbor in
Sec. 92.203(a)(3) in the calculation of both initial and annual income
determinations instead of using source documents, as required in Sec.
92.203(b)(1)(i). The Department is also revising the first sentence of
Sec. 92.252(g) to reference income provisions for HOME tenant-based
rental assistance tenants, which have been moved to Sec. 92.203(b)(3)
from Sec. 92.203(b)(2).
The Department is revising Sec. 92.252(g)(1) to provide a chart
clarifying the alternative income reexamination cycle for small-scale
rental projects that a PJ may permit. The Department is also revising
Sec. 92.252(g)(2) to specify that rental projects, including small-
scale projects, must reexamine tenant income using source documentation
every sixth year of the period of affordability.
The Department is revising Sec. 92.252(h)(2)(i) for readability by
striking ``section 42'' and instead stating that over-income tenants
subject to the rent restrictions under section 42 of the Internal
Revenue Code of 1986 must pay a rent that complies ``with that
section.'' This is clearer and less wordy. The Department is adding a
new paragraph Sec. 92.252(h)(2)(iii) that will explain that rent
limits do not apply to rental assistance or subsidy payments under any
Federal, State, or local rental assistance or subsidy program. This is
because when tenants become over-income in certain rental assistance
programs, such as the Housing Choice Voucher program, the tenant still
pays a percentage of their rent, such as thirty percent of their rent,
up to the contract rent for the housing unit. This means that there may
still be subsidy or assistance from the rental assistance provider
until the tenant is paying the full contract rent. If owners were
unable to accept this rent, then it would undermine the purposes of
HERA, as explained earlier for High and Low HOME Rents. As such, the
Department providing the same clarification it did in paragraph Sec.
92.252(a), which is that the rent does not include the rental
assistance provided by the rental assistance or subsidy provider.
Paragraph Sec. 92.252(i) was revised similar to other provisions
to state that surety bonds, security deposit insurance, or instruments
similar to surety bonds and security deposit insurance may not be used
in lieu of or in addition to a security deposit in HOME-assisted units.
This is a clarifying change for readability and not a substantive
change from the proposed rule.
24 CFR 92.253 Tenant Protections and Selection
The Department is making significant changes to its tenant
protection provisions in response to public comment. Based on comments
received as part of the specific solicitation of comment #10, the
Department has chosen to create three tenancy addenda for the HOME
program, one for each type of HOME rental activity (rental housing,
tenant-based rental assistance, security deposit assistance only). The
requirements for each addendum shall be provided in paragraphs (b)-(d)
accordingly. The Department is also reorganizing the tenant protections
regulations by removing the current security deposit and termination of
tenancy provisions found in paragraphs (c) and (d) and instead placing
them directly into the applicable tenancy addendum. The Department
believes these changes allow HUD to tailor the protections to the form
of assistance being received under the HOME program and should decrease
any potential chilling effects that an addendum may have on private
owners accepting tenants with HOME tenant-based rental or security
deposit assistance.
The Department also believes reorganizing the tenant protections to
include the security deposit requirements and termination of tenancy
provisions into the applicable tenancy addenda for rental housing and
tenant-based rental assistance is more legally supportable and
consistent with other HUD programs. Section 42 U.S.C. 12755(a)(1)
provides an explicit congressional delegation of authority to the
Secretary to determine the terms and conditions of leases in the HOME
program. Security deposit requirements and termination of tenancy
provisions are material terms to a lease and other
[[Page 759]]
HUD programs include specific provisions addressing each in their
tenancy addenda, including in the Section 8 voucher programs.\12\ The
Department believes this is the most legally sound way of requiring PJs
and owners to comply with the tenant protections and that it will
better enable beneficiaries of HUD programs to assert their legal
rights and defenses. Commenters had also specifically requested that
the Department add the security deposit provisions within the tenancy
addendum, as those are traditionally contained in a lease, and the
Department agrees.
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\12\ See HUD Form 52641A for the Housing Choice Voucher Program
Tenancy Addendum and Form HUD 52530.c for the Section 8 Project-
based Voucher Program Tenancy Addendum.
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Accordingly, the Department is revising paragraph Sec. 92.253(a)
by adding a ``(1)'' after lease contents and redesignating Sec.
92.253(a)(1)-(4) as Sec. 92.253(a)(1)(i)-(iv). Paragraph Sec.
92.253(a)(1)(iv)(A) shall also be revised to require that a lease of a
tenant in HOME rental housing include the HOME rental housing tenancy
addendum described in Sec. 92.253(b). Paragraph Sec.
92.253(a)(1)(iv)(B) is being added and shall require that a lease of a
tenant in HOME tenant-based rental assistance include the HOME tenant-
based rental assistance tenancy addendum described in paragraph Sec.
92.253(c).
A separate paragraph Sec. 92.253(a)(2) is being added and shall
provide the lease requirements for security deposit assistance only
recipients. After reviewing the comments received as part of the
solicitation of public comment, the Department determined that it was
not appropriate to require that tenants and owners use the HOME tenant-
based rental assistance tenancy addendum. Security deposit assistance
is fundamentally different than other forms of assistance under the
HOME program. It is a one-time form of assistance that is inherently
short-term in nature. The assistance is primarily intended as a form of
emergency assistance for families whose primary barrier to obtaining
housing is the security deposit. Many times, this assistance is also
paired with long-term assistance in other programs that comes with
their own protections. The HOME tenant-based rental assistance tenancy
addendum contemplates a contractual relationship between the PJ and the
owner because of the updated rental assistance contract requirements
contained in Sec. 92.209(e). Security deposit assistance, in contrast,
is of limited duration, lasting only the issuance of the initial
assistance.
Instead of requiring the HOME tenant-based rental assistance
tenancy addendum, the Department is requiring a security deposit
assistance tenancy addendum. Paragraph Sec. 92.253(a)(2) shall require
a written lease between the tenant and the owner that is for a period
of not less than 1 year, unless by mutual agreement between the tenant
and the owner, a shorter period is specified. This mirrors the
requirements for both rental housing and tenant-based rental
assistance. Likewise, to determine that the HOME security deposit
assistance tenancy addendum is included in the lease, the owner must
also provide the PJ with a written lease before security deposit
assistance is provided. This mirrors the new requirements for both
rental housing and tenant-based rental assistance. Then, the paragraph
requires that the lease contain the HOME security deposit assistance
tenancy addendum in paragraph (d) of this section.
The Department received a significant amount of comment on its
proposed tenant protections that represented a spectrum of participants
in the HOME program including PJs, owners, CHDOs, tenant rights and
advocacy organizations, fair housing and civil rights organizations,
and associations. These comments ranged from unqualified support to
complete opposition. The Department considered the comments and
determined that the vast majority of its proposed text was appropriate
for a rental housing tenancy addendum. However, based on public comment
and the reorganization of the regulation, the Department did make a
number of revisions since the proposed rule stage.
The introductory text in Sec. 92.253(b) has been clarified to
indicate that the tenancy addendum being described is the HOME ``rental
housing'' tenancy addendum. The second sentence was also revised to
include addenda from local affordable housing programs in addition to
other Federal or State affordable housing programs. The Department did
not intend to inadvertently exclude HOME-assisted tenants from
receiving other forms of local affordable housing assistance and
believes this revision is responsive to public comments that warned HUD
not to create conflicts with local programs. Paragraph (b)(1)(ii)(A) is
being revised to clarify that with respect to maintenance and repairs
to a housing unit, the owner shall provide tenants with written
expected timeframes for maintaining or repairing units as soon as
practicable. A written record is more protective of a participating
jurisdiction, owner, and tenant alike, as it provides each clear
evidence of when work is expected to occur.
The Department is revising paragraph (b)(2)(i) because while it is
true that a family may reside in the unit with a foster child, foster
adult, or live-in aide, the family must still comply with all
applicable occupancy requirements when living in HOME-assisted rental
housing. The Department did not intend to preempt or override State or
local occupancy laws or HUD's own occupancy restrictions in other
programs whose assistance may be combined with HOME assistance, such as
Section 8 project-based rental assistance. The Department notes that
any reasonable accommodations must still be made in accordance with all
applicable laws regarding nondiscrimination and accessibility. In Sec.
92.253(b)(5), the owner is separately agreeing not to interfere with or
retaliate against the tenant for asserting their rights, which include
the right to request a reasonable accommodation for a live-in aide. In
Sec. 92.253(b)(8), the owner is also agreeing to operate HOME rental
housing in accordance with all applicable nondiscrimination and equal
opportunity requirements pursuant to Sec. 92.350. As a result, the
Department does not believe that this revision will negatively impact
tenant protections. This revision was made in response to public
comments that requested HUD reexamine the tenant protections to
determine that they did not conflict with State or local law or with
other Federal programs.
The Department is revising the term ``dwelling'' to ``housing'' in
Sec. 92.253(b)(2)(iii), (b)(2)(iii)(A), and (b)(2)(iii)(C). The
Department is also revising Sec. 92.253(b)(2)(iii)(C) in response to
public comment urging HUD to require that owners provide tenants with
written notice of the date, time, and purpose of the owner's entry if
the owner must enter the housing without advance notification when
there is reasonable cause to believe that an emergency requiring entry
to the unit exists. The commenter was supportive of this approach and
believed it would be protective for the tenant. The Department agrees
and believes this provision will improve communication between owners
and tenants of HOME-rental housing.
In response to public comment, the Department is revising Sec.
92.253(b)(3)(i) to require that owners provide tenants with written
accessible notice of the specific grounds for proposed adverse actions
by the owner against the tenant before taking such actions. The
[[Page 760]]
Department had proposed to provide this as simply a notification
requirement. One commenter recommended that instead, the Department
revise the provision to make the adverse action itself contingent upon
providing the tenant notice. The Department believes this is a sensible
approach and that it may enable tenants to assert any rights or
protections prior to the imposition of any charges or other adverse
actions. In revising Sec. 92.253(b)(3)(i), the Department is also
clarifying that the notification of the adverse action must be
translated if required for the tenant to understand the notice. Tenants
and owners have an existing landlord-tenant relationship and so it
should not be overly burdensome to ensure that tenants are able to read
the written notice in a language they can understand. Similar changes
were made to Sec. 92.253(c)(3)(i).
The Department is also revising Sec. 92.253(b)(3)(ii) to more
clearly state when tenants must be notified of changes in the ownership
and management of the rental housing project. Paragraph Sec.
92.253(b)(3)(ii)(A) will specify that an owner must notify tenants
within 30 calendar days of the impending sale or foreclosure of a
rental housing project. Paragraph Sec. 92.253(b)(3)(ii)(B) specifies
that owners must notify tenants within five business days of a change
in ownership. These requirements were both in the proposed rule. The
Department added as a new requirement that owners not only notify
tenants within five business days of any changes in ownership but also
any changes in property management companies managing the property as
Sec. 92.253(b)(3)(ii)(C). This change, being made to was in response
to public comments that believed that such notification should include
property managers and not just owners. Property managers have
significant involvement in the operation of the property and are agents
or employees acting on behalf of HOME rental housing owners. When an
owner obtains a different property management company, it can have
significant impacts on the daily life of tenants. The Department
believes it is important to keep tenants informed in advance of such
impacts and that this improved communication may help both owners and
tenants. Similar additions are made to Sec. 92.253(c)(3)(ii).
The Department is revising Sec. 92.253(b)(4)(v) to narrow the
instances in which a tenant must pay an owner's attorney fees or other
legal costs as part of a court proceeding. In the proposed rule, the
Department proposed language to allow payment of such costs if the
tenant loses the court proceeding. In response to public comment
stating that the Department should examine local and State laws to
determine that the tenant protections in Sec. 92.253 are not in
conflict with such requirements, the Department determined that this
provision may conflict with State or local laws that would not permit
payment of attorney's fees or other legal costs, even if the tenant
were to lose the matter. Moreover, as courts hearing landlord-tenant
disputes are making findings of fact and law based on the individual
circumstances of each case, it should be up to those courts to
determine whether tenants should pay these costs. Therefore, the
revised requirement will state that a tenant is only required to pay
the owner's attorney fees or other legal costs if the tenant loses the
court proceeding and the court orders the tenant to pay those costs.
The Department is significantly revising Sec. 92.253(b)(5) to
address a number of comments received about the effectiveness of the
provisions in protecting tenants. First, the heading for the section is
being revised to explicitly include ``unreasonable interference'' to be
clear that unreasonable interference with the tenant's safety or
peaceful enjoyment of their property is a subject of the provision and
that the provision is not only prohibiting retaliation. Commenters
reasonably believed that the section was only describing retaliation
because the heading did not specify otherwise. Similarly, unreasonable
interference is now being separately prohibited in Sec.
92.253(b)(5)(i). The terminology is also being revised from the
proposed rule to remove the term ``comfort'' and instead state
``tenant's safety or peaceful enjoyment of a rental unit or the common
areas of the rental housing project.'' The Department recognizes that
there is significant landlord-tenant case law on the term ``peaceful
enjoyment'' and that it is a far more recognized term than
``enjoyment.'' The Department believes this change will improve the
ability for courts to determine the meaning of the provision in
relation to their jurisdictions and governing law. The revision to
address common areas also reflects consistency with protections in
Sec. 92.253 that allow tenants reasonable access to and use of the
common areas of the project (see Sec. 92.253(b)(2)(iv)).
The Department then revised Sec. 92.253(b)(5)(ii) to prohibit an
owner from retaliating against a tenant for taking any action allowable
under the lease and applicable law. The rule provides a variety of
actions that a tenant may take under a lease and the Department
believes that retaliating against a tenant for using any of these
protections is a breach of the lease and of the owner's written
agreement with the participating jurisdiction. Section
92.253(b)(5)(iii) provides a list of actions that evidence unreasonable
interference or retaliation against a tenant. The Department stresses
that this language is providing examples and that it is not a limited
list. The actions taken are the same actions that were prohibited in
the proposed rule, but the list has been redesignated Sec.
92.253(b)(5)(iii)(A)-(E), and Sec. 92.253(b)(5)(iii)(B) has been
revised to add a parenthetical to give an example of what it means to
be increasing obligations of a tenant in a manner that is not in
accordance with 24 CFR part 92. The example given is of new or
increased monetary obligations, such as the addition of new or
increased fees. This is just an example of monetary obligations but
nonmonetary obligations like new property rules could also be
considered retaliatory acts under this regulation under the right
circumstances.
In response to public comments requesting that the Department
specify the consequences of unreasonably interfering with a tenant's
safety or peaceful enjoyment or retaliating against a tenant for
exercising a right under their lease or the law, the Department has
added a new Sec. 92.253(b)(5)(iv). This new provision explains that if
an owner unreasonably interferes or retaliates against a tenant, then
the owner is violating the lease, the HOME program requirements, and
their written agreement with the participating jurisdiction. While the
Department has no authority to require that a participating
jurisdiction establish a grievance process, the participating
jurisdiction is required to address any regulatory violations in
accordance with the applicable provisions contained in Sec. 92.504(a)
and (c). This applicability is made clearer by adding explicit cross
references.
The Department is also revising Sec. 92.253(b)(5)(ii) of the
proposed rule, which is being revised and redesignated as Sec.
92.253(b)(6). The new Sec. 92.253(b)(6) has a revised header that
explains that the section is describing the exercise of rights under
tenancy. The revised first sentence explains that the tenant can
exercise any right of tenancy or protection under their lease and other
applicable Federal, State, or local tenant protections. Then the
Department redesignated Sec. 92.253(b)(5)(ii)(A)(C) as Sec.
92.253(b)(6)(i) through (iii) and revised Sec. 92.253(b)(6)(ii) to
also allow for a tenant to report lease violations in
[[Page 761]]
addition to requesting enforcement of the lease or any tenant
protections. The Department believes that reporting such lease
violations are inherent in requesting enforcement but believes that it
is best to be explicit, given that the provision is also contained in
the lease addendum.
The Department redesignated the proposed Sec. 92.253(b)(6) and (7)
as Sec. 92.253(b)(7) and (8). In response to public comments, the
Department also redesignated Sec. 92.253(c) as Sec. 92.253(b)(9). The
same provision will also be included in Sec. 92.253(c)(9). This
provision, which provides the requirements for security deposits,
should be contained in the tenancy addenda and not contained in a
standalone regulation. As explained earlier in this preamble, the
Department has clear authority to specify the terms and conditions of
the lease under 42 U.S.C. 12755 and security deposits are a material
term of the lease. Therefore, the Department is moving the security
deposit provisions from a standalone section of the regulation and
instead making the language a part of each HOME tenancy addendum. The
Department is also revising Sec. 92.253(b)(9) to state that ``Surety
bonds, security deposit insurance, and instruments similar to surety
bonds or security deposit insurance may not be used in lieu of or in
addition to a security deposit.'' This is a non-substantive
clarification of the text.
Similarly, one of the most important provisions of a lease concerns
termination of tenancy. The Department understands how central these
terms are to a lease and is also including termination of tenancy
provisions in the lease addendum. Section 92.253(d)(1) of the proposed
rule and all its contents are being redesignated as Sec.
92.523(b)(10)(i)-(v) and being revised.
Section 92.253(b)(10)(i) is being revised from the proposed rule to
clarify that good cause includes serious or repeated violation of the
``material'' terms and conditions of the lease. The Department adds the
word ``material'' because good cause is a higher standard and minor
lease violations, especially when easily curable or already cured,
should not provide the basis for a termination of tenancy or refusal to
renew tenancy in a HOME rental housing project. The Department still
believes that serious or repeated violations of the material terms of
the lease, such as nonpayment of rent or intentionally damaging the
project, can form the basis of a termination of tenancy or refusal to
renew.
Section 92.253(b)(10)(i) is also being revised to add a provision
that states that an owner is permitted to terminate the tenancy of any
tenant or household member or refuse to renew the lease of a tenant of
rental housing assisted with HOME funds if the owner is permitted to do
so pursuant to the provisions contained in 24 CFR part 5, subpart I; 24
CFR 882.511; or 24 CFR 982.310. This change is in response to public
comments and to maintain consistency across HUD programs. Owners with
tenants assisted under programs that are subject to these lease
provisions must be allowed to terminate tenancy in accordance with the
U.S. Housing Act of 1937 (42 U.S.C. 1437f) and the Department is
allowing for a consistent approach for termination of tenancy under the
HOME program for those assisted tenants.
Section 92.253(b)(10)(i)(A) is being revised from the proposed
rule. The provision will state that refusal to purchase a HOME rental
housing unit is not good cause to terminate a tenancy. The provision
will provide an exception for when a family fails to purchase housing
pursuant to a lease-purchase agreement. This was in response to public
comment, which pointed out that owners must be able to sell units when
the tenant fails to purchase the home in accordance with their lease-
purchase agreement. The Department agrees and allows for this to be
good cause to terminate a tenancy.
Section 92.253(b)(10)(i)(B) is being restructured to specify other
good cause and then list each ground individually. This was done to
improve readability of this section. Two grounds for good cause were
added and one was significantly revised.
The first form of good cause being added to Sec.
92.253(b)(10)(i)(B)(1) is when a tenant or household member is a direct
threat to the safety of the tenants or employees of the housing or an
imminent and serious threat to the property, which is a statutory
ground that commenters requested be considered in the termination of
tenancy or refusal to renew.\13\ The Department agrees that owners
should be able to terminate tenancy for this reason and is adding this
as a specific ground. The Department requires owners to maintain
records to demonstrate that they complied with the tenant protections
provisions, including records demonstrating there is a reasonable basis
to determine that a person constituted a direct threat to safety of the
tenants or employees of the housing or an imminent and serious threat
to the property. This could include specific threats or acts that took
place on the project site, against other families living in the
project, or against any employees or staff of the owner. The Department
believes that posing a direct threat to the safety of tenants or
employees is a high bar and not satisfied easily. Similarly, forming
the basis for an imminent and serious threat to the property is a
higher bar than just describing past negligent acts alone, and brings
with it an expectation that there is a specific or credible threat or
act made by the tenant or household member against the property.
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\13\ 42 U.S.C. 12755(b) states: ``An 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. Any termination or refusal to renew must be preceded by
not less than 30 days by the owner's service upon the tenant of a
written notice specifying the grounds for the action. Such 30-day
waiting period is not required if the grounds for the termination or
refusal to renew involve a direct threat to the safety of the
tenants or employees of the housing, or an imminent and serious
threat to the property (and the termination or refusal to renew is
in accordance with the requirements of State or local law).''
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The second form of good cause added to Sec. 92.253(b)(10)(i)(B)(5)
allows an owner to terminate a tenant's tenancy terminated if the
tenant fails to purchase the housing within the timeframes listed in
the tenant's lease-purchase agreement. The intent of a lease-purchase
program is for the tenant to purchase the unit. If the unit cannot be
purchased pursuant to the lease-purchase agreement within 36 months,
then the owner must be able to sell the unit to an eligible homebuyer
to effectuate the intent of the homeownership development project. The
Department has revised Sec. 92.254(a)(7) to further enable owners to
sell homeownership units that fail to be purchased pursuant to their
lease-purchase agreement and though those changes are not
interdependent with the tenant protections provisions contained in
Sec. 92.253, the Department is maintaining consistency between the
requirements.
One form of good cause was substantively revised since the proposed
rule is contained in the newly redesignated Sec.
92.253(b)(10)(i)(B)(2). This form of good cause was revised to state
that other good cause includes when a tenant unreasonably refuses to
provide the owner access to the unit to allow the owner to repair the
unit. The provision originally contained language permitting
termination of tenancy or refusal to renew tenancy if the tenant
creates a documented nuisance under applicable State or local law. The
comments received for that provision were decidedly negative and there
were significant concerns that this provision
[[Page 762]]
was not only inconsistent with the rest of the tenant protections but
counterproductive to the overall tenant protection scheme by providing
an often-used avenue for discrimination. The Department agrees with
commenters and is removing the provision, thereby clarifying that
owners may not justify termination of tenancy on outdated or
discriminatory concepts of nuisance but instead must rely upon good
cause.
Section 92.253(d)(1)(i)(D) is being redesignated and revised as
Sec. 92.253(b)(10)(i)(C). The provision is also being revised directly
in response to public comment. The public was concerned that the
meaning of a record of conviction of a crime that bears directly on the
tenant's continued tenancy was too vague to be an appropriate legal
standard to apply to landlord-tenant relationships. The commenters
believed that the Department should be more specific to ensure the
regulation and protections are applied correctly. The Department
agrees. Based on the public comment, the Department is revising the
language to specify that the violations of applicable Federal, State,
or local law must be for convictions of a crime that directly threatens
the health, safety, or right to peaceful enjoyment of the premises by
other tenants in the project. The Department continues to believe that
termination of tenancy is a fact-specific matter and that it is
impossible to provide an exhaustive list of all the grounds or
considerations that one must consider prior to termination. Criminal
convictions may impact continued tenancy but only to the extent that
such convictions interfere with the rights of others who live in the
project. Minor violations of law that do not impact people living in
the housing should not form the basis for terminating tenancy or
refusing to renew a lease in the HOME program.
Paragraph Sec. 92.253(d)(1)(ii) is being redesignated as Sec.
92.253(b)(10)(ii) and revised. The first and second sentence are
revised to only provide 30 days' notice prior to termination of tenancy
or refusal to renew, and to specify that the 30-day requirement does
not apply to the statutory grounds for termination relating to tenants
that are a direct threat to the safety of the tenants or employees of
the housing or an imminent and serious threat to the property. The
Department received overwhelmingly negative comments from the public on
the negative effects of requiring a longer notice period before
termination or refusal to renew. Some commenters explained the
variation of eviction timeframes across the country. Others explained
how adding an additional 30 days to the notice period impacted the
average eviction process and the average owner in their jurisdiction.
Organizations that represented owners and affordable housing managers
described how these changes negatively impact the financial feasibility
of current and future HOME projects. There were commenters who
supported the change, and most indicated that it would better assist
tenants in curing or preventing termination of tenancy. The Department
also considered what it had done in other programs and the effort to
make a consistent 30 day notice standard. On the whole, when the
Department considered the potential negative ramifications and how the
extension to 60 days was inconsistent with other Departmental efforts,
the Department decided to withdraw the proposal to extend the notice
period to 60 days and is revising the paragraph accordingly. Paragraphs
Sec. 92.253(d)(1)(iii) through (v) are redesignated as Sec.
92.253(b)(10)(iii) through (v). Paragraph Sec. 92.253(d)(1)(v) is also
being revised to specify that an owner may not create a hostile living
environment or refuse to provide a reasonable accommodation to cause a
tenant to terminate their tenancy. The proposed rule had initially just
stated that the owner cannot refuse to make a reasonable accommodation,
but changes are now being made to cover situations where an owner
refuses to permit a lawful reasonable accommodation with the intent of
constructively evicting a person.
A new paragraph (c) is being added to Sec. 92.253. This section
will provide the tenancy addendum requirements for the HOME tenant-
based rental assistance program. The opening paragraph mirrors the
opening paragraph for Sec. 92.253(b) and specifies that the terms of
the HOME tenant-based rental assistance tenancy addendum shall prevail
over any conflicting provisions of the lease. The terms and conditions
of the written lease, the HOME tenant-based rental assistance tenancy
addendum, the VAWA addendum listed in Sec. 92.253(a), and any addendum
required by another Federal, State, or local affordable housing program
are the sole and entire agreement between the owner and the tenant and
no prior or contemporaneous oral or written representation or agreement
between the owner or tenant shall have legal effect. This is the same
as the new rental housing requirements and provides sufficient
protections to ensure that the owner does not later claim that the
tenant agreed to something that would be prohibited under the tenant
protections or applicable law. Paragraph Sec. 92.253(c) also states
that the HOME tenant-based rental assistance tenancy addendum shall
terminate upon termination of the rental assistance contract.
Initially, the Department had proposed that the lease terminate upon
termination of the rental assistance contract but determined that it
was best left to the owner and tenant as to when the lease shall
terminate. Instead, the tenancy addendum shall terminate, as the tenant
is no longer being assisted with HOME tenant-based rental assistance.
Then the paragraph provides the same list of tenant protections
contained in the HOME rental housing tenancy addendum paragraph (b)
except for:
1. The provision in Sec. 92.253(b)(1)(iii) which requires an owner
to repair a life-threatening deficiency impacting the tenant, and
requires, if the repairs cannot be completed on the day the life-
threatening deficiency is identified, the owner to promptly relocate
the tenant into housing that is decent, safe, sanitary, and in good
repair and that provides the same or a greater level of accessibility,
or other physically suitable lodging, at no additional cost to the
tenant, until the repairs are completed. The Department recognizes that
this type of provision may have a chilling effect on owner
participation in the tenant-based rental assistance program and is
removing the requirement. If participating jurisdictions wish to
provide this requirement as part of the rental assistance contract,
then they still retain discretion to do so.
2. Section 92.253(b)(2)(v) allowing tenants to organize, create
tenant associations, convene meetings, distribute literature, and post
information. This provision may have a chilling effect on owners and
may deter participation in the tenant-based rental assistance program.
Though the Department believes that tenants should have the right to
organize tenant associations, rental assistance provided through HOME
tenant-based rental assistance is not of the same durable nature as
development subsidies provided to owners and developers producing HOME
rental housing. Requiring that owners allow organizing activities when
the participating jurisdiction has far fewer incentives to encourage
owners to comply disadvantages tenants and participating jurisdictions
who are already contending with source of income discrimination in many
jurisdictions.
3. Paragraph Sec. 92.253(c)(9)(iii) will permit tenants that are
already in a lease
[[Page 763]]
before they enter into a rental assistance contract to have fulfilled
the security deposit requirements of paragraph Sec. 92.253(c)(9) even
if the family used an instrument prohibited under paragraph (c)(9)(i).
This was due to comment that rightly explained that tenants under a
lease may have already used surety bonds, security deposit insurance,
or instruments similar to surety bonds and security deposit insurance
before they ever received HOME tenant-based rental assistance. While
the Department does not encourage the use of these instruments and has
determined that they are neither legally security deposits nor is their
use advantageous to either owners or tenants, the Department does not
want to penalize tenants or place obstacles in the way of tenants
attempting to use tenant-based rental assistance.
Other than the above-described protections, Sec. 92.253(c)(1)-(9)
is substantively the same as Sec. 92.253(b)(1)-(9). The Department
believes that this is appropriate. Recipients of tenant-based rental
assistance should have substantively the same protections as tenants in
HOME-assisted rental housing.
The Department did want to highlight that for the retaliation
provision contained in Sec. 92.253(c)(5)(iv), the Department
understands that participating jurisdictions may have limited leverage
to require that owners unreasonably interfering with or retaliating
against individuals with HOME tenant-based rental assistance stop their
actions. The participating jurisdiction must use their best judgment
about how to address such circumstances, including balancing the needs
of the tenant to the continued tenant-based rental assistance and the
participating jurisdiction's obligation to enforce compliance with the
owner's rental assistance contract with the participating jurisdiction.
However, the Department is declining to remove this protection, as it
is a meaningful and necessary tenant protection for all the reasons
given in the proposed rule.
The termination of tenancy provisions that were contained in
paragraph Sec. 92.253(d)(2) are being revised and redesignated from
the proposed rule to be included in Sec. 92.253(c)(10). First, just as
in the HOME rental housing termination provisions in Sec.
92.253(b)(10)(i), the tenant-based rental assistance provisions are
being included in a new paragraph Sec. 92.253(c)(10)(i) that states
that an owner may not terminate the tenancy of any tenant or household
member or refuse to renew the lease of a tenant with tenant-based
rental assistance, except for serious or repeated violation of the
material terms and conditions of the lease; for violation of applicable
Federal, State, or local law; for completion of the tenancy period for
transitional housing or failure to follow any required transitional
housing supportive services plan; or for other good cause. This mirrors
the HOME rental housing section but does not include the additional
specific grounds that allows owners to terminate the tenancy of any
tenant or household member or refuse to renew the lease of a tenant of
rental housing assisted with HOME funds if the owner is permitted to do
so pursuant to the provisions contained in 24 CFR part 5, subpart I; 24
CFR 882.511; or 24 CFR 982.310. This is because the Department has
determined that this is not applicable to the recipients of HOME
tenant-based rental assistance, who would not be living in units
receiving subsidy or assistance under the Section 8 program.
Similar to Sec. 92.253(b)(10)(i)(A), Sec. 92.253(c)(10)(i)(A)
also states that an increase in the tenant's income or assets, the
amount or type of income or assets the tenant possesses does not
constitute good cause. The section also states that except in the case
of a lease-purchase agreement, other good cause also does not include
refusal of the tenant to purchase the housing. These protections are
substantively the same as the HOME rental housing protections.
The provisions on good cause in Sec. 92.253(c)(10)(i)(B) differ
from the proposed rule in several respects. Section 92.253(d)(2)(i)(A)
and (B) of the proposed rule are being redesignated as Sec.
92.253(c)(10)(i)(B)(2) and (3). Section 92.253(c)(10)(i)(B)(1) is added
and is substantively the same as the statutory grounds for termination
of tenancy and refusal to renew that were added to Sec.
92.253(b)(10)(i)(B)(1). If a tenant or household member constitutes a
direct threat to the safety of tenants or employees of the housing or
an imminent and serious threat to the property, an owner must have the
ability to terminate the tenancy or refuse to renew the lease. For the
reasons given earlier in this preamble, this is a high standard to
meet, and the owner must be able to document how they arrived at this
determination. Section 92.253(d)(2)(i)(C) is being revised and
redesignated as Sec. 92.253(c)(10)(i)(B)(4). The sentence shall now
only describe when a tenant unreasonably refuses to provide an owner
with access to repair the unit. Section 92.253(d)(2)(i)(D) of the
proposed rule is being redesignated as Sec. 92.253(c)(10)(i)(B)(5).
Section 92.253(d)(2)(i)(E) of the proposed rule, which provided the
termination of the rental assistance contract as grounds for
termination of the tenant lease is being removed. The Department
received negative comments on this provision and recognizes that this
is a decision best left to the owner and the tenant. After the rental
assistance contract expires, the tenancy addendum will also terminate.
The owner may continue to lease the unit to the tenant under the terms
of the tenant lease. Section 92.253(d)(2)(i)(F) introductory text and
(d)(2)(i)(F)(1) of the proposed rule are being combined and
redesignated as Sec. 92.253(c)(10)(i)(B)(6). Section
92.253(d)(2)(i)(F)(2) is likewise being revised for readability and
redesignated as Sec. 92.253(c)(10)(i)(B)(7).
The Department added a new ground for good cause in response to
public comment. Section 92.253(c)(10)(i)(B)(8) states that if a tenant
fails to purchase a housing unit within the timeframes of a tenant's
lease purchase agreement, then this shall be good cause to terminate
the tenancy. Commenters requested that this be a ground for termination
because otherwise, the owner would be required to continue to rent to
the family, even though the family would be in breach of their lease
purchase agreement. This would disadvantage owners who wished to sell
the homeownership units after a tenant fails to purchase the housing
and would disincentivize lease-purchases.
Section 92.253(d)(2)(ii) is being redesignated as Sec.
92.253(c)(10)(ii) and revised to remove the 5-business day requirement
for the owner to notify the participating jurisdiction that it has
served a notice to vacate to a tenant. This is because the new tenant-
based rental assistance rental assistance requirements require the
owner and participating jurisdiction to have a rental assistance
contract (see Sec. 92.209(e)). Therefore, instead of requiring a time
period in the regulation, the regulation will defer to the rental
assistance contract or the participating jurisdiction's policies and
procedures to govern the issuance of notice to the participating
jurisdiction. The citation in the last sentence was also revised
because of the redesignation of the paragraph.
Paragraphs Sec. 92.253(d)(2)(iii) and (iv) are being redesignated
as Sec. 92.253(c)(10)(iii) and (iv) without change. Paragraph Sec.
92.253(d) is being added to add security deposit assistance tenancy
addendum requirements. The addendum shall prevail over conflicting
terms of the lease. The terms and conditions of the written lease, the
HOME security deposit assistance tenancy addendum, and any addendum
required by another Federal, State, or
[[Page 764]]
local affordable housing program shall constitute and contain the sole
and entire agreement between the owner and the tenant. The security
deposit assistance tenancy addendum shall prohibit the prohibited lease
terms that are currently contained in Sec. 92.253(b)(1)-(9), except
that Sec. 92.253(d)(8) shall be revised to state that a tenant is only
obligated to pay costs if the tenant loses and the court so orders,
consistent with the revisions made in Sec. 92.253(b)(4)(v) and Sec.
92.253(c)(4)(v).
Paragraph Sec. 92.253(e)(4) is being revised to specify that
participating jurisdictions must not exclude an applicant with Federal,
State, or local tenant-based rental assistance. The proposed rule did
not prohibit discriminating against a person because they were
receiving local rental assistance, just State and Federal tenant-based
rental assistance. In response to comment and consistent with HUD's
position that source of income discrimination must end, the Department
is adding this prohibition to the tenant selection regulations.
Paragraph Sec. 92.253(e)(5) is being revised to remove the
requirement that HUD approve alternative waiting list procedures for
small-scale housing projects. The Department believes that this is best
left to participating jurisdictions. The Department reminds
participating jurisdictions and owners that all Federal, State, and
local nondiscrimination requirements, including the Violence Against
Women Act (VAWA), continue to apply to tenant selection, and any
approved waiting list procedures must comply with all applicable
requirements.
Paragraph Sec. 92.253(f) is being revised to require that the
notification of an environmental, health, or safety hazard be in
writing. The paragraph is also being revised to require that when an
owner becomes aware of such hazards, the owner must notify both the
participating jurisdiction and the tenants instead of just the tenants.
This was requested by commenters and will allow tenants to find out as
quickly as possible if a hazard is affecting their unit or project. The
paragraph is also being revised to add a sentence to explain that when
an owner or participating jurisdiction has notified the tenants, this
satisfies the requirement for the other party.
24 CFR 92.254 Qualification as Affordable Housing: Homeownership
A. Allowing Over-Income In-Place Tenants To Purchase Their Homes
The Department has determined that the Secretary may permit the
period of affordability for a project to be terminated earlier than the
time periods specified in Sec. 92.252 under the circumstances
described in detail below. The Department is revising Sec. 92.254,
which currently prohibits over-income in-place tenants from purchasing
their units. This is in response to public comment requesting that in-
place HOME tenants who are no longer income eligible be permitted to
purchase their housing units, including when former tax credit projects
are converting to homeownership housing units.
It is consistent with the statutory language of the Act, as well as
the purposes of the Act, to allow in-place HOME tenants who have saved
up for a downpayment to use that downpayment to purchase the unit that
they are currently occupying. Developing stable homeownership models
where tenants can live in a housing unit, work towards increasing their
income from very-low income to moderate-income, and eventually purchase
their unit is not only consistent with the intent of the drafter of the
Act but in furtherance of it. As such, the Department is revising Sec.
92.254(a)(3) to add a sentence s allowing HOME-assisted housing to be
purchased by an in-place tenant pursuant to Sec. 92.255 if the
homebuyer's family was low-income at the time the homebuyer's family
began occupying the HOME rental housing unit. This is similar to how
families that entered into lease-purchase agreements may purchase their
housing so long as they were income-eligible when they entered into
their lease-purchase agreement. The Department believes this is in
furtherance of the purposes of the Act and will increase homeownership
opportunities for HOME-assisted tenants.
B. Meeting Property Standards Post-Acquisition
The Department is revising Sec. 92.254(a)(3) to provide clearer
language that explicitly authorizes a participating jurisdiction to
assist a family even if the homeownership unit does not meet the
property standards at acquisition, provided that the written agreement
between the participating jurisdiction and the homebuyer requires the
property to meet the standards within the period specified in Sec.
92.251(c)(3)(ii) and funding is secured to complete the rehabilitation
necessary to comply with the standards. This ensures consistency
between the requirements in Sec. 92.251(c)(3) and Sec. 92.254.
C. Change in Start of Period of Affordability
The Department revised Sec. 92.254(a)(4) in response to public
comments. Commenters had objected to beginning the period of
affordability upon project completion. For homeownership projects,
project completion means that all necessary title transfer requirements
and construction work have been performed; the project complies with
the requirements of this part (including the property standards under
Sec. 92.251); the final drawdown of HOME funds has been disbursed for
the project; and the project completion information has been entered
into the disbursement and information system established by HUD.\14\
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\14\ See 24 CFR 92.2 project completion.
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The Department understands that requiring that a homebuyer's resale
or recapture period only begin to run after the participating
jurisdiction completes all the information in the disbursement and
information system can disadvantage homebuyers, especially for multiple
address projects where completion of the information in the
disbursement and information system can only occur after all housing
units in the project meet the requirements in 24 CFR part 92. The
Department is changing the provision to instead require the period of
affordability begin after execution of the instrument that requires
recapture of the HOME investment or recordation of the resale
restrictions against the property. The Department is further
conditioning the execution of the instrument that requires recapture of
the HOME investment or recordation of the resale restrictions against
the property upon both meeting the property standards in Sec.
92.251(c)(3) and the transfer of the property title to the homebuyer.
The Department believes these are reasonable restrictions because the
property must meet the property standards at the time of purchase, or
within 6 months after purchase, if permitted by the participating
jurisdiction (with the ability to extend up to 12 months after
purchase). If the property does not meet the standards within the
required time period under Sec. 92.251(c)(3), then the participating
jurisdiction would have to repay the investment, and the housing would
not be a HOME-assisted homeownership
[[Page 765]]
unit (and thus should not have resale or recapture provisions applied
to it).
D. Change in Period of Affordability for Homeownership
The Department revised the threshold for the periods of
affordability in the table Sec. 92.254(a)(4) consistent with the
periods of affordability in Sec. 92.252(d)(4). When the homeownership
assistance provided on a per-unit basis is under $25,000, the period of
affordability shall be for a minimum of 5 years. When the homeownership
assistance is $25,000 to $50,000, then the minimum period of
affordability shall be 10 years. If the amount of homeownership
assistance is above $50,000, the minimum period of affordability shall
be 15 years.
The Department believes that it is important to increase the
thresholds for the periods of affordability for the reasons given
earlier. The Department considered that since 1990, the House Price
Index has increased by over 300%.\15\ The need for HOME homeownership
assistance outpaced inflation, as measured by the Consumer Price Index,
and has been a driver in increasing the amount of HOME homeownership
assistance that is provided per family assisted over the course of the
HOME program's history. However, given that the appropriations for the
HOME program have decreased by over 50% in inflation-adjusted dollars
since the 1992 HOME appropriation of $1,500,000,000,\16\ and the need
to maintain affordable homeownership units in accordance with the
purposes of the Act,\17\ the Department adjusted the thresholds to be
consistent with the revisions made in Sec. 92.252.
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\15\ See U.S. Developmental Index; Not Seasonally Adjusted,
which is an excel sheet within the Federal Housing Finance Agency
Housing Price Index Datasets: https://www.fhfa.gov/data/hpi/datasets?tab=additional-data.
\16\ By one measure, the Consumer Price Index, the dollar has
increased by over 200% since the establishment of the dollar
thresholds used to determine the period of affordability for the
HOME program. See the CPI Inflation Calculator at https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1%2C000%2C000.00&year1=199201&year2=202310.
\17\ See 42 U.S.C. 12722(1) and (7).
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E. Edit for Consistency in 92.504
Consistent with Sec. 92.504, the Department is revising the first
sentence of Sec. 92.254(a)(5)(ii)(A) to state that recapture
provisions must ``require'' that the PJ recoups all or a portion of the
HOME assistance to the homebuyers if the housing does not continue to
be the principal residence of the family for the duration of the period
of affordability. The Department states this as a requirement in other
parts of the rule and is clarifying the provision here for consistency.
A similar revision is made in Sec. 92.254(g)(3).
F. Revising Lease-Purchase Provisions of 24 CFR 92.254(a)(7)
The Department considered a variety of comments on its revisions to
lease-purchase regulations in Sec. 92.254(a)(7). After careful
consideration of the challenges owners encounter when the family fails
to purchase the property pursuant to the lease-purchase agreement, the
Department is substantially revising Sec. 92.254(a)(7). The Department
is revising the introductory sentence of the provision to explain that
acquisition, rehabilitation or new construction of housing to be sold
to eligible low-income homebuyers for lease-purchase is allowable.
The next provision Sec. 92.254(a)(7)(i) explains the statutory
requirement of 42 U.S.C. 12745(b)(2)(B) that a homebuyer must qualify
as a low-income family at the time the lease-purchase agreement is
signed. The regulation is being revised to provide standalone
requirements for lease-purchases within the section. As a result, HUD
revised the regulation to clarify that the current regulation's
requirements that income determinations be made based on the income of
all people living in the homeownership unit are applicable to lease-
purchases.\18\ The Department is also clarifying in Sec.
92.254(a)(7)(i) that if a family is also receiving HOME tenant-based
rental assistance, the PJ is not required to reexamine the family's
income during the term of the lease-purchase agreement. The Department
has received comments that it should reduce income examination when it
is not necessary, and that the Department should move to triennial
income examination. While the Department declined to move to such an
income cycle for the reasons given in the preamble to Sec. 92.209 and
in the applicable responses to public comment, the Department realized
that HOME lease-purchase programs are different. The Act clearly states
that a family's income is to be determined at the signing of the HOME
lease-purchase agreement \19\ and does not require that income be
reexamined prior to the purchase. When a PJ pairs their tenant-based
rental assistance with a HOME-assisted lease-purchase program, the aim
is to allow the family to accumulate money for a downpayment and to
better position themselves for sustainable homeownership when they
acquire the housing. By eliminating the requirement that the family's
income be reexamined during the term of the lease-purchase agreement,
the requirement is more consistent with the Act, the rule better
enables families to save up for the purchase of the home, and it
provides burden relief to PJs that would otherwise be required to
reexamine the tenant's income after 24 months from the date of
execution of the rental assistance contract.
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\18\ See 24 CFR 92.254(a)(3).
\19\ See 42 U.S.C. 12745(b)(1)(B).
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Paragraph Sec. 92.254(a)(7)(ii) explains that the owner and
homebuyer must execute a lease-purchase agreement prior to the family
occupying the unit and that the lease-purchase program must require the
family to purchase the housing within 36 months of the execution of the
lease-purchase agreement. The provision also retains language from the
proposed rule explaining that owners and homebuyers that have entered
into a lease-purchase agreement are subject to the affordability
requirements in the homeownership section unless the housing is not
purchased within the timeframes described in Sec. 92.254(a)(7) in
accordance with the lease-purchase agreement.
The Department is adding Sec. 92.254(a)(7)(iii) in response to
public comments that requested that owners be able to sell units to an
eligible homebuyer if the family that entered into the lease-purchase
agreement fails to purchase the housing pursuant to the agreement. The
new Sec. 92.254(a)(7)(iii) provides that if the first homebuyer does
not acquire the housing, then the owner may sell the housing to an
eligible low-income homebuyer within 48 months of execution of the
lease-purchase agreement. This provides owners 12 months from the
expiration of a 36-month lease-purchase agreement to find another
eligible low-income homebuyer and sell the homeownership unit. The
regulation also permits the PJ to provide homeownership assistance to
the next homebuyer identified for the unit but prohibits the owner from
entering into another lease-purchase agreement for the housing.
The Department has concluded that owners should have another chance
to sell the unit as a homeownership unit instead of being required to
operate the housing as rental housing if the lease-purchase agreement
fails to end in the sale of the housing. However, since the lease-
purchase did not succeed the first time, the Department is prohibiting
owners from using the lease-purchase model on a second attempt to sell
the housing. The owner must default to the rules that apply in a
typical homeownership development project.
[[Page 766]]
Section 92.254(a)(7)(iv) has been amended accordingly to provide
owners with additional time to sell the housing once it has failed to
be sold through a lease-purchase agreement by allowing owners 48 months
to complete the sale and transfer the title to an eligible low-income
homebuyer (i.e., 36 months for lease-purchase under a lease-purchase
agreement and 12 months to sell the housing from the expiration of the
36-month lease-purchase agreement). This change to allow 12 months to
sell the housing from the expiration of the 36-month lease-purchase
agreement is consistent with the Department's extension of the period
in which an owner may sell homeownership housing from 9 months to 12
months (see Sec. 92.254(a)(3)).
The Department inadvertently omitted paragraph (a)(8) in the
publication of the proposed rule. It was not the Department's intent to
delete paragraph (a)(8), and the Department noted some confusion over
the use of this provision in the public comments. In the final rule,
the Department is retaining the language from Sec. 92.254(a)(8) from
the current rule without change.
In response to public comment explaining that it is very difficult
to purchase housing with a right of first refusal, bring the property
into compliance with the PJ's property standards, and resell it to an
eligible homebuyer within 6 months, the Department is revising Sec.
92.254(b)(1)(i) and Sec. 92.254(b)(3)(ii) to allow PJs and CLTs with
up to 12 months to sell the housing to the next eligible low-income
homebuyer.
G. Preserving Affordability of HOME Projects
The Department is adding an additional clarifying sentence to Sec.
92.254(b)(2)(v) to explain that while sales proceeds can be used to
reimburse up to one-hundred percent of the administrative funds used by
a PJ to preserve the affordability, any sales proceeds exceeding that
amount shall be program income for the PJ.
H. Assisting Homebuyers in Projects Developed by Community Land Trusts
In response to public comments requesting that CLTs or PJs be
allowed to assist homebuyers when a CLT exercises a right of first
refusal or preemptive purchase rights in accordance with Sec.
92.254(b)(3), the Department is revising Sec. 92.254(b)(3)(iv) to
explicitly permit the PJ to provide homeownership assistance to the
next eligible homebuyer. PJ always has the flexibility to assist a
homebuyer through a homeownership assistance program, regardless of
whether the unit the homebuyer wishes to purchase was originally
purchased by another HOME-assisted homebuyer. Since the Department is
revising Sec. 92.254(b)(3)(iv) to explicitly permit PJs to assist the
next homebuyer, the Department is also clarifying both Sec.
92.254(b)(3)(iii) and (iv) to state that if a homebuyer is provided
assistance by the PJ, the period of affordability shall be calculated
in accordance with Sec. 92.254(b)(1)(iii) and Sec. 92.254(b)(1)(iv),
and if no additional assistance is provided to the homebuyer, then the
period of affordability shall be equal to remaining period of
affordability on the property.
However, the Department does not believe the statute permits the PJ
to award HOME funds to the CLT to provide homeownership assistance to
the next eligible homebuyer. The statute specifically states that when
HOME ``funds provided in prior and subsequent appropriations acts that
were or are used by community land trusts for the development of
affordable homeownership housing pursuant to section 215(b) of such
Act,'' then the community land trusts could retain the right to
purchase the housing without violating the period of affordability
requirements contained in section 215(b)(3)(A). This type of relief was
to allow for a unit to temporarily cease to be used as affordable
housing, as long as the housing was rededicated to that purpose shortly
thereafter. It did not establish a new eligible activity or new
eligible costs but gave CLTs the ability to exercise their purchase
rights without violating the affordability requirements and triggering
repayment of the HOME investment by the PJ. As such, the Department is
revising the regulation to allow the PJ to assist the next eligible
homebuyer.
24 CFR 92.255 Purchase of HOME Units by In-Place Tenants
The Department received public comments requesting that in-place
HOME tenants who are no longer income eligible still be permitted to
purchase their housing units. While regulations currently do not permit
over-income in-place tenants to purchase their units, the Department
has determined that the Secretary may permit the period of
affordability for a project to be terminated earlier under certain
circumstances. See 42 U.S.C. 12742(a)(1)(E) (noting that rental housing
qualifies as affordable housing under this subchapter only if the
housing will remain affordable, according to binding commitments
satisfactory to the Secretary, for the remaining useful life of the
property).
The Department believes that it is consistent with the purposes of
the Act to allow in-place HOME tenants who have saved up for a
downpayment to use that downpayment to purchase the unit that they are
currently occupying. Developing stable homeownership models where
tenants can live in a housing unit, work towards increasing their
income from very-low income to moderate-income, and eventually purchase
their unit is not only consistent with the intent of the Act but in
furtherance of it.
As such, the Department is revising Sec. 92.255(b) to state that
if the tenant's family is no longer low-income at the time of the
purchase, then the family may still purchase the home. The provision is
also being revised to state that the family must occupy the housing as
their principal residence in accordance with Sec. 92.254(a)(3) and
must agree to the imposition of resale restrictions on the housing, in
accordance with Sec. 92.254(a)(5), for the remaining period of
affordability of the housing unit. By adding these requirements, it
ensures that the intent of the Act is fulfilled because the family,
which began their participation in the HOME program as low- or very
low-income, must own and occupy the housing for the full period of
affordability or be subject to the very same resale restrictions that
all other income-eligible families must comply with in the event that
the family sells or transfers the property within the housing's
original period of affordability.
Paragraph Sec. 92.255(c) is similarly revised to explain that
though an in-place HOME tenant may purchase their unit even if the
tenant's family is no longer low-income, additional HOME funds cannot
be provided to assist that family because the family is not income
eligible for homeownership assistance.
24 CFR 92.300 Set-Aside for Community Housing Development Organizations
(CHDOs)
In the proposed rule, HUD proposed to revise the text of Sec.
92.300. The Department is making further revisions to Sec.
92.300(a)(2) to clarify that rental housing owned by a CHDO is rental
housing if it is ``leased'' to low-income tenants. The Department had
inadvertently removed necessary words from the provision in the
proposed rule and is clarifying text. HUD also determined that it is
necessary to further revise the text of Sec. 92.300(a)(2) and (3) in
order to clarify when a community housing development organization is
[[Page 767]]
considered to be an owner of rental housing. The Department is
clarifying that if a community housing development organization has
site control of a project through a long-term ground lease, such lease
must run for the full period of affordability in Sec. 92.252. If an
owner does not have site control for the entire period of
affordability, then they do not really own the housing for the full
period of affordability and cannot enforce 24 CFR part 92 requirements
in accordance with this section. Accordingly, Sec. 92.300(a)(2) and
(3) are being revised to more clearly explain the ground lease
requirements that must be met for a community housing development
organization to be considered an owner of rental housing.
In response to public comments, HUD is also making additional
changes to Sec. 92.300(a)(3). HUD received public comments requesting
that 92.300(a)(3) more clearly describe how a community housing
development organization is intended to be in charge of the development
process when it acts as a ``developer'' under that provision. The
Department is adding a clarifying sentence that explains that the
requirement that a CHDO be in charge of all aspects of the development
must be evidenced by an enforceable written agreement between the CHDO
and the other entities sharing responsibility in the development of the
housing. The Department also provided examples of different types of
written agreements that may meet the requirements, including joint
venture agreements and master development agreements.
Additionally, multiple commenters questioned whether the
Department's removal of the requirement that rental housing developed
by a CHDO be owned by the CHDO during development and for the full
period of the affordability would allow a loophole for CHDOs to sell
CHDO developed units to for-profit organizations. The Department
recognized that this provision could inadvertently be used for that
purpose. As a result, the Department revised Sec. 92.300(a)(3) to
require that the housing be owned by a CHDO unless the PJ documents
that that the CHDO no longer has the capacity to own and manage the
housing for the full period of affordability and there are no other
CHDOs with capacity to own and manage the project for the full period
of affordability. If the PJ authorizes the transfer of the housing,
then it may only be sold to a nonprofit. By requiring that the PJ
attempt to find another CHDO to own the housing unless the PJ cannot
identify a CHDO that is capable of owning and managing the housing in
accordance with the requirements of part 92 for the full period of
affordability, the regulation is more consistent with the purposes of
the Act and the intent of the CHDO set-aside. It also provides adequate
safeguards to ensure that the CHDO set-aside is not being used for the
enrichment of private for-profit businesses.
The Department is withdrawing its proposed language for the first
sentence of Sec. 92.300(a)(4)(i), which would have barred wholly-owned
for-profit CHDO subsidiaries from being considered a CHDO or valid CHDO
subsidiary for purposes of meeting the CHDO project set-aside
requirements. The Department recognizes that this is a model that CHDOs
may be using and does not wish to reduce the ways CHDOs can participate
in HOME projects.
Commenters welcomed changing the term ``downpayment assistance'' to
``homeownership assistance'' in Sec. 92.300(a)(6)(i) and elsewhere.
Many commenters noted that the new term is broader and could include
assistance for closing costs and mortgage rate buy-downs. The
Department believes that it in addition to changing the term
``downpayment assistance'' to ``homeownership assistance,'' it will
also be helpful to revise Sec. 92.300(a)(6)(i) to provide additional
examples of the kinds of homeownership assistance that CHDOs can
provide.
24 CFR 92.353 Displacement, Relocation, and Acquisition
The Department is revising the reference to Sec. 92.253(d) in
Sec. 92.353(c)(2)(ii)(A) to remove the pinpoint citation, as the
termination of tenancy provisions are now contained in Sec.
92.253(b)(10) and Sec. 92.253(c)(10).
24 CFR 92.356 Conflict of Interest
HUD is clarifying language in Sec. 92.356(d)(1). The Department
recognizes that there may be some confusion over what constitutes a
``combination'' of conflict of interest disclosure methods provided in
the proposed rule. The Department is clarifying in the final rule that
a disclosure of a conflict of interest is a combination of ``at least
two'' of the communication methods provided in paragraph (d)(1).
24 CFR 92.504 Participating Jurisdiction Responsibilities; Written
Agreements
The Department made revisions to Sec. 92.504(c)(1)(v) and Sec.
92.504(c)(2)(xii) to revise the written agreement requirements to
require that for projects involving rental housing, tenant-based rental
assistance, or security deposit assistance, the written agreement
between the PJ and the State Recipient or Subrecipient, as applicable,
must require that the HOME tenancy addendum that applies to the type of
project is used for all HOME-assisted units or tenants. The Department
is also making technical revisions to Sec. 92.504(c)(3)(ii)(A) to
revise the first sentence to read in the singular instead of the
plural. This was done to be consistent with the rest of the surrounding
provisions.
The Department is revising Sec. 92.504(c)(3)(i) to add the
requirement contained in Sec. 92.206(d)(1) into the written agreement
between the PJ and the owner of HOME rental housing. Paragraph Sec.
92.206(d)(1) requires that if HOME funds will be reimbursing expenses
that were incurred no more than twenty-four months before the date of
the commitment, the written agreement must explicitly permit the use of
the funds for those purposes.
The Department is making technical corrections to Sec.
92.504(c)(3)(ii)(A) to read in the singular instead of the plural,
consistent with how the rest of Sec. 92.504(c)(3) is written. The
Department is also adding a new sentence to the end of the paragraph
that explicitly requires that the written agreement contain the option
the PJ selected for calculating income in accordance with Sec.
92.203(b)(1). This information should already have been included in the
written agreement pursuant to Sec. 92.203 but the Department is now
including this language in the written agreement provisions for
consistency.
The Department is making technical edits to Sec.
92.504(c)(5)(i)(A) to add parenthesis around examples of allowable
forms of assistance that a PJ may provide a homebuyer, homeowner, or
tenant or owner receiving tenant-based rental assistance.
The Department made technical revisions to Sec. 92.504(c)(5)(iii)
to add the word ``assistance'' after ``security deposit'' to align with
provisions in Sec. 9.253(d) that describe security deposit assistance.
The Department is also making a minor technical edit to Sec.
92.504(c)(6)(i)(A) to add a comma after the regulatory citation to
Sec. 92.300(a)(2)-(5).
The Department is revising Sec. 92.504(c)(6)(i)(B) in response to
public comments questioning whether the Department was proposing to
change the treatment of recaptured funds in CHDO homeownership
projects. The Department is clarifying that PJs may permit CHDOs to
retain recaptured funds for additional HOME projects pursuant to the
written agreement. The Department is also adding a descriptive
[[Page 768]]
header to the section Retaining proceeds and recaptured funds.
The Department recognized that it permits CHDOs to provide
homeownership assistance to families as part of HOME homeownership
housing developed by the CHDO. This amount of assistance is limited to
10 percent of the overall amount of HOME funds provided to the project.
The Department is adding Sec. 92.504(c)(6)(i)(B)(2) to more clearly
establish the written agreement requirements for the provision of this
assistance. The agreement must provide the amount of funds for
homeownership assistance, the number of homebuyers to receive the
assistance, any matching contributions, and the period of the
agreement. The 10 percent limitation is also added, as is the
requirement that the CHDO's agreement with the homebuyer meet the
written agreement requirements in Sec. 92.504(c)(5)(i) that apply to
agreements providing HOME homeownership assistance to eligible
homebuyers.
24 CFR 92.505 Applicability of Uniform Administrative Requirements
The Department revised Sec. 92.505 to explain that 2 CFR 200.344
is applicable to HOME as provided in Sec. 92.507. Originally, the
Department had said that 2 CFR 200.344 was not applicable to HOME PJs,
State recipients, and subrecipients but this is confusing because Sec.
92.507 does make most of 2 CFR 200.344 applicable to them. By adding
the caveat that 2 CFR 200.344 is not applicable, except as provided in
Sec. 92.507, this clarifies that it is applicable and that Sec.
92.507 will explain how.
24 CFR 92.507 Closeout
In the proposed rule, HUD proposed to revise Sec. 92.507 in order
to specify the procedures and actions that must be completed by a PJ
and HUD to close out a grant. In this final rule, the Department is
further revising Sec. 92.507 for clarity and consistency with 2 CFR
part 200. The Department is adding a second sentence to the
introductory provision in Sec. 92.507. This explains that the
requirements of 2 CFR 200.344 apply to closeouts in the HOME program,
with the exception where such requirements conflict with the
requirements in Sec. 92.507. The Department was concerned that its
language was confusing because in various parts of Sec. 92.507, such
as in Sec. 92.507(b)(10)(v) and (vi), the regulation requires that PJs
comply with 2 CFR 200.344. By adding this sentence, the Department is
clarifying that PJs must follow 2 CFR 200.344 unless it conflicts with
the HOME regulations.
The Department is revising Sec. 92.507(a)(1) to clarify that HUD
will close out a grant after the period of performance has ended
instead of when HUD determines that PJ has completed all required
activities and closeout actions. HUD is not limiting its discretion
here, given under separate legal authorities (including the Act,
individual appropriations laws, and provisions within 2 CFR part 200)
to close out a HOME grant. Additional clarification is also being added
to specify that the PJ must complete all required activities and
closeout activities for the grant, as required by HUD. The revised
provision directly states the PJ's closeout responsibilities under the
HOME program.
The Department is revising Sec. 92.507(a)(2) to explain that to
prepare for closeout, before the end of the budget period of the grant,
the PJ shall review all eligible activities under the grant and
reconcile its accounts by drawing funds down in a timely manner and
refunding the proper accounts of any previously disbursed balances of
unobligated cash paid in advance. This is clearer language that is more
legally accurate than the proposed rule, which did not explain that
these actions were to prepare for closeout, did not condition each
provision on being taken during the budget period, and did not specify
how refunds would be performed in sufficient detail.
The Department is redesignating Sec. 92.507(a)(2)(ii) of the
proposed rule by redesignating it as paragraph (a)(3) and by explaining
that after the end of the grant budget period, no additional activities
may be undertaken with that particular HOME grant and that there are no
additional eligible costs incurred after the budget period. The
provision also explains that unused funds shall be returned to the U.S.
Treasury by HUD, and that the PJ must promptly refund any unused grant
funds not authorized to be retained in accordance with HUD's
instructions. These clarifications more directly state the requirements
and the conditions without using problematic terminology like
``recapture'' which has a different statutory meaning in the HOME
program than in appropriations law.
The Department is revising Sec. 92.507(a)(4)(ii) in order to
remove a reference to FAPIIS and instead add a reference to SAM.gov,
the current system being used for reporting. The Department is revising
Sec. 92.507(b)(2) to state that a PJ must demonstrate that it has
fulfilled all programmatic and administrative requirements for the
project (i.e., property inspections, obtaining certificates of
occupancy, etc.) within the period of performance in accordance with 2
CFR 200.344(a). The proposed rule's provision stated that the PJ must
complete all activities for which the funds were expended. This may
have been confusing to the PJs as HOME funds are not to be used after
the budget period. As such, HUD revised the language to appropriately
characterize the PJ's actions as providing HUD with information
demonstrating it has completed all the programmatic and administrative
requirements within the period of performance and not that HUD was
allowing for completion of activities after the budget period had
expired.
The Department is revising Sec. 92.507(b)(3) to remove the word
``remaining'' when characterizing the data to be entered into the
computerized disbursement and information system established by HUD.
This was for clarity. Similarly, the Department is revising both
paragraph (b)(5) and (b)(10) to improve the grammatical structure of
each provision by removing ``the participating jurisdiction must.''
This is because the lead-in sentence in Sec. 92.507(b) already states
that the PJ must take the following actions to close out a grant and
therefore it is unnecessary to repeat the words in those provisions.
The Department is revising Sec. 92.507(b)(10)(i) to specify that
instead of cancelling the unused grant funds, those funds shall be
returned to the U.S. Treasury. This is clearer language and more
directly states the mechanics of what is occurring during closeout.
Paragraph Sec. 92.507(b)(10)(iv) and Sec. 92.507(c)(6) are both being
revised to include both a State and a consortium in the list of
entities that qualify as a PJ. If a jurisdiction is not a PJ as a
metropolitan city, urban county, State, consortium, or consortium
member when it receives program income, recaptured funds, or repayments
in accordance with Sec. 92.503, then the funds are not subject to the
requirements of 24 CFR part 92. The proposed rule inadvertently
excluded States and consortia, both of which are types of PJs. The
Department is also revising Sec. 92.507(c)(8) to remove the
parenthetical citation at the end because it was unnecessary and
confusing.
The Department is making a technical revision to Sec.
92.507(b)(10)(viii) to specify that the PJ's certification acknowledges
that future monitoring by HUD will occur, ``including'' that findings
of noncompliance may be taken into account by HUD as unsatisfactory
performance of the PJ and in any risk-based assessment of any future
grant
[[Page 769]]
award under the HOME program in the future.
The Department also revised the reference to recordkeeping
requirements in 2 CFR part 200 that are applicable to PJs to ``2 CFR
200.345, as applicable.'' The provision references applicable
provisions in 2 CFR 200.337 through 2 CFR 200.345, as had been provided
in the proposed rule, and therefore is a non-substantive change.
24 CFR 92.508 Recordkeeping
The Department is revising the first sentence to Sec.
92.508(a)(3)(vii) to state that PJs must maintain records demonstrating
that each rental housing project met the affordability and income
targeting requirements of Sec. 92.252 for the required period or met
the requirements in Sec. 92.255 for conversion to homeownership for
in-place tenants. This aligns with changes made to Sec. 92.254(a) and
Sec. 92.255(b) and provides a recordkeeping requirement that
contemplates conversion of rental housing units to homeownership units
for in-place tenants in accordance with Sec. 92.255.
Consistent with changes made by the Department to other sections
requiring that there be a minimum level of tenant protections for
families receiving security deposit assistance, HUD is adding
``security deposit assistance'' to Sec. 92.508(a)(3)(ix) to require
that the PJ maintain records demonstrating that each family receiving
such assistance had a lease that included a HOME security deposit
assistance addendum in accordance with Sec. 92.253(d).
24 CFR 570.200 General Policies
In the proposed rule, HUD proposed to revise the introductory text
of Sec. 570.200(h). However, HUD's proposed revisions would have
decoupled the effective date of a grant agreement from a grantee's
program year start date and would have subjected many grantees to pre-
award costs on an annual basis. After considering public comments, HUD
has determined the need to maintain the connection between the grant
agreement effective date and program year start dates to reserve pre-
award costs to those incurred before a program year start date and,
therefore, is retaining the existing introductory text to Sec.
570.200(h). Instead, HUD is adding a new Sec. 570.200(h)(3) to make
the effective date of the grant agreement, in a year when an annual
appropriation occurs less than ninety days before a grant recipient's
program year start date, the earlier of either the program year start
date or the date that the consolidated plan is received by HUD. This
change better aligns CDBG with the new HOME program regulation at Sec.
91.212(b)(2) and continues practices implemented through annual
waivers.
IV. Public Comments
General Comments
A. Comments in Support for the Proposed Rule
Multiple commenters expressed general support for the regulatory
proposals described in the proposed rule. Commenters stated that they
support the regulatory proposals described in the proposed rule because
they will simplify and align programs to create more affordable housing
for persons needing housing assistance. One commenter stated that the
proposed rule's changes would improve housing stability of low-income
households. Another said it would promote program flexibility, HUD's
mission, and clarity and alignment with other Federal programs. One
commenter expressed support for the proposed rule because it will make
the HOME program more accessible and user-friendly in rural places. One
commenter stated that they support the proposed changes because they
may lead to shorter waiting periods to receive housing. Another
commenter stated that the proposed rule would help to more effectively
use resources to narrow the racial homeownership and wealth gaps.
HUD Response: HUD thanks the commenters for reviewing and is moving
forward with a final rule.
B. The Rule Increases Program Alignment
Commenters supported HUD's proposed changes to streamline HOME
program requirements to align with the CDBG and Section 8 programs
because the commenter believes it would ensure consistency with the
implementation of changes to the HOME program.
HUD Response: HUD thanks the commenters for reviewing the proposed
rule. The Department further aligned the HOME regulations with the CDBG
and Section 8 programs in this final rule.
C. The Rule Should Be Revised To Account for Manufactured Housing
One commenter urged HUD to explicitly address manufactured homes
and manufactured home communities in the rule and guidance. The
commenter's suggestions included explicitly clarifying that
manufactured homes are a permissible HOME housing type, that
manufactured housing titled as real property or personal property are
eligible for HOME assistance, that permissible land tenure types
include manufactured home on land that is owned by the homeowner or
leased in manufactured home communities, that manufactured home
communities are explicitly named as permissible for affordable housing
preservation, that non-profit shared-equity cooperatives are explicitly
named as being eligible for HOME funding as is the water and sewer
infrastructure they own.
HUD Response: Manufactured homes and lots are explicitly included
in the definition of ``housing'' in Sec. 92.2. To be considered a
homeowner for purposes of the HOME program, a manufactured homeowner
must only have a ground lease as long as the period of affordability
required in accordance with Sec. 92.254.\20\ This is more flexible
than the 50-year ground lease required to constitute homeownership on
Indian trust lands and land held by CLTs, and is the most flexible
definition of homeownership in the HOME program.
---------------------------------------------------------------------------
\20\ See paragraph (1) of the definition of homeownership in 24
CFR 92.2.
---------------------------------------------------------------------------
While the Department is not explicitly revising its regulations to
change the definition of homeownership for manufactured homeowners, HUD
notes that if manufactured home communities structure their ground
leases or ownership in accordance with the HOME homeownership
requirements, then purchasers may be eligible under the HOME
regulations. When designing their HOME programs, participating
jurisdictions are required to consider the housing needs within their
jurisdiction, including the needs of those who own or wish to purchase
a manufactured home.
D. The Rule Is More Burdensome
Another commenter stated that, while supportive of some of the
rule's proposed changes, the proposed rule would increase
administrative burden and that this adds to other administrative costs
from Section 3, BABA, and VAWA.
HUD Response: The Department believes that the requirements
contained in this final rule will reduce burden and compliance will be
less costly than the current requirements. The Department understands
that Section 3; Build America, Buy America; and Violence Against Women
Act requirements each may add different requirements on HUD grantees.
These requirements may change the way that the participating
jurisdiction contracts for goods and services, or how the participating
jurisdiction assist survivors of domestic violence, dating violence,
sexual assault, stalking, or human trafficking. However, these
requirements are not within the scope of this rulemaking. The
[[Page 770]]
Department will continue to assess ways to further reduce the burdens
of compliance with various independent statutory requirements.
E. HUD Should Further Streamline the Requirements of the HOME Program
A commenter stated that HUD's rulemaking should seek to further
streamline the HOME program and reduce regulatory and compliance
burdens because these burdens detract from the value of limited
resources provided to HOME-assisted projects.
HUD Response: The Department agrees with the commenter and engaged
in further streamlining of HOME requirements including but not limited
to income examinations, physical condition inspections, and rent
determinations.
F. Legislative Reform Necessary
Commenters supported legislative reform of modernization of the
HOME program overall or particular statutory provisions. One commenter
recommended that HUD continue to work with Congress to develop and pass
legislation to reauthorize and further modernize the HOME program.
HUD Response: The Department thanks the commenters for sharing
their view and notes that it also has called for legislative reform of
HOME in recent HUD Budget Requests.
G. Technical Assistance, Training, and Guidance
Several commenters requested technical assistance, guidance, or
training on various topics in the regulation.
HUD Response: The Department agrees with commenters that it must
provide significant training, guidance, and technical assistance on
this final rule to assist participating jurisdictions and other program
participants comply with new requirements and exercise new
flexibilities.
Streamlining Terminology
A. Replacing ``Downpayment Assistance'' With ``Homeownership
Assistance''
Commenters supported HUD's proposal to change the definition of
``downpayment assistance'' to ``homeownership assistance.'' Two
commenters said this change would provide participating jurisdictions
and HUD regional offices with the clarity needed to understand the full
breadth of homeownership-related activities that are allowable using
HOME funding in addition to downpayment assistance. One commenter said
that this change would increase affordable housing supply by
facilitating the use of HOME funds by developers to construct or
rehabilitate owner-occupied housing. One commenter suggested that a
clear assertion that HOME covers more than downpayment assistance alone
will more easily allow affordable housing developers to use these funds
to construct or rehabilitate more owner-occupied housing, adding more
units to a dwindling affordable supply.
One commenter stated that HUD has several instances where the term
``downpayment assistance'' is used instead of ``homeowner assistance''
despite the noted substitution, which has resulted in confusion. The
commenter noted the following instances of ``downpayment assistance''
appearing in several other locations within the text of the rule
including Sec. Sec. 92.203(d); 92.209(c)(2)(iv); 92.250(b)(4); Sec.
92.251(c)(3); 92.300(a)(6)(i); 92.351(a)(1); 92.504(c)(1)(i);
92.504(c)(2)(i).
HUD Response: HUD thanks the commenters for reviewing and is moving
forward with this change. In examining the regulation and comments, the
Department determined that there were numerous instances where the term
``downpayment assistance'' persisted and has made revisions to the term
in Sec. Sec. 92.203, 92.209, 92.250, 92.251, 92.300, 92.351, and
92.504.
B. Replacing ``Dwelling'' With ``Housing''
A commenter stated that they support the proposed change of
replacing the term ``dwelling'' with ``housing'' for the HOME program,
TBRA program, and income targeting for homeownership.
HUD Response: HUD thanks the commenters for reviewing. HUD will
move forward with replacing the term ``dwelling'' with ``housing''
where the Department determines that this is accurate terminology. The
Department did note that in relation to HOME regulations implementing
the Uniform Relocation Assistance and Real Property Acquisition
Policies Act (URA) (42 U.S.C. 4601 et seq.), and its regulations at 49
CFR part 24, as amended, and Section 104(d) of the Housing and
Community Development Act (42 U.S.C. 5304(d)) and its regulations at 24
CFR part 42, the term ``dwelling'' is more consistent with the
underlying statutory and regulatory terminology and will be maintaining
the usage of the term in that area of the HOME regulations. Similarly,
the Department will be retaining the use of this terminology in
relation to accessibility requirements, which refer to applicable
definitions outside of 24 CFR part 92. In performing its review, the
Department determined there were additional areas whether the term
``housing'' was more appropriate than ``dwelling'' including in
Sec. Sec. 92.2, 92.219, 92.253, 92.254, and 92.258. The Department is
revising these regulations accordingly.
C. Replacing ``Affordability Period'' With ``Period of Affordability''
Commenters supported HUD's proposed definition of ``period of
affordability.'' One commenter supported the consistent use of the term
but noted that the old term persists in certain places in the
regulation.
HUD Response: HUD thanks the commenters for reviewing and is moving
forward with the revised term ``period of affordability.'' The
Department has also revised the remaining references to ``affordability
period'' to read as ``period of affordability'' to maintain consistent
terminology.
D. Replacing ``Single-Family'' With ``Single Family''
One commenter thanked the Department for streamlining the term
single family while another commenter noted places where certain
terminology was not corrected.
HUD Response: The Department noted that there were instances in
which the term was not corrected and is making changes to Sec. 92.2.
and Sec. 92.220.
Sec. 92.2--Commitment Definition
A. General Support
One commenter supported changing the language of the definition of
``commitment'' from ``official'' to ``officials'' And from
``downpayment assistance'' to homeownership assistance.
HUD Response: HUD appreciates the commenter's support and will move
forward with these changes.
B. Paragraph (2) of the Commitment Definition--Commit to a Specific
Local Project--Opposition to Requirement To Secure All Project
Financing Before Commitment
One commenter stated that HUD should consider revising paragraph
(2)(i) of the definition of ``commitment'' in Sec. 92.2 because
requiring applicants to secure all project funding before receiving a
commitment of HOME funds is overly burdensome, particularly for
nonprofit developers. The commenter explained that this upfront secured
funding requirement could result in fewer applications for HOME funding
and should be removed. The commenter also suggested expanding the
meaning
[[Page 771]]
of construction to include incurring typical pre-development costs such
as architectural and engineering costs.
HUD Response: Commenters urged HUD to revise the definition of
commit to a specific local project by removing the requirement that all
project financing be secured before commitment. The Department did not
propose a change to these requirements and declines to make these
proposed changes at the final rule stage. HUD believes these
requirements to be essential to ensuring that HOME funds are not
committed to and used for projects that have not secured all the
financing necessary to enable the project to be successfully and timely
completed. The Department is not defining construction or expanding the
meaning of construction to include pre-development activities such as
architectural and engineering costs. The type of costs that the
commenter is describing are project-related soft costs.
Under the current regulation, project related soft costs, which
include architectural and engineering costs, may be reimbursed if they
are incurred not more than 24 months before the date that HOME funds
are committed to the project and the participating jurisdiction
expressly permits HOME funds to be used to pay these costs in the
written agreement committing the funds to the project. The proposed
rule added the cost of environmental reviews and studies to this
provision.
The Department received several comments on HUD's revision to Sec.
92.206(d)(1) to allow HUD environmental review or other environmental
studies or assessments to be reimbursable costs incurred prior to when
funds were committed to a project. Those commenters urged the
Department to consider expanding the types of costs that would be
allowed to be incurred to include ``pre-development'' or other related
soft costs. The Department agrees with the commenters and is expanding
the project soft costs that may be incurred prior to a commitment to
include costs to process and settle financing for the project,
including private lender origination fees, credit reports, fees for
title evidence, legal fees, private appraisal fees, and fees for
independent cost estimates. These were all contained in paragraph
(d)(2) but will now be deleted from paragraph (d)(2) and added to
paragraph (d)(1). While the Department is moving these provisions to
paragraph (d)(2), the Department determined that several provisions
could not be moved because there is no reasonable expectation that they
should occur prior to commitment. These provisions include obtaining
building permits, which require HUD environmental review; fees for
recordation and filing of legal documents, as recorded documents
relating to an acquisition, rehabilitation, or new construction project
should occur after commitment of HOME funds; and builders or developers
fees, as those fees should not be earned and chargeable to the HOME
grant for work performed prior to the environmental review and
commitment of the HOME funds to the project.
Additionally, because of specific public comment, the Department
also added ``accounting fees'', ``filing fees for zoning or planning
review and approval'', and ``other lender-required third-party
reporting fees'' to paragraph (d)(1). By moving or adding the soft
costs into paragraph (d)(1), HUD is allowing the above-described costs
to be paid as long as they were incurred no more than 24 months before
the date of commitment, and they were included in the written agreement
committing the funds.
C. Paragraph (2) of the Commitment Definition--Commit to a Specific
Local Project--Opposition to Requirement That Construction Must Be
Scheduled To Start Within Twelve Months of the Agreement Date
Commenters urged HUD to lengthen the time between commitment and
the start of construction from the current 12 months. One commenter
proposed extending the timeframe to 24 months because of the extensive
backlog of construction work and the loss of available and qualified
contractors. Another commenter stated that HUD's 12-month timeline
could be challenging if the construction cycle is tied to hard costs or
providing additional guidance for circumstances in which the 12-month
deadline is missed.
HUD Response: HUD appreciates the commenter's review of the
proposed rule and this recommendation. The Department did not propose a
change to the 12-month time period between the date of the written
agreement and the start of construction on a HOME-assisted project. The
12-month requirement has been in the commitment definition since 1991
and ensures that HOME funds are not prematurely committed to projects
that are not ready to move to construction. HUD declines to adopt the
suggested change. In addition, HUD notes that the 12 months is not a
deadline; the current rule states that a participating jurisdiction
must have a reasonable expectation that construction will begin within
12 months when committing HOME funds to a specific local project. This
expectation can be demonstrated by the construction schedule appended
to the written agreement committing the funds.
Sec. 92.2--Community Housing Development Organization Definition
A. General Comments
Many commenters supported the changes and stated that the proposed
rule would create more opportunities for nonprofits to become CHDOs,
expand the nonprofit affordable housing delivery system, expand the
capacity of CHDOs, and make it easier for participating jurisdictions
to use their CHDO set-aside funds. Other comments expressed concern
about or opposition to HUD's proposed changes, particularly changes
aimed at increasing eligible CHDOs in rural areas. One commenter stated
that, despite having concerns about certain HUD proposals, it
appreciates HUD's efforts to make CHDO designation easier to attain and
retain particularly in areas with few or no CHDOs. Another commenter
stated that while the commenter is supportive of the proposed changes
that would create opportunities for organizations to participate in
housing development and build their own capacity, HUD should consider
additional policy safeguards to preserve the purpose of the set-aside
and ensure that unintended consequences, such as bad actors meeting the
letter of the requirements but ``not the spirit of the designation,''
do not outweigh the benefits. One commenter stated that it appreciates
HUD's effort to expand options for meeting the low-income board
requirement but does not believe it will make a significant difference
in the number of organizations that will seek the CHDO designation. The
commenter stated that meeting the 15 percent CHDO set-aside requirement
will continue to be a challenge for many participating jurisdictions
irrespective of the proposed changes.
HUD Response: HUD believes that there are appropriate safeguards in
place in the final rule because the designees of nonprofit
organizations that may serve on the board only count towards the one-
third board representation requirement if they represent organizations
that ``address the housing or supportive service needs of low-income
residents or residents of low-income neighborhoods.'' This connection
to the community, and the list of examples HUD provides to further
elaborate on the types of groups and the role they must play within the
community, demonstrate that the intent
[[Page 772]]
is not to water down a CHDO's ties to the community but to strengthen
them. Promoting board representation for victim service providers,
homeless providers, organizations involved in promoting or defending
civil rights, disability advocates, and other organizations that
directly serve the community will serve to strengthen CHDOs' boards and
provide needed input from hard-to-reach groups.
B. Include Cooperatives as Eligible for CHDOs
One commenter suggested that HUD expand CHDO eligibility to
affordable housing cooperative corporations because affordable housing
cooperatives, including resident owned manufactured housing community
cooperatives, meet the goals of CHDOs to advance resident and community
engagement as cooperative boards are made up of their resident owners
who govern and manage the cooperative. The commenter further explained
that cooperatives would benefit from eligibility as CHDOs by gaining
greater access to CHDO sponsors. The commenter stated that if
affordable housing cooperatives are not granted status as CHDOs
directly, then it is imperative that they are granted access to work
with a CHDO nonprofit 501(c)(3) sponsor to access set-aside funds that
can create lasting affordable housing.
HUD Response: HUD appreciates the comments and notes that nothing
in the existing HOME regulations or in the proposed rule would prohibit
a cooperative housing corporation from being designated as a CHDO as
long as the organization can meet the definition of CHDO. The
Department has also significantly changed the ways that CHDOs can be
involved in a development project in Sec. 92.300 and believes that it
provides additional opportunities for affordable housing cooperatives
to partner with CHDOs on CHDO set-aside projects.
C. Paragraph (4) of CHDO Definition--Align Definition of CHDO in 24 CFR
92.2 and the Definition of Community-Based Development Organization in
24 CFR 570.204
One commenter recommended that the regulations relating to CHDOs
align more closely with the community-based development organization
regulations through the CDBG program.
HUD Response: The Department is limited by statute in how closely
it can align the definitions of CHDO and community-based development
organization. By regulation, a CHDO qualifies as a community-based
development organization if it is designated as a CHDO by the
participating jurisdiction, has a geographic area of operation of no
more than one neighborhood, and has received HOME funds under 24 CFR
92.300 or is expected to receive HOME funds as described in and
documented in accordance with 24 CFR 92.300(e) (See 24 CFR
570.204(c)(2)). This safe harbor is provided in recognition that if an
organization meets all the requirements of community housing
development organization in Sec. 92.2, then the organization will have
met the statutory requirements in 42 U.S.C. 5305(a)(15). This is
because the statutory definition of CHDO is more restrictive than the
statutory and regulatory definition of a community-based development
organization. It is because of these statutory and programmatic
differences that a community-based development organization cannot
automatically qualify as a CHDO.
Under the HCDA statute and CDBG regulations, community-based
development organizations include local development corporations, which
can be for-profit entities (See 42 U.S.C. 5305(a)(15)) and 24 CFR
570.204(c)(1)(iii)). Under NAHA, CHDOs must be nonprofit organizations
(42 U.S.C. 12704(6)). Community-based development organizations can
also perform economic development activities under the CDBG program,
and thus the organizations will have more expansive purposes and scopes
than CHDOs, which are required to have among their purposes the
provision of affordable housing. The difference in eligible activities
also means that community-based development organizations can have
different types of representation on their boards, including businesses
serving low-income communities (24 CFR 570.204(c)(1)(iv)). Thus, after
a careful examination of the two sets of statutory and regulatory
requirements, the Department has determined that no change to further
align the definitions should be made at this time.
D. Paragraph (4) of CHDO Definition--Tax Exempt Status
One commenter supported the change to the CHDO definition that
clarifies the options for meeting the requirement that a CHDO must be
exempt from taxation.
HUD Response: The Department appreciates the comment and is
adopting the language in paragraph 4 of the CHDO definition at Sec.
92.2 without change.
E. Paragraph (5) of CHDO Definition--General Support for Changes to
Limitations on Public Officials on a CHDO's Governing Board
Commenters were broadly supportive of the proposed change narrowing
the individuals who would count toward the one-third limitation on
governing board membership from ``any governmental entity'' to
``officials or employees of the participating jurisdiction or
governmental entity that created the community housing development
organization.'' Commenters stated that the proposed change would
provide more flexibility to nonprofit organizations in meeting the
board requirements while maintaining the freedom from governmental
control of CHDOs intended by statute. One commenter stated that the
change would help CHDOs create boards with expertise in the field of
affordable housing, while appropriately addressing conflict of interest
considerations that may arise. Another commenter stated that the change
will facilitate resource-sharing between CHDOs and governmental
entities such as councils of governments, Tribal entities, and regional
planning commissions in rural communities.
Commenters also supported the proposal to clarify that no
governmental entity, not only the one that created the CHDO, may
appoint more than one-third of the CHDO's board members, as well as the
language clarifying that not only may the board members appointed by a
government entity not appoint the remaining two-thirds of a CHDO's
board members, the board members who are officials or employees of the
governmental entity that created the CHDO may not appoint any of the
remaining two-thirds board members.
One commenter recommended that HUD emphasize that the one-third
public official restriction on board membership does not apply to all
CHDOs, only those CHDOs that were created by a governmental entity. The
commenter stated that this would involve promulgating a Notice
clarifying the new and correct interpretation of this paragraph, and an
intense training and communication plan to educate participating
jurisdictions across the country.
HUD Response: HUD thanks the commenters for sharing their views.
HUD is adopting the proposed rule language without change. The
Department also agrees that its guidance should be clearer that, while
all CHDOs must be free from governmental control, the one-third
limitation on public
[[Page 773]]
officials only applies to CHDOs that were created by the participating
jurisdiction or another governmental entity. For CHDOs not created by a
governmental entity, the participating jurisdiction must determine that
the CHDO is not a governmental entity and is not controlled by a
governmental entity.
F. Paragraph (5) of CHDO Definition--Opposition to Public Officials on
a CHDO's Governing Board
A commenter questioned why HUD would require a CHDO to include
elected officials on the CHDO board. The commenter stated that
requiring CHDOs to include elected officials on the CHDO board would
constitute a conflict of interest because elected officials approve the
funding for HOME projects. The commenter stated that a CHDO would have
to turn to neighboring communities to select elected officials for the
CHDO board to avoid any conflict.
HUD Response: The commenter incorrectly believes that HUD is
requiring CHDOs to include elected public officials on the CHDO
governing board. HUD revised paragraph (5) of the Community Housing
Development Organization definition in Sec. 92.2 to make the existing
limitation on public officials and employees of a governmental entity
on the CHDO governing board less restrictive should a CHDO choose to
include public officials on the governing board.
G. Paragraph (5) of CHDO Definition--Limitation on Public Officials on
a CHDO's Governing Board--Volunteer Members Planning or Zoning
Commissions
One commenter recommended that HUD allow volunteer members of
planning or zoning commissions or other local advisory boards to serve
as CHDO board members and not count against the public sector limit.
HUD Response: HUD is not adopting this recommendation. Whether a
volunteer member of a planning or zoning commission or other local
advisory board may count towards the public sector limit depends upon a
variety of factors including whether the organization the person is
volunteering for created the CHDO, whether the person is considered an
employee or official, whether the entity is considered part of the
participating jurisdiction, etc. It is likely that many volunteer
members of planning or zoning commissions or other local advisory
boards may not count towards the limits described in paragraph (5) of
the definition of community housing development organization contained
in Sec. 92.2.
H. Paragraph (5) of CHDO Definition--Statutory Basis for Limitation on
Public Officials on a CHDO's Governing Board
One commenter was supportive of changes to the CHDO board but also
encouraged HUD to go further and fully address the ``public officials''
issue. The commenter disputed that there was a statutory basis for
limiting participation of public officials or employees of governmental
entities from being board members of CHDOs. The commenter believed that
it was entirely at HUD's discretion whether to include this language in
its regulations, or not, and how to interpret it.
HUD Response: When the Act was created, CHDOs, which had existed
prior to the Act, were nonprofit, private sector organizations that had
deep ties to the community. The Congressional findings of the Act
explicitly stated that CHDOs are nonprofit organizations acting in the
private sector.\21\ If a governmental entity creates a CHDO, then it is
consistent with the purposes and findings of the Act to place a
reasonable limitation on the public sector board membership of the
CHDO. This limitation is necessary to ensure that the CHDO is not
simply an affiliate or an alter ego of a governmental entity but a
robust community-based nonprofit organization with capacity to develop,
sponsor, and own affordable housing in the jurisdiction. The Department
is moving forward with its revisions to paragraph (5).
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\21\ 42 U.S.C. 12721.
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I. Paragraph (5) of CHDO Definition--Further Narrow Limitation on
Public Officials on a CHDO's Governing Board
Another commenter suggested that HUD could further reduce barriers
to meeting low-income representation and public official requirements
by counting only elected or appointed officials toward the public
official limitation and permit civil service employees to serve on CHDO
boards, subject to a conflict of interest policy.
HUD Response: The Department believes that it has struck the
correct balance in its new final rule requirements and is not adopting
this recommendation. The limits in paragraph (5) of the definition of
community housing development organization only apply when the CHDO was
created by a governmental entity and the civil service employee is
working for the governmental entity that created the organization or
the participating jurisdiction that is funding the organization. This
is already a narrow subset of all cases. Even when the limit in
paragraph (5) of the definition of community housing development
organization applies, HUD regulations are not barring the person's
representation but stating that the person counts towards the limit and
cannot be an officer or employee of the organization in order to
consider the organization a CHDO.
J. Paragraph (5) of CHDO Definition--Low-Income Public Officials on a
CHDO's Governing Board
Commenters suggested that HUD should revise the rule to state that
if an appointed official or employee of a participating jurisdictions
lives in a low-income community and is themselves low-income, they will
be allowed to be counted toward the low-income representation on the
board of the CHDO and not count as a public official. One commenter
stated the regulation should explicitly state that this applies in
rural areas or areas where significant low-income representation does
not exist.
HUD Response: If a person meets the definition of low-income under
Sec. 92.2 or lives within a low-income community, then under paragraph
(8)(i) of Sec. 92.2 Community housing development organization, the
person would be included in the one-third representation requirement.
If a CHDO is created by a governmental entity, no more than one-third
of its board may be officials or employees of the participating
jurisdiction providing HOME funds to the CHDO or the governmental
entity that created the CHDO. In the commenter's example, if the CHDO
was created by a governmental entity, and the person was an employee or
official of the participating jurisdiction funding the CHDO or the
governmental entity that created it, then the person would also count
towards the one-third limitation under paragraph (5) of the definition
of community housing development organization in Sec. 92.2. These are
independent requirements and serve to prevent potential abuses. The
Department would also note that under the commenter's recommended
approach, the entire board of an organization created by a governmental
entity could be employees or officials so long as they were low-income
or lived in low-income neighborhoods. This is not the intent of the
drafters of the Act in creating the set-aside requirement and the
Department is declining the commenters' recommendations.
[[Page 774]]
K. Paragraph (5) of CHDO Definition--Further Limit Public Officials on
a CHDO's Governing Board to Officials or Employees Administering HOME
Assistance
One commenter that is a State participating jurisdiction stated
that it supports the proposal to narrow public officials to the
participating jurisdiction but questioned what unit of government is
considered the participating jurisdiction. The commenter asked whether
all State employees would be considered part of the participating
jurisdiction or whether the limitation would apply to the lead agency,
the consolidated planning partners or the administrator of the HOME
grant. The commenter recommended that the language be updated to apply
the limitation only to employees of the entity that administers the
HOME funding.
HUD Response: In the scenario raised by this commenter, the
participating jurisdiction is the State, and the limitation would apply
to officials and employees of any State agencies, not solely officials
and employees of the agency that administers the State's HOME grants.
HUD declines to change the regulation so that only employees of the
agency that administers the HOME funds for the participating
jurisdiction count towards the one-third limitation or the prohibition
against being an officer or employee of a CHDO. This change would be
inconsistent with the statutory intent that CHDOs not be controlled by
the participating jurisdiction. An official or employee of a
participating jurisdiction, even when not affiliated with the specific
agency administering HOME assistance, is still potentially subject to
the influence of that participating jurisdiction. Consequently, when
they serve on a CHDO board, HUD believes that they should count toward
the one-third limitation on public sector participation on the board of
a CHDO created by a participating jurisdiction.
L. Paragraph (8) of CHDO Definition--Support for Inclusion of
``Designees'' of Low-Income Neighborhood Organizations
Several commenters supported the proposed change to expand the CHDO
low-income board representation requirement under paragraph (8)(i) of
the definition of community housing development organization to include
``designees'' of low-income neighborhood organizations rather than only
the elected representatives of such organization, stating that the
change is helpful and will widen the pool from which CHDOs may find
board members. A commenter who supported the proposed changes stated
that they would be particularly helpful for communities with rising
incomes where board members who previously qualified as residents of a
low-income neighborhood may now be residents of a middle-income
neighborhood.
HUD Response: The Department appreciates the comments and is
adopting this change.
M. Paragraph (8) of CHDO Definition--Difference Between ``Designee''
and ``Authorized Representative''
Multiple commenters asked that HUD clarify or provide examples in
the final rule of the difference between a ``designee'' and an
``authorized representative,'' as used in paragraph (8)(i) of its
proposals regarding nonprofit representatives on CHDO boards because
the proposed rule implies a difference that is not explained. Another
commenter noted that there is some ambiguity in the term ``authorized
representatives'' in paragraph (8)(i) and encouraged HUD to broaden the
scope of the language as it could be construed to mean only individuals
who have legal authority to bind the nonprofit.
HUD Response: The Department recognizes that using two different
terms ``designee'' and ``authorized representative'' created confusion
because low-income neighborhood organizations and nonprofit
organizations that address housing or supportive services needs of
residents of low-income-neighborhoods may have similar corporate
structures and organizational requirements. The Department believes
that the term ``designee'' is the appropriate term. A low-income
neighborhood organization or a nonprofit organization that addresses
the housing or supportive service needs of low-income residents or
residents of low-income-neighborhoods can designate one or more persons
to serve on the board of a CHDO. Accordingly, the Department has
revised paragraph (8)(i) of the definition of CHDO to read ``designees
of nonprofit organizations in the community that address the housing or
supportive service needs of low-income residents or residents of low-
income neighborhoods . . . .''
N. Paragraph (8) of CHDO Definition--Support for Inclusion of
Authorized Representatives of Nonprofit Organizations in the Community
That Address the Housing or Supportive Service Needs of Residents of
Low-Income Neighborhoods
Many commenters stated that they support the proposals to permit
authorized representatives of local non-profit organizations and
members of low-income neighborhood organizations to meet the CHDO board
requirements for low-income residents. One commenter stated that
representatives from organizations who serve low-income persons, even
when an organization's focus is on a topic other than housing, should
count towards the low-income representation. Other commenters objected
to the proposed rule's addition of ``authorized representatives of
nonprofit organizations'' to the definition of CHDOs in Sec. 92.2,
citing concerns about accountability and connection of a CHDO board to
the low-income neighborhood. One commenter stated that relaxing the
requirement for direct community involvement on CHDO boards would
dilute the intended impact of the designation as a means for
maintaining accountability to low-income community residents because
authorized representatives from nonprofit organizations are not
required to reside in the neighborhood nor be low-income themselves.
The commenter recommended that HUD remove the ``authorized
representative'' option for meeting the CHDO board member eligibility
requirement. Another commenter stated that the expanded definition is
not community-centered and does not truly connect the governance of the
CHDO to the community.
One commenter stated that although they were not firmly opposed to
the change, they were concerned about the potential of the proposed
changes to water down the representation of low-income people in CHDO
governance, which is an important source of accountability. The
commenter urged the Department to consider the possibility of layering
using a tandem requirement to preserve the opportunities for low-income
people to participate in this process.
HUD Response: The Department is moving forward with language
allowing for designees of nonprofit organizations in the community that
address the housing or supportive service needs of low-income community
residents or residents of low-income neighborhoods to count towards the
one-third board
[[Page 775]]
membership requirement in paragraph (8)(i) of the definition of
community housing development organization in Sec. 92.2.\22\ The
Department believes that designees of nonprofit organizations that
house or provide supportive services to low-income residents or
residents of low-income neighborhoods are accountable to the people
they serve, understand the challenges they face, and are in a position
to represent the beneficiaries of their services in making decisions on
the design, siting, development, and management of affordable housing,
in accordance with 42 U.S.C. 12704(6)(B).
---------------------------------------------------------------------------
\22\ See earlier preamble discussion on why the Department is
using the term ``designee.''
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Designees of nonprofit organizations that address the housing or
supportive service needs of low-income community residents or residents
of low-income neighborhoods may not always live in low-income
neighborhoods or be low-income, but they directly serve those that are,
including persons with disabilities, victims of domestic violence,
homeless persons, people suffering from food insecurity, and victims of
civil rights violations. Their participation strengthens the board of
CHDOs because these organizations have deep ties to the community and
the people they serve. Far from watering down the requirements for
board members, the Department believes that this better enables CHDOs
to retain subject matter experts that better understand the community
being served by the CHDO.
O. Paragraph (8) of CHDO Definition--Building More Equity Into
Governing Boards
One commenter stated that it was concerned about recruitment and
retention of low-income residents for board membership and understands
HUD's proposal to relax board member restrictions, but would appreciate
further consideration/guidance toward instilling equity in board member
criteria requirements because this impacts board member
representativeness. The commenter stated that this relaxation may
eventually have potentially negative effects on low-income tenants
residing in the affordable housing development. The commenter further
stated that a board that is technically allowed per HUD requirements
may not be representative of the community it serves.
HUD Response: The Department appreciates the comment and recognizes
the tension inherent in simplifying qualification requirements to
increase the number of organizations that can qualify as CHDOs and
maintaining accountability to the low-income neighborhood where a
project is located. HUD believes that the requirement in paragraph
(8)(ii) that a CHDO have a formal process for low-income program
beneficiaries to advise the organization in its decisions regarding the
design, siting, development, and management of affordable housing helps
maintain accountability to low-income tenants residing in projects. HUD
is attempting to build equity in this by including ``designees of
nonprofit organizations in the community that address the housing or
supportive service needs of low-income residents or residents of low-
income neighborhoods, including homeless providers, Fair Housing
Initiatives Program (FHIP) providers, Legal Aid, disability rights
organizations, and victim service providers.''
HUD has determined that the entities used as examples in this
section each assist protected classes including persons with
disabilities; survivors of domestic violence, dating violence,
stalking, sexual assault, and human trafficking; and persons suffering
from various forms of discrimination. By clarifying how FHIPs, Legal
Aid organizations, and other civil rights organizations can count
towards representation, HUD is advancing equity in CHDO board
composition. Moreover, the Department believes that each hold a
connection to the community and will make CHDOs more representative of
the community and the needs of low-income residents within the
community.
P. Paragraph (8) of CHDO Definition--Examples of Nonprofit
Organizations That Address the Housing or Supportive Service Needs of
Residents of Low-Income Neighborhoods
Commenters requested that HUD clarify in the final rule or
supplemental guidance whether the list of community serving
organizations included in the proposed rule is organizations from which
authorized representatives can qualify for the low-income portion of
the CHDO board is exhaustive or illustrative in nature. Some commenters
urged HUD to be as expansive as possible in identifying the types of
organizations included in this provision. Some commenters suggested
other types of organizations that should be specifically listed in the
regulation, including health and behavioral healthcare providers,
healthcare organizations, food pantries, workforce development
organizations, Native American- and Tribal-serving organizations, and
faith-based organizations. Commenters stated that the inclusion of
faith-based institutions could further HUD's goals of supporting CHDOs
in rural areas. One commenter cited the historically significant
relationship between faith-based organizations and housing development
organizations, especially in rural areas.
One commenter recommended against the HOME program rule listing out
specific organizations that meet the low-income representative
requirement for CHDO boards. The commenter stated that if HUD wishes to
include a specific list of organizations, then HUD should make sure the
list explicitly states that the listed organizations are just examples
of organizations that qualify to meet the low-income representative
requirement for CHDO boards.
HUD Response: The Department appreciates the recommendations made
by the commenters. The Department believes the current list of examples
of nonprofit organizations that address housing or supportive service
needs of low-income residents or residents of low-income-neighborhoods
in paragraph (8)(i) of the definition of CHDO in Sec. 92.2 is
sufficient for the public to understand what type of organizations meet
this requirement. Some of the commenters' recommendations, like faith-
based organizations, are already explicitly mentioned in HOME
regulations.\23\ Many of the other organizations that commenters
mention will qualify if they meet the nonprofit requirements and
provide needed housing or supportive services to community residents.
The Department will provide additional implementation guidance on the
new CHDO requirements.
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\23\ See paragraph (10) of the definition of community housing
development organization in 24 CFR 92.2.
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Q. Paragraph (8) of CHDO Definition--Reduce Low-Income Board Membership
Requirements
Commenters encouraged HUD to reduce the low-income board
requirement below the current one-third or eliminate the low-income
representation requirement altogether. One commenter stated that
expanding low-income board eligibility to include ``designees of low-
income neighborhood organizations'' will not increase nonprofit
interest in becoming CHDOs because nonprofit organizations do not want
to make significant changes to their board composition. One commenter
who supported the proposed changes also recommended reducing the low-
income board representation from
[[Page 776]]
one-third to 10 or 15 percent, stating that this would still constitute
significant representation by low-income community residents.
HUD Response: The Department believes that the one-third board
representation requirement is consistent with the statutory intent in
42 U.S.C. 12704(6)(B), which requires that CHDOs maintain
accountability to low-income community residents through
``significant'' representation on the organization's governing board
and ``to the extent practicable, to low-income beneficiaries with
regard to decisions on the design, siting, development, and management
of affordable housing.'' Reducing the percentage or eliminating the
requirement would not be consistent with the intent of the Act and
would decrease the CHDO's connection with the people they serve. The
Department is declining to change the one-third board representation
requirement.
R. Paragraph (8) of CHDO Definition--Meeting the Low-Income
Representation Requirement in Rural Communities
A commenter stated that in their rural service area there are no
low-income neighborhood organizations and that one of their board
members works at a nonprofit as the school district's homeless liaison
and family support specialist. The commenter stated that because there
are no low-income neighborhoods in the school district, the noted board
member would not count toward the one-third low-income representation.
The commenter suggested that HUD consider using tandem requirements to
preserve the opportunities for low-income people to participate in this
process. Another commenter with a rural service area suggested that the
language in paragraph (8)(i) of Sec. 92.2 be changed to ``. . .
authorized representatives of nonprofit organizations in the community
that address the housing or supportive service needs of low-income
residents of the CHDO's service area . . . .''
HUD Response: The Department recognizes the challenges in rural
communities where nonprofit organizations may be providing supportive
services to low-income individuals but may not be serving in a low-
income community. The Department believes that it has sufficiently
broadened paragraph (8) to account for designees of nonprofit
organizations that serve low-income residents within the community that
the CHDO serves. This should address the commenter's concerns and
better enable people who serve low-income community residents to
represent their interests on the board of a CHDO.
S. Paragraph (8) of CHDO Definition--The Use of the Term ``Residents of
Low-Income Neighborhoods'' Is Too Limiting
Another commenter also suggested that HUD reconsider the phrasing
``residents of low-income neighborhoods'' because it suggests that
service organizations who are regional or whose clients are not defined
by the clients' neighborhood of residence are not eligible. The
commenter stated that agencies that are included in this criterion
necessarily have regional footprints, and the residents they serve are
defined by some income or other ``need'' characteristic, not the income
level of the neighborhood in which the client lives.
HUD Response: The Department agrees that the phrasing of
``residents of low-income neighborhoods'' could be read as too narrow
and does not fully capture the statutory intent of the definition
contained in 42 U.S.C. 12704(6). 42 U.S.C. 12704(6)(B) requires that a
CHDO be a nonprofit organization that ``maintains, through significant
representation on the organization's governing board and otherwise,
accountability to low-income community residents and, to the extent
practicable, low-income beneficiaries with regard to decisions on the
design, siting, development, and management of affordable housing . .
.'' HUD has determined that adding ``low-income beneficiaries of HUD
programs,'' to the list of individuals that may count towards the one-
third board membership requirement contained in paragraph (8)(i) of the
definition of CHDO in Sec. 92.2 can partly address the commenter's
concern while also being more consistent with the statutory
requirement. HUD believes this will address the commenter's concerns
because status as a low-income beneficiary of HUD programs is not
connected to the immediate geography of the person served. HUD
encourages CHDOs, to the greatest extent practicable, to include low-
income beneficiaries of HUD programs because their inclusion will lead
to increased accountability. HUD recognizes that not all HOME rental
projects and not all people served by HUD programs reside in low-income
communities and believes that this addition will make this
representation more inclusive. HUD encourages siting projects outside
of areas of concentrated poverty but still wants accountability to the
beneficiaries of the program served. Therefore, HUD believes this
change is a meaningful revision. HUD would note that while HUD is
proposing this revision to make it clearer that beneficiaries of HUD
programs can count towards the representation requirements, the
Department would like to clarify that the term ``other low-income
community residents'' is already part of the regulation and the term
``community'' can be considered a multi-county area. So, it is very
possible that many of the people the commenter described may already be
eligible to count towards the one-third board representation
requirement contained in paragraph (8)(i) of the definition of CHDO in
Sec. 92.2.
The Department is also addressing the commenter's concerns by
expanding the type of designees of nonprofit organizations to include
nonprofit organizations that serve ``low-income residents'' instead of
organizations serving ``residents of low-income neighborhoods.''
Therefore, in the example the commenter gave, if the person was a
designee of a nonprofit organization that provided services to a low-
income resident of the CHDO's community, then the person would be able
to count towards the one-third board representation requirement in
paragraph (8) of the definition of CHDO.
T. Paragraph (8) of CHDO Definition--Lived Experience Should Count
Towards Low-Income Board Representation Requirements
Commenters stated that HUD should consider individuals who are not
low-income but have previous lived experience as a low-income person or
a homeless person to qualify as a low-income community resident for the
purposes of meeting the requirement for one-third low-income
representation on the CHDO governing board. These commenters stated
that the changes in circumstance, such as increases in income, do not
eliminate such a board member's lived experience, which make them a
valuable representative of the interests of low-income people and
places.
Other commenters recommended that HUD revise the regulation to
permit individuals who joined the board as a low-income community
resident to retain that designation even if their income rises above
the low-income level. Some commenters stated that HUD should provide a
grace period in such cases because it is difficult for CHDOs to replace
board members when their eligibility as a low-income representative
unexpectedly ends. Similarly, a commenter suggested that if a board
member moves or has their home address re-designated into a different
census tract, HUD should allow a grace period not to exceed the lesser
of their board term or five years
[[Page 777]]
for that board member to continue to qualify as living in a low-income
community. Commenters suggested grace periods of varying length,
including three years and 10 years.
HUD Response: The Department agrees that current lived experience
should count towards board representation requirement and has expanded
the list of people that can count towards the one-third board
representation requirement in paragraph (8) of the definition of CHDO
to include low-income beneficiaries of HUD programs. HUD also
considered whether persons with former lived experience of being low-
income or homeless should qualify towards the requirement that an
organization's governing board maintain accountability to low-income
community residents and low-income beneficiaries. Unfortunately, the
Department believes that this does not satisfy the statutory
requirement that board members be connected and answerable to low-
income community residents because they might not appropriately account
for the present challenges impacting low-income persons in the
community being served. The Department also considered providing a set
time period in which a person could qualify as a low-income board
member regardless of whether the board member's income increased. The
Department believed that doing so could lead to a result where
individuals who were not low-income, no longer lived in low-income
communities, and had no ties or accountability structures to the low-
income community would be counted towards the board representation
requirement. This is not consistent with the intent of the Act and does
not provide accountability to the people that the CHDO serves. As a
result, the Department has declined to make the commenters' recommended
revisions.
U. Paragraph (8) of CHDO Definition--Expanding the Definition of
``Community'' To Be Statewide
Some commenters supported the proposed change to allow the
definition of the community to include the entire State because it
would address challenges rural communities face in meeting the
governing board and staff capacity requirements and increase the usage
of CHDO set-aside funds in rural areas. One commenter stated that HUD's
proposed rule would benefit rural organizations that have experienced
negative impacts from the existing high standards in the definition of
CHDO in HUD's regulations.
Many commenters raised concerns or strongly objected to expanding
community to mean the entire State. These commenters believed it would
weaken the connection of a CHDO to the low-income community being
served. One commenter noted that the proposed change would
disincentivize State participating jurisdictions from working to build
the capacity of local groups, which is antithetical to the intent of
the CHDO set-aside requirement. One commenter expressed concern
regarding the change to allow Statewide CHDOs, particularly for very
large and geographically diverse States such as California, and
recommended HUD allow State participating jurisdictions the flexibility
to evaluate the capacity of CHDOs to serve the entire State, especially
rural and underserved areas of the State. Commenters stated that the
proposed change went too far in permitting rural CHDOs to qualify based
on board representation from the areas being served. Several commenters
stated the proposed change would inappropriately characterize all rural
areas as equal for purposes of low-income representation. One commenter
stated that under the proposed regulation, a Statewide CHDO could
develop a board with no low-income presence, accountability, or
connection with the community served. Another commenter asked HUD to
consider the tension between the need to drive more CHDO dollars to
rural communities and the need to build capacity and provide
opportunities for smaller rural-serving CHDOs when moving forward with
the consideration of Statewide CHDOs.
Commenters stated that while they recognized the critical need for
more CHDOs in rural areas, they were concerned that the proposed change
would result in small community-based organizations having to compete
for CHDO set-aside funds with large, high-capacity Statewide
organizations. One commenter stated that small, rural CHDOs would be
disadvantaged by their greater need for capacity building funding.
Commenters stated that if HUD adopts the proposed change, it should
also implement mechanisms to ensure that Statewide CHDOs consider local
community input and priorities in the rural communities they serve and
consider how to ensure smaller organizations are not wholly cut out
from accessing CHDO resources.
Some commenters recommended that HUD allow CHDOs with Statewide
service areas to be eligible as CHDOs but only award project dollars to
CHDOs (located anywhere in the State) with at least three years of
service to the community in which the project is located, as opposed to
one year of service anywhere in the State.
Commenters noted that the regulations already allow for rural
communities to be defined as a multi-county area. One such commenter
stated that 42 U.S.C. 12704 prohibits participating jurisdictions from
requiring such a CHDO with such a community to have board
representation from each of its counties. The commenter stated that
there is currently no regulatory barrier for a CHDO to claim as its
community every county in a State with the exception of areas within a
Metropolitan Statistical Area; the barrier that exists is participating
jurisdictions' interpretation of ``multi-county.'' The commenter
suggested that a better proposal would be for HUD to direct the most
expansive interpretation of ``multi-county'', and to allow individual
Statewide participating jurisdictions to apply for waivers from the
existing regulation to create Statewide CHDOs only if needed.
HUD Response: The Department appreciates the many thoughtful
comments submitted by many commenters on both sides of this difficult
issue. While HUD remains concerned about the challenges many
participating jurisdictions have in identifying and sustaining CHDOs
that serve rural areas, it has decided not to adopt the change to the
definition of community in paragraph (8) of the CHDO definition. The
Department is persuaded by commenters that adopting this proposal would
impair or eliminate the accountability of CHDOs to the low-income
communities being served with CHDO set-aside funds and would negatively
affect small rural CHDOs by putting them in competition with larger
Statewide organizations with more capacity but less connection to the
low-income community being served.
HUD appreciates commenter suggestions that if the proposal were to
be adopted, the Department should impose mechanisms to help ensure that
Statewide CHDOs consider local community input, require a longer
history of serving a specific rural community, or mitigate the
disadvantage that smaller rural CHDOs would have in comparison to
Statewide organizations in competing for CHDO set-aside funds. However,
the Department recognizes that the qualification of nonprofit
organizations as CHDOs is already substantially regulated and believes
that additional regulation would be counterproductive. Instead, HUD
considers the adoption of other proposed changes to the CHDO definition
in paragraphs (8) and (9) of Sec. 92.2, to the developer and sponsor
roles at Sec. 92.300(a)(2) and (3), and the elimination of the
proposed revision of
[[Page 778]]
the definition of community in Sec. 92.2 to be a middle ground that
will hopefully increase the availability of CHDOs to serve rural areas
without diminishing the accountability of those CHDOs to the low-income
communities being served.
In response to the commenter that stated that 42 U.S.C. 12704
prohibits a participating jurisdiction from requiring a CHDO serving
rural areas to have board representation from each of its counties, HUD
notes that this interpretation of the Act is incorrect. The Act
prohibits HUD, not participating jurisdictions, from requiring that an
organization must have representation from each county in its service
area to be designated as a CHDO. Because HOME is a block grant program,
participating jurisdictions have discretion to establish requirements
for their programs and select projects as they choose through requests
for proposals or other legally permissible methods. Consequently,
participating jurisdictions can establish their own requirements for
designating or awarding funds to CHDOs that are more stringent and take
into account these types of considerations.
V. Paragraph (9) of CHDO Definition--Using Volunteers To Demonstrate
Capacity
Some commenters supported the proposed change in paragraph (9)(i)
that would permit the capacity and experience of volunteers who will
work directly on a HOME-assisted project and are officers or board
members to be considered as part of demonstrated capacity. Commenters
stated that the proposed change would make it easier for organizations
to qualify as CHDOs.
One commenter suggested that HUD not limit volunteers to board
members as they considered this limitation unnecessary. The commenter
noted that if there are concerns about dependability or ongoing
capacity, then the standard should be broadened to also include
``contracted volunteers.''
Other commenters that supported the proposed change suggested that
HUD consider imposing guardrails on volunteer capacity such as applying
a limit on the period that the experience of a volunteer official or
board member may be counted toward a CHDO's capacity. Some commenters
recommended a three-year limit. One commenter stated that prolonged
reliance on officials and board members will harm an organization when
it comes to meeting development capacity requirements, especially
because nonprofits have high staff turnover. The commenter stated that
this will affect the ability of nonprofits to train new staff on HOME
requirements and place the burden of such education on the
participating jurisdiction.
One commenter stated that they had serious concerns about
volunteers serving on a board in meeting the capacity requirements for
an organization. The commenter stated they had these concerns because a
volunteer will generally not dedicate the same time and effort as an
employee. The commenter also stated that the proposed change would
allow for people to create shell organizations that have a
representative board who are also real estate professionals and have
that qualify as a CHDO organization.
A commenter noted that the definition of CHDO in Sec. 92.2(9)
states that ``the nonprofit organization must have employees or
volunteers,'' which appears to allow an organization with volunteers
and no employees to be designated as a CHDO. The commenter requested
that HUD clarify whether this language was intentional or
unintentional. The commenter stated further that HUD could refine the
language to add clarity on the relationship between ``employees'' and
the nonprofit seeking CHDO designation.
HUD Response: The Department thanks the commenters for reviewing
the rule. The Department especially thanks the commenter that informed
the Department that the provision as drafted in the proposed rule could
have allowed a CHDO to meet the capacity requirement without paid
staff. This was not what the Department intended. The Department is
revising paragraph (9)(i) of the definition of CHDO. The Department
believes that requiring paid staff and then allowing their capacity to
be supplemented by volunteers strikes an appropriate balance. The
Department also believes this addresses commenters who requested that
there be guardrails or time limitations.
Under the final rule, CHDOs must maintain paid staff that will
manage the development process. CHDOs can also rely upon board members
and officers of the organization with significant development
experience because those board members and officers have more lasting
ties to the organization than typical volunteers, who may only be
volunteering for individual projects or for a limited time.
The Department is also declining to allow the use of a ``contracted
volunteer,'' which is an amorphous term that could lead to abuse or
indirect control of a CHDO by a for-profit entity, or lead to
determining that an organization lacks the capacity when the person
demonstrating capacity is not contracted for the full development
cycle. Even if the volunteer is contracted for the amount of time
overlaps with the development cycle for a particular project, the ties
of contracted volunteer service are not nearly as strong or as binding
as paid staff, board members, or officers. Typically, the consequences
are far less significant if a contracted volunteer ends their volunteer
term early, while volunteer board members and officers have terms of
office, and the organization generally has mechanisms for replacement
of former officers or board members written into their organizational
documents to ensure proper governance.
W. Paragraph (9) of CHDO Definition--Experience With Other Funding
Sources and Programs
Commenters stated that they support the proposed rule language that
would broaden the requirement that an organization have demonstrated
staff capacity for carrying out projects assisted with HOME funds to
include housing projects funded with other Federal funds, LIHTC, or
local and State affordable housing programs. One commenter expressed
support because the proposed change would help small rural CHDOs meet
organizational capacity requirements.
Commenters also requested that HUD explicitly include experience
with the New Markets Tax Credits and Federal Home Loan Bank Affordable
Housing Program.
HUD Response: The Department agrees with commenters that the list
of types of programs or forms of assistance could be broadened and that
experience in the Federal Home Loan Bank Affordable Housing Program is
sufficient to demonstrate capacity. The Department is therefore adding
this program to this list of programs that demonstrate capacity in
paragraph (9) of the definition of CHDO in Sec. 92.2. The Department
is declining to add experience with the New Market Tax Credits as these
credits are exclusively for non-residential uses and experience in
commercial development alone is not sufficient to demonstrate
experience with the challenges of housing development.
X. Paragraph (9) of CHDO Definition--Use of Donated Labor, Consultants,
and Others
Commenters made suggestions regarding other individuals whose
experience should be counted toward a CHDO's capacity. Commenters
recommended that the final rule permit
[[Page 779]]
the experience of staff from affiliated entities, parent companies,
for-profit developers, public housing authorities, and regional
planning commissions whose services are donated to the CHDO be
considered as capacity of a CHDO. One commenter stated that HUD should
clarify the difference between donated time and volunteer time. Several
commenters also recommended that CHDOs be allowed to demonstrate
capacity and experience through the use of consultants and non-employee
compensation.
HUD Response: The Department does not believe that donated labor is
sufficient to meet the statutory requirement in 42 U.S.C. 12704(6)(C)
that a CHDO have staff with demonstrated capacity to own, develop, or
sponsor a HOME project. The CHDO itself must be capable of
participating in the housing development process. When an organization
relies upon the expertise of donated labor or individuals who work for
affiliated organizations, those individuals lack lasting ties to the
organization and may only be donated for individual projects or for a
limited time. The donated labor also may lead to situations where
organizations that are not CHDOs exercise outsized influence over CHDO
projects, thereby potentially undermining the purposes of the Act.
The Department does allow the use of a consultant in the first year
that a CHDO is provided HOME funds; paragraph (9)(i) reads as follows:
``[f]or its first year of funding as a community housing development
organization, an organization may satisfy [the capacity] requirement
through a contract with a consultant who has housing development
experience to train appropriate key paid staff of the organization.''
The Department believes that it is appropriate to retain this provision
but is adding clarification that the staff that are to be trained must
be paid staff, as per the Department's earlier comment response on the
importance of paid staff in demonstrating capacity to develop HOME
projects.
Y. Revise the CHDO Definition To Enable Participation of More Resident-
Owned Communities
One commenter who supported the flexibility provided to CHDOs in
the proposed rule stated that the changes do not allow resident-owned
communities to qualify as CHDOs. The commenter stated that such
communities cannot meet the 501(c)(3) status and demonstrated capacity
requirements, even though they fully meet the intent of CHDOs. The
commenter stated that resident-owned manufactured housing communities
are owned by predominantly low-income community members organized to
govern and preserve their communities and have flourished for 40 years
due to a system of professional technical assistance, training, and
ongoing business coaching. The commenter urged HUD to support capacity
building systems for resident-owned communities and other eligible
manufactured housing communities.
HUD Response: The Department appreciates the comments and agrees
that using HOME funds, including CHDO set-aside funds, for manufactured
housing communities presents some challenges. The Act requires that to
qualify as a CHDO, an organization must be a non-profit organization.
The regulations implement that statutory provision through a
requirement that a CHDO have tax-exempt status evidenced by a
501(c)(3), 501(c)(4), or section 905 designation from the Internal
Revenue Service. In addition, the Act and the Consolidated and Further
Continuing Appropriations Act of 2012 (Pub. L. 112-55) and the
Consolidated and Further Continuing Appropriations Act of 2013 (Pub. L.
113-6) require that a CHDO have staff with demonstrated capacity to
undertake HOME-assisted housing activities. These requirements do not
apply to HOME funds outside of the CHDO set-aside making those funds
possibly a better fit for such projects. The Department provides a
broad range of technical assistance through its Community Compass
demand-response system, which can be of assistance in developing
approaches to use HOME funds to assist manufactured home communities.
Sec. 92.2--Community Land Trust Definition
A. General Comments on the Definition
Several commenters expressed support for HUD's proposed definition
of the term ``community land trust'' with many commenters noting that
the proposed definition allows for flexibility in the composition of
the organizational board and governance of community land trusts across
the country. One commenter specifically noted that the proposed
definition does not specify the structure of the community land trust's
governing board yet retains the nonprofit purpose, the centrality of
land, the lasting affordability, and codifies the preemptive purchase
rights of community land trusts to prevent the loss of units to the
open market.
Two commenters support the elevation of the term ``community land
trust'' to the definition section of the regulation noting that the
placement makes it clear that the definition applies throughout the
HOME program.
Two commenters noted the importance of community land trusts to the
affordable housing market noting that community land trusts help
families bridge the gap between rental housing and homeownership,
benefit residents of color in communities facing displacement, increase
resilience against climate extremes, pass lower property taxes through
to the project or end user, and are a dedicated partner for local
government funding for affordable housing. Several commenters also
stated that the proposed definition will enable more community land
trusts to participate in the HOME program, while two commenters noted
that rural community land trusts in particular would be encouraged to
participate in the HOME program. Two commenters also added that the
proposed changes would allow community land trusts to fully realize the
benefits of the HOME program and the right to a preemptive purchase
option provided in 2016.
Several commenters expressed concern about or opposition to HUD's
proposed definition of community land trust.
HUD Response: The Department is moving forward with including a
definition of community land trust in Sec. 92.2. The definition of
community land trust better enables these organizations to participate
in the HOME program in the manner envisioned by the Act and the
drafters of the Consolidated Appropriations Act, 2016.\24\
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\24\ The Consolidated Appropriations Act, 2016 Public Law 114-
113, div. L, title II, Dec. 18, 2015, 129 Stat. 2878 said that
notwithstanding the affordability requirements contained in section
215(b)(3)(A) of the Act [42 U.S.C. 12745(b)(3)(A)], community land
trusts may ``hold and exercise purchase options, rights of first
refusal or other preemptive rights to purchase the housing to
preserve affordability, including but not limited to the right to
purchase the housing in lieu of foreclosure.''
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B. Opposition to the Definition Over Concerns of Conflict With
Environmental Requirements
One commenter asked if HUD's proposal regarding community land
trusts would violate other HUD requirements, including the
environmental review process requirement that prevents proposed
projects from being built too close to other low-income housing.
HUD Response: The commenter is mistaken. There are no low-income
[[Page 780]]
housing concentration requirements as part of the HOME environmental
review process. Section 92.202(b) requires that new rental housing meet
the site and neighborhood requirements contained in 24 CFR 983.57(e)(2)
and (3) but those requirements are not applicable to homeownership
projects that are developed by community land trusts.
C. Add ``Membership'' or ``Community-Governed'' to the Organizational
Requirements of Community Land Trusts
Two commenters objected to the proposed definition noting that HUD
should add the phrase ``membership or community-governed'' to the
definition to reflect the community governance structure inherent in
community land trusts. The commenters added that HUD should address the
underlying concerns about participating jurisdictions' difficulty
determining the legitimacy of the governing models through education.
HUD Response: The Department understands the commenter's concern
but does not believe that adding additional community governance
structures to the definition of community land trusts in Sec. 92.2 is
appropriate at this time. Community land trusts may also attempt to
meet the definition of CHDO in Sec. 92.2, and own, develop, or sponsor
HOME projects in accordance with Sec. 92.300. Adding additional
community governance requirements in addition to those contained in
Sec. 92.2 or Sec. 92.300 may create too high of a bar for
participation in the HOME program.
Moreover, community land trust governance structures vary from
State to State, based upon State laws and local models. In the
materials that various commenters provided and in the State laws that
were reviewed in the preparation of the proposed rule text, the board
requirements and best practices varied significantly. Given the wide
variety of community land trust models operating over a significant
period of time throughout the nation, the Department does not wish to
inadvertently narrow the definition or eliminate consideration of an
organization that would have met the intent of the drafters of the Act
or the Consolidated Appropriations Act, 2016.\25\
---------------------------------------------------------------------------
\25\ The Consolidated Appropriations Act, 2016 Public Law 114-
113, div. L, title II, Dec. 18, 2015, 129 Stat. 2878 said that
notwithstanding the affordability requirements contained in section
215(b)(3)(A) of the Act [42 U.S.C. 12745(b)(3)(A)], community land
trusts may ``hold and exercise purchase options, rights of first
refusal or other preemptive rights to purchase the housing to
preserve affordability, including but not limited to the right to
purchase the housing in lieu of foreclosure.''
---------------------------------------------------------------------------
The Department is committed to making it easier for participating
jurisdictions to support CHDOs and better implement statutory
provisions that enable community land trusts to participate in the HOME
program.
D. The Definition of Community Land Trusts Is Too Restrictive
Another commentor objected to HUD's proposed definition of
community land trust as too restrictive, stating that the proposed
definition could disqualify many community land trusts from using the
additional tools that the revised rule would provide. The commenter
stated that the use of the phrase ``development and maintenance'' would
exclude community land trusts that carry out non-development activities
such as land acquisition and noted that few community land trusts
provide maintenance services, which are generally the responsibility of
the owner. The commenter suggested replacing the phrase ``development
and maintenance'' with the word ``provision,'' as in ``the provision of
housing that is permanently affordable to low- and moderate-income
persons,'' thereby aligning the proposed community land trust
definition with the HOME definition of a CHDO as ``[having] among its
purposes, the provision of decent housing.''
HUD Response: The Department agrees with the commenter that many
community land trusts do not develop or maintain housing. As models
vary nationwide, the Department recognizes that the wording of the
definition was too narrow to permit community land trusts that acquire
and hold existing housing to be considered land trusts. Likewise, the
use of the term maintenance was confusing for some community land
trusts that do not have the responsibility of maintaining the housing
during the term of the ground lease. The Department would note that in
order to exercise a right of first refusal, the housing must have been
developed by a community land trust using HOME funds.\26\ Therefore,
while a community land trust may have, as its purposes, ``acquiring''
or ``holding'' land, in order to exercise rights of first refusal, the
housing must have been developed by the community land trust.
---------------------------------------------------------------------------
\26\ The Consolidated Appropriations Act, 2016 only allows
community land trusts to exercises purchase rights for ``funds
provided in prior and subsequent appropriations acts that were or
are used by community land trusts for the development of affordable
homeownership housing pursuant to section 215(b) of such Act.''
Public Law 114-113, div. L, title II, Dec. 18, 2015, 129 Stat. 2878.
---------------------------------------------------------------------------
E. Revise Organizational Requirements of Community Land Trusts To Allow
New Smaller Community Land Trusts
One commenter stated that HUD should consider amending the
community land trust board requirements to allow flexibility for new
community land trusts with small portfolios of homes that do not have
sufficient lessees to comply with the requirements.
HUD Response: The definition of community land trusts in Sec. 92.2
does not have strict board requirements other than the community land
trust not be sponsored by a for-profit entity. A new organization is a
community land trust once it meets all of the requirements of the
definition. If a new organization meets the requirements in the
definition, even if it was only for a small portfolio, it is a
community land trust for the purposes of the HOME program definition.
The Department would like to remind the public that to exercise the
right of first refusal described in Sec. 92.254, which is what the
definition of community land trust is used for, the new community land
trust must develop HOME homeownership housing in accordance with the
requirements of 24 CFR part 92.
F. Conflicts Between the Definition of Community Land Trust in Sec.
92.2 and Sec. 92.302
One commenter stated there is an internal conflict between the
proposed definition of a ``community land trust'' in Sec. 92.2 and the
proposed housing education and organization support language at Sec.
92.302(b)(3)(i). Specifically, the commenter stated there is a conflict
between the language of the proposed community land trust definition,
which allows a combination of a deed restrictions and a preemptive
purchase right at a formula price in lieu of a ground lease, and Sec.
92.302(b)(3)(i), which is limited to community land trusts that retain
title and convey it via a ``long-term ground lease.'' The commenter
noted there is no easy solution because allowing non-ground lease
approaches may inadvertently expand the definition of a community land
trust in a manner HUD may not have anticipated.
HUD Response: The Department acknowledges that the community land
trust requirements established in Sec. 92.203(b)(3)(i) differ from the
definition of community land trust proposed by the Department in Sec.
92.2. Under NAHA, to receive housing education and organizational
support
[[Page 781]]
funds, a community land trust must meet the requirements established in
the statute, including but not limited to the requirement that a
community land trust acquire parcels of land, held in perpetuity,
primarily for conveyance under long-term ground lease. The Department
codified these requirements in the regulations at Sec.
92.302(b)(3)(i).
The Consolidated Appropriations Act, 2016, which for the first time
permitted community land trusts to exercise preemptive purchase rights
for HOME-assisted homeownership units, required that HUD establish a
revised definition of community land trust for this purpose that did
not limit program participation to the narrower definition of community
land trusts that solely enforce restrictions through a ground lease, as
is required for housing education and organizational support funds
under NAHA. The proposed definition of community land trust in Sec.
92.2 is reflective of how community land trusts enforce restrictions
nationwide, including in the HOME program. The requirements of
homeownership in Sec. 92.2, as revised, still apply, as do the period
of affordability requirements in Sec. 92.254. The Department
understands that there are different dates and different definitions
for related requirements and will provide additional implementation
guidance on the definitions of community land trust in Sec. 92.2 and
Sec. 92.302, how to meet the requirements for homeownership, and
preserving affordability when a community land trust exercises a
purchase right.
The Department will continue to use the definition of community
land trust established in the Act and promulgated at Sec.
92.302(b)(3)(i) should the Department receive funds for housing
education and organizational support in the future. The Department is
moving forward with the separate regulatory definition of community
land trust in Sec. 92.2 for those community land trusts that will be
eligible to exercise preemptive purchase rights pursuant to the
Consolidated Appropriations Act, 2016, as codified in Sec.
92.254(b)(3).
G. Concern Regarding 30-Year Ground Lease Term and Conflicts Between
the Definition of Community Land Trust in Sec. 92.2 and the Definition
of Homeownership in Sec. 92.2
Several commenters expressed concern or opposition to the proposed
regulatory definition that would, in part, require community land trust
housing and related improvements to be affordable for at least 30-
years. Two commenters noted that community land trusts typically impose
ground leases of 90-plus years and are concerned about the reduced 30-
year ground lease included in the community land trust definition. One
commenter recommended that HUD increase the ground lease for community
land trusts to 90-plus years. The commenter stated that it dilutes the
mission of community land trusts to reduce the ground lease to 30
years. The commenter stated that the community land trust movement
internationally is focused on permanent-affordability with 98- and 99-
year ground leases or land use restrictions. In support of their
comments, the commenter included additional information regarding
community land trusts, including the: (1) Grounded Solutions Network,
2011 Model Ground Lease & Commentary (2018); (2) National League of
Cities, Community Land Trusts: A Guide for Local Governments (2021);
and (3) Burlington Associates in Community Development, Frequently
Asked Questions about Community Land Trusts (2007). Another commenter
stated that community land trust ground leases typically restrict
resale of a home to an income eligible buyer at an affordable price for
99 years, and typically require that the buyer enter into a new 99-year
ground lease upon purchase. The commenter referred HUD to Grounded
Solutions Network Model Declaration of Affordability Covenants and
Model Ground Lease (Article 10).
One commenter stated that there is an internal conflict within the
definitions of a ``community land trust'' and ``homeownership.'' The
commenter noted that the definition of community land trust includes
organizations that provide ground leases of at least 30 years while the
definition of homeownership requires that community land trust ground
leases be for at least 50 years. The commenter stated that these
definitions could allow organizations to qualify as a community land
trust by offering ground leases of only 30 years but make said
community land trusts ineligible to receive HOME funds unless the HOME-
assisted units were accompanied by 50-year ground leases.
HUD Response: The definition of community land trust at Sec. 92.2
establishes the minimum requirements an organization must meet to
qualify to hold a preemptive purchase option on a HOME-funded homebuyer
unit, including but not limited to the requirement that a community
land trust must use a lease, covenant, agreement, or other enforcement
mechanism to require housing and related improvements on land held by
the community land trust to be affordable to low- and moderate-income
persons for at least 30 years. Organizations that meet these minimum
requirements may exercise the purchase option, right of first refusal,
or other preemptive rights afforded to community land trusts by the
Continuing Appropriations Act, 2016 (Pub. L. 114-113) and codified in
Sec. 92.254(b)(3). Community land trusts that do not meet this
definition are not precluded from receiving HOME funds for projects;
however, if they exercise a preemptive purchase right within the period
of affordability, then the housing will cease to be considered
affordable housing under the Act and the participating jurisdiction
will be required to repay the HOME investment associated with that
housing unit pursuant to 42 U.S.C. 12745(b)(3)(A) and 42 U.S.C.
12749(b).
The Department understands that community land trust models
throughout the country often impose a 90 or 99-plus-year ground lease.
Because the definition of community land trust at Sec. 92.2 only
establishes a minimum ground lease term for the purposes of determining
an organization's eligibility to hold or exercise a preemptive purchase
right on a HOME-assisted unit without violating the Act and requiring
repayment of the HOME investment, community land trusts imposing longer
ground lease terms are still permitted.
The Department also acknowledges that it is using different minimum
terms for ground leases in the definition of community land trust and
the definition of homeownership in Sec. 92.2. The definition of
homeownership at Sec. 92.2 defines homeownership under a community
land trust as fee simple ownership of a dwelling, or equivalent form of
ownership approved by HUD, on land with a ground lease that meets one
of the requirements in Sec. 92.2. Under this definition, if a ground
lease is provided by a community land trust and is not in an insular
area, the minimum required ground lease for the unit to be considered a
homeownership unit under the HOME program is 50 years. As noted above,
the definition of community land trust only requires that an
organization impose a minimum 30-year ground lease for the organization
to be considered a community land trust for purposes of exercising a
right of first refusal to preserve affordability under Sec. 92.254(b).
The Department understands that this establishes a higher threshold for
the term of a ground lease to be considered homeownership under the
HOME program than it does for an organization providing that ground
lease to be
[[Page 782]]
considered a community land trust, but the Department also wanted to
remain consistent with State laws and community land trust models that
may require ground leases of fewer years when considering whether an
organization meets the definition of community land trust.
H. Opposition to Community Land Trust Model
One commenter opposed the use of governments subsidies for
homeownership projects under the community land trusts model. The
commenter stated that government subsidies for community land trusts
should be reserved for affordable rental housing. The commenter also
stated that downpayment assistance is a better method for building
financial security and generational wealth through homeownership
because community land trusts are closer to rental housing than
homeownership. The commenter submitted a study conducted by the
National League of Cities comparing the results of community land trust
and downpayment assistance models. The commenter supported greater use
of the HUD's 203(k) Loan Program to create accessory dwelling units and
tax exemptions to encourage homeownership.
HUD Response: HUD thanks the commenter for reviewing the proposed
rule and notes that by statute, community land trusts may participate
in the HOME program and HOME homeownership activities.\27\ Congress
explicitly authorized their participation, and the Department must
faithfully adopt the language of the Consolidated Appropriations Act,
2016 and the provisions of 42 U.S.C. 12773 of the Act.
---------------------------------------------------------------------------
\27\ See 42 U.S.C. 12773(a)(2), expressly permitting housing
education and support to community land trusts to assist them in
developing HOME community housing development organization projects,
and see and Public Law 114-113, div. L, title II, Dec. 18, 2015, 129
Stat. 2878 permitting community land trusts to hold and exercise
certain purchase rights without violating the affordability
requirements contained in the homeownership provisions of Section
215 of NAHA.
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Sec. 92.2--Homeownership Definition
A. Require That Long-Term Ground Leases to HOME-Assisted Manufactured
Homeowners Are Affordable
One commenter recommended requiring participating jurisdictions to
remove barriers to manufactured home homebuyers and homeowners to
access HOME programs regardless of the manufactured home being on
owned-land, leased-land, Tribal land, or in manufactured home
communities. The commenter also specifically urged HUD to ensure that
HOME-funded manufactured home communities offer homeowners a standard,
long-term lease with predictable rent provisions that support
affordable ``home-only'' financing, notice of sale and opportunity to
purchase the community, and require that projects with HOME funding for
30 years or more include shared-equity affordability provisions of
resident-owned communities and rent limitations. The commenter urged
HUD to issue guidance and education for participating jurisdictions,
subrecipients, and developers.
HUD Response: While the definition of homeownership in Sec. 92.2
requires that manufactured housing ground leases be for at least the
period of affordability in Sec. 92.254, the Department has not
specified the amount that may be charged under such ground leases. The
Department believes that adding such restrictions could have the
unintended effect of reducing the amount of manufactured home
purchasers that can be assisted with HOME funds and defers to
participating jurisdictions in designing their programs. The Department
also believes that it provided insufficient information the public to
appropriately place the public on notice of any changes to the ground
lease requirements for manufactured housing owners and that doing so
without additional comment would be unwise.
B. Explicitly Include Cooperative Owners as Owners for Purposes of the
Definition of Homeownership in Paragraph (4)
One commenter suggested that to ensure eligibility status for
affordable housing cooperatives, HUD should consider revising its
definition of homeownership to include housing cooperative members as
homeowners directly. The commenter explained that designating co-op
member-owners as homeowners will grant additional flexibility to
participating jurisdictions, creating another tool to be utilized to
create affordable homeownership for low-income households and to reduce
persistent wealth inequities.
HUD Response: Unfortunately, HUD cannot always draw bright line
rules in this area. Much of what the commenter is requesting depends
upon State law and is a fact-sensitive inquiry that must be engaged in
by the participating jurisdiction. Paragraph (4) of the definition of
Homeownership in Sec. 92.2 states that the ``participating
jurisdiction must determine whether or not ownership or membership in a
cooperative or mutual housing project constitutes homeownership under
State law; however, if the cooperative or mutual housing project
receives Low-Income Housing Credits (26 U.S.C. 42), the ownership or
membership does not constitute homeownership.'' The Department believes
these are the correct considerations. The Department defers to State
law on whether membership within a cooperative or being a shareholder
of a cooperative constitutes homeownership. It also defers to the
participating jurisdiction to determine whether the cooperative's
governing documents provide the necessary rights to the member or
shareholder to constitute homeownership. Under many State laws and
cooperative governing documents, the commenter may be right that a
member or shareholder is an owner. However, this is a fact-sensitive
inquiry and HUD is declining to state that as a rule a member or
shareholder of a cooperative is an owner of the housing. HUD also
continues to maintain that where a cooperative is receiving LIHTC and
is within its compliance period, it is not engaging in a homeownership
activity.
Sec. 92.2--Period of Affordability Definition
Commenters supported HUD's proposed definition of ``period of
affordability.'' One commenter noted that distinguishing between the
Federal period of affordability and any participating jurisdiction-
imposed additional period will be useful and follows a similar model to
the LIHTC compliance period. One commenter noted that it was an
important clarification that addressed confusion about whether this
term applied to time periods beyond 20 years.
One commenter stated they supported the proposal because it would
clarify that this term is different from an extended period of
affordability or an additional compliance period. The commenter
explained that this clarification would permit States and localities to
continue to prioritize long-term affordability.
HUD Response: HUD thanks the commenters and is moving forward with
the revised definition of period of affordability without change.
Sec. 92.2--Program Income Definition
Commenters stated that they oppose changing the definition of
program income to include the phrase ``at any time.'' The commenters
stated that this change would extend the participating jurisdiction's
monitoring obligations, potentially in perpetuity, which would strain
limited participating jurisdiction resources.
[[Page 783]]
One commenter opposed HUD's proposal to clarify that program income
is gross income received ``at any time'' by the participating
jurisdiction, State recipient, or subrecipient. The commenter stated
that defining program income as going beyond the period of
affordability or the closeout of the grant puts an administrative
burden on participating jurisdictions, subrecipients, and developers.
The commenter recommended that HUD limit repayment of program income to
either the duration of the period of affordability for housing
supported by HOME funds or to the closeout of the grant.
Two commenters suggested limiting repayment of program income to
the duration of the period of affordability for homes supported by HOME
funds or at the close out of the grant in order to ease the
administrative burden on participating jurisdictions, subrecipients and
developers. One of these commenters asked that HUD provide more clarity
to participating jurisdictions and program participants on how any
final changes would be operationalized if HUD determines to move
forward on this question.
HUD Response: The addition of ``at any time'' to the definition of
program income was a clarification of the existing requirement. The
Department is aware that there is an administrative burden associated
with tracking and spending program income. However, 10 percent of
program income received may be used to administer the HOME program. A
participating jurisdiction is also capable of providing Subrecipients
and State recipients with the ability to retain program income if it is
specified in the written agreement (see Sec. 92.504(c)(1)(iii), Sec.
92.504(c)(2)(ii)). The Department is concerned that limiting the
reporting and use of program income to the period of affordability or
to the time period before grant closeout will result in participating
jurisdictions waiting until the end of those timeframes to require the
collection of program income to avoid reporting on the source and avoid
the restrictions on the use of program income. This might also result
in participating jurisdictions misunderstanding program income
requirements and using such funds for purposes not eligible under the
Act and regulations in 24 CFR part 92. The Department declines to make
a change and is moving forward with the language clarifying existing
requirements.
Sec. 92.2--Reconstruction Definition
One commenter stated that it supports applying new construction
standards in Sec. 92.251 to newly constructed units within
reconstruction projects. However, the commenter noted that some
projects involve reconstruction of some units and rehabilitation of
others. The commenter objected to applying new construction standards
to these rehabilitated units, noting that it would not be a prudent use
of resources. The commenter opposed the revised definition of
``reconstruction'' but supported applying new construction standards in
Sec. 92.251 to newly constructed units within reconstruction projects.
HUD Response: The Department understands there is confusion over
how to apply a participating jurisdiction's property standards when a
project consists of a combination of rehabilitation, reconstruction,
and new construction. In projects where there is a combination of types
of development, units that are rehabilitated but not reconstructed may
be inspected to the participating jurisdiction's rehabilitation
standards. Units that are newly constructed or reconstructed will be
subject to the participating jurisdiction's new construction standards.
Accordingly, the Department has revised the regulations at Sec.
92.251(d) to address the commenter's concerns and provide clarity on
this issue.
Sec. 92.2--Single Family Housing Definition
Commenters stated that they support the proposal to amend the
definition of ``single family housing'' to refer to units.
HUD Response: The Department thanks the commenters and is moving
forward with the changes to the ``single family housing'' definition.
Sec. 92.2--Small-Scale Housing Definition
A. General Comments on Definition
One commenter supported the proposed new definition of ``small-
scale housing'' because it would reduce administrative burden and
would, according to the commenter, benefit areas with little
development like small rural towns and Tribal areas because smaller
projects that are not 30-50 units cannot attract LIHTC or other program
investors and become financially infeasible.
One commenter stated their support for the addition of the
definition of ``small-scale housing'' because it could help spur
development in rural communities.
HUD Response: The Department thanks the commenters for reviewing
the proposed rule and agree that the reduced ongoing monitoring
requirements for small-scale housing projects will make using HOME
funds more feasible nationwide. The Department is moving forward with
the definition of ``small-scale housing'' without change.
B. Expanding Definition To Include Projects With More Units or
Scattered Site Projects
One commenter suggested that HUD consider expanding the definition
of ``small-scale housing'' to apply to rental projects with up to 10
units (rather than 4) to allow the benefits of HUD's proposed
streamlined procedures to apply to projects with up to 10 units, which
would be especially helpful in rural areas. One commenter stated that
for compliance monitoring, further clarification on the definition of
``small-scale housing'' and the applicability to both the rental
housing projects and homeownership funded projects is requested. That
same commenter believed that as written, it is unclear whether
scattered-site rental housing projects would be considered small-scale
housing or not.
One commenter stated that HUD's proposed definition of ``small-
scale housing'' to mean 1-4 units is not in line with the housing
industry's use of the term. The commenter recommended that HUD revise
the definition of ``small-scale housing'' to be more consistent with
the industry's definition.
HUD Response: The purpose of the small-scale housing definition is
primarily to provide relief to participating jurisdictions and small
landlords in the management of small or scattered site housing
projects. Consequently, the Department has determined that a 1-4-unit
project, either managed on the same site or on multiple sites (i.e.,
scattered site housing) shall constitute a small-scale housing project.
The Department considered larger project sizes, as the commenter
requested. However, in HUD's experience, 5-10-unit projects can be more
difficult to manage than 1-4-unit projects, especially when they are
managed as scattered site projects.
The Department did note that there is confusion over whether small-
scale projects must all be on contiguous sites or be single family
housing. While the Department is not revising the definition of
``small-scale housing,'' the Department is clarifying in this preamble
and will clarify again in guidance that small-scale housing projects
can be on either contiguous sites or scattered sites and still
constitute small-scale housing projects
[[Page 784]]
as long as they meet the definition of ``small-scale housing'' in Sec.
92.2.
Sec. 92.2--Subrecipient Definition
A. Opposition to Change in Definition To Prohibit a Governmental Entity
or Nonprofit From Being a Subrecipient if it Uses HOME Funds as a
Developer or Owner of a Housing Project
One commenter does not support the removal of a subrecipient's
ability to acquire and temporarily own standard housing, as
subrecipients are often partners in locating and purchasing housing.
HUD Response: HUD appreciates the comment but is declining to make
the change. In the HOME program, a subrecipient administers an activity
or entire program on behalf of the participating jurisdiction. An
organization that partners with other entities to locate and purchase
housing is not a subrecipient as an organization cannot oversee an
activity in which it also functions as an owner, developer, or sponsor
as there is an inherent conflict of interest. HUD believes the approach
described by the commenter is ineligible for HOME assistance.
B. Comment in Support of the Revised Definition of Subrecipient Because
it Allows Greater Flexibility in Income Determinations
A commenter stated that the proposed update to the definition of
``subrecipient'' is helpful because this updated definition allows HOME
funds to be more readily used with rental housing based on the
program's own income determination guidelines for eligibility.
HUD Response: The commenter is incorrect. Income determinations in
the HOME program must be made in accordance with Sec. 92.203. The
definition of subrecipient does not allow a subrecipient to use a
different set of income requirements than the participating
jurisdiction uses when determining income under Sec. 92.203.
Sec. 92.2--Unit of General Local Government Definition
One commenter pointed out that the proposed rule does not address
eligibility of Tribes nor adds new mentions of Tribes even though the
definition of CHDO in Sec. 92.2 includes Tribes in the definition of
``governmental entity'' in paragraph (5). The commenter requested that
HUD add clarifying language through the proposed regulations to clarify
that Tribes are eligible, including Indian Tribes, Indian Housing
authorities, and Tribally Designated Housing Entities as defined at 25
U.S.C. 4103(22), and requested that HUD clarify that these entities may
be project owners anywhere that the terms are not synonymous with State
recipient. The commenter suggested such changes in Sec. 92.2
Definitions, State recipient; Sec. 92.2 Definitions, Subrecipient;
Sec. Sec. 92.220(a)(1)(iii)(A) and 92.220(a)(1)(iii)(B) regarding
matching funds provided by an Indian Tribe, Indian Housing Authority,
or Tribally Designated Housing Entity.
HUD Response: Each of the definitions of State Recipient and
subrecipient uses the term ``unit of general local government'' and not
``governmental entity.'' The Department is not changing its
interpretation of the term unit of general local government. Indian
Tribes, Indian Housing Authorities, and Tribally Designated Housing
Entities may participate in the HOME program in a variety of
capacities, including as developers, owners, or contractors. Indian
Housing Authorities or Tribally Designated Housing Entities, if
established as nonprofits, may be eligible to be Subrecipients in HOME
as well. HUD will provide additional information on how HOME funds can
be used by Indian Tribes, Indian Housing Authorities, and Tribally
Designated Housing Entities in future guidance.
Below-market interest rate loans originated by Tribally Designated
Housing Entities and Indian Tribes that are legally constituted as
corporations are already eligible as match under the current
regulation. HUD will clarify this in guidance.
Sec. 92.3--Effective Date and Applicability of This Final Rule
One commenter requested that HUD clarify which provisions are
applicable to all HOME-funded developments and which changes are
applicable only to properties that received commitments of HOME funds
after the effective date of the final rule. Another commenter requested
that HUD provide phased implementation and permit permissive compliance
for a set period of time before mandating required compliance, to allow
participating jurisdictions time to update information systems, inform
partners and ensure proper policies and procedures are in place. One
commenter said that because the changes in the rule will require a
significant effort to educate stakeholders and ensure a smooth
transition to the new regulatory framework, HUD should dedicate
adequate technical assistance resources to this effort. Another
commenter stated that HUD should expand training for participating
jurisdictions and HUD field officials on implementation of this rule to
ensure uniform application, particularly for homeownership projects,
because of uncertainty about interpretation of HOME regulations among
participating jurisdictions.
HUD Response: The Department agrees with the commenters that it
will take time for participating jurisdictions to prepare to comply
with certain provisions of this final rule. HUD has carefully
considered the appropriate timeframes for compliance with each
provision and has established effective dates in Sec. 92.3. HUD shall
provide participating jurisdictions up to one year to perform income
determinations and reexaminations under the final rule's Sec. 92.203.
HUD shall also allow participating jurisdictions, subrecipients, state
recipients, and owners to comply with the HOME requirements as they
existed immediately prior to the effective date of the final rule for
HOME commitments made up to one year after the effective date of the
final rule.
Sec. 92.50--Formula Allocation
One commenter suggested that one way to target funding to rural
CHDOs would be to increase the awards for State-wide participating
jurisdictions via a change to HUD's formula allocation regulations.
Instead of measuring the number of families living in poverty, which as
an absolute measure disadvantages rural areas, the commenter said the
metric could instead measure either the percentage of families living
in poverty or the percentage of counties in a State that are designated
as Persistent Poverty Counties. The commenter stated that either of
these approaches would be consistent with the statute, which directs
that the formula reflects ``poverty, and the relative fiscal incapacity
of the jurisdiction to carry out housing activities eligible under
section 12742 of this title without Federal assistance.'' Another
commenter also noted that the HOME program does not proportionately
serve rural areas because the smallest and least-resourced places must
compete for the balance of State funds, while larger communities
receive guaranteed funding.
HUD Response: HUD appreciates the commenters' contributions and
notes that changes to the calculation of HOME program formula
allocations are outside the scope of this rulemaking. The Department
was making minor revisions to clarify that ``rental units built before
1950 occupied by poor households'' meant ``rental units built before
1950 occupied by households below the poverty line'' but was otherwise
not
[[Page 785]]
changing the actual data that is used in the calculation. The
Department does not believe it has provided sufficient notice to the
public of a possible change in formula elements and declines to change
any data elements included in the HOME formula in this rulemaking.
Sec. 92.203--Income Determinations
A. General Support
Commenters stated that they support the proposed changes to income
determination for HOME because participating jurisdictions can use
income determinations made by other Federal agencies.
HUD Response: The Department agrees with commenters that providing
additional flexibilities to comply with income requirements for HOME-
assisted rental housing will further reduce the administrative burden
on participating jurisdictions, project owners, and on low-income
families. Therefore, in this Final Rule, HUD streamlines income
procedures, reduces the frequency of income determinations for HOME-
assisted small-scale rental projects and for families receiving HOME
tenant-based rental assistance, and expands a safe harbor to permit
participating jurisdictions to rely upon the income determinations made
under the rules of other Federal programs or forms of public assistance
for HOME-assisted rental units and for tenant-based rental assistance
programs.
B. Reducing the Frequency of Income Determinations
Commenters said they support reducing the frequency of income
determinations. One commenter asked for clarification if the proposed
change to income recertification from annual to every two years applied
to Federally funded projects such as housing developed with LIHTC.
Another commenter supported the proposal and encouraged HUD to consider
triennial income recertifications for all HOME programs, not just
small-scale housing, because it would help families experience the
intended benefits of the program, help families build wealth, and not
inadvertently punish them for increasing their income.
HUD Response: HUD reduced the frequency of income determinations
for HOME-assisted small-scale rental projects and tenants receiving
tenant-based rental assistance. Triennial income examinations do not
apply to HOME-assisted rental projects or to tenant-based rental
assistance programs.
For HOME-assisted rental housing, HUD expanded an income safe
harbor which permits a participating jurisdiction to rely upon the
income determination conducted under the rules of another form of
public assistance for HOME-assisted rental units where Federal funds
overlap. This safe harbor significantly reduces instances of when the
annual income of a family must be calculated in HOME-assisted units
that are also assisted with Federal or State project based rental
subsidy programs, developed with LIHTC, or occupied by a family that
receives Federal tenant-based rental assistance or another form of
public assistance such as SNAP or TANF. This means that if the HOME-
assisted unit or a family is applying for or occupying an assisted unit
that is covered by any of these safe harbors, then a participating
jurisdiction may apply these flexibilities to all income determinations
performed, including at initial occupancy and subsequent income
determinations during the HOME period of affordability. HUD is also
clarifying in Sec. 92.252(g)(3) that an owner is not required to
examine source documents under Sec. 92.203(b)(1)(i) if the
participating jurisdiction is accepting an annual income determination
pursuant to Sec. 92.203(a)(1), Sec. 92.203(a)(2), or Sec.
92.203(a)(3).
For HOME tenant-based rental assistance, the income determination
is aligned with the term of the rental assistance contract, which can
have a term of up to 24 months. HUD declines to apply a triennial
income determination to HOME tenant-based rental assistance programs
because it could not be implemented given the 24-month statutory
limitation on the term of the rental assistance contract. HUD
considered many scenarios that would trigger a new income examination
and how reliant participating jurisdictions are on calculation of
adjusted income in determining the amount of assistance for a tenant
receiving tenant-based rental assistance and believes that tying the
income examination to the rental assistance contract is the best
policy. HUD also believes that reducing the frequency of income
determinations in HOME-assisted rental units and aligning income
determination to the terms of the tenant-based rental assistance
contract will encourage families to increase income without fear of
losing their assistance or ability to occupy an assisted unit.
C. Change the Requirement in Sec. 92.203(a)(1) That a Participating
Jurisdiction ``Must'' Accept the Income Determination Made Under a
Project-Based Program
One commenter objected to requiring participating jurisdictions to
use the income determinations made by owners and program administrators
in Federal and State project-based rental assistance programs,
including both the Section 8 project-based voucher and project-based
rental assistance programs. The commenter believes that requiring the
use of the income determinations is too strong of a stance and that HUD
should provide participating jurisdictions with discretion to choose
whether to accept an income determination made under a Federal or State
project-based rental assistance program. In the commenter's experience
monitoring personnel, they have determined that program administrators
may overlook income sources or fail to properly verify income and
assets.
HUD Response: The Department recognizes the commenters' concerns
that HUD created an income safe harbor as a requirement rather than a
choice in the HOTMA Final Rule, published in the Federal Register on
February 14, 2023. Under HOTMA, HUD required a participating
jurisdiction to accept a public housing agency, owner, or rental
subsidy provider's determination of a family's annual and adjusted
income for each HOME-assisted unit that is assisted by a Federal or
State project-based rental subsidy program. HUD's intent was to create
alignment in HUD rental programs and to reduce the administrative
burden on participating jurisdictions and owners of having to meet two
sets of income requirements for the same unit. HUD agrees with the
commenter that participating jurisdictions should be provided the
choice, as a matter of program design, of whether to accept an income
determination made under a Federal or State project-based rental
assistance program. Therefore, HUD is revising the ``must'' to a
``may'' in Sec. Sec. 92.203(a)(1) and 92.203(f)(2) and permitting a
participating jurisdiction to decide whether to apply this safe harbor.
HUD recommends that when making this decision, a participating
jurisdiction undertakes an assessment of staff capacity, size and scope
of its HOME-assisted rental portfolio, annual monitoring schedules, and
the availability of trained and knowledgeable housing partners. HUD
reminds participating jurisdictions that whatever choice they make
should be explicitly described in the HOME written agreement with
project owners to reduce instances of noncompliance with the HOME
program income requirements.
[[Page 786]]
D. Opposition to 2-Month Source Documentation Requirements in Paragraph
(b) of the Definition
One commenter suggested that HUD remove the 2 month source of
income documentation requirement in Sec. 92.203(b)(1)(i) and (b)(2)
and instead follow the HUD 4350.3 Chapter 5 requirement for all HOME
activities which considers circumstances when 2 months of documentation
are not available, allows for third party verification, and would allow
participating jurisdictions to establish a uniform income review
process across HOME and HTF.
HUD Response: The Department recognizes the commenters' concerns
that HOME's income documentation and verification process is different
than the processes in other HUD rental programs, but HUD is not
revising Sec. 92.203(b)(1)(ii) to remove the requirement to examine 2
months of source documents when determining annual income. The
Department has required source documents since the 1996 HOME
regulations \28\ and believes that examination of source documents
provides needed safeguards to ensure that tenants meet the income
requirements of the Act. Notwithstanding that fact, the Department has
also identified other forms of documentation that may also satisfy the
requirements, including documentation required to use the safe harbors
in Sec. 92.203(a)(1)-(3).
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\28\ See 61 FR 48769.
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Moreover, HUD disagrees that adopting the income documentation and
verification procedures in Chapter 5 of HUD Handbook 4350.3 would
establish a uniform income review process across all HOME and the
Housing Trust Fund activities. The requirements explained in Chapter 5
of HUD Handbook 4350.3, including the mandatory use of source documents
for a period beyond 2 months and the required use of the Enterprise
Income Verification (EIV) System, are more burdensome than HOME's
current income requirements. Under the HOTMA regulations in 24 CFR
5.609, annual reexaminations must consider all income made in the
previous 12 months (See 24 CFR 5.609(c)). HOME regulations at Sec.
92.203(b)(1)(ii) only require an examination of 2 months of income to
project the prevailing rate of income for the upcoming 12 months. This
is a less burdensome process than what is required in 24 CFR 5.609.
HUD's Technical Guide for Determining Income and Allowances for the
HOME program (income guidebook), which will be updated to provide
guidance related to this Final Rule, already provides participating
jurisdictions with the flexibility to establish their own verification
procedures or to implement verification procedures consistent with the
Housing Choice Voucher Program.
E. Accepting Determinations by Other Federal Assistance Providers in
Sec. 92.203(b)
A commenter stated that the policy should be extremely clear that a
certification by another Federal assistance provider is sufficient to
document income eligibility and no additional documentation would be
needed outside of a certification to the owner or participating
jurisdiction.
Other commenters stated that HUD should expand HOME reciprocity
with other Federal agency programs and harmonize income eligibility
standards. The commenters requested that HUD engage in reciprocity with
the USDA Rural Home Development 502 Direct Mortgage program in a manner
similar to how it honored income eligibility under its Self-Help
Opportunity Program (SHOP). Specifically, the commenter urged that HUD
adopt the USDA Rural Development 502 Direct mortgage program's ``income
banding'' approach to eligibility that the commenter said has been
beneficial in rural areas around the country and was a direct response
to the lack of access for broad swaths of persistent poverty areas of
the country.
HUD Response: In the HOTMA Final Rule, HUD aligned the HOME income
regulations with those of other Federal or State rental subsidy
programs and with those of other Federal tenant-based rental assistance
programs that determine income eligibility consistent with the HOME
program to facilitate the layering of funds in a HOME-assisted project
and to reduce the administrative burden on participating jurisdictions
and project owners. While the HOTMA safe harbor expanded the number of
rental programs that a participating jurisdiction may accept income
determinations from, HUD agrees that it can expand this safe harbor to
include additional Federal agency programs and other forms of public
assistance that are compatible with the HOME program.
To accomplish this, HUD is broadening an existing income safe
harbor in Sec. 92.203(b)(1)(iii) which permits a participating
jurisdiction to determine the annual income of a family by obtaining 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 expansion of this safe harbor includes
additional forms of public assistance provided under other Federal
agencies such as Supplemental Nutrition Assistance Program (SNAP),
Temporary Assistance for Needy Families (TANF), Medicaid, as well as
LIHTC income determinations for families living in tax credit units.
This means that instead of calculating the annual income of a family, a
participating jurisdiction may rely on the annual income determination
made by the administrators of those programs or forms of public
assistance without having to take additional steps to verify the income
calculation or determination.
To implement this new safe harbor provision, the participating
jurisdiction must obtain a written statement from the administrator of
the assistance which contains the amount of annual income and household
composition (e.g., two-person household). A participating jurisdiction
can then implement this safe harbor for all rental housing income
determinations including but not limited to those performed at initial
occupancy and every sixth year of the period of affordability. This
relieves the participating jurisdictions of the requirement to
calculate the annual income of a family by using 2 months of source
documents if the family is receiving one of these forms of public
assistance and the participating jurisdiction is able to obtain a
statement fulfilling the requirements of the new safe harbor in Sec.
92.203(a)(3).
With respect to granting reciprocity with the United States
Department of Agriculture's (USDA) ``income banding'' approach for
determining income eligibility for the Rural HOME Development 502
Direct Mortgage program, HUD declines to adopt this approach of
determining income eligibility for HOME-assisted homeownership
programs. HUD has determined that the USDA's method for defining a low-
income family is not compatible with HOME's program definition of a
low-income family. Under the HOME program, a low-income family means a
family whose annual incomes do not exceed 80 percent of the median
income for the area, as determined by HUD, with adjustments for smaller
and larger families, except that HUD may establish income ceilings
higher or lower than 80 percent of the median for the area on the basis
of HUD findings that such variations are necessary because of
prevailing levels of construction costs or fair market rents, or
unusually high or low family incomes. An individual does
[[Page 787]]
not qualify as a low-income family if the individual is a student who
is not eligible to receive Section 8 assistance under 24 CFR 5.612. In
contrast, the USDA uses two categories of income structure: one
category is for one-to-four person households and a second category is
for five-to eight-person households. The USDA's two-tier income
structure is significantly different than the HOME program's income
structure and does not take into account other disqualifying factors
under the HOME regulations and statute. Creating a safe harbor for the
USDA's two-tier income structure is too significant of a change and is
outside the scope of this rulemaking because it involves changing the
definition of a low-income family and not just providing an expanded
safe harbor to defining an eligible family.
F. Revise Sec. 92.203(e) To Extend the Length of Time That an Income
Determination Is Valid in Homeownership Programs
A commenter stated that for owner-occupied rehabilitation and
homeownership assistance for new construction, it is unclear if the
income certification before loan closing can remain valid for 12 months
now or if the rule is still limited to 6 months.
Another commenter stated that, for new construction, developers
should be able to confirm that buyers are eligible to purchase the unit
more than 6 months out because of the potential for construction
delays. Two commenters recommended that this rule revise the
regulations found at Sec. 92.203(e)(2) to indicate that the
participating jurisdiction is not required to re-examine the family's
income at the time the HOME assistance is provided unless 24 months has
elapsed since the homebuyer was determined to be income-qualified at
the start of program participation. These commenters also recommended
revising the regulations to state that at re-examination, the
participant's income should be considered eligible so long as their
income has not grown to the point of exceeding the low-income threshold
by more than 10 percent.
HUD Response: The Department recognizes the commenters' concerns
but is not revising Sec. 92.203(e)(2) to allow an income determination
to be valid for a period of 12 or 24 months as requested by the
commenters. The Act is clear that a family must qualify as a low-income
family at the time of the home purchase.\29\ This means that if a
family is being assisted to purchase existing housing, they must be a
low-income family at the time of transfer of ownership (usually at
settlement or closing). If a family is being assisted to purchase
existing housing or housing to be constructed under a lease-purchase
program, the family must be low-income at the time the lease-purchase
agreement is executed pursuant to Sec. 92.504(c)(5). If a family is
being assisted to purchase housing to be constructed, the family must
be low-income at the time the contract to purchase housing to be
constructed is signed in accordance with Sec. 92.254(a)(8). The HOME
assistance is provided at execution of the contract to purchase housing
to be constructed in accordance with Sec. 92.504(c)(5). HUD wants to
clarify that if the family was determined to be income eligible at the
time the contract to purchase housing to be constructed was executed,
there is no additional requirement to redetermine income if there are
delays in construction.
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\29\ See 42 U.S.C. 12745(b)(2)(A)-(C).
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HUD understands the complexity of homeownership programs and how it
can vary by locality. HUD permits an income determination to be valid
for six months for homeownership activities to account for this
complexity and delays in property settlement. The Department has
determined that permitting the income determinations to remain valid
for six months is consistent with the Act but that providing a longer
time period for homeownership activities creates a more tenuous
standard, as prospective homebuyers may already have relatively higher
incomes than other low-income participants in the HOME program.
The commenter's recommendation that families be considered eligible
if their annual income has not exceeded the low-income threshold by
more than 10 percent, is not statutorily permissible (see 42 U.S.C.
12744(2)). HUD declines to revise the income regulations to permit
families to exceed the HOME income limits and still be considered
eligible low-income families.
G. Counting Income From All Family Members in Sec. 92.203(e)
One commenter stated that the HOME method of income determination,
which counts the income of all household members with some exclusions,
does not account for multi-generational households where some family
members do not contribute financially. The commenter explained that
this method leads to an inflated household income calculation that does
not reflect the financial burdens or capacities of families. The
commenter recommended that HUD revise its regulations to allow
household members who are not immediate family (which the commenter
defined as anyone other than parents, siblings, spouses, and children)
to be excluded from the income eligibility calculation.
HUD Response: The Department recognizes the commenters' concerns,
but HUD is not revising Sec. 92.203(e)(1) to remove the requirement to
include the income from all persons in the household when calculating
the annual income of a family under the HOME program. The HOME statute
specifically requires that the low- and very low-income thresholds be
determined with respect to smaller and larger families,\30\ and
necessarily intends that the income of all members of the household
\31\ be used in determining family income under the HOME program.
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\30\ See 42 U.S.C. 12704(9) and (10).
\31\ Please note, 24 CFR 5.609 provides certain income
exclusions for live-in aides, foster children, and foster adults.
---------------------------------------------------------------------------
The definition of family \32\ used in the HOME program covers
multi-generational households. This is pursuant to the Act, which
requires that the definition of ``families'' in the HOME program be the
same definition of ``families'' contained in the 1937 Act that is
applicable to other HUD programs such as the Housing Choice Voucher
Program and the public housing program.\33\ The Department has codified
the definition of family found in the 1937 Act in 24 CFR 5.403, and HUD
is maintaining a consistent interpretation of the 1937 Act across HUD
programs by using the definition of family in 24 CFR 5.403 for the HOME
program. Therefore, the Department must decline the commenter's
suggestion to narrow the definition of family for purposes of
determining income in the HOME program.
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\32\ The HOME program uses the definition of family contained in
24 CFR 5.403, see 24 CFR 92.2 Family.
\33\ Section 42 U.S.C. 12704(11) of the Act states that
``families'' shall have the same meaning as the definition of
``families'' in 42 U.S.C. 1437a. 42 U.S.C. 1437a(b)(3) provides the
definition of persons and families.
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Specific Solicitation of Comment #7
The Department seeks input on whether and how the rule should
facilitate the conveyance of a financial benefit to low-income tenants
when the project owner makes energy efficiency upgrades such as the
installation of small-scale wind or solar facilities in connection with
an eligible Federal or State program. HUD has issued guidance that
currently describes how certain utility discounts or rebates can be
treated under HUD income and utility allowance regulations. HOME is
subject to the same income requirements under 24 CFR 5.609 as
[[Page 788]]
other program areas issuing guidance on the treatment of these
discounts and rebates. The Department therefore also requests comment
from the public on whether to go farther than this guidance for HOME
projects through this HOME rulemaking. For example, should HUD maintain
the same utility allowance for the project following energy efficiency
upgrades to allow the tenant to realize the benefit of decreased
utility costs? Both the current income regulations at 24 CFR 5.609 and
24 CFR 5.609 as revised in the HOTMA Final Rule exclude lump-sum
additions to assets, as well as non-recurring income. However, if a HUD
program provided a recurring financial benefit directly to a low-income
tenant, should the rule exclude this income from the HOME income
determinations?
A. Comments Supporting Conveying a Financial Benefit to Tenants
One commenter supported efforts to ensure that tenants are able to
receive the benefits of energy efficiency cost savings but requested
that HUD eliminate or streamline any obligations on participating
jurisdictions to monitor and ensure compliance with this benefit
because monitoring would be difficult at best.
One commenter supported conveyance of a financial benefit to
tenants through the design of HOME utility allowances which would
exclude energy efficient features from the model. The commenter
explained that the benefit should go to residents because building
owners will receive benefits by virtue of decreased energy costs and
use in common areas and building systems.
HUD Response: The Department appreciates the commenters' responses
to this specific solicitation, but HUD is declining to adopt a policy
conveying a financial benefit to tenants in this final rule. It was
difficult for the Department to determine how to convey a financial
benefit in a way that would be fair, equitable, and permissible under
the Act. Unfortunately, commenters also did not provide sufficient
information on how the Department could effectively convey all or a
portion of the benefits of energy efficiency measures to HOME tenants
without disincentivizing owners from paying for energy efficiency
upgrades. The Department may revisit this topic in a future rulemaking.
The HOME program will follow current HUD guidance that describes how
certain utility discounts or rebates can be treated under HUD income
and utility allowance regulations.\34\
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\34\ See https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_Community_Solar_Credits_signed.pdf https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf and https://www.hud.gov/sites/dfiles/PIH/documents/Community%20Solar%20Credits%20in%20PIH%20Programs.pdf.
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B. Comments Opposing Conveying a Financial Benefit to Tenants
One commenter opposed HUD attempting to include any benefit
produced by the use of energy efficiency upgrades. The commenter
pointed out that if energy efficiency upgrades result in returns to the
project, financial benefits could flow to the participating
jurisdiction if the HOME loan requires ``cash flow'' payments. The same
commenter also stated that it would be better if developers and owners
invested in long-term benefits instead of focusing on decreased costs
and updating utility allowances for all tenants.
A few commenters supported allowing the owner to recalculate the
utility allowance based on the energy efficiency upgrades so that the
owner can benefit from a lower utility allowance deduction from the
HOME rent. One of these commenters cautioned HUD against reducing an
owner's incentives for undertaking energy efficiency upgrades. One
commenter noted that it will be important to ensure that utility
allowances are not prematurely lowered before energy savings are
realized, which would cause financial harm to economically vulnerable
tenants.
HUD Response: The Department appreciates the responses from
commenters in opposition to the conveyance of financial benefit to
tenants when an owner makes energy efficient upgrades. The Department
is not adopting any change in this final rule. However, HUD may further
study how a financial benefit could be provided to both low-income
tenants of HOME-assisted rental units and project owners to incentivize
energy efficiency measures. The HOME program will follow current HUD
guidance that describes how certain utility discounts or rebates can be
treated under HUD income and utility allowance regulations.\35\
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\35\ Id.
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C. Comments Stating That Determining How To Convey a Financial Benefit
for Tenants Is Difficult
Two commenters stated that the cash benefit or discount to tenants
would be difficult for owners to implement. One commenter noted that
including revenues generated as a result of enhanced efficiency as
income to the tenant would also place an administrative burden on the
owner, the tenant, as well as on the monitoring participating
jurisdictions for a likely small change per month.
HUD Response: The Department thanks the commenters for reviewing
the proposed rule and agrees that it would be administratively
difficult to convey such benefit, particularly because consumption of
utilities vary by tenant and by season. HUD will not be adopting
measures related to providing a financial benefit directly to low-
income tenants at this time. Commenters' insights on the difficulty of
such a measure's implementation and the administrative burden will be
taken into account if HUD chooses to revisit this question in a future
rulemaking.
D. Comments Suggesting Methods To Convey Financial Benefit to Tenants
Many commenters agreed that HUD should permit projects to maintain
the same utility allowance following energy efficient upgrades. One
commenter stated that this would allow the tenant to realize the
benefit of decreased utility costs and allow the owner to benefit by
making them eligible to access tax credits when pursuing energy
efficiency upgrades. Other commenters indicated that utility allowances
often do not reflect actual costs of utilities paid for by tenants
because there is significant variation among units that are the same
type, therefore, increasing rent based on imprecise estimates of
theoretical cost savings would make HOME-assisted housing less
affordable for tenants after energy efficiency upgrades are made.
One commenter said utility allowances should only be updated if
there is a risk that utility costs will rise, say, due to
electrification of heating. This commenter also said that owners also
need to benefit from green construction in order to incentivize them to
do the work, and they need green projects to be financially viable. The
commenter suggested that one approach may be to rely on the addition to
the project subsidy, along with other tax incentives, and Federal and
local funding to incentivize owners toward green construction.
HUD Response: The Department thanks the commenters for their
suggestions to permit projects to maintain the same utility allowance
following energy efficient upgrades, which could decrease utility costs
and increase affordability for tenants while providing owners with the
opportunity to access relevant tax credits. The
[[Page 789]]
Department agrees with the commenter that owners must be able to obtain
the benefit of energy efficiency upgrades. As a result, the Department
is declining to change the current requirement that utility allowances
be redetermined annually.\36\ The Department believes holding utility
allowances constant would disincentivize owners from making energy
efficiency improvements during the period of affordability, as it would
deny the owner the benefit of any energy efficiency improvements for
those HOME-assisted units without guaranteeing that the owner obtained
the benefit of tax credits or other financial incentives. The
Department considered whether to maintain the same utility allowance
and convey the financial benefit to the tenant by making such a program
optional to the owner or dependent upon the owner's participation in a
program that conditioned the tax credit or assistance upon providing a
financial benefit to the tenant, but determined that this increased the
complexity of the HOME program to align with time-limited Federal and
state programs without necessarily providing adequate incentive to
owners to participate in such programs. As such, the Department is
declining to make the change here.
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\36\ Paragraph 24 CFR 92.252(d)(1) of the HOME rule existing
immediately before the effective date of this final HOME rule,
requires the utility allowance be determined annually. The
Department is redesignating and revising this as a paragraph (b) but
is not changing the requirement that the utility allowance be
determined annually.
---------------------------------------------------------------------------
The Department is adopting a change that will allow participating
jurisdictions to use either the HUD Utility Schedule Model, the utility
allowance established by the local public housing authority (PHA), or
another method approved by HUD as their maximum monthly allowances in
the final rule. The Department believes that this added flexibility
will allow participating jurisdictions to select methods that are most
appropriate for the project, and which can adequately incentivize
owners to perform energy efficiency upgrades on their projects.
D. Owners Should Perform a Rental Assistance Demonstration (RAD)
Capital Needs Assessment To Determine and Incentivize Owners To Perform
Energy Efficiency Upgrades
One commenter recommended that HUD permit owners pursuing energy-
efficiency retrofits or other energy-saving measures to pursue the
process outlined for RAD conversions in prior HUD notices since owners
are not incentivized to pursue energy efficiency measures that would
reduce tenant costs when tenants who pay their own utilities and rent
are calculated for a utility allowance. The commenter suggested
permitting owners to submit the engineering study contemplated by the
RAD guidance, along with a request for rent adjustment so that the
utility allowance could be conservatively reset and suggested that HUD
should grant waivers to facilitate this approach.
HUD Response: The Department appreciates the responses from
commenters recommending that HUD permit project owners seeking energy
efficiency upgrades to pursue the process outlined for RAD conversions.
The Department declines to adopt this suggestion in this final rule
because it adds a significant level of complexity to the HOME program
without necessarily providing adequate benefits to owners. Requiring a
physical conditions assessment delays the work to be performed and
requires owners to incur additional costs before engaging in energy
efficiency upgrades. Absent project development subsidy, which is only
available to new HOME projects or troubled HOME projects that are
provided new HOME funds pursuant to Sec. 92.210, the owner would have
to pay for these costs themselves. Moreover, the mechanism that the
commenter is proposing to use to incentivize owners, increasing rents,
cannot be performed under the HOME program because rent limits are
statutory.\37\
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\37\ See 42 U.S.C. 12745.
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E. The HOME Program Should Align With Other Federal Programs in the
Treatment of Utility Discounts and Rebates in Determining Income
Two commenters recommended aligning requirements for utility
discounts and rebates for HOME assisted projects and income and utility
allowance requirements with other Federal programs, to the greatest
extent possible. One of these commenters noted that the utility
allowance could be difficult to enforce if it becomes mandated and
instead recommend that the utility allowance be preserved for to
tenants up to the net credit on the allowance. In addition, one
commenter also urged HUD to consider July 2022 guidance published by
the Office of Multifamily Housing on the treatment of solar credits in
utility allowance and annual income calculations to facilitate
conveyance of financial benefit to residents and to exclude such
benefits from HOME income determinations.
HUD Response: The Department thanks the commenters for their
responses to this specific solicitation. In revising the Final HOME
Rule and soliciting comment on energy efficiency measures, HUD examined
other Federal programs' utility allowance and income regulations and
requirements at length. The Department believes that there is no single
approach or method to align income and utility allowances across other
Federal programs. The Department has attempted to expand options for
aligning with other programs by allowing participating jurisdictions to
select a the applicable local PHA utility allowance in Sec. 92.252(b).
However, the Department is declining to make further changes such as
providing tenants additional financial benefits or sizing and
maintaining an artificially inflated utility allowance up to the net
amount of the credit received by the owner. As stated earlier, the HOME
program will follow current HUD guidance that describes how certain
utility discounts or rebates can be treated under HUD income and
utility allowance regulations, including the guidance from Multifamily
housing.\38\
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\38\ See https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_Community_Solar_Credits_signed.pdf https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf and https://www.hud.gov/sites/dfiles/PIH/documents/Community%20Solar%20Credits%20in%20PIH%20Programs.pdf.
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F. Exclude From HOME Income Determination Any Recurring Financial
Benefit Which Results From Energy Efficiency Upgrades
Commenters stated that HUD should exclude this financial benefit,
even when regularly recurring, from HOME income determinations. One
commenter expressed concern that including the financial benefits from
reduced costs resulting from investment in energy efficiency upgrades
as income could cause some tenants to become over-income. The commenter
explained that this unforeseen income could result in extended negative
impacts on the rents charged and compliance of the HOME-assisted units.
HUD Response: The Department appreciates commenters'
recommendations that HUD exclude a recurring direct financial benefit
to tenants resulting from energy efficiency upgrades from the HOME
program's income determinations. The Department recognizes commenters'
concern that the inclusion of such benefits in income determination may
result in some low-income tenants being considered over-income,
resulting in program noncompliance. HUD will not be adopting measures
related to providing a direct financial benefit to tenants in
[[Page 790]]
upgraded, energy efficient properties in the final rule.
G. Do Not Exclude From HOME Income Determination Any Recurring
Financial Benefit Which Results From Energy Efficiency Upgrades
Two commenters opposed any addition of further income requirements
and stated that HOTMA has simplified the income eligibility process,
and that any further requirements would prove cumbersome, especially
given that so many HOME projects also receive Section 8 assistance.
Another commenter opposed the use of discount and rebate allowances
for income determinations because saved resources are not typically
given back to tenants. The commenter also said that if discounts and
rebates were to be treated as recurring income, HUD would need to
clarify how this income would be documented and to which tax standard
the income would be subject. The commenter was also concerned about HUD
issuing a single rebate formula for a nationwide implementation and
about the fact that carve outs for HOME rebates is not aligned with
other HUD programs.
HUD Response: The Department appreciates commenters'
recommendations that HUD does not exclude any recurring financial
benefit to tenants from the HOME program's income determinations and
acknowledges that were such a measure to be implemented, the income
documentation, tax standard, and coordination with other HUD programs
would need to be determined. HUD declines to convey a financial benefit
to low-income tenants following energy efficiency upgrades and excludes
said benefit from HOME income determinations in this rule.
H. Clarify Supply Sources and Energy Efficiency Measures
One commenter recommended that HUD clarify that small-scale wind
and solar facilities are supply sources, not energy efficient upgrades,
because they do not reduce the energy demands of the building/unit. One
commenter stated that it is exploring energy efficiency benchmarking
opportunities and would welcome the opportunity to share its findings.
HUD Response: The Department appreciates the commenter's request
that HUD make a distinction between energy efficient upgrades and
supply sources. HUD is not proposing a definition of energy efficiency
improvements. The Department understands that creating small-scale wind
or adding solar power generation is increasing the supply of power to a
project and not decreasing the energy demands of the project. The
Department solicited comment on these forms of power supply because
they may decrease or eliminate the amount an owner or tenant must pay
utility providers for utilities to their project or unit respectively.
The Department recognizes that one of the commenters is engaged in
energy benchmarking and would be happy to share its findings. The
Department is happy to discuss this matter with the participating
jurisdiction after publication of this final rule but cannot consider
these findings for this rulemaking at this time.
I. Other Comments Received--Affordability of Housing
One commenter believed HUD was requesting comment on whether
requiring HOME-assisted units to meet a higher energy efficiency
standard will negatively impact the affordability of the housing. This
commenter strongly urged HUD to consider a broader definition of
``affordability,'' which it argues is incomplete in that it has
historically been limited to the market-rate price of a home and
upfront costs like downpayment requirements. Instead, this commenter
said, housing affordability must also include the costs associated with
staying in the home long-term, which can include heating and cooling.
The commenter argued that energy costs disproportionately impact low-
income homes and that costs related to energy-efficiency improvements
are often mitigated in the first few years. The commenter ultimately
suggested HUD examine a formulaic approach to determining affordability
that includes downpayment costs, monthly mortgage payments, and monthly
utility expenses and regard with skepticism comments that make
hyperbolic claims about price increases caused by energy efficiency,
green building, or resilience requirements.
HUD Response: The Department thanks the commenters for their
insight into potential affordability issues that could arise from
imposing energy efficiency requirements and the definition of
affordability in the context of energy efficiency improvements.
However, the suggestions are beyond the scope of the proposed HOME
rule. The Department must use the rent limits and homeownership
provisions under the Act when determining and preserving affordability
of HOME-assisted housing.\39\
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\39\ See 42 U.S.C. 12745, which defines the rent limits for
HOME-assisted rental housing; maximum home sales price for HOME-
assisted homeownership housing; and use of resale or recapture
provisions in preserving affordability of HOME-assisted
homeownership housing.
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Sec. 92.205--Eligible Activities: General
A. Comments in Opposition to Limitations on Land Banking
A commenter stated that, in paragraph (a)(2) of Sec. 92.205, the
commenter opposes HUD explicitly tying the use of HOME funds for
acquisition of vacant land to the definition of ``commitment,''
specifically as it relates to uses of the program to support land
banking. The commenter stated that the use of HOME funds for land
banking leads to the creation of affordable housing units and increases
affordability but just on a slightly longer timeline than other uses.
The commenter noted that in many places there are no other funding
sources for land banking and enabling partnerships between units of
local governments and nonprofit affordable housing developers to take
advantage of opportunities to purchase at lower prices is a flexible,
efficient use of very limited funding to ensure not only production
pipelines but also affordability.
HUD Response: Land banking is statutorily prohibited under 42
U.S.C. 12742(a)(1):``Funds made available under this part may be used
by participating jurisdictions to provide incentives to develop and
support affordable rental housing and homeownership affordability
through the acquisition, new construction, reconstruction, or moderate
or substantial rehabilitation of affordable housing.'' The Act further
explains that [f]or the purpose of this part, the term ``affordable
housing'' includes permanent housing for disabled homeless persons,
transitional housing, and single room occupancy housing. Purchase of
property without a defined end-use that results in ``permanent housing
for disabled homeless persons, transitional housing, and single room
occupancy housing'' is not a permissible use of HOME funds under
statute. HUD permits a participating jurisdiction to provide HOME
assistance to an owner if the participating jurisdiction reasonably
expects construction to begin within 12 months of the project set-up
date in paragraph (2) Commit to a specific local project of the
definition of Commitment in Sec. 92.2 but cannot permit using HOME
funds to acquire and indefinitely hold land until such time as enough
funds are available to permit development. The participating
jurisdiction must not use HOME funds for acquisition of these types of
properties if this is the
[[Page 791]]
participating jurisdiction's or owner's intent.
B. Concerns About Clarifications to ``Demolition'' in Sec.
92.205(a)(2) and One-for-One Replacement Requirements
Commenters expressed concerns that HUD's clarification regarding
demolition could lead to overly strict interpretations requiring a one-
to- one rebuild following demolition.
HUD Response: By statute, HOME participating jurisdictions are
required to comply with the requirements contained in Section 104(d) of
the Housing and Community Development Act (42 U.S.C. 5304(d)) (Section
104(d)) and must certify that they have in effect and follow a
residential anti-displacement and relocation assistance plan (RARAP)
developed in accordance with Section 104(d) as further provided in 24
CFR part 42.\40\ If a participating jurisdiction provides HOME
assistance for a project involving demolition, as in the commenters'
example, Section 104(d) requires that all occupied or vacant occupiable
lower-income dwelling units that are demolished be replaced with lower-
income dwelling units on a one-for-one basis. Please see Sec.
92.353(e) and 24 CFR 42.375, which remain unchanged in this rulemaking.
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\40\ See 42 U.S.C. 12705(b)(16).
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C. Concerns About How Strictly the Requirement That ``Demolition'' and
``Vacant Land'' Be Used for Affordable Housing in Sec. 92.205(a)(2)
Will Be Applied
Some commenters were also concerned that HUD's clarification
regarding acquisition of vacant land could lead to overly strict
interpretations that require affordable housing on each acquired and
aggregated parcel. These commenters suggested adding language to Sec.
92.205(a)(2) to permit the acquisition of vacant land or demolition of
structures on parcels adjoining or contiguous to a project that will
provide affordable housing, so long as those activities are in
furtherance of strengthening property values and promoting public
health and safety of future residents as part of a cohesive affordable
housing development plan. Another commenter said that permitting
acquisition of vacant land or demolition of structures on adjoining or
contiguous parcels will enable more affordable housing. Another
commenter noted that so long as these activities will further
neighborhood stabilization, the nature of vacancy and demolition
continues to align with the purpose of the HOME program.
HUD Response: The revisions to the HOME regulations at Sec.
92.205(a)(2) are not intended to disallow reasonable site assembly or
demolition activities that are integral to the development of the
affordable housing. The revisions are intended to disallow land banking
or demolition activities that are not directly tied to the provision of
affordable housing through a ``specific local project'' as defined in
Sec. 92.2. If acquisition of vacant land is integral to assembling a
site for a specific local project, then the acquisition of the land is
a permissible acquisition cost. Similarly, demolition is a permissible
cost under the HOME program when the demolition is integral to the
creation of an affordable housing project, such as when the demolition
removes a structure that would have prevented the owner from developing
the affordable housing project. While the Department was revising its
regulations for clarity, these revisions do not represent a change in
the statutory or regulatory requirements.
The Department also notes that the HOME program is subject to one-
for-one replacement requirements. Please see earlier comment responses
on the statutory requirement that HOME funds be used to construct
affordable housing.
D. Comments About Requirement That ``Demolition'' and Acquisition of
``Vacant Land'' Must Be Used for a Specific Local Project Within 12
Months in Sec. 92.205(a)(2)
One commenter stated that common delays caused by issues such as
securing financing, public entitlement, site assembly, and other
requirements make the proposed rule's commitment deadline of 12 months
for the acquisition of vacant land or demolition work unreasonable,
especially for nonprofit developers. These challenges led the commenter
to recommend that HUD extend the 12-month requirement or establish
separate deadlines for vacancy and demolition work.
HUD Response: HUD understands the commenter's concern but is not
revising the 12-month requirement contained in paragraph (i) of the
definition of Commit to a specific local project for the reasons stated
in HUD's earlier comment response on this subject. Demolition and
acquisition of vacant land are only eligible costs as part of an
affordable housing project and are not standalone costs or activities
under the Act. Therefore, the Department will not treat these costs
different from other costs associated with site assembly, preparation,
or development.
E. Rewording of Project Completion Requirements for Homeownership in
Sec. 92.205(e)
A commenter stated that they disagree with the proposed change in
wording from ``[i]f a participating jurisdiction does not complete a
project within 4 years of the date of commitment of funds, the project
is considered to be terminated . . .'' to ``[i]f project completion, as
defined in Sec. 92.2, does not occur within 4 years of the date of
commitment of funds for a specific local project, the project is
considered to be terminated . . . .'' The commenter explained that a
participating jurisdiction should not have to repay HOME funds for
multi-address activities where some houses were completed and sold to
eligible families since the units that were completed and sold in a
timely fashion are HOME-assisted units. The commenter requested HUD
provide additional guidance on multi-address activities.
HUD Response: HUD was clarifying that the phrase ``complete a
project'' in this regulation means ``project completion'' as defined in
Sec. 92.2. This was not a change in existing policy and was a
clarification of how HUD interprets existing policy. Regarding project
completion for multi-address projects, the commenter is correct that in
HUD's IDIS data system, a multi-address development is set up as one
activity in IDIS and as such construction must be completed for all
addresses before the activity can meet the definition of completed and
the period of affordability starts. This system functionality is not
new and has been established for the entire history of the HOME
Program.
F. Support for the Four-Year Project Completion Deadline in Sec.
92.205(e)
One commenter stated that a four-year deadline to complete the
project from the commitment of HUD funds is reasonable.
HUD Response: HUD thanks the commenter for reviewing the proposed
rule. HUD is not revising the four-year project completion deadline.
The current regulation is consistent with the comment.
Sec. 92.206--Eligible Project Costs
A. Support for Clarification on Ground Lease Costs
One commenter supported the clarification that acquisition through
a ground lease is an eligible HOME cost and sought clarification on
whether the costs are limited to those eligible under 2 CFR 200.465.
[[Page 792]]
HUD Response: Acquisition of affordable housing through a ground
lease that is at least as long as the time periods stated in paragraph
(1) of Sec. 92.2 Homeownership is a permissible acquisition cost under
Sec. 92.206. HUD clarified this in the proposed rule by revising Sec.
92.206(c) to explicitly state that ``(c) Acquisition costs. Costs of
acquiring improved or unimproved real property and costs for a long-
term ground lease, including costs of acquisition by homebuyers.'' The
cost principles contained in 2 CFR part 200, subpart E are all
applicable to HOME project costs, including eligible acquisition costs
through a ground lease. To the extent that 2 CFR 200.465 applies to the
ground lease, the participating jurisdiction must determine that the
cost of the ground lease is reasonable, determine if there are less
than arms-length transactions, and act accordingly.
B. Support for Revising Soft Costs in Sec. 92.206(d)
Commenters stated that they support the proposal to allow property
insurance during project development as an eligible HOME soft cost.
Commenters stated that they support the proposal to permit the costs
associated with conducting environmental assessments and reviews as
costs eligible for reimbursement with HOME funds. One commenter
explained that time and costs associated with environmental reviews of
sites proposed for development often stall or restrict execution of
affordable housing projects, and that HUD's proposal, while not a total
solution, would advantage programs, especially those providing
downpayment assistance.
A commenter suggested that oversight-related fees for environmental
assessments should qualify for this reimbursement as well, as they can
be substantial and cited one example of $96,000 for a 14-unit project.
One commenter stated that they support the clarifications made at Sec.
92.906(d)(1) regarding ensuring that developers can be reimbursed for
environmental assessments or reviews on successfully awarded HOME
projects.
HUD Response: HUD thanks the commenters for reviewing the proposed
rule. The Department is accepting the comment regarding oversight fees
for environmental reviews and environmental studies and revising the
final rule text to include such fees as eligible for reimbursement.
C. Opposition to Requiring the Participating Jurisdiction Explicitly
Approve of the Soft Costs in Sec. 92.206(d)(1) in the Written
Agreement
A commenter stated that they do not support the proposed
requirement that the costs for conducting environmental assessments and
reviews are only eligible for reimbursement with HOME funds when
expressly permitted in the written agreement. The commenter stated that
conducting environmental assessments and reviews are consistent
requirements and therefore the reimbursement should be automatically
approved.
HUD Response: The Department thanks the commenters for reviewing
and is moving forward with the revisions to Sec. 92.206(d)(1). Under
42 U.S.C. 12756(a) and Sec. 92.504, participating jurisdictions must
enter into written agreements that bind the owner to comply with HOME
program requirements. A written agreement between a participating
jurisdiction and an owner must include a description of the eligible
uses of the project funds to comply with the regulation. The Department
is declining to treat environmental assessments differently from other
reimbursable expenses listed inSec. 92.206(d)(1),\41\ all of which
must be explicitly mentioned in the written agreement to be eligible
for reimbursement.
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\41\ The other reimbursable expenses in 24 CFR 92.206(d) will
now include: ``Architectural, engineering, or related professional
services required to prepare plans, drawings, specifications, work
write-ups; for HUD environmental review or other environmental
studies, assessments, or fees; and for certain costs to process and
settle the financing for a project, such as private lender
origination fees, credit reports, fees for title evidence, legal
fees, accounting fees, filing fees for zoning or planning review and
approval, private appraisal fees, fees for independent cost
estimates, and other lender required third-party reporting fees.''
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D. Clarification of Requirement to State Eligible Soft Costs in Sec.
92.205(d)(1) in the Written Agreement
One commenter stated that participating jurisdictions and other
participants do not understand that only the costs expressly listed in
Sec. 92.206(d)(1) may be reimbursed with HOME funds notwithstanding
that they were incurred up to 24 months prior to the commitment of HOME
funds. The commenter recommended that HUD address this issue with
additional education or clearer regulatory language.
HUD Response: The Department thanks the commenters for reviewing
and is moving forward with the revisions to Sec. 92.206(d)(1) without
change. The Department will consider providing implementation guidance
on this regulatory change in the future.
E. Allow Additional Predevelopment or Holding Costs To Be Reimbursed if
Specified in the Written Agreement
One commenter stated HUD should consider whether it is appropriate
to permit predevelopment costs otherwise allowed under Sec.
92.206(d)(2) to be reimbursed with HOME funds in the same manner as
predevelopment costs otherwise allowed under Sec. 92.206(d)(1). The
commenter noted that it is common for developers to have incurred
various predevelopment legal/accounting costs, filing fees for
planning/zoning reviews, appraisals and other lender-required third-
party reports, etc. prior to the commitment of HOME funds (and often as
a predicate for meeting the conditions for commitment). The commenter
believed that most of those costs would be ``anchored'' in Sec.
92.206(d)(2) and that HUD should consider whether it is appropriate to
allow predevelopment costs otherwise allowed by Sec. 92.206(d)(2) to
be reimbursed with HOME funds in the same manner as other pre-
commitment predevelopment costs identified in Sec. 92.206(d)(1).
One commenter requested that HUD delineate other holding and
interim costs during development that the other parts of industry
regularly characterize as soft costs with specific focus on property
assessments and taxes, as well as utilities, groundskeeping, and
security costs. The commenter stated that this clarification is
necessary because these types of costs are not eligible for coverage
once the project is ready for lease-up.
HUD Response: The Department agrees with the commenters and is
expanding the project soft costs that may be incurred prior to a
commitment to include costs to process and settle financing for the
project, including private lender origination fees, credit reports,
fees for title evidence, legal fees, private appraisal fees, and fees
for independent cost estimates. These were all contained in paragraph
(d)(2) but will now be deleted from paragraph (d)(2) and added to
paragraph (d)(1). While the Department is moving these provisions to
paragraph (d)(2), the Department determined that several provisions
could not be moved because there is no reasonable expectation that they
should occur prior to commitment. These provisions include obtaining
building permits, which require HUD environmental review; fees for
recordation and filing of legal documents, as recorded documents
relating to an acquisition, rehabilitation,
[[Page 793]]
or new construction project should occur after commitment of HOME
funds; and builders or developers fees, as those fees should not be
earned and chargeable to the HOME grant for work performed prior to the
environmental review and commitment of the HOME funds to the project.
HUD declines to make reimbursement of holding costs incurred before the
commitment of HOME funds eligible as the Department considers these
operating costs not project-related soft cost associated with
predevelopment.
F. Revise Sec. 92.206(d)(6) To Allow for Additional Costs To Be
Reimbursed
One commenter stated HUD should clarify when participating
jurisdiction overhead and staff costs remain eligible for reimbursement
even when incurred prior to commitment under Sec. 92.206(d)(6) because
the rule does not explicitly identify these as eligible costs.
HUD Response: Staff and overhead cost of the participating
jurisdiction are eligible for reimbursement as an administrative and
planning cost under Sec. 92.207(b) or as a project-related cost under
Sec. 92.206(d)(6). However, participating jurisdiction staff and
overhead costs for a project that does not proceed as a HOME-assisted
project is only eligible to be reimbursed as an administrative cost
under Sec. 92.207(b). A participating jurisdiction may only reimburse
itself for project-related soft costs under Sec. 92.206(d)(6) after it
enters into a written agreement committing funds to the project and
funding the project in IDIS.
G. Revise Eligible Project Costs To Include Additional Costs
One commenter suggested expanding HOME's eligible costs so that
developing and rehabilitating garage structures would be an eligible
cost for the HOME program. The commenter stated that garages provide
secure places to maintain personal property, like vehicles and mowers,
and also support higher densities in urban neighborhoods through the
creation of Accessory Dwelling Units (ADUs).
HUD Response: HUD thanks the commenter for reviewing the proposed
rule. HOME funds can be used for the cost of attached garages, i.e.,
garages that are part of the housing structure receiving HOME funds.
Unfortunately, the Act does not authorize the use of the HOME funds for
appurtenances. Consequently, costs related to construction of
freestanding garages or community buildings are not eligible to be paid
with HOME funds.
Sec. 92.207--Eligible Administrative and Planning Costs
A. Raise Administrative and Planning Cost Cap
One commenter stated that given the addition of new requirements,
including BABA and VAWA, and the reduction in recent years of
entitlement funding, the limit on only spending 10 percent on
administration and planning costs is not sufficient to meet obligations
in running compliant programs.
HUD Response: HUD understands the commenter's concerns about the
potential increased costs of compliance and the limited amount of
administrative and planning funds. Unfortunately, the 10 percent cap on
each administrative and planning costs for each grant is statutory. See
42 U.S.C. 12742(c).
B. Reimbursement of Program Costs for Projects That Do Not Proceed
One commenter stated that HOME applicants often drop out of the
process prior to closing, which means grantees are unable to recover
the extensive staff time invested in considering or processing
applications. The commenter recommended that HUD allow reimbursement of
program costs if the grantee can demonstrate they acted in earnest to
achieve the national objective. This could include demonstration of
standard program deliverables, including inspection reports, work-write
ups, bid packages and construction contract materials.
HUD Response: HOME regulations at Sec. 92.207 currently permit
payment of administrative costs, including staff and overhead costs for
considering or processing applications, monitoring owners, inspections,
and other administrative costs associated with program governance.
However, for a cost to be an eligible project cost under Sec. 92.206,
it must be for a project that provides affordable housing in accordance
with 24 CFR part 92.
C. Inability To Pass Along Costs to Program Beneficiaries Necessitates
Additional Administrative Funds
A commenter noted that State participating jurisdictions often
develop rules regarding eligible administrative and project costs
forcing many small cities and counties to exit the program because
costs cannot be reimbursed fully. The commenter believes that not
allowing costs for work specifications, needed inspections, and title
insurance to be charged to successful HOME beneficiaries unfairly
limits compensation for program delivery in homebuyer and home
rehabilitation programs.
The commenter stated that HUD should increase support for
administrative and activity delivery costs because participating
jurisdictions, State recipients, or local recipients require grantees
to provide additional funding from general funds to cover cost overruns
that stem from these categories. The commenter suggested an increase in
allowable administrative costs to 12 percent if a State recipient
contractor or subrecipient is utilized. The commenter suggested
allowing project delivery cost reimbursement housing rehabilitation,
homebuyer assistance, and ADU programs.
HUD Response: Program beneficiaries in HOME homeownership programs
(i.e., homebuyers and homeowners) may only pay costs in accordance with
Sec. Sec. 92.254, 92.251, and 92.214. Under Sec. 92.504(a)
participating jurisdictions are responsible for managing the day-to-day
operations of its HOME program, ensuring that HOME funds are used in
accordance with all program requirements and written agreements, and
taking appropriate action when performance problems arise. The
participating jurisdiction must have and follow written policies,
procedures, and systems, including a system for assessing risk of
activities and projects and a system for monitoring entities consistent
with HOME requirements in 24 CFR part 92, and must take all necessary
steps to require compliance with the HOME requirements. The Department
is not changing these requirements or removing discretion from
participating jurisdictions to determine the terms of the HOME
assistance. Many of the costs that the commenter mentioned are within
the discretion of the participating jurisdiction to pay if they are
included in the written agreement, this includes work-write-ups;
environmental reviews, studies, or assessments; and title insurance
fees.\42\ The HOME rule at Sec. 92.205(d)(6) requires that these costs
only be charged as activity costs if the project is funded, and the
individual becomes the owner or tenant of the HOME-assisted project.
The Department believes this is a reasonable restriction of the costs
because, by statute, project delivery costs may only be paid for
completed projects that meet the requirements of 24 CFR part 92.\43\
Finally, the Department understands that the commenter is requesting
additional administrative and planning funds. The 10 percent cap on
each FY's
[[Page 794]]
administrative and planning costs is statutory. See 42 U.S.C. 12742(c).
There is no HUD-imposed cap on project delivery cost reimbursement for
the costs required in Sec. 92.206(d)(1). Reimbursement of those costs
are at the discretion of the participating jurisdiction and must
explicitly be included in the written agreement committing the funds to
be eligible HOME project costs.
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\42\ See 24 CFR 92.205(d)(1) and (2).
\43\ See 42 U.S.C. 12742 and 42 U.S.C. 12749.
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Sec. 92.208--Eligible Community Housing Development Organization
(CHDO) Operating Expense and Capacity Building Costs
A. General Support
Commenters supported the proposed rule revisions to correct a
drafting error that created an unintended barrier to using CHDO
operating expense and capacity building funding to assist nonprofit
organizations seeking CHDO designation to meet the demonstrated
capacity requirements.
HUD Response: The Department thanks the reviewers for commenting,
agrees with the commenters in support of the change, and is moving
forward with the change.
B. Concern About Requirement That Operating Assistance Be Provided to
an Organization That the Participating Jurisdiction Expects To Commit
Assistance to for a Project Within 24-Months
One commenter recommended adding the requirement described in Sec.
92.300(e) of the existing rule, that a participating jurisdiction may
only provide operating expense assistance under Sec. 92.208 to a CHDO
if the participating jurisdiction expects to commit CHDO set-aside
funds to the CHDO for a project within 24 months, to Sec. 92.208. The
commenter believed this to ensured that the limitation is not
overlooked. A commenter asked that HUD clarify the consequences of
providing operating funds to a CHDO that does not receive CHDO set-
aside funding for a project within 24 months and recommended that HUD
not require repayment of the operating assistance funds if the CHDO has
made good faith efforts to qualify for project funding. Another
commenter recommended providing examples of good faith efforts in sub-
regulatory guidance and two commenters provided potential examples of
good faith efforts.
One commenter stated that CHDOs receiving capacity building funds
should receive more time because developing affordable housing for low-
income persons is complex and difficult. Other commenters recommended
extending the time period for organizations receiving operating expense
funds to secure project-related set aside funds from 24 months to 36
months. Some commenters noted that a 36-month timeline would align CHDO
TA with other Federal programs, such as the CDFI Fund, which requires
that organizations receiving TA awards become certified as a CDFI
within three years of receiving their TA award. A commenter also
suggested that the longer timeframe would align with the needs of low-
income communities, recognizing the unique challenges and longer
timelines that are often faced in those areas.
HUD Response: Based on the comments received, the Department
recognizes that there is some confusion among commenters about the use
of operating assistance funding for capacity building activities, and
the separate category of capacity building funding for development of
CHDOs by new participating jurisdictions during their first 24 months
of participation of the HOME program. To eliminate this confusion, HUD
is revising the language in the proposed rule's paragraph Sec.
92.208(c) to strike the term ``capacity building.''
In response to the query about the consequences of a CHDO that
received operating assistance not receiving a commitment of project
funding, in most cases repayment is not required but the participating
jurisdiction must cease providing operating assistance to the
organization when it determines that it will not be committing funds to
the organization for a HOME project.
C. Expand CHDOs That May Receive Operating Funds Under Sec. 92.208(a)
One commenter stated that CHDOs experiencing employee turnover
should have access to CHDO operating funds under Sec. 92.208(a).
HUD Response: The Department thanks the commenter for reviewing the
proposed rule and notes that the current regulations and this final
rule permit participating jurisdictions to provide CHDO operating
assistance funds to CHDOs experiencing employee turnover.
D. Expand Eligibility for Capacity-Building Funds in Sec. 92.208(b)
A commenter supported the proposed changes but urged HUD to remove
the language at Sec. 92.300(b) that restricts capacity building
funding only to participating jurisdictions within the first 24 months
of participation in the HOME program as there are many participating
jurisdictions that have not identified a sufficient number of capable
CHDOs and struggle to use their CHDO set-aside each year.
HUD Response: The restriction that a participating jurisdiction may
only engage in capacity building activities for CHDOs in the first 24
months of a participating jurisdiction's participating in the program
is statutory. 42 U.S.C. 12771(a) states in relevant part that ``[i]f
during the first 24 months of its participation under this subchapter,
a participating jurisdiction is unable to identify a sufficient number
of capable community housing development organizations, then up to 20
percent of the funds allocated to that jurisdiction under this section,
but not to exceed $150,000, may be made available to carry out
activities that develop the capacity of community housing development
organizations in that jurisdiction . . . .'' If a participating
jurisdiction has been participating in the HOME program for more than
24 months, it may still provide CHDOs with CHDO operating funds in
accordance with Sec. 92.208(a) and (c).
E. General Requests To Enhance CHDO Capacity
Commenters urged HUD to provide technical assistance to help CHDOs
build and maintain capacity, particularly in rural areas. A commenter
that is an organization that serves persons with disabilities and has
previously sought CHDO designation requested that HUD provide technical
assistance to existing community-serving organizations that wish to or
that are becoming CHDOs. One commenter urged HUD to use capacity
building money in non-entitlement communities because it would provide
needed funding to nonprofit organizations in those communities to
address their affordable housing needs.
HUD Response: HUD acknowledges the importance of providing
technical assistance to rural CHDOs to help them succeed in competitive
funding cycles administered by their participating jurisdictions. The
Department recognizes that rural CHDOs face unique challenges that can
be addressed through targeted support. However, HUD can only provide
direct program assistance to entities that receive funds directly from
HUD. Partners, subrecipients, or project sponsors that receive HUD
funds through a participating jurisdiction must coordinate with the
participating jurisdiction to submit a request for in-depth program
assistance on their behalf. HUD will continue to develop training and
tools aimed at providing broad assistance that is relevant to rural
CHDOs.
[[Page 795]]
Sec. 92.209--Tenant-Based Rental Assistance
A. Request for Clarification on Rental Assistance Contract
One commenter asked HUD to clarify Sec. 92.209 by stating that the
rental assistance contract is the one under which HOME funds are
committed to the activity, not the agreement between the tenant,
landlord, and participating jurisdiction/State recipient.
HUD Response: The Department thanks the commenters for reviewing
the proposed rule. The definition of ``Commit to specific local
project'' in paragraph (2) of the definition of ``Commitment'' in 24
CFR 92.2 states that the committing document for HOME tenant-based
rental assistance is the rental assistance contract. When a
participating jurisdiction is administering its own tenant-based rental
assistance program, this will be the document committing HOME tenant-
based rental assistance. If a participating jurisdiction is using a
Subrecipient (or State recipient) to provide tenant-based rental
assistance, then there will be at least two commitments, one will be
committing funds to administer a tenant-based rental assistance program
that is between the participating jurisdiction and its Subrecipient (or
State recipient); the other will be committing funds through the rental
assistance contract between the Subrecipient (or State recipient) and
the tenant and owner receiving the tenant-based rental assistance.
If a participating jurisdiction is using a contractor to provide
tenant-based rental assistance, then there will also be at least two
commitments, one committing the funds to the contractor to administer
the participating jurisdiction's tenant-based rental assistance
program; and the other being the rental assistance contract between the
Contractor (as agent of the participating jurisdiction) and the owner
and tenant assisted by the tenant-based rental assistance.
B. Use of Tenant-Based Rental Assistance in Lease Purchases
One commenter expressed support for HUD's outline in the proposed
rule of the parameters within which a tenant may become a homeowner
through the lease-purchase process and said that easing lease-purchase
in the HOME program would provide a much-needed path toward
homeownership for low- to moderate-income homebuyers. The commenter
reasoned that allowing a homebuyer-tenant to contribute their TBRA
toward a down payment will facilitate rent-to-own processes for HOME-
assisted households. According to the commenter, if HUD's proposal were
finalized, both participating jurisdictions and potential homebuyers
could determine that all or some of the tenant's contribution to rent
could be set aside for closing costs or a down payment and solidify
terms through the lease-purchase agreement.
HUD Response: The commenter supports changes made to the lease-
purchase program but requests the ability for TBRA tenants
participating in a lease-purchase program to have a portion of their
tenant-based rental assistance, and not just the tenant contribution
towards rent, be used to accumulate a downpayment for the unit. The
current regulation at Sec. 92.209(c)(2)(iv) only allows a portion of
the tenant's monthly contribution towards rent to be set aside for this
purpose. The Department did not propose a change to this provision and
does not believe it can do so because the result would be that the
tenant-based rental assistance provided would be used as both tenant-
based rental assistance and homeownership assistance. This dual use of
HOME funds would violate the provisions of 42 U.S.C. 12742(a)(3) and
(b), which do not contemplate using tenant-based rental assistance for
such purpose. Instead, the Department only clarified that when all or a
portion of the homebuyer-tenant's monthly contribution toward rent is
set aside for closing costs or a downpayment, it must be set aside in
accordance with the lease-purchase agreement.
C. Income Reexaminations and Sec. 92.209(c)(1)
Several commenters stated that they support reducing the frequency
of income determinations by requiring income redetermination only at
TBRA contract renewal instead of an annual determination. Commenters
stated that reducing the frequency of income determinations was prudent
and would lessen the impact on tenants and reduce administrative burden
on participating jurisdictions. One commenter noted that longer
recertification periods would allow families to build wealth without
immediately having to pay higher rent and utility payments. The
commenter was grateful HUD was building off its Bridging the Wealth Gap
plan but encouraged the Department to implement longer recertification
periods such as triennial income recertifications as proposed in the
Bridging the Wealth Gap plan.
One commenter noted that, as written, the rule may still require
income determinations annually because leases expire annually. The
commenter suggested clarifying that income reexamination is not
required for amendments to the rental assistance contract during the
original term of the contract as project costs may change during the
term.
HUD Response: The Department thanks the commenters for reviewing
the proposed rule and is moving forward with the proposed change. In
response to the commenters, HUD is adding language to Sec. 92.209(e)
that clarifies when an income reexamination is required. While the
Department is not moving to triennial income reexamination for tenant-
based rental assistance, HUD is revising Sec. 92.209(e) to add a new
paragraph (3) that defines what events constitute an amendment or
renewal of the rental assistance contract. Specifically, a rental
assistance contract may only be amended for the following reasons and
within its term if all parties consent, for the following reasons: to
extend the term of the rental assistance contract up to 24 months from
the original date of execution; when a tenant changes units within the
same building or development provided the parties to the lease, the
family size, and number of bedrooms remain the same; or the lease term
or amount charged under the lease has been changed. Subject to the
availability of HOME funds, a rental assistance contract may be renewed
after the expiration of its initial term.
The Department is also adding language in a new paragraph (4) that
explains when initial and subsequent income determinations are
required. Income determinations will be required before a participating
jurisdiction enters into an initial or new rental assistance contract
with the family, and at contract renewal. Participating jurisdictions
will not be required to reexamine a family's income if the rental
assistance contract is amended. The Department believes this will
address the commenters' concerns by establishing a clear framework for
reducing income reexaminations in tenant-based rental assistance.
D. Increase Alignment With Section 8 on Income Reexaminations
Commenters stated that HOME TBRA should require income eligibility
screening only at new admission and not require it afterwards, i.e.,
not during the annual certification process, because Section 8 requires
income eligibility screening only upon new admission.
Commenters also suggested that HOME TBRA do not have a lease
[[Page 796]]
renewal requirement similar to Section 8, where lease renewal is
implied.
HUD Response: The Department thanks the commenter for reviewing the
proposed rule and acknowledges the commenter's recommendation to align
income eligibility requirements across the HOME tenant-based rental
assistance programs and Section 8 Housing Choice Voucher programs. Due
to HOME statutory limitations, HUD declines to adopt this
recommendation.
The Act requires income targeting for HOME tenant-based rental
assistance to be based on income at the time of occupancy or at the
time funds are invested, whichever is later.\44\ The Act also limits
the term of rental assistance contracts to 24 months.\45\ The combined
effect of the two provisions is that the participating jurisdiction
must redetermine income each time it invests its funds into a new
rental assistance contract to determine that the family meets the
income eligibility requirements and to determine that the funds
invested in the rental assistance contract still meet the statutory
income targeting requirements. Rental assistance contracts may be
renewed if a participating jurisdiction has funds available and the
family still meets the income requirements after their income is
redetermined.
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\44\ 42 U.S.C. 12744.
\45\ 42 U.S.C. 12742(a)(3)(C).
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E. Remove Requirement That a Rental Assistance Contract Begin on the
First Day of the Lease
One commenter asked HUD to remove the requirement in Sec.
92.209(e) that the rental assistance contract begin on the first day of
the term of the lease because it imposes a hardship on households that
receive TBRA in the rental housing they currently occupy, but where
they were unassisted at the time of lease execution. The commenter
explained that HUD allows for the lease term to expire during the term
of assistance, so long as no HOME assistance is provided when an active
lease is not in place and that an existing lease may be amended to
include the required tenant protections after the lease term begins, so
the lease effective date should be immaterial to the HOME assistance
start date, so long as all other requirements are achieved.
HUD Response: HUD agrees with the commenter that requiring the
rental assistance contract to begin on the first day of the lease is
problematic for families that are already under an existing lease. The
Department is revising Sec. 92.209(e) to state that the term of the
rental assistance contract must begin on the first day of the term of
the lease or the beginning of the first month in which tenant-based
rental assistance is provided in accordance with the rental assistance
contract. Permitting the rental assistance contract to begin on the
first month in which the tenant-based rental assistance is provided
will allow participating jurisdictions to assist families already
residing in a unit, provided that the lease conforms to the tenant-
based rental assistance requirements in Sec. 92.209 and includes the
HOME tenant-based rental assistance tenancy addendum required in Sec.
92.253.
F. Support for Tenant Hardship Provisions in Sec. 92.209(h)
Several commenters stated that they support the proposed change to
the TBRA requirements to allow participating jurisdictions to establish
hardship policies that permit an exception to the minimum rent
requirement for families with little or no income.
HUD Response: HUD thanks the commenters for their support and is
moving forward with these changes.
Specific solicitation of comment #9: The Department currently
applies only the tenant protections contained in the current Sec.
92.253(a) and (b) to tenants receiving TBRA. The proposed rule would
apply proposed paragraphs (a)-(c) and (d)(2) to tenants receiving TBRA,
including tenants that only receive HOME security deposit assistance.
The Department is seeking public comment on whether the requirements at
Sec. 92.253(b) and (d)(2) should be required for tenants that receive
TBRA. If not, what tenant protection requirements should apply to
tenants that receive TBRA?
A. Comments in Support of a Tenancy Addendum for Tenant-Based Rental
Assistance Recipients
Several commenters supported providing a tenancy addendum for
recipients of HOME tenant-based rental assistance. One commenter stated
the proposed tenant protections are a positive step towards protecting
low-income renters in subsidized units and that they hoped to see the
protections expanded to other HUD programs. Another commenter supported
the expanded tenant protections and stated that many of the protections
already exist in State law and local ordinances. Another commenter said
that even though the commenter is unaware of any jurisdictions that use
HOME funds to provide TBRA, there is no reason why TBRA should operate
differently than the Housing Choice Voucher program, which provides
tenant protections.
One commenter stated that a universal HOME tenancy addendum would
ensure compliance with Violence Against Women Act (VAWA) requirements
and other Federal tenant rights and reduce the burden on participating
jurisdictions to develop their own addenda or review individual leases.
The commenter cautioned HUD must ensure that the universal HOME tenancy
addendum does not conflict with any lease provisions or addenda
required by other Federal programs, and should avoid conflict with
applicable State or local laws to the maximum extent possible. One
commenter urged HUD to extend the full range of tenant protections to
those receiving HOME TBRA and noted its appreciation for extending
these protections to persons with disabilities. The commenter
appreciated HUD seeking to minimize owner retaliation for reasonable
accommodation requests but notes that HUD enforcement of the regulation
is required in order to prevent such retaliation.
HUD Response: HUD thanks the commenters for their views and agrees
that tenancy addenda are an effective and administratively streamlined
way to ensure that leases are free from prohibited lease terms and
provide tenants with adequate protections and rights. HUD is adopting
tenancy addenda for rental housing, tenant-based rental assistance, and
families receiving only security deposit assistance. However, in
response to public comment, HUD is making significant changes to the
addenda requirements in this final rule so that the requirements in the
addenda reflect the extent of HOME involvement in the project.
Specifically, HUD is making even greater distinctions between the
addenda for rental housing in which the owner has accepted HOME funding
for the project and tenant-based rental assistance, as well as between
ongoing tenant-based rental assistance and only security deposit
assistance. This final rule also better aligns HOME tenancy provisions
with those applicable to Housing Choice Vouchers and project-based
vouchers to maintain consistency across the programs.
HUD declines to include VAWA protections applicable to HOME
projects in the HOME-specific tenancy addenda established by this rule
because the Department is undertaking separate rulemaking to implement
the expanded VAWA protections across HUD programs. The HOME-specific
protections in these addenda must be
[[Page 797]]
adjudicated through State and local judicial processes. Participating
jurisdictions are also required to monitor and enforce HOME
requirements. HUD, in its HOME program monitoring and oversight role,
may identify when a participating jurisdiction is not enforcing the
HOME requirements and may require that the participating jurisdiction
enforce tenant protections, as necessary. The Department notes that
individuals may report housing discrimination to HUD's Office of Fair
Housing and Equal Opportunity (FHEO), including complaints involving
violations of VAWA, the Fair Housing Act, Section 504 of the
Rehabilitation Act, and Title VI of the Civil Rights Act. See https://www.hud.gov/fairhousing/fileacomplaint. However, the Department is
declining to establish grievance procedures on either the Departmental
level or for participating jurisdictions. The HOME program is a block
grant affordable housing program, and it is the responsibility of each
participating jurisdiction to determine the best systems, policies, and
procedures for monitoring and enforcing compliance in accordance with
Sec. Sec. 92.253 and 92.504.
B. Cautious Support of a Tenancy Addendum for Tenant-Based Rental
Assistance Recipients
One commenter supported HUD's proposal to expand tenant protections
for households receiving TBRA assistance in theory but was concerned
that doing so may provide a disincentive for owners of rental housing
to participate in the program. While the commenter acknowledged the
benefits of extending tenant protections, especially in jurisdictions
without many protections for tenants, an expansion of requirements
would likely deter available units from being accessed. The commenter
recommended providing an option for participating jurisdictions to
exempt the new requirements for households that receive TBRA security
deposit assistance only, as well as an option for participating
jurisdictions to exempt 1-4 family and attached rental dwellings if it
is a deterrent for owners in their jurisdiction.
HUD Response: HUD shares the commenter's concern that HOME lease
addenda not act as a disincentive to private landlords accepting
participants in HOME TBRA programs, including security deposit
assistance only programs. HUD believes that establishing different
addenda for HOME rental projects, HOME TBRA, and HOME security deposit
assistance that provide different levels of tenant protections based on
the form of HOME assistance being provided will help address landlord
reluctance to accept the tenant protections in the addenda. The
Department believes that HOME TBRA recipients should have protections
similar to tenants of HOME-assisted rental units. Consequently, the
TBRA addendum is substantially similar to the Rental Housing addendum
except that it does not include the requirements: (1) that an owner
relocate a tenant if a life-threatening deficiency cannot be addressed
on the same day it is identified; and (2) that allows tenants to
organize, create tenant associations, convene meetings, distribute
literature, and post information. Because of the limited nature of
security deposit assistance, the new security deposit assistance
tenancy addendum includes the prohibited lease terms in the current
regulations. The Department chose this set of protections because the
vast majority of the protections have been the minimum standard for
tenant protections in the HOME program since 1991, when the HOME
program's first rule was issued.\46\
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\46\ See 56 FR 65354.
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C. Opposition to a Tenancy Addendum for Tenant-Based Rental Assistance
Recipients
Several commenters stated that requiring a tenancy addendum on TBRA
leases would likely limit the housing supply because fewer landlords
would accept tenants with HOME TBRA, especially in places where the
expanded protections exceed existing law. One of the commenters
recommended that HUD specially reach out to all participating
jurisdictions to obtain input on the impact of these proposed changes.
One commenter stated that the additional requirements limit the
units that are available to tenants for landlords that refuse the
additional protections as part of the lease. The commenter explained
that where demand exceeds supply the additional requirements limit the
units available for rent. Additionally, the commenter said that State
and local laws already provide tenant protections and the HOME program
should not limit tenants' access to existing available units for rent
by adding duplicative regulations and requirements. Another commenter
also said the proposed changes would risk decreasing program use and
create difficulties finding available units. This commenter said LIHTC
units have been lost due to qualified contract provisions that have
caused a housing shortage for low-income communities.
One commenter stated that the proposed tenant protection provisions
would undermine the operational and financial well-being of
participating rental properties and would interfere with existing State
and local tenant protection laws without any evidence supporting the
effectiveness of the proposed provisions. Another commenter stated that
the proposed tenant protection provisions would make it more difficult
for local courts to interpret lease agreements.
HUD Response: HUD appreciates the feedback and has carefully
considered the commenters' concerns that a TBRA addendum might create a
disincentive for private landlords to rent units to HOME TBRA
recipients. The Department understands that there may be owners that
refuse tenants with HOME tenant-based rental assistance because of the
terms of the HOME tenant-based rental assistance tenancy addendum;
nonetheless, the Department has experience with applying tenancy
addenda in other tenant-based rental assistance programs, most notably
the Housing Choice Voucher program, and believes that it must balance
the disincentive to some owners with the overall needs of the tenants
being assisted with Federal funds. TBRA recipients are entitled to
tenant protections and the Department has determined that these tenant
protections should be similar to those being provided to tenants of
HOME-assisted rental housing units, as described in the preamble to
this final rule. The Department provided notice to the public of these
protections in the proposed rule and specifically solicited comment on
applying the protections to tenant-based rental assistance, just as the
commenter is saying that the Department should have done. After
examining the comments received, HUD is adopting the requirement for a
HOME tenant-based rental assistance tenancy addendum in this final
rule.
Tenant protections under State laws vary widely and HUD does not
agree with commenters that it should defer to individual State laws
that may not always provide sufficient tenant protections for families
receiving HOME tenant-based rental assistance. Many State laws do not
afford the minimum set of tenant protections provided under the current
HOME regulations. After careful consideration of the comments received
as part of this rulemaking, the Department has determined that it
should not rely upon State laws and should promulgate the tenant
protections provided in Sec. 92.253(c) as a
[[Page 798]]
minimum standard of tenant protections. The Department does not believe
that requiring a minimum level of tenant protections will undermine the
operational and financial well-being of participating rental
properties, as owners are free to assess the risks and choose whether
they are comfortable with executing a tenancy addendum that includes
the tenant protections in Sec. 92.253(c). The tenancy addendum will
not interfere with existing State and local tenant protection laws and
tenants may exercise any protections that are more stringent than HUD
requirements. The Department also believes that the preamble discussion
of both the proposed and this final rule, the plain language of Sec.
92.253(c), and the HOME tenant-based rental assistance tenancy addendum
provide ample materials for courts to interpret tenant leases. The
Department also notes that many participating jurisdictions already
include a tenancy addendum addressing prohibited lease terms contained
in the current HOME regulations, and that such practice has made it
easier, not harder, for tenants to assert their rights under their
lease.
D. Opposition to Tenancy Addendum for Security Deposit Assistance
One commenter stated HUD should not require a tenancy addendum on
security deposit-only HOME clients, as this scenario typically includes
TBRA or Housing Choice Voucher or VASH vouchers, which already occur
and have an entity monitoring the landlord-tenant relationship for
compliance.
HUD Response: HUD agrees with the commenter that it is not
appropriate to use the HOME tenant-based rental assistance tenancy
addendum for tenants receiving security deposit only assistance. Unlike
tenancy in a HOME-assisted rental unit or receipt of HOME TBRA,
security deposit only assistance is one-time assistance. This is
especially true when it is coupled with another form of assistance such
as a Housing Choice Voucher. However, security deposit only assistance
is subject to the prohibited lease terms established in the HOME
statute and already promulgated in the current regulations.
Consequently, HUD is adopting an addendum solely for use in conjunction
with security deposit only assistance that contains only those
currently prohibited lease terms, as an addendum is an effective
mechanism for ensuring compliance.
Specific solicitation of comment #10: Currently, a rental
assistance contract can be between a participating jurisdiction and
either an owner or a tenant. The Department is also aware of many
participating jurisdictions that have tri-party rental assistance
contracts where the owner, the tenant, and the participating
jurisdiction all sign the rental assistance contract. The Department is
seeking feedback on whether a rental assistance contract should always
be executed by an owner so that the participating jurisdiction can
require that the HOME-assisted tenant's lease contain the HOME tenancy
addendum, and that the owner follow all applicable TBRA requirements.
To promote robust enforcement, a commenter suggested that HUD
should consider elaborating on the participating jurisdiction's
obligations upon receiving the lease or revision via final rule or
accompanying guidance. The commenter explained that tenants would
benefit if the participating jurisdiction was obligated to notify them
of proposed lease revisions and if tenants had the right to submit
comments regarding those revisions. The commenter also suggested that
HUD could also play a role in compliance monitoring if HUD performed
audits of the leases and revisions that are submitted. The commenter
further suggested that HUD should also require that leases disclose any
other Federal housing subsidies that are attached to the unit and the
property, as well as a statement that if a property or unit has
multiple subsidies, the most restrictive tenant protections apply.
Several commenters stated that the rental assistance contract
should be executed by an owner to ensure that the owner is compliant
with all applicable HOME TBRA requirements, particularly given that the
regulatory requirements apply to the owner of the project. One
commenter noted that agreements with project owners are common
practice. Another commenter noted that it already requires the owner to
be party to the rental assistance contract and agrees that it is
necessary to ensure tenant protections are enforced. Another commenter
stated that they have often experienced instances where tenants sign
the agreement but as an owner the commenter did not see the agreement
until after execution, which doesn't allow the owner to know up front
what is expected of them.
One commenter stated that a tri-party rental assistance contract
ensures that the owner and tenant have a clear understanding of, and
agree to, the program requirements, however the commenter noted that a
tri-party contract may be a disincentive to small-scale rental owners'
participation in the program. Another commenter noted that while it
believes the rental assistance contract should be executed by the
owner, it does support triparty contracts as an option.
Two commenters stated that HUD should permit participating
jurisdictions to choose whether owners should be included on the rental
assistance contract, as is currently permitted in the regulations,
although one commenter noted that requiring owners to be on the
contract may result in owners electing not to participate in the
program. The commenter also encouraged HUD to survey participating
jurisdictions to see how many currently include owners on the contract
and whether they support requiring the HOME tenancy addendum.
One commenter stated that the tenant protections should be required
to be in the tenant's lease in whatever method is appropriate. Another
commenter said that even though the commenter is unaware of any
jurisdictions that use HOME funds to provide TBRA, there is no reason
why TBRA should operate differently than the Housing Choice Voucher
program, which requires a tenancy addendum.
One commenter stated that the proposed changes would risk adding an
unnecessary layer of oversight and would create a link between
participating jurisdictions and owners that would risk property damage
concerns and tri-party contract disputes. The commenter also said that
since States or subrecipients could also have assistance contracts and/
or rental assistance contracts used as emergency solutions, having a
requirement to issue contracts with owner signatures would add
additional administrative burden. The commenter suggested that HUD
leave the regulation in its current form.
One commenter stated that participating jurisdictions can always
require that the HOME-assisted tenant's lease contain the HOME tenancy
addendum and that the owner follow all applicable TBRA requirements
either by including that requirement in a participating jurisdiction/
owner contract or in a tri-party contract. The commenter is not aware
of any data indicating the proposed change would benefit residents and
may, in fact, deter owners from participating in HOME TBRA programs.
HUD Response: The Department appreciates the feedback provided by
the commenters and has decided to require the participating
jurisdiction to enter a rental assistance contract with the owner and
the family. The Department is revising Sec. 92.209(e) to add paragraph
(1) to delineate the required parties to a rental assistance contract.
This may take the form of one agreement with the owner and a
[[Page 799]]
separate agreement with the family, or one single tri-party agreement
with the participating jurisdiction, the owner, and the family. The
Department disagrees that requiring an owner be a party to the rental
assistance contract would create an administrative burden, but instead
believes the participating jurisdiction must have a means of enforcing
the tenant-based rental assistance requirements in Sec. 92.209 with
both the project owner and the assisted family to ensure compliance
with all applicable requirements in Sec. 92.209, including but not
limited to tenant protections, income determinations, and unit
inspections.
In contrast to the comment that requiring a rental assistance
contract to be executed by the owner will lead to more contractual
disputes, the Department believes the final rule provides clearer
rights for tenants in contract disputes, especially those related to
property damage. By eliminating normal wear and tear as grounds for an
adverse action, and by tying charges for property damage to the
tenant's intentional or negligent acts, the HOME tenant-based rental
assistance tenancy addendum provides significantly greater clarity on
permissible charges. The Department agrees with the commenter who
stated that the rental assistance contract is the best vehicle that the
participating jurisdiction has to enforce the tenant protections
contained in the HOME tenant-based rental assistance tenancy addendum
and also believes that this will provide greater clarity in the event
of contractual disputes.
Sec. 92.210--Troubled HOME-Assisted Rental Housing Projects
A. General Support
Some commenters supported the additional flexibility for troubled
HOME-assisted rental projects. A commenter stated that they support
HUD's efforts to improve the effectiveness, specificity, and clarity of
participating jurisdiction's authority to preserve affordable housing
prior to foreclosure or similar events. Two commenters supported the
changes in Sec. 92.210(a) and (c), including allowing HUD to consider
physical condition and financial viability when preserving HOME-
assisted units at risk of failure or foreclosure. One commenter stated
that this change would be a critical update providing clarity on this
issue, as past interpretations have too narrowly focused on the
financial viability of the property. Commenters stated that they
support the proposed change to allow units to float-up from 50 percent
of area median income to 80 percent of area median income if a project
lacks sufficient income to cover operating expenses.
HUD Response: HUD appreciates the commenter's feedback on these
troubled HOME-assisted rental projects provisions and has revised this
final rule based on the comments. Specifically, HUD is broadening the
grounds on which a project may be considered financially troubled under
Sec. 92.210; under Sec. 92.210(a)(1) of this final rule, a project is
no longer financially viable if any one of three conditions exist,
including if the project's operating costs exceed its operating
revenue, considering project reserves; if the owner is unable to pay
for necessary capital repair costs or ongoing expenses for the project;
or if the project reserves are insufficient to be able to operate the
project. The Department believes that broadening these grounds will
better capture the type of projects that may be assisted with
additional HOME funds. By contrast, the Department is moving forward
with its proposed definition of physical viability, redesignated as
Sec. 92.210(a)(2), without change.
B. Request for Clarification on ``Significant'' Financial Issues
Commenters supported the flexibility in assisting troubled HOME-
assisted rental housing projects and recommended HUD provide more
clarity on what constitutes ``significant'' where the rule states ``a
HOME-assisted rental project is no longer financially viable if its
operating costs significantly exceed its operating revenue.'' A
commenter asked HUD to evaluate ``a project's current or future ability
to maintain affordability'' and asked that HUD detail the expected
process and timeline when making a request to HUD regarding troubled
HOME-assisted rental housing. The commenter also stated that HUD should
allow HOME funds to be used to restructure debt for troubled HOME-
assisted projects.
HUD Response: HUD agrees with commenters that the term
``significantly'' in Sec. 92.210 is vague and undefined. Consequently,
in this final rule HUD is deleting the word so that the flexibilities
of Sec. 92.210 will be available to projects in which operating costs
exceed operating revenue. HUD notes that in addition to the provisions
set forth in Sec. 92.210, HUD has the authority to waive certain
regulations and requirements under 24 CFR 5.110 if HUD determines that
good cause exists. The Department understands that commenters may not
know how to begin the process of determining if a project is troubled
under Sec. 92.210 or requesting a waiver under 24 CFR 5.110. To begin
the process, the participating jurisdiction requests technical
assistance from HUD to conduct a financial workout for a troubled
project. Then, the participating jurisdiction and Department engages in
a comprehensive assessment of the project's physical and financial
sustainability, which includes discussions with other funders, if
appropriate, and identification of all viable methods for the
participating jurisdiction to ensure the project will comply with all
applicable regulatory requirements through the period of affordability.
The process then culminates in either a memorandum of understanding or
a request for a waiver of HOME project requirements. In most instances,
both methods will lead to changes in the number or mix of HOME-assisted
units, investment of additional HOME funds, refinancing of debt,
recapitalization of operating reserves, or rent adjustments.
C. Support for Considering Physical Condition in Troubled HOME Projects
A commenter supported the flexibility to consider financial
viability or the physical condition of housing when preserving HOME-
assisted units at risk of failure or foreclosure. The commenter noted
the importance of recognizing that physical changes can significantly
impact a project's preservation, including deferred maintenance due to
unanticipated financial limitations or unforeseen capital needs. The
commenter stated that this change would improve collaboration between
participating jurisdictions and property owners to identify troubled
properties and preserve them.
HUD Response: HUD appreciates the commenter's support for the
flexibility to consider both financial viability and the physical
condition of housing when preserving HOME-assisted rental units at risk
of failure or foreclosure. HUD agrees that acknowledging the impact of
physical changes, often driven by unexpected financial challenges or
unforeseen capital needs, is crucial to preserving these projects.
HUD agrees that this flexibility will enhance collaboration between
participating jurisdictions and property owners, enabling the early
identification of troubled properties and improving preservation
efforts. HUD thanks the commenters and concurs that strong partnerships
with participating jurisdictions are vital in reducing the number of
troubled projects in the HOME rental portfolio. While projects do not
deteriorate overnight, early identification, thorough analysis, and
[[Page 800]]
proactive management are essential for ensuring the long-term
sustainability of HOME-assisted rental projects.
D. Participating Jurisdictions Should Preserve as Many Units as
Possible
One commenter understood that unforeseen events can affect projects
but encouraged HUD to allow participating jurisdictions to request
additional HOME funds to preserve as many units as possible or reduce
the number of HOME-assisted units to ensure the safety and health of
families. The commenter was concerned that ``deferred maintenance'' or
``unforeseen capital needs'' can be considered as factors that impact
the long-term affordability or physical viability of projects and
recommended that in these cases, 92.210(c) not apply and that HUD do as
much as it can to preserve the units, including enforcing inspections
regularly and providing additional resources to participating
jurisdictions.
HUD Response: HUD agrees that addressing deferred maintenance and
unforeseen capital needs is critical to preserving HOME-assisted rental
housing for families. However, the regulatory framework, including
Sec. 92.210, establishes clear requirements for when and how units may
be assisted with additional HOME funds. While HUD strives to preserve
as many units as possible, funding constraints limit HUD's ability to
provide additional HOME resources for every at-risk project. HUD
encourages participating jurisdictions to leverage other Federal,
State, and local funding sources alongside HOME to ensure comprehensive
preservation strategies.
HUD agrees that regular inspections are essential for identifying
potential issues early and will continue to emphasize their importance
through monitoring and technical assistance to prevent deferred
maintenance and protect long-term affordability. HUD remains committed
to working with participating jurisdictions and property owners to
maintain the viability of HOME-assisted projects while ensuring the
safety and health of residents.
E. Streamlining the Troubled Housing Project Process
One commenter supported process streamlining of troubled HOME-
assisted rental projects.
HUD Response: HUD appreciates the comment, and acknowledges that
workouts of troubled projects can be difficult and time-consuming due
to the complexity of the issues and the number of stakeholders that may
be involved. In addition to the changes made in this final rule to the
financial viability provisions, which the Department believes may aid
in streamlining the approval process under Sec. 92.210, HUD plans to
further outline the process for addressing troubled HOME-assisted
rental projects in guidance.
Sec. 92.212--Pre-Award Costs
Two commenters supported the proposed change authorizing pre-award
costs instead of requiring HUD to issue a waiver in each fiscal year in
which Congressional appropriations are not timely.
HUD Response: HUD thanks the commenters for reviewing and is moving
forward with this change.
Sec. 92.214--Prohibited Activities and Fees
A. Revise Sec. 92.214(a) To Allow for Faircloth-to-RAD Transactions
A commenter opposed the prohibition against providing HOME funds to
support rental units that will receive subsidies through the Faircloth-
to-RAD program. The commenter stated that Faircloth-to-RAD units are
considered assisted under section 9 of the 1937 Act which, though HOME
cannot fund, the ultimate intent for Faircloth-to-RAD units is for such
assistance to be provided through section 8 of the 1937 Act, and as
HOME-assisted rental units may also be assisted under section 8.
HUD Response: The commenter is correct. Until the public housing
units are converted to Section 8 units through the Rental Assistance
Demonstration, they are public housing units under the U.S. Housing
Act.
42 U.S.C. 12745(d)(4) & (5) prohibits HOME funds from being used to
provide assistance authorized under section 9 of the U.S. Housing Act
(42 U.S.C. 1437g) or to carry out capital and management activities
under the Capital Fund. The HOME rule at Sec. 92.213 states that HOME-
assisted housing units may not receive Operating Fund or Capital Fund
assistance under section 9 of the 1937 Act (42 U.S.C. 1437g) during the
HOME period of affordability. Because the public housing units in a
Faircloth-to-RAD transaction are being constructed as public housing
units under section 9 of the U.S. Housing Act (42 U.S.C. 1437g), and
because the units must receive Public Housing Operating and Capital
Funds in order to convert the assistance into a Housing Assistance
Payments Contract when the units are converted, HOME assistance cannot
be provided to develop the units. After conversion to Section 8
project-based rental assistance or project-based vouchers, HOME funds
can be used to assist the development if there are any remaining
expenses. Pursuant to Sec. 92.213(c), HOME funds can also be used for
non-public housing units if any are being constructed on the same site
as the Faircloth-to-RAD units.
B. Revise Sec. 92.214(b) To Clarify the Role of Participating
Jurisdictions in Approving Fees
One commenter suggested HUD amend Sec. 92.214(b)(4) to state
``With the permission of the participating jurisdiction, rental project
owners may charge. . .'' The commenter stated this language clarifies a
participating jurisdiction's responsibilities with respect to
permissible fees.
HUD Response: HUD thanks the commenter for reviewing. HUD will not
be moving forward with this change. The Department did not propose to
limit owners from charging reasonable application fees, parking fees
(where customary), or fees for services such as transportation (when
such services are voluntary and the fees are charged for the service
provided) and these are already fees that owners are permitted to
charge tenants of HOME projects under the current regulations. The
Department also does not see the utility in requiring that
participating jurisdictions regulate the permissible fees and is only
requiring that participating jurisdictions prohibit the fees and
charges listed in Sec. 92.214(b)(3).
C. Revise Sec. 92.214(b) To Permit Late Fees
One commenter stated that HUD should clarify whether owners may
charge late fees and insufficient funds fees, which are common in the
industry. The commenter noted HUD has informally indicated such fees
are not meant to be prohibited under the current language of Sec.
92.214(b)(1).
HUD Response: The HOME rule at Sec. 92.214(b)(3)(ii) prohibits
``[f]ees that are not customarily charged in rental housing (e.g.,
laundry room access fees).'' Reasonable late fees and returned check
fees are customarily charged in rental housing and would not be
prohibited by Sec. 92.214(b).
D. Revise Sec. 92.214(b) To Add Additional Prohibited Fees
Another commenter urged HUD to further clarify prohibited
activities and fees in Sec. 92.214 including ``normal wear and tear.''
The commenter also asked HUD to address predatory fees such as a trip
fee in conjunction with a lock-out and requested that HUD require
owners to have a free rent payment method to address the fees often
required when tenants pay online or with a credit card. The commenter
stated that any fees which are not optional, such as
[[Page 801]]
mandatory renter's insurance, should be required to be included in the
gross rent calculation. The commenter also questioned whether bulk
cable/phone/internet providers are allowable fees.
HUD Response: The Department thanks the commenter for reviewing the
proposed rule and agrees with the commenter's recommendation that HUD
clarify that charges for the normal wear and tear be prohibited under
Sec. 92.214. In this final rule, HUD is adding this prohibition to
Sec. 92.214(b)(3). The Department declines to accept the commenter's
suggestion to prohibit fees for lock outs since owners may incur costs
where a locksmith is required, or duplicate keys must be made. Provided
such fees are customary and reasonable, participating jurisdictions may
determine that owners of HOME-assisted projects may charge such fees.
With respect to the comment that HUD require owners to have a free
rent payment method to address the fees often required when tenants pay
online or with a credit card, charging fees associated with online
payments and using credit cards is a normal and customary business
practice in many markets and as such HUD declines to adopt the
commenter's suggestion. However, participating jurisdictions should
encourage owners to ensure free rent payment methods are available to
low-income families and may restrict the types of fees charged for
paying rent through the written agreement with the rental housing
project owner, as per Sec. 92.504(c)(3)(x).
While the Department understands that one commenter believes that
any fees that are not optional, such as mandatory renter's insurance,
should be required to be included in the gross rent calculation, HUD is
declining to adopt the commenter's recommendation. Fees are not utility
costs and are not included in the gross rent determination. Mandatory
fees may be permissible when commercially reasonable. The Department is
not going to create a compliance standard where the owner must reduce
the rent charged to a tenant by the monthly cost of mandatory fees.
Instead, the Department is providing participating jurisdictions
discretion to restrict fees through the written agreement. The
Department also notes that mandatory renter's insurance is a
commercially reasonable practice in the rental market.
Finally, one commenter questioned whether bulk cable/phone/internet
providers are allowable fees. When such fees are not customarily
charged within the participating jurisdiction's local rental market,
such fees must be prohibited.
E. Revise Sec. 92.214(b) To Clarify How To Determine Reasonable
Application Fees
One commenter questioned what a reasonable application fee is, what
can be used to calculate a reasonable application fee. In terms of
reasonable application fees, the commenter provided HUD the example
that in their State's LIHTC Program, the owner can only charge the
actual costs of processing an application credit/criminal background
and cannot inflate application fees.
HUD Response: The Department appreciates the commenter's question
concerning reasonable application fees. The Department is declining to
define the amount of a reasonable application fee, as commercially
reasonable application fees may vary based on the project's location,
sources of financing, and the type of background examination selected
by the owner.
Sec. Sec. 92.216 and 92.217--Income Targeting in HOME Rental Housing,
Tenant-Based Rental Assistance, and Homeownership Programs
A. Align Income Limits Across HOME and NAHASDA Programs
One commenter requested that HUD align the definition of area
median income for the HOME program with the definition contained in the
Native American Housing Assistance and Self-Determination Act (NAHASDA)
to facilitate leveraging NAHASDA funds with HOME funds and Tribes' use
of HOME funds, and to reduce burden caused by two different
methodologies for income for projects that utilize both NAHASDA and
HOME funds. The commenter stated that HUD's interpretation seems to be
that the median income of an Indian Area is the NAHASDA definition, and
that this should be implemented for instances where HOME funding is
used in an Indian Area. In support, the commenter referenced section
214 of the Cranston-Gonzalez National Affordable Housing Act (NAHA) (42
U.S.C. 12744); statutory language in NAHASDA at 25 U.S.C. 4103(14), and
the definition of ``median income'' in paragraph (15); the definition
of ``Indian area'' in NAHASDA,; the definition of ``median income for
an Indian area'' in HUD's Indian Housing Block Grant (IHBG) regulations
that implement NAHASDA; published guidance containing median incomes
for Indian Areas; \47\ published IHBG area income limits; and the U.S.
Department of Treasury's definition of area median income for the
Emergency Rental Assistance Program.\48\
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\47\ E.g., https://www.hud.gov/sites/dfiles/PIH/documents/2022-01_Income_Limits.pdf.
\48\ E.g., https://www.huduser.gov/portal/datasets/il.html#2022.
---------------------------------------------------------------------------
HUD Response: The Department thanks the commenter for their
recommendation that HUD align area median income for the HOME program
with the NAHASDA. NAHA and NAHASDA define low-income families
differently. NAHASDA permits HUD to establish an income floor for low-
income families for NAHASDA programs nationwide that is the greater of
80 percent of the median income for the United States or 80 percent of
the median income of the Indian area.\49\ In the definition of low-
income families, NAHA permits the Secretary to establish income
ceilings higher or lower than 80 percent of the median for the area on
the basis of the Secretary's finding that such variations are necessary
in accordance with 42 U.S.C. 12704(10).\50\ This revision requires that
HUD reexamine its methodology for calculating income limits for the
HOME program and make findings based on variations relating to the
prevailing levels of construction costs, unusually high or low family
incomes. The Department would then propose a different methodology and
solicit public input. HUD did not propose to change the definition of
low-income families or the way that area median income is calculated in
the HOME program in the proposed rule. The Department also did not
propose to establish a national income floor for HOME program as part
of the proposed rule. The Department believes that such significant
changes require notice and
[[Page 802]]
comment and will not make this change in the final rule.
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\49\ 25 U.S.C. 4103(15) states: ``MEDIAN INCOME- The term
`median income' means, with respect to an area that is an Indian
area, the greater of--(A) the median income for the Indian area,
which the Secretary shall determine; or (B) the median income for
the United States.''
25 U.S.C. 4103(14) defines low-income families as follows:
``LOW-INCOME FAMILY--The term 'low-income family' means a family
whose income does not exceed 80 percent of the median income for the
area, as determined by the Secretary with adjustments for smaller
and larger families, except that the Secretary may, for purposes of
this paragraph, establish income ceilings higher or lower than 80
percent of the median for the area on the basis of the findings of
the Secretary or the agency that such variations are necessary
because of prevailing levels of construction costs or unusually high
or low family incomes.''
\50\ 42 U.S.C. 12704(10) states that: ``The term ``low-income
families'' means families whose incomes do not exceed 80 percent of
the median income for the area, as determined by the Secretary with
adjustments for smaller and larger families, except that the
Secretary may establish income ceilings higher or lower than 80
percent of the median for the area on the basis of the Secretary's
findings that such variations are necessary because of prevailing
levels of construction costs or fair market rents, or unusually high
or low family incomes.''
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B. Create a National Income Limit Floor
One commenter recommended that HUD address the failures of its
income limit calculations in the HOME program and beyond, noting that
``state floors'' meant to prevent the effects of concentrated poverty
do not work in places with severely depressed economies and high levels
of poverty. The commenter stated that families in such places are not
able to qualify for assistance under HUD programs despite very low
incomes with respect to cost of living because the median family income
limits in their communities are so low. The commenter said they are
pursuing a legislative change to create a ``national floor'' and that a
HUD January 2024 Notice proposing the idea of a ``national minimum
income limit'' shows that HUD could immediately implement changes to
address this existing inequality.
HUD Response: The Department thanks the commenter for their
recommendation to address the effects of HUD's methodology for
calculating the income limits used for determining eligibility for HUD
programs, and particularly the HOME program, on individuals and
families living in places with severely depressed economies and high
levels of poverty. The HOME income limits are calculated using the same
methodology that HUD uses for calculating the income limits for the
Section 8 program, in accordance with section 3(b)(2) of the U.S.
Housing Act of 1937, as amended. These limits are based on HUD
estimates of median family income, with adjustments based on family
size using the American Community Survey (ACS) and other sources. Every
year, HUD publishes the annual income limits, which are used primarily
to determine the income eligibility of applicants for the HOME program.
In addition to being used to determine eligibility for Federal rental
housing programs, income limits are also used to determine the maximum
rents allowed for HOME projects.
HUD acknowledges the commenters' concerns that HUD's methodology
for calculating income limits used by the HOME Program should be
reexamined. In a January 10, 2024, Federal Register Notice (see FR-
6436-N-01), HUD first announced a change in the methodology for
determining the cap on how much income limits can go up in a single
year in any individual Fair Market Rent (FMR) area. Since FY2010 HUD
has limited all annual income limit decreases to five percent and all
annual increases to the greater of five percent or twice the change in
the national area median incomes. For FY-2024, HUD added an absolute
cap of 10 percent and clarified that the national median family income
is the change in uninflated ACS estimates. HUD made this change for
three reasons: to protect tenants from facing a large single-year rent
increase resulting from higher income limits, to address statistical
errors resulting in fair market rent areas that do not have a large
sample size, and to create stable and predictable income limits.
However, HUD will not revise how the HOME income limits are calculated
with this final rule, as the change is too significant to make without
HUD first proposing a different methodology and soliciting public
input.
Sec. 92.221--Match Credit
A commenter requested that HUD clarify that the requirements in
Sec. 92.221(b) would be applicable only to carryover amounts going
forward from the applicable date of the adoption of the rule otherwise
participating jurisdictions would have to have records beyond the
current recordkeeping period of documentation.
HUD Response: The Department will prospectively require compliance
with the revised requirements in Sec. 92.221(b), which explicitly
requires a participating jurisdiction to have documentation supporting
the source, eligibility, and value of match contributions that have
been carried over from previous years at the time that they apply the
contribution toward their match obligation. However, HUD notes that
participating jurisdictions are already responsible for complying with
the Sec. 92.508(a)(2)(ix), which requires records related to carryover
match. HUD is adopting the proposed rule language without change.
Sec. 92.250--Maximum Per-Unit Subsidy
A. Support for Increasing HOME Maximum Per Unit Subsidy Limit
Several commenters supported the increase of HOME subsidy limits.
Two commenters stated that HOME subsidy limits should be increased
because of the increase in the cost of labor and materials.
HUD Response: The Department appreciates the commenters' review of
the proposed rule and notes that the policy HUD is establishing through
a separate Federal Register publication increases the maximum per unit
subsidy limits from the current levels.
B. General Support for Revising Sec. 92.250(a) To Establish HOME
Maximum Subsidy Limits in Accordance With Section 212(e) of NAHA
Generally, commenters stated that they support the proposal of
establishing the HOME maximum subsidy limits in accordance with section
212(e) of NAHA. Several commenters stated support for HUD's
clarification that the statutory limit in Section 212(e) of NAHA is a
floor and not a cap of the subsidy amount, and for revising Sec.
92.250 so that the section refers to the statutory requirements in
order to avoid the need to waive or change the HOME regulations to
align with section 212(e) in the future. Two commenters supported HUD's
proposal to publish the methodology for determining the new maximum
per-unit subsidy limits through a future notice published in the
Federal Register and on HUD's website, with the opportunity for public
comment. Another commenter recommended HUD seek feedback through a
notice and comment period before finalizing a new methodology to ensure
it meets the diverse needs of stakeholders.
HUD Response: The Department appreciates the commenters' feedback
and is moving forward with the changes as proposed.
C. Support for Using Section 234 Limits on an Interim Basis
Several commenters supported HUD's proposal to adopt the Section
234 limits and increase the housing cost percentage from 240 percent to
270 percent in the maximum per-unit subsidy methodology. One commenter
said this would permit more flexibility for the commenter's members and
other stakeholders looking to maximize their usability of HOME funds
ahead of HUD's release of the proposed methodology. One commenter said
the resulting increase will be essential for communities where land and
building costs are exceptionally high, and that the additional
financing might also make the creation of smaller-scale properties
unable to obtain LIHTC financially feasible. Another commenter stated
that until a new methodology is finalized, HUD should establish the
maximum per-unit subsidy limit as 270 percent of the section 234
limitations, educate stakeholders, and consider waivers or high-cost
percentage exceptions. Another commenter noted its appreciation that
HUD increased the Section 234 limitations to 270 percent while it
designs new limits as this will allow more flexibility and affordable
[[Page 803]]
homeownership stakeholders who seek to maximize their useability of
HOME funds ahead of HUD's release of the proposed methodology. Another
commenter stated that changes to the per-unit subsidy limits
methodology would affect many other aspects of the proposed rule and
urged HUD to issue the notice that will revise the methodology as soon
as possible and in the interim to use the Section 234 elevator
condominium mortgage limits as the base but lift the cap for high-cost
areas to 270 percent. One commenter advocated for an increase in the
subsidy limit to 300 percent to accommodate land and construction
costs.
HUD Response: The Department appreciates the commenters' review of
the proposed rule and agrees that increasing the maximum per unit
subsidy limits to 270 percent of the Section 234 elevator condominium
mortgage limits will help communities where land and building costs are
exceptionally high and may also make the creation of smaller-scale
properties that are unable to obtain LIHTC financially feasible. The
Department believes increasing the limits to 300 percent is currently
unnecessary because few HOME-assisted units receive HOME subsidies
close to the limits. However, HUD notes that this final rule will
permit HUD to reconsider the limits based upon changing circumstances.
D. Specific Considerations in Per-Unit Methodology
Several commenters also recommended that in developing its new
methodology HUD consider the specific cost implications of
rehabilitation, rural communities, single family housing and
multifamily properties, fluctuating construction costs, as well as
operating costs, property insurance costs, income limits,
administrative costs, and impacts to a developer's revenue stream.
HUD Response: HUD appreciates the comments and, as allowed by the
Act, may consider appropriate variables such as the cost of land and
construction, market area, number of bedrooms, eligible activity type
(e.g., homeownership, rental), and work performed (e.g.,
rehabilitation, new construction) when developing a future methodology
for maximum per unit subsidy limits.\51\
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\51\ See 42 U.S.C. 12742(e)(1).
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E. Opposition to Using Maximum Per-Unit Subsidy in Effect at
Underwriting
One commenter opposed the proposed change that the HOME subsidy
limit must be determined at the time of underwriting and recommended
that the HOME subsidy limit be determined at the time of project
completion. The commenter stated that their recommended approach is
appropriate because: (1) the HOME subsidy limits are published once a
year, giving the participating jurisdiction plenty of time to adjust
subsidy layering, if needed; (2) projects may take more than a year to
complete and, with inflation, the HOME subsidy limits can significantly
increase, allowing participating jurisdictions more HOME funds to
complete the substantial renovations; and (3) while the maximum per-
unit HOME subsidy limit is often not reached, it is the times when a
particularly substandard home is renovated that more HOME funds being
available allows participating jurisdictions to make the necessary
substantial repairs.
HUD Response: The Department did not propose a change with respect
to the maximum per-unit subsidy limit applicable to a project. The
proposed language is a clarification. Because a HOME participating
jurisdiction is required to perform a subsidy layering analysis before
committing HOME funds to a project, the maximum per-unit subsidy limit
in effect at this time is the appropriate limit to apply to the
project. The Department does not agree that the HOME subsidy limit
should be determined at the time of project completion and will adopt
this language as proposed.
F. Exceeding the Maximum Per-Unit Subsidy To Meet Green Building
Standards in Sec. 92.250(c)
Commenters overwhelmingly supported HUD's proposal to permit
participating jurisdictions to provide additional subsidy in excess of
the maximum per-unit subsidy limits at Sec. 92.250(a) for HOME
projects that meet a green building standard. Several commenters
indicated that the increased subsidy could help to defer upfront costs
and assist with meeting their sustainability and housing goals, and
they encouraged HUD to include mitigation and resilience improvements
in the permissible standards. However, commenters also reminded HUD to
consider that the application of green building standards is different
for rehabilitation and new construction projects. One commenter noted
that due to project construction timelines, any new green building
requirements should be applicable based on date of commitment of HOME
funds rather than grant year.
HUD Response: The Department thanks commenters for their support of
HUD's proposal to permit participating jurisdictions to provide
additional subsidy in excess of the maximum per-unit subsidy limits at
Sec. 92.250(a) to HOME rehabilitation and new construction projects
that meet a green building standard. HUD is moving forward the change
and in response to comments has increased the amount by which the
maximum per-unit subsidy described in Sec. 92.250(a) may be exceeded
to ten percent for a project that meets one of the acceptable green
building standards enumerated by the Department. HUD agrees with the
commenter that stated that the green building requirements are
applicable based on the date HOME program funds are committed to a
project.
G. Opposition to Mandatory Green Building Requirements
Commenters opposed any mandatory green building requirements as a
condition of receiving HOME funds. These commenters stated that green
building standards should be voluntary given reductions in HOME
appropriations and increased costs of construction over time. One of
these commenters also suggested that requiring green building could
result in fewer HOME units produced and decreased interest from
contractors and developers in participating in the HOME program.
HUD Response: HUD thanks the commenters and clarifies that it did
not propose to require green building requirements under Sec. 92.251
property standards requirements but instead is proposing to incentivize
building to industry-recognized green building standards through the
use of an increased maximum per-unit subsidy.
H. Additional Green Building Incentives and Considerations
Commenters offered additional policy suggestions and shared
concerns for HUD's consideration. One commenter recommended that the
rule allow participating jurisdictions to exempt the amount of HOME
funds spent on green and resilient building measures from the
calculation of the total HOME subsidy for the purpose of determining
the minimum HOME period of affordability in accordance with Sec.
92.252(e). Two other commenters stated that HUD should consider Build
America, Buy America (BABA) requirements in determining any increases
in maximum per-unit subsidy related to green building standards because
BABA may result in increased costs from sourcing green building
materials.
[[Page 804]]
HUD Response: The Department thanks the commenters for reviewing
the proposed rule. As described elsewhere in the preamble, HUD is
adjusting the periods of affordability to reflect increased costs over
the last three decades and other requirements that may increase
compliance costs for owners. For new construction of rental housing,
the incremental cost of meeting green building standards will have no
effect on the period of affordability, as HUD has retained the 20-year
period of affordability. The Department does not have statutory
authority to disregard the costs related to green building from the
determination of per-unit subsidy and declines to adopt the change.
HUD notes that BABA is beyond the scope of this rulemaking. Until
additional guidance is provided about how BABA will apply to HOME and
other HUD programs, HUD cannot determine the effect of BABA compliance
on the green building incentive or overall compliance with the HOME
final rule.
Specific solicitation of comment #2: The Department specifically
requests public comment from participating jurisdictions, developers,
and other affected members of the public about the green building
standards that the Department should establish in the Federal Register.
In addition, the Department seeks public comment about stakeholder
experiences regarding the percentage increase in the cost of
constructing or rehabilitating affordable housing to a green building
standard and whether a 5 percent increase in the maximum per unit
subsidy limit is sufficient. Finally, the Department requests public
comment on whether permitting participating jurisdictions to exceed the
maximum per unit subsidy limit by an amount in excess of the additional
costs of green building measures (i.e., to provide additional HOME
funds to cover a larger portion of other HOME-eligible development
costs),would create a sufficient incentive to developers and owners to
meet green building standards in projects that would otherwise not be
designed to meet those standards.
A. Requiring a Specific List of Qualifying Green Building Standards
Commenters were divided over whether HUD should specify green and
resilient building standards and which standards HUD should permit.
Several commenters suggested that HUD should allow participating
jurisdictions a range of choices by prescribing a wide variety of
qualifying standards to account for differences in the availability of
resources, costs of certification, and unique State and local needs
based on population and geographic location. Alternatively, two
commenters recommended against a HUD-prescribed list and instead
suggested that HUD establish a broad definition of green and energy
efficient measures that would qualify as a green building standard to
allow for maximum flexibility. Furthermore, commenters recommended that
HUD allow the increased HOME subsidy if the project meets State and
local green standards and requirements. One commenter stated that HUD
should review best practices that increase the feasibility of the
developer to adhere to green standards while bringing down energy costs
for the consumer.
HUD Response: The Department thanks commenters for their views
regarding whether HUD should establish a set list of green and
resilient building standards to publish in the Federal Register. HUD
has received numerous recommendations of green building certifications,
standards, codes, and thresholds that commenters believe HUD should
incentivize, each with differing technical components, building
requirements, and effectiveness criteria. HUD will evaluate the
standards suggested, publish a provisional Federal Register notice for
effect, and solicit additional public comments.
B. Use of Nationally Recognized Certifications To Align With Other
Federal Programs
Commenters that support a HUD-prescribed list recommended that HUD
establish green and resilient building standards that are consistent
with the national certifications required by other Federal or HUD-
assisted programs to promote alignment, limit disruption or confusion,
and ease administrative burden, given that these standards are well
known by many participating jurisdictions and their developers. One
commenter noted that these standards are included by States in their
qualified allocation plans (QAPs) for low-income housing tax credits.
Another commenter suggested that HUD collaborate with other Federal
agencies such as the Department of Energy, Department of Health and
Human Services, and the Environmental Protection Agency to create such
a list or consider allowing the use of other agency's Green Building
Standards. The specific Federal programs suggested for alignment by
commenters include the following:
1. HUD's Green and Resilient Retrofit Program (GRRP), which permits
DOE Zero Energy Ready Home; Zero Energy Ready Multifamily; National
Green Building Standard--Silver, Gold, or Emerald; LEED V4.1;
Enterprise Green Communities Plus, Greenpoint Gold or Platinum;
Earthcraft Gold or Platinum; Passive House; International Living
Institute; Well Building Standard; RELi; or FORTIFIED Silver or Gold.
2. The Environmental Protection Agency's Greenhouse Gas Reduction
Fund program.
3. The Department of Energy's Section 45L Tax Credits for Zero
Energy Ready Homes, which also includes Energy Star requirements.
HUD Response: The Department thanks commenters for recommending a
large number of green and resilient building standards for HUD's
consideration. HUD agrees that green standards consistent with national
certifications required by other Federal programs have the highest
likelihood of reducing confusion and administrative burden. HUD will
evaluate the standards suggested, issue a provisional Federal Register
publication for effect, and solicit additional public comments.
C. Green Building Standards Promoted by Commenters
Irrespective of alignment with other HUD or Federal programs,
commenters recommended that the following certifications, standards,
codes, or thresholds be used to determine compliance for the purposes
of increased HOME subsidy:
1. CALGreen (California Green Building Standards Code--Part 11,
Title 24, California Code of Regulations).
2. GreenPoint Rated (GPR) Certified or 75+ points.
3. International Green Construction Code (IgCC), which the
commenter indicates will allow for coordination with the statutory HOME
energy efficiency requirements for new construction projects. A
commenter also notes that Appendix M of the 2024 IgCC provides options
for residential compliance with the National Green Building Standard
(ICC 700) and Appendix K aligns IgCC requirements with core elements of
versions 4.0 and 4.1 of the LEED rating system.
4. Home Energy Rating System (HERS) Index threshold specifically
for homeownership projects, for example requiring a HERS rating of 50
or lower to qualify as meeting the green building standard.
5. Earth Advantage.
6. Energy Rating Index (ERI) thresholds, for example requiring that
homes achieve an ERI of 60 or lower.
7. ENERGY STAR, and specifically ENERGY STAR Multifamily New
Construction National Program Requirements Version 1.1.
[[Page 805]]
8. Enterprise Green Communities, and specifically Enterprise Green
Communities Plus.
9. National Green Building Standard (NGBS Green).
10. Passive House.
11. US Green Building Council's LEED, and specifically LEED Silver
(50+ points) or LEED Net Zero.
12. Zero Energy Ready Homes.
HUD Response: The Department thanks commenters for recommending a
large number of green and resilient building standards for HUD's
consideration. Just as in the previous responses, HUD will evaluate the
standards suggested, issue a provisional publication in the Federal
Register for effect, and solicit additional public comments. The
Department understands that the green building standards mentioned by
commenters may not be currently required under or incentivized by
Federal programs but that they should be considered, and HUD will
perform the necessary examination of these standards before it issues
its Federal Register publication.
D. Support for Electrification
Two commenters urged HUD to prioritize electrification as an
essential measure for reducing greenhouse gas emissions and improving
indoor air quality, and therefore, the health and safety of the
occupants. Both commenters suggested that the HOME rule should require
that new construction and substantial rehabilitation projects be all
electric, and that HUD prevent the use of HOME funds in new fossil fuel
connections. However, one commenter suggested that an exception may be
necessary in cold weather climates to allow for fossil fuel backup
sources.
HUD Response: The Department thanks the commenters for their
recommendations on improving energy efficiency and resident health
outcomes via the prioritization of electrification. However, these
recommendations are not within the scope of this rulemaking. The
Department will continue to assess ways to further incentivize green
building in the HOME program.
E. Five Percent Increase in Maximum Per-Unit Subsidy Is Insufficient
Although several commenters support HUD's proposal to permit an
increase in the maximum per unit subsidy by five percent for meeting a
green building standard, the majority of commenters indicated that five
percent is insufficient to cover the increased costs of constructing or
rehabilitating affordable housing to a green standard including the
costs associated with obtaining a certification. Two commenters
asserted that the proposed five percent increase is insufficient even
to cover the increased costs of meeting the HOME statutory energy
efficiency requirements as updated by FR-6271-N-03. Meanwhile, other
commenters indicated that they could not determine whether a five
percent increase would cover increased costs of construction or provide
any incentive for green building without knowing which standards would
be required to access the benefit. One commenter recommended that HUD
request funding to establish a competitive Green Building pilot program
in conjunction with the HOME program to gather data on costs associated
with various green building standards.
Several commenters also expressed concern that the proposed policy
to permit an increase of the maximum per-unit subsidy would be
ineffective at any level to incentivize green building because
participating jurisdictions lack the additional HOME funds needed to
provide the benefit. Specifically, commenters noted that HOME projects
are often not awarded the full amount of the current maximum per unit
subsidy, particularly homeownership projects. In addition, one
commenter suggested that providing additional funding to HOME projects
would be a more effective means of incentivizing owners to meet green
building standards rather than allowing participating jurisdictions to
exceed the maximum per-unit subsidy by five percent.
HUD Response: The Department thanks the commenters and agrees that
the proposed five percent increase in the maximum per-unit subsidy is
insufficient to cover the costs associated with meeting nationally
recognized green building standards. Subsequently, the Department is
adopting a change in this final rule to increase the percentage in
Sec. 92.250(c) to 10 percent. The Department acknowledges that
ascertaining whether this 10 percent increase sufficiently covers
associated costs is difficult without having confirmed green and
resilient building standards. Moving forward, HUD will complete an
additional review and include standards in a provisional notice for
effect with public comments. The Department will continue to reevaluate
both green building standards and other methods of incentivizing green
building for the HOME program.
F. Increasing the Maximum Per-Unit Subsidy by 5 Percent Is Not
Sufficient To Incentivize Meeting Stronger Green Building Standards
Of the commenters who supported a 5 percent increase, several
indicated that 5 percent would only be sufficient to cover the
increased costs of meeting certain basic standards. These commenters
indicated that 5 percent is not sufficient to cover the higher costs of
more rigorous green and resilient building standards and that the 5
percent increase would not incentivize the type of wraparound measures
necessary to achieve meaningful energy and cost savings. Commenters who
suggested a greater increase in the maximum per unit subsidy limit
proposed a wide variety of alternatives. Commenters stated that the
appropriate amount would be closer to 10, 15, 20, or even 30 percent of
the maximum per unit subsidy given the wide range of costs associated
with different green building standards and the varying costs of
acquiring certifications based on location. One commenter indicated
that all residential buildings in California are required to meet
CALGreen, so the additional costs of building to green standards are
already reflected in the costs of residential construction in the
State. However, this commenter also recommends allowing an increase of
20 percent in the maximum per unit subsidy, which in States like
California where green building compliance is required, the additional
HOME investment will help to mitigate the current high cost of
construction and make assisted projects less reliant on other highly
competitive funding sources. In addition, two commenters stated that an
increase up to 30 percent would support green building by covering the
increased upfront costs of supplies while lowering the rents required
to be charged at the project.
HUD Response: The Department thanks the commenters for reviewing
and agrees that the proposed five percent increase in the maximum per-
unit subsidy is insufficient to cover the costs associated with meeting
green building standards. The Department is adopting a change to
increase the percentage in Sec. 92.250(c) to 10 percent. The
Department understands that many commenters recommended the maximum
per-unit subsidy limits be increased by an even higher percentage.
However, the Department must balance the benefits from more
sustainable, energy-efficient housing against the potential that fewer
units will be created or fewer families will be served. Given the level
of annual appropriations that
[[Page 806]]
the HOME program receives, the Department believes it can only move to
10 percent at this time but will reevaluate in the future.
G. A Higher Maximum Per-Unit Subsidy Increase for Rehabilitation
Projects
One commenter noted that meeting green building standards for new
construction is fundamentally different than for rehabilitation
projects and the commenter estimated that an increase of 25 percent of
subsidy would be required for rehabilitation projects to achieve a
green building standard beyond the State energy code. However, the
commenter expressed concerns with permitting a significant increase in
maximum per unit subsidy due to the impact on production and instead
suggested that HUD provide a 10 percent increase for rehabilitation
projects in States with ambitious green building standards, as
determined by HUD. The commenter stated that this proposal could
increase the number of HOME-assisted rehabilitation projects in areas
where green building standards are already required.
HUD Response: The Department thanks the commenters for reviewing
and is adopting a change increasing the maximum per-unit subsidy limit
percentage to 10 percent in Sec. 92.250(c) for both new construction
and rehabilitation projects that meet certain green building and
resiliency standards. The Department understands that many commenters
had requested increases that were significantly higher, particularly
for rehabilitation projects. However, the Department must balance the
benefits from more energy-efficient housing against the potential that
fewer units will be created or fewer families will be served. Given the
level of annual appropriations that the HOME program receives, the
Department believes it can only move to 10 percent for both new
construction and rehabilitation project at this time but will
reevaluate in the future.
H. Use of Actual Construction Costs Instead of Set Percentage Increases
in Maximum Per-Unit Subsidy for Green Building
Rather than permitting a specific percentage increase in the
maximum per unit subsidy limits, several commenters supported
permitting participating jurisdictions to exceed the limits by actual
additional construction costs of green building measures for the
project. One of these commenters suggested that the rule should permit
project owners to apply for the amount above the maximum per unit
subsidy needed for a rehabilitation project, and that the participating
jurisdictions should provide the largest awards to proposed projects
with the highest energy and cost savings potential, therefore
prioritizing rehabilitation of the most inefficient housing. Other
commenters recommended that the rule permit a participating
jurisdiction to determine the percentage increase because needs and
costs vary geographically.
HUD Response: The Department thanks the commenters for their
recommendation that HUD adopt increases in the maximum per-unit subsidy
limit based on either documented construction costs or at a
participating jurisdiction's discretion, rather than adopting a set
percentage increase. The Department declines to adopt these
recommendations, as measuring, documenting, and implementing these
methods would be unduly burdensome and complex for all parties
involved.
I. Using a Tiered Approach to Maximum Per-Unit Subsidy Increases for
Different Types of Green Building Standards
Many commenters also suggested that HUD implement a tiered approach
to providing an increased HOME subsidy to account for the varying
nationally recognized standards, with more aggressive standards
equating to larger incentives based on the relative level of value-
added above-code efficiency in terms of both energy savings and energy
cost savings and resilience in the project. One commenter remarked that
increased subsidy levels designed to cover the higher costs of advanced
standards would be a sufficient incentive in projects that would not
otherwise have been designed to meet green building standards. However,
the commenter also noted that there is not always an additional cost to
meet green building standards, particularly for standard level green
certifications and that the cost differential is likely to diminish
over time as developers become more familiar with green building
standards, so an increased HOME subsidy will eventually become a true
incentive to build greener housing.
Two commenters suggested that a tiered approach be tied to Energy
Rating Index (ERI) thresholds with the largest subsidy available for
net zero design and/or the installation of solar in assisted projects.
Other commenters suggested that HUD allow a lower increase, from 2 to 5
percent for base green building certifications such as ENERGY STAR and
a 10 percent increase for buildings that achieve higher certifications
consistent with the recent National Definition of a Zero Emissions
Building, such as Enterprise Green Communities Plus, the forthcoming
LEED Zero Carbon, ENERGY STAR NextGen, and/or the Department of
Energy's Zero Energy Ready Homes combined with specific required
criteria or additional requirements to make them zero emissions.
Another commenter suggested that to create an incentive, HUD should
implement a range of increased subsidy rather than a set percentage
using a formula based on criteria such as disparities between State
code and HUD requirements, the extent of green building rating systems
and any subsidies offered at the State or local level. The commenter
recommended that the further ``behind'' a State is in adopting the most
recent International Energy and Conservation Code (IECC) and American
Society of Heating, Refrigerating and Air-Conditioning Engineers
(ASHRAE) codes, the higher the base subsidy should be. A different
commenter stated that HUD should implement an ``up to or higher''
standard, which could be provided through a waiver process based on
taking into account the type of activity and technology deployed.
HUD Response: The Department thanks the commenters for the
recommendations. However, HUD believes that establishing a tiered
approach or ranges based on the green building standards individual
participating jurisdictions use would be extremely complicated and
potentially unworkable. HUD is declining to adopt these recommendations
at this time but will continue to assess ways to pay for the increased
costs of developing affordable housing that meets higher standards for
green building, climate resiliency, and a greater level of energy
efficiency and may revisit this issue in a future rulemaking.
J. Opposition to Five Percent Increase in Maximum Per Unit Subsidy
Because of Uneven Application and Reduction of Overall Units Produced
Commenters anticipated that homeownership projects would be the
most affected by cost increases related to energy efficiency
requirements and green building standards. Commenters agreed that large
multifamily rental development projects are the most likely to benefit
from any permitted increase in maximum per unit subsidy. However, a
commenter stated that data they analyzed showed that the amount of HOME
funds awarded even to rental projects depends largely on the
participating jurisdiction's policies rather than on local conditions
(e.g., high cost areas), and therefore it is not
[[Page 807]]
clear that participating jurisdictions will provide additional HOME
funds based on the increased costs of meeting a green building
standard. Consequently, this commenter does not support HUD's proposal
because they believe it would have an uneven impact nationally, with
most of the country unable to take advantage of the flexibility. In
addition, the commenter worried that HUD's proposal will result in a
decrease in the number of assisted projects and limit unit production.
However, in anticipation of this challenge, two other commenters
suggested that HUD provide guidance and tools on how to leverage other
funding sources and maximize available HOME funds to allow for more
comprehensive energy efficiency projects while maintaining unit
production.
HUD Response: The Department appreciates the comments. HUD notes
that HOME is a block grant program with local choice and flexibility at
its core. Consequently, the Department does not believe that because
not all participating jurisdictions will exercise this or any other
flexibility in the regulations is a sound reason for not offering the
flexibility at all. HUD does not expect that all participating
jurisdictions will choose or need to take advantage of the increase in
the subsidy limit. HUD takes seriously the need to balance the benefits
from more resilient and energy-efficient housing with the added costs
and marginal reduction in the total number of HOME-assisted unit.
Because the regulation does not require the use of green building
standard and instead makes it more feasible to pursue this housing that
meets the standards, HUD is devolving the choice to State and local
government based upon their priorities. The Department is moving
forward with the 10 percent increase and will continue to reevaluate
green building standards, other methods of incentivizing green
building, and the prospect of requested technical assistance once green
standards are implemented for the HOME program.
K. Incentivizing Universal Design With Increases in the Maximum Per-
Unit Subsidy
One commenter suggested that in addition to increasing Green
Building standards, HUD should consider how the HOME program can
incentivize or require increased disability-related accessibility
standards. For example, the commenter suggested that the HOME program
could adopt the Universal Design criteria which is currently in the HUD
Section 811 Capital Advance application.
HUD Response: The Department appreciates the comment and urges HOME
program participants to create projects with Universal Design in units
and common areas, enhanced accessibility features, and more than the
minimum number of units that meet Federal accessibility requirements
for persons with disabilities. However, the commenter's proposal is
outside the scope of this regulation as HUD has not solicited public
comment on suitable standards for a regulatory provision or the
incremental cost of compliance with them. Individual projects that
require HOME investment exceeding the maximum per unit subsidy limits
due to the cost of incorporating universal design elements may seek
case-specific relief from HUD.
Sec. 92.251--Property Standards and Inspections
A. General Support for Changes
One commenter provided general support for all the changes to HOME
property standards to include energy efficiency, carbon monoxide
detectors, incorporate green building standards and include NSPIRE
changes.
HUD Response: HUD thanks the commenters for reviewing the proposed
rule and for their support.
B. Statutory Energy Efficiency Requirements in Sec. 92.251(a)--Support
Commenters supported the proposal to codify the statutory HOME
energy efficiency requirements in the HOME regulations. One commenter
recommended HUD update the reference from section 109 of NAHA to HUD's
recent minimum energy standards determination (FR-6271-N-03) to
streamline requirements across programs and minimize confusion about
the requirements.
A commenter agreed with HUD's proposal that the rule should be
clear that the ASHRAE Standard 90.1-2019 (for high-rise multifamily)
and the 2021 Energy Conservation Code (for single-family and low-rise
multifamily) apply to all new construction under HOME, including
alternative compliance pathways such as specified green building
certifications and future HUD-developed standards. The commenter
recommended that HUD go further and apply the standards to major
rehabilitations under HOME, arguing that rehabilitated homes can and
should meet the same standards as new construction. Additionally, the
commenter said that HUD should consider setting higher minimum
standards for HOME new construction and major rehabilitation that
require certifications consistent with the Department of Energy's
National Definition of a Zero Emissions Building.
One commenter noted that low-income households are more likely to
experience higher utility costs, and that energy efficiency means
residents do not need to choose between paying utilities, rent, or
putting food on the table and responds to climate instability. The
commenter noted the importance of energy standards being codified in
accordance with section 109 of NAHA, including any revisions adopted by
HUD and USDA and encouraged the use of HUD funding to implement these
requirements.
HUD Response: The Department thanks the commenters for their review
and is adopting the proposed change codifying the statutory requirement
that all HOME-assisted rental and homebuyer new construction projects
meet the energy efficiency standards promulgated by HUD in accordance
with section 109 of NAHA, including any revisions adopted by HUD and
the U.S Department of Agriculture (USDA). To maintain consistency in
regulations and energy efficiency requirements as standards are updated
over time, the Department declines to update the reference from section
109 of NAHA to the recent minimum energy standards determination (FR-
6271-N-03). The Department also declines to apply these standards to
rehabilitation projects, or to apply new, higher minimum standards to
new construction or rehabilitation projects under the HOME program. The
priority of this final rule is to maintain consistency and advance
alignment across programs, meaning that the HOME program has the same
energy efficiency standards as the rest of the Department. The
Department will continue to assess ways to further produce efficient,
healthy, and resilient affordable homes, and may revisit this issue in
a future rulemaking.
C. HUD Should Engage in Monitoring of Energy Efficiency Requirements in
Sec. 92.251(a)
One commenter stated that the energy efficiency standards would
require monitoring to ensure that HUD's energy efficiency goals are
being met. The commenter stated that HUD could ensure the goals are met
by tracking developer use of inspections and assessments. The commenter
stated that HUD could require these assessments since the proposed rule
allows for reimbursements of environmental assessments.
HUD Response: The Department thanks commenters for their
recommendation that HUD require
[[Page 808]]
tracking developer use of inspections and assessments to ensure that
energy efficiency goals are being met. Requirements at Sec. 92.504
state that participating jurisdictions must have and follow, among
other things, a system for monitoring entities to ensure that HOME
program requirements for HOME-assisted units set forth in 24 CFR part
92 are met throughout the specified period of affordability. As the
energy efficiency standards under Sec. 92.251 fall under that umbrella
and are subject to monitoring, the Department declines to adopt this
recommendation that more stringent or developer-specific monitoring
requirements be put into effect.
D. HUD's Energy Efficiency Standards Should Prohibit New Fossil Fuel
Connections
One commenter stated that HUD's proposal to have projects meet high
energy efficiency standards was beneficial but could go further by
further eliminating new fossil fuel hookups.
HUD Response: In a separate rulemaking, HUD has developed energy
efficiency standards in order to comply with 42 U.S.C. 12709. Revising
those energy efficiency standards to prohibit new fossil fuel
connections is beyond the scope of this rulemaking.
E. Allowing the Use of NSPIRE Inspections To Determine Compliance With
HOME Property Standards in Sec. 92.251(a), (b), and (f)--Support
Multiple commenters stated that they support the proposed alignment
in the HOME program of permitting the use of inspections from other
programs or sources.
HUD Response: HUD thanks the commenters. HUD is moving forward with
its proposal to accept inspections performed under other HUD programs.
F. Allowing the Use of NSPIRE Inspections To Determine Compliance With
HOME Property Standards in Sec. 92.251(a), (b), and (f)--Concern About
Current Properties
Commenters stated that HUD should clarify the specifics of the
applicability of NSPIRE to various HOME-eligible activities. One of
these commenters noted that it is unclear how NSPIRE applies
differently among homebuyer activity, homeowner rehabilitation
activity, rental new construction activity and rental rehabilitation
activity. The commenter requested that the final rule address the as-
applied differences between these activities. One commenter cautioned
that applying new physical condition standards such as the NSPIRE
program to old properties is problematic because they were built under
very different code and standard requirements.
HUD Response: HUD recognizes the commenter's concerns. Under Sec.
92.251(f)(2), if a participating jurisdiction is monitoring a project
that received a HOME commitment before January 24, 2015, then the
participating jurisdiction is required to monitor that project under
the applicable State or local housing quality standards or code
requirements, and if there are no such standard or code requirements,
the housing must meet the housing quality standards in 24 CFR 982.401.
For projects with commitments after January 24, 2015, they must meet
all applicable State or local code requirements and ordinances and in
the absence of existing applicable State or local code requirements and
ordinances, at a minimum, the participating jurisdiction's ongoing
property standards must provide that the property does not contain the
specific deficiencies established by HUD based on the applicable
standards in 24 CFR 5.703 and published in the Federal Register for
HOME rental housing (including manufactured housing) and housing
occupied by tenants receiving HOME tenant-based rental assistance (see
Sec. 92.251(f)(1)(i)).
Under the Effective Date section of the NSPIRE Final Rule, HUD
clarified that ``[p]articipants and owners subject to these regulations
are subject to the Code of Federal Regulations as it exists on the
publication date of this rule and are not subject to the regulatory
changes being made by this rule on July 1, 2023, until October 1,
2023.'' HUD has since delayed the compliance date for implementing
NSPIRE inspection standards and requirements until October 1, 2025,\52\
giving participating jurisdictions more time to update their property
standards and owners more time to bring their properties into
compliance with the new ongoing property standards. HUD will provide
additional guidance and materials aimed at assisting participating
jurisdictions and owners in complying with the requirements, including
a streamlined list of minimum inspectable items that shall be a subset
of the larger set of standards published in the NSPIRE Standards notice
at 88 FR 40832.
---------------------------------------------------------------------------
\52\ On September 2023, HUD delayed the compliance date for CPD
programs (88 FR 63971) and for the HCV and PBV programs (88 FR
66882) until October 1, 2024, to allow PHAs, jurisdictions,
participants, recipients, and HUD grantees additional time for
implementation. On July 5, 2024, HUD further extended the compliance
date for CPD programs and for the HCV and PBV programs until October
1, 2025 (89 FR 55645).
---------------------------------------------------------------------------
G. Allowing the Use of NSPIRE Inspections To Determine Compliance With
HOME Property Standards in Sec. 92.251(a), (b), and (f)--Compliance
Concerns
While one commenter was supportive of the changes made to accept
inspections under other HUD programs, they noted that the success of
the policy will depend upon effective implementation and coordination
among the various entities involved in the project and urged HUD to
take steps to ensure that all entities involved are committing to
inspection standards that prevent issues in units from going undetected
for extended periods. In addition, one commenter requested that HUD
clarify whether a participating jurisdiction must be a party to the
contract for an inspector conducting the inspection in satisfaction of
another funding source's requirements. Another commenter asked which
entity is responsible for ensuring that inspections are conducted in
compliance with HOME requirements and stated that they wished to avoid
conflicts between states and local jurisdictions.
HUD Response: HUD acknowledges the commenter's concerns and
believes that the final rule requirement that a participating
jurisdiction perform an onsite inspection within 12 months after
project completion coupled with the ongoing inspection requirements at
Sec. 92.251(f)(3)(i) address the commenter's concern. The
participating jurisdiction will still be required to determine that
HOME units meet the property standards at the completion of
rehabilitation. Moreover, once every three years, either the
participating jurisdiction will perform an onsite inspection of the
units to determine if they meet the ongoing property standards (Sec.
92.251(f)(3)(i)(A)) or it may accept an inspection conducted on the
HOME-assisted units within 12 months that met the NSPIRE requirements
in 24 CFR part 5, subpart G or an alternative inspection standard,
which HUD may establish through Federal Register publication (Sec.
92.251(f)(3)(i)(B)). To help ensure that all entities involved are
meeting inspection standards, HUD will continue to develop training and
tools aimed at ensuring compliance.
The participating jurisdiction is not required to be a party to the
contract of an inspector that is inspecting on behalf of another
program but may enter into contracts with inspectors to perform the on-
site inspection of units under the HOME program. The Department is not
[[Page 809]]
responsible for monitoring the entity that inspects the units under
another funder's program but is simply provided the option of accepting
the inspection results if it meets the requirements of the final rule
in Sec. 92.251.
H. Allowing the Use of NSPIRE Inspections To Determine Compliance With
HOME Property Standards in Sec. 92.251(a), (b), and (f)--Equivalent
Standards in Tax Credit Programs
Two commenters stated that the proposal to allow a participating
jurisdiction to ``[a]ccept a determination made under another HUD
program . . .'' should be expanded to also include rental inspections
made for tax credit programs. One of these commenters stated that tax
credit programs, while not HUD programs, are by far the most frequent
and prominent other funding source for affordable housing. The
commenter requested that HUD revise the proposed language in Sec.
92.251 to allow participating jurisdictions to accept inspections made
by any other funding source when the other funding source's inspection
requirements equal or exceed HUD's requirements. One commenter noted
that the language of the proposed rule states that HUD may accept the
determination of ``another HUD program,'' which could limit HUD's
ability to accept the determination of programs outside of HUD that
engage in similar determinations. The commenter stated they were
especially confused because the informational portion of the comment
session made it seem as though HUD ``may accept the determination of
another funder in accordance with [Sec. ]92.251 every three years
thereafter.''
HUD Response: The Department thanks commenters for their
recommendation that HUD revise the proposed language in Sec. 92.251 to
allow participating jurisdictions to accept inspections made by other
funding sources when those other funding sources' requirements equal or
exceed HUD's own requirements. This recommendation would allow
participating jurisdictions to accept rental inspections for tax credit
programs. The Department is moving forward with language allowing for
participating jurisdictions to use an inspection performed under the
requirements of NSPIRE (24 CFR part 5, subpart G) as evidence of
compliance with the HUD housing standards required under Sec.
92.251(b)(1)(viii), and is clarifying that inspections for tax credit
programs such as LIHTC are acceptable so long as those inspections meet
or exceed the NSPIRE standard in 24 CFR 5.703. The Department
acknowledges that the language stating that HUD may accept the
determinations made under ``another HUD program'' may be limiting when
it comes to non-HUD programs that make similar determinations.
I. Allowing the Use of NSPIRE Inspections To Determine Compliance With
HOME Property Standards in Sec. 92.251(f)--Accepting an Inspection
Within 3 Months
One commenter suggested that the flexibility of accepting physical
inspections performed by other HUD programs using the Housing Quality
Standards and NSPIRE standards for tenant-based rental assistance units
should operate in a slightly different manner. The commenter
recommended extending the timeframe for when the other inspection has
occurred from 3 months to 12 months because requiring duplicative
inspections annually can cause unnecessary delays in getting families
housed.
HUD Response: The Department understands the commenter's concern
but must balance the potential delay in receiving assistance with the
requirement that a tenant receiving tenant-based rental assistance live
in a unit that meets all applicable local or State codes and applicable
housing quality standards. HUD believes 3 months is a reasonable period
of time in which an inspection reflects the state of the property
condition. Any inspections before that period may not accurately
represent the condition of the property because too much time will have
passed in which intervening events may have negatively impacted the
property causing new deficiencies that must be corrected before the
tenant could occupy the unit. HUD also retained the language in Sec.
92.251(f)(4)(ii) of the proposed rule that stated that ``[a]
participating jurisdiction may move its inspection cycle to align with
an inspection'' made under another program. This will better enable the
participating jurisdiction to reduce the frequency of inspections
during the tenancy.
J. Allowing the Use of NSPIRE Inspections To Determine Compliance With
HOME Property Standards in Sec. 92.251(a), (b), and (f)--Use of
Housing Quality Standards (HQS) Under Sec. 982.401
One commenter stated that they support HUD's proposal to accept
physical inspections performed by other HUD programs that were
completed using Housing Quality Standards, or eventually, NSPIRE.
Another commenter asked whether inspections conducted under NSPIRE
replace inspections conducted under previous standards such as the
Uniform Physical Condition Standards (UPCS) or Housing Quality
Standards.
HUD Response: HUD wishes to clarify that it is not allowing the use
of Housing Quality Standards inspections performed under 24 CFR 982.401
to be used to determine compliance through either Sec.
92.251(b)(1)(viii)(A) (rehabilitation property standards) or Sec.
92.251(f)(3)(i)(B) (ongoing property standards). HOME property standard
regulations allow inspections conducted under 24 CFR part 5, subpart G.
This provision does not contain Housing Quality Standards inspection
requirements, it contains NSPIRE requirements. The Department did not
propose to apply or allow the application of the Housing Quality
Standards requirements contained in 24 CFR 982.401 beyond its current
application to projects with commitments before 2015. Please see Sec.
92.251(f)(2). The Department has determined that the use of NSPIRE
standards will result in better housing quality and long-term viability
of HOME-assisted units than Housing Quality Standards. In addition,
through the Economic Growth Regulatory Relief and Consumer Protection
Act: Implementation of National Standards for the Physical Inspection
of Real Estate (NSPIRE) Final Rule published on May 11, 2023 (88 FR
30442), the Department replaced the Uniform Physical Condition
Standards previously at 24 CFR 5.703 with NSPIRE. In accordance with
the Federal Register Notice titled Economic Growth Regulatory Relief
and Consumer Protection Act: Implementation of National Standards for
the Physical Inspection of Real Estate (NSPIRE); Extension of NSPIRE
Compliance Date for HCV, PBV and Section 8 Moderate Rehab and CPD
Programs published on July 5, 2024 (89 FR 55645), HOME participating
jurisdictions are not permitted to use UPCS inspection requirements to
determine compliance through either Sec. 92.251(b)(1)(viii)(A)
(rehabilitation property standards) or Sec. 92.251(f)(3)(i)(B)
(ongoing property standards) for HOME-assisted projects with
commitments on or after October 1, 2025. The use of NSPIRE as a unified
inspection protocol will facilitate alignment inspections of HOME-
assisted units with other housing programs.
[[Page 810]]
K. Allowing the Use of NSPIRE Inspections To Determine Compliance With
HOME Property Standards in Sec. 92.251(b) and (f)--Use of NSPIRE
Results During Rehabilitation and Ongoing Inspections
One commenter supported HUD's proposal to provide administrative
relief by better aligning HOME inspection standards with the standards
of other funding sources. The commenter supported allowing
participating jurisdictions to accept NSPIRE inspections conducted
under another funding source, in lieu of the final completion
inspections for rehabilitation projects as well as ongoing inspections
of rental projects and housing occupied by tenant-based rental
assistance tenants because it would reduce participating jurisdictions'
administrative burden and reduce the impact on owners and tenants of
having multiple project inspections due to layered Federal funding.
HUD Response: HUD appreciates the commenter's review and is moving
forward with language allowing for participating jurisdictions to use
an inspection performed under the requirements of NSPIRE (24 CFR part
5, subpart G) as evidence of compliance with the HUD housing standards
required under Sec. 92.251(b)(1)(viii).
L. Elimination of Initial, Progress, and Final Inspections in Sec.
92.251(b)
One commenter believed HUD's proposal allowed participating
jurisdictions to accept NSPIRE inspections of rehabilitation projects
performed for other funding sources instead of final and ongoing
periodic inspections. The commenter also believed that this allowed the
use of LIHTC inspections. The commenter stated that it recommends that
HUD still provide participating jurisdictions the option of performing
final and ongoing inspections to prevent delays in inspection.
HUD Response: HUD thanks the commenter for reviewing the proposed
rule. However, the commenter misunderstands the inspection provision in
the proposed rule. HUD did not propose to eliminate initial, progress
and final inspections under Sec. 92.251(b)(3). HUD proposed to allow
the use of another HUD inspection conducted under 24 CFR part 5,
subpart G to be evidence that the property met the requirements under
Sec. 92.251(b)(1)(viii) once construction was completed. The
participating jurisdiction must still conduct initial and ongoing
progress inspections, as HUD explained in the preamble to the proposed
rule. See 89 FR 46630.
M. Inspection to Applicable Housing Codes in Sec. 92.251(a), (b), and
(f)
One commenter stated that HUD should allow State participating
jurisdictions to inspect all their HOME properties in accordance with
either local codes or a national standard as determined by HUD and that
if a State participating jurisdiction chooses to use the national
uniform standard, participating jurisdictions should still require
owners to certify that they meet local codes but should not be required
to inspect the property in accordance with the local code.
HUD Response: Participating jurisdictions are required, by statute,
to provide on-site inspections to determine compliance with housing
codes and other applicable regulations. See 42 U.S.C. 12756(b). HUD
does not believe that is has the flexibility to require a national
uniform property standard instead of applicable local and State housing
codes because the requirement to perform on-site property inspections
to those codes is statutory.
N. Support for Adding Carbon Monoxide Detection Requirements to Sec.
92.251(a), (b) and (f)--General Support
Many commenters expressed general support for requiring the
installation of carbon monoxide detectors in HOME projects. One
commenter went further, stating that carbon monoxide alarms should also
be accessible for people with hearing loss.
HUD Response: HUD appreciates commenters' support of the
provisions. HUD will describe standards for carbon monoxide detection
through a Federal Register publication, as described in Sec.
92.251(a)(3)(vi)(A), (b)(1)(xi)(A), and (f)(1)(iv)(A).
O. Adding Carbon Monoxide Detection Requirements to Paragraphs (a),
(b), and (f)--Concerns
Many commenters also conveyed concerns about imposing strict
requirements for the installation of hard-wired carbon monoxide
detectors. One commenter requested that the rule provide an exception
be made for those housing units where a gas line or similar hazard is
not present. Another commenter only supports requiring hard-wired
alarms in HOME-funded new construction. One commenter supports a
requirement for a 10-year battery-powered carbon monoxide detector in
rehabilitation and homebuyer acquisition projects and in units occupied
by tenants receiving HOME tenant based rental assistance. However, for
homebuyer acquisition and tenant-based rental assistance projects, the
commenter requested that the installation of a carbon monoxide detector
be permitted as an eligible HOME cost. This commenter expressed concern
that requiring a seller or landlord to pay for the cost of installation
of carbon monoxide detectors may reduce the available housing stock for
these types of activities. Furthermore, this commenter and another were
not in favor of requiring a HOME-assisted homebuyer to pay these costs.
Other commenters also requested that HUD make additional HOME funding
available for the costs of installing carbon monoxide detectors.
Another commenter stated that they do not support the proposal
because carbon monoxide detectors are already required by the
International Housing Code, and they view any additional HOME
requirements for carbon monoxide detectors as overreach.
HUD Response: HUD recognizes commenters' concerns regarding the
installation costs of carbon monoxide alarms. Through final rule, HUD
will be establishing carbon monoxide alarm requirements through a
Federal Register publication. HUD believes installing carbon monoxide
alarms is a reasonable cost for homeowners and owners of rehabilitated
rental units. Finally, HUD is unable to make additional funds
specifically available for the costs of installing carbon monoxide
detectors but notes that installation of carbon monoxide alarms is an
eligible use of HOME funds for new construction and rehabilitation
projects.
P. Carbon Monoxide Requirements in Sec. 92.251(a), (b), and (f) Should
Align With Other HUD Programs
One commenter emphasized that any HOME requirements for carbon
monoxide detectors should align with other HUD programs.
A different commenter noted that some State regulations require a
smoke alarm in every unit room that also contain carbon monoxide
detection. Consequently, the commenter suggests that the rule defer to
applicable State and local laws for carbon monoxide detection
standards.
HUD Response: This final rule seeks to align HOME carbon monoxide
requirements with those of the NSPIRE Final Rule and those contained in
the U.S. Housing Act of 1937 (42 U.S.C. 1437), thereby promoting
consistency with other HUD programs. HUD declines to defer to State and
local codes due to the safety benefits of these carbon monoxide alarm
requirements to
[[Page 811]]
occupants of HOME-assisted housing and in the interest of aligning HOME
requirements with other HUD programs.
Q. Permitting Property Standards Compliance Six Months After Title
Transfer in Homeownership Programs Under Sec. 92.251(c)--Support
Most commenters support the proposal to allow homebuyer acquisition
projects to meet HOME property standards within six months after the
assisted homebuyer purchases the unit because such a change would
expand homebuyers' purchasing options and simplify the pre-purchase
period. One commenter reasoned that this change would provide more
choices for homebuyers and provide access to bank foreclosures, and
that this change would prove advantageous for buyers because of risks
for buyers to cover out-of-pocket repairs before closing. Furthermore,
commenters noted that sellers would often not consider offers that
included contingencies regarding property standards, which made HOME-
assisted homebuyers less competitive in the private market. In
addition, one commenter indicated that the proposal would align HOME
with other funding sources before closing. Furthermore, commenters
noted that sellers would often not consider offers that included
contingencies regarding property standards, which made HOME-assisted
homebuyers less competitive in the private market. In addition, one
commenter indicated that the proposal would align HOME with other
funding sources.
HUD Response: HUD thanks the commenters for their support. HUD is
adopting the six-month deadline for a homebuyer to make necessary
repairs so that their unit meets applicable property standards.
However, HUD has also adopted language in the final rule permitting
participating jurisdictions to provide the homebuyer a written
extension of up to an additional six months to meet property standards.
Participating jurisdictions that wish to exercise the authority to
provide extensions, when necessary, must establish policies and
procedures for reviewing and approving a homebuyer's request for an
extension of the deadline.
R. Permitting Property Standards Compliance Six Months After Title
Transfer in Homeownership Programs Under Sec. 92.251(c)--Need for
Additional Time
Several commenters suggested that the proposed six-month timeframe
would be insufficient time for many homebuyers to complete the
necessary rehabilitation. As reasons for this statement, one commenter
cited supply chain issues, Build America, Buy America requirements,
contractor availability, and green certifications requirements.
Commenters proposed allowing longer periods, such as 9, 12, or 18
months after acquisition, to bring a property to standard. Allowing for
reasonable extensions or phased rehabilitation plans based on property
conditions and local market dynamics could alleviate some of the
pressure on participating jurisdictions while maintaining housing
quality standards.
HUD Response: HUD agrees with commenters' concerns about potential
obstacles to homebuyers meeting the proposed six-month deadline and is
revising the proposed language to allow participating jurisdictions
when necessary to provide up to an additional six months for homebuyers
to meet property standards. This revision allows participating
jurisdictions to exercise their judgment regarding a homebuyer
project's unique circumstances and local market conditions.
S. Permitting Property Standards Compliance Six Months After Title
Transfer in Homeownership Programs Under Sec. 92.251(c)--Opposition
One commenter stated that they do not support the proposed revision
due to concerns around enforcement and the possibility that the
participating jurisdiction may be required to foreclose on the property
or allow the homeowner to live in substandard conditions. Another
commenter supportive of the proposal expressed similar concerns about
the difficulty of monitoring the six-month deadline to rehabilitate
housing and meet homebuyer acquisition property standards. One
commenter opposed the proposal, recommending instead that the
requirement should align with a local jurisdiction's certificate of
occupancy requirements. This commenter agreed with the previous
commenter that it may not be practicable for a participating
jurisdiction to enforce property inspection requirements on a homeowner
after title transfer.
HUD Response: HUD thanks the commenters for reviewing the proposed
rule. However, HUD believes that there are adequate safeguards in place
to prevent homebuyers from occupying substandard properties.
Participating jurisdictions are required to conduct inspections to
ensure that homes purchased with HOME assistance comply with HOME
property standards, in accordance with Sec. 92.251(c)(3). In the case
of projects under this delayed compliance date, the participating
jurisdiction must confirm through onsite physical inspection that all
required work has been completed to meet property standards. Regarding
the concern related to inspecting units after title transfer,
participating jurisdictions will be required to make such inspections a
condition of the receipt of funds in the homebuyer written agreement.
HUD recognizes that permitting homebuyers six months to meet property
standards will require participating jurisdictions to adjust their
policies and procedures but views this as a worthwhile change to expand
the supply of homes that homebuyers may purchase with HOME funds.
Regarding the risk that a homebuyer may be unable to afford the
rehabilitation necessary to meet property standards, HUD emphasizes
that participating jurisdictions must establish and use homebuyer
underwriting standards and ensure that HOME funds are supporting
sustainable homeownership opportunities, in accordance with Sec.
92.254(f). If a homebuyer is unable to fund necessary repairs, the
participating jurisdiction must either provide HOME or other funding
for rehabilitation or decline to provide HOME funds to the homebuyer
for the purchase.
T. Permitting Property Standards Compliance Six Months After Title
Transfer in Homeownership Programs Under Sec. 92.251(c)--Defining How
``Funds are Secured for Rehabilitation''
Several commenters requested clarification of the proposed policy.
Specifically, two commenters requested that HUD clarify what evidence a
homebuyer must provide to demonstrate that ``funds are secured for
rehabilitation.'' One of these commenters suggested that HUD consider a
letter provided by a mortgage lender or a bank statement as evidence of
sufficient funds.
HUD Response: In accordance with Sec. 92.254(f), participating
jurisdictions must establish and use homebuyer underwriting guidelines
that ensure homebuyers will have sufficient savings post-purchase or
secured financing to complete rehabilitation necessary to meet HOME
property standards. This final rule does not prescribe specific
documentation that a homebuyer must provide to the participating
jurisdiction, as this is for the participating jurisdiction to define
in its policies and procedures. It is in the interest of participating
jurisdictions to ensure that rehabilitation can and will be completed
because the project will otherwise be determined to be ineligible for
HOME funding.
[[Page 812]]
U. Permitting Property Standards Compliance Six Months After Title
Transfer in Homeownership Programs Under Sec. 92.251(c)--Clarifying
Consequences of Non-Compliance
One commenter requested that the Department clarify in the
regulation at Sec. 92.251(c) the consequences of failure to meet the
property standards requirements within six months after title transfer
in a homeownership program.
HUD Response: If the homeownership unit does not meet property
standards within six months, the participating jurisdiction may extend
the time period in which the property must meet the participating
jurisdiction's property standards to 12 months (see Sec.
92.251(c)(3)(ii)(D)). If the property still does not meet the
participating jurisdiction's property standards after six months (if no
extension is given) or 12 months (if an extension is given), then the
housing does not meet the requirements of 24 CFR part 92 and the
participating jurisdiction must repay the HOME investment. The
corrective and remedial actions for failure to comply with HOME program
requirements are outlined at Sec. 92.551. HUD declines to make the
suggested change to further clarify the consequences of failing to meet
the property conditions because it is unnecessary.
V. Permitting Property Standards Compliance Six Months After Title
Transfer in Homeownership Programs Under Sec. 92.251(c)--Guidance
Two commenters requested HUD provide guidance on the inspections
required to ensure that the housing met property standards after a
HOME-assisted homebuyer purchases the unit and completes the required
rehabilitation. One of these commenters requested that HUD provide a
sample template inspection form for jurisdictions that operate
downpayment assistance programs to standardize practices.
HUD Response: HUD is unable to provide a sample inspection form as
part of this final rule. HUD encourages the commenter to review the
provisions of this final rule and HOME program resources on the HUD
Exchange. As part of the implementation of the NSPIRE Final Rule, HUD
will provide additional guidance and materials aimed at assisting
participating jurisdictions and owners to comply with the requirements,
including a streamlined list of minimum inspectable items that shall be
a subset of the larger set of standards published in the NSPIRE
Standards notice at 88 FR 40832.
W. Exempt Manufactured Homes From Construction and Safety Standards if
They Meet HUD National Construction and Safety Standards for
Manufactured Housing
One commenter requested HUD provide for an exemption for HUD Code
manufactured housing from all proposed requirements that deal with
construction and safety standards. The commenter is concerned that
HUD's proposal would impose new construction requirements on all
housing structures utilized under the HOME program. For manufactured
homes, the commenter believed this would result in conflicts with the
Manufactured Home Construction and Safety Standards (the HUD Code)
resulting in the inability to utilize manufactured housing for projects
funded by the program. The goals of the new construction requirements
may make sense for other forms of housing that are not subject to
national construction standards administered by HUD. However, the
commenter believed they are not necessary for manufactured homes, which
as noted, already are subject to such standards.
HUD Response: The Department agrees with the commenter that
construction of manufactured housing should meet the requirements
contained in the HUD manufactured housing regulations. Under Sec.
92.251(e), ``Construction of all manufactured housing including
manufactured housing that replaces an existing substandard unit under
the definition of ``reconstruction'' must meet the Manufactured Home
Construction and Safety Standards codified at 24 CFR part 3280 . . .
.''
X. Use the International Code Council/Modular Building Institute
Standards for Off-Site Construction
One commenter encouraged HUD to recognize the International Code
Council/Modular Building Institute standards for off-site construction
in order to facilitate their expanded use and encourage efficient
design and construction that addresses housing affordability and
availability, sustainability, workforce availability, and supply chain
disruptions.
HUD Response: The HOME rule at Sec. 92.251(e) requires that
construction of all manufactured homes meet the Manufactured Home
Construction and Safety Standards codified at 24 CFR part 3280 and
additional requirements. Section 92.251(e) also requires that in HOME-
funded rehabilitation of existing manufactured housing the foundation
and anchoring must meet all applicable State and local codes,
ordinances, and requirements or in the absence of local or State codes,
the Model Manufactured Home Installation Standards at 24 CFR part 3285.
Manufactured housing that is rehabilitated using HOME funds must meet
the participating jurisdiction's rehabilitation standards requirements,
as required in Sec. 92.251(b). When building components are built off-
site and then installed on the HOME project site as a form of new
construction or reconstruction but not as a form of manufactured
housing under the Manufactured Home Construction and Safety Standards,
the new construction must meet the requirements in Sec. 92.251(a).
Y. Revise Financial Oversight Requirements in Sec. 92.251(f)
One commenter is not supportive of the financial oversight
requirements applying to rental projects with 10 or more HOME-assisted
units. While the commenter understands that it can always adopt more
restrictive requirements, the reality is that financial oversight is an
invaluable tool in understanding how properties are performing, as well
as early indications of financial distress and/or properties having
surplus beyond what was originally underwritten. The commenter uses
financial oversight during annual rent increase requests to verify it
is reasonable for HOME-funded projects which more than likely have a
blend of LIHTC, HOME, Housing Trust Fund (HTF), and/or local resources.
HUD Response: HUD is noting that it has not changed the financial
oversight provisions in Sec. 92.504(d)(2). In the proposed rule, HUD
reorganized the HOME regulations and moved those requirements to Sec.
92.251(f). HUD understands that many participating jurisdictions may
wish to exert greater financial oversight on HOME-assisted projects in
their portfolio and encourages participating jurisdictions to determine
and implement the best approach for their jurisdictions. At this time,
the Department is not reducing the 10-unit threshold for when a
participating jurisdiction is required to conduct financial oversight
under Sec. 92.251(f). HUD believes this is inconsistent with its
efforts to provide monitoring flexibilities to small-scale housing
projects and that it is best left to the participating jurisdiction to
determine how to monitor projects with fewer than 10 units.
[[Page 813]]
Z. Energy Efficiency Considerations for Manufactured Homes and Off-Site
Construction
One commenter also suggested that HUD should ensure that energy
efficiency considerations are addressed for off-site built housing like
manufactured homes. The commenter noted that HUD should consider the
Environmental Protection Agency's EnergyStar v.3 standard or the
Department of Energy's Zero Energy Ready standard for manufactured
homes as a minimum for any activities related to the purchase of new
manufactured housing with HOME funds.
HUD Response: HUD appreciates the comment. However, the Department
was not proposing to change the minimum property standards for
manufactured housing, which are covered by Sec. 92.251(e). Paragraph
Sec. 92.251(e) continues to require that manufactured housing be
constructed in accordance with the Manufactured Home Construction and
Safety Standards found at 24 CFR part 3280. The Department just
recently revised its Manufactured Home Construction and Safety
Standards as part of another rulemaking and the Department is declining
to make further revisions to those rules or to the HOME rules in
response to this comment.\53\
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\53\ See 89 FR 75704.
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AA. Use of Inspection Performed by Third Parties
Another commenter recommended allowing States to accept ongoing
inspection reports from local government inspections that review
compliance with local codes during construction of a HOME-assisted
project. The commenter believed that HUD should only require the final
inspection be conducted by the State participating jurisdiction before
completing the project in the IDIS, instead of requiring frequent State
participating jurisdiction inspections during construction. The
commenter explained that this would avoid unnecessary burden,
especially for larger States where it can take several hours to commute
to a project's location.
Another commenter stated that HUD should create a process to accept
either State or local rental inspections in lieu of HUD required
inspections.
HUD Response: HUD declines to revise the requirement that
participating jurisdictions conduct progress inspections and notes that
HOME regulations do not require participating jurisdiction staff to
conduct the inspections. Participating jurisdictions may contract with
qualified third-party inspectors, including contractors for other
funders or units of government, to conduct HOME inspections in
accordance with the participation jurisdiction's policies and
procedures.
BB. Provide Small-Scale Rental Housing Inspection Requirements to All
Owners
One commenter said that the changes being proposed to the small-
scale development compliance requirements, such as requiring
inspections every three years, should be extended to larger-scale
developments as well.
HUD Response: HUD declines to extend the revisions to compliance
requirements for small-scale rental housing to all rental projects.
These revised requirements are based on the unique considerations of
small-scale housing and would result in insufficient monitoring if
applied to larger rental projects. HUD also notes that current HOME
regulations at Sec. 92.504(d)(1)(ii)(A) require inspections every
three years following the inspection within 12 months of project
completion.
CC. Reduce Property Standards Requirements for Homeowner Rehabilitation
One commenter stated that HOME's Housing Quality Standards,
especially the requirement to address all health and safety hazards,
impose significant challenges on low-income homeowners who cannot
afford critical repairs due to limited equity or reluctance to encumber
properties. The commenter stated that these issues cause HOME
applicants to drop out of the process, which often means that grantees
cannot recover the extensive staff time invested in considering or
processing applications. The commenter recommended that HUD remove the
Housing Quality Standards (HQS) requirements for single-family
rehabilitation projects. One commenter stated HUD should expand grant
funding available to cover critical repairs, such as roofs, plumbing,
and electrical systems, which are often unaddressed due to limited
equity, hesitation of homeowners to participate in the program, and
concerns about encumbering their property with debt vs income. The
commenter noted that HUD could expand the range of available grants to
mirror CDBG programs.
HUD Response: HOME is an affordable housing program with the
statutory purpose of bringing rental and homeownership housing up to
standard physical condition and imposing periods of affordability on
the housing.\54\ CDBG is a community development program that can fund
single purpose or emergency rehabilitation that does not address all
deficiencies in a property or impose long-term affordability
restrictions. Unlike the CDBG program, the HOME regulations require
that the rehabilitation meets the participating jurisdiction's
rehabilitation standards, which are more stringent standards that
require that the entire housing structure is code compliant and meets
the HUD housing standards contained in 24 CFR 5.703, as provided for in
Sec. 92.251(b). HQS do not apply to HOME-assisted homeowner
rehabilitation projects. For HOME-assisted homeowner rehabilitation,
participating jurisdictions must determine the scope of repairs needed
to bring the homeowner's property up to code as well as the form of
assistance to homeowners, including any loan terms. The critical
repairs noted by the commenter are eligible costs if such repairs are
necessary to meet participating jurisdiction's rehabilitation
standards. Salaries, wages, and related costs of program administration
are also eligible costs under the HOME program (Sec. 92.206(d)(6)).
The Department declines to reduce the property standards requirements
for homeowner rehabilitation projects and acknowledges that other
programs may be better suited for more limited-scope homeowner
rehabilitation projects than the HOME program.
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\54\ See 42 U.S.C. 12721, 42 U.S.C. 12722, and 42 U.S.C. 12741.
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DD. Reduce Property Standards Requirements for Homebuyer Acquisition
One commenter requested that HUD only require participating
jurisdictions to ensure that homebuyer housing is free of immediate
life and safety issues rather than imposing extensive property
standards. The commenter stated that this may create a more reasonable
option for income eligible buyers and private sellers instead of
financing additional rehabilitation costs, which may put debt-to-income
ratios too high.
HUD Response: The Department declines to reduce the property
standards requirements for homebuyer acquisition projects. The purpose
of the HOME program is to bring housing into compliance with property
standards and ensure the housing remains affordable over time.\55\ For
homeownership, adequate property condition is key to
[[Page 814]]
the sustainability of a household's homeownership over the period of
affordability. When a participating jurisdiction uses HOME funds for
downpayment assistance or other homebuyer assistance programs, the
participating jurisdiction is required to determine that the housing
being acquired meets property standards at purchase or to ensure that
necessary rehabilitation is performed soon after purchase. HUD
encourages participating jurisdictions to use HOME funds to complete
necessary repairs to units being acquired by homebuyers with HOME
funds. However, this final rule also reduces a key barrier for private
sellers by providing the HOME-assisted homebuyer 6 months to meet
property standards. When permitted by a participating jurisdiction,
this time period may be extended to 12 months. This should be rare.
Meeting property standards may require additional investment by the
participating jurisdiction or the homebuyer. The participating
jurisdiction must work with the homebuyer and determine the correct
amount of homeownership assistance based not only on the cost of
acquisition but also any necessary rehabilitation to bring the property
into compliance with the participating jurisdiction's property
standards.
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\55\ See 42 U.S.C. 12721, 42 U.S.C. 12722, and 42 U.S.C. 12741.
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EE. Align Rehabilitation Standards With the Community Development Block
Grant (CDBG) Program
One commenter suggested that the Department align HOME
rehabilitation requirements with the rehabilitation requirements under
the CDBG program.
HUD Response: The Department declines to align HOME rehabilitation
requirements with CDBG. The CDBG program does not require that all
rehabilitated residential properties meet the national Standards for
the Condition of HUD housing contained in Sec. 5.703. The Department
chose to align with programs that are subject to the standards
contained in Sec. 5.703 because those programs, which include but are
not limited to the Section 8 project-based rental assistance and
Housing Choice Voucher program, are the forms of assistance most likely
to be combined with HOME assistance. The CDBG program does not require
rehabilitation projects to meet these property standards or inspection
requirements, and therefore, the CDBG program does not align with other
HUD programs under NSPIRE inspection protocols. Adopting the CDBG
rehabilitation requirements for HOME-assisted rehabilitation would mean
the removal of property standard and inspection requirements from the
existing regulation. 42 U.S.C. 12722 states that one of the purposes of
the HOME program is ``to expand the supply of decent, safe, sanitary,
and affordable housing, with primary attention to rental housing, for
very low-income and low-income Americans.'' HUD does not believe that
is has the flexibility to remove rehabilitation property standards and
inspection requirements because the requirement that all HOME-assisted
projects be decent, safe, and sanitary is statutory.
Specific solicitation of comment #3: The Department specifically
seeks public comment on the proposal to require HOME-assisted units
comply with NFPA 72, or any successor standard, to use hardwired smoke
alarms or sealed or tamper resistant smoke alarms with ten-year non
rechargeable, nonreplaceable batteries, that provide notification for
persons with hearing loss. The Department is particularly interested in
public comment on the feasibility of these requirements in HOME-funded
homeownership programs that do not include rehabilitation or
construction of housing (e.g., downpayment assistance programs).
A. Support for Smoke Alarms in HOME Projects
Commenters generally expressed support for requiring the
installation of smoke alarms in the interest of promoting safety. In
addition, only a few commenters stated their support for the specific
proposal to require NFPA 72 smoke alarms in HOME-assisted projects. Of
those commenters, one indicated support of the proposal for all types
of HOME-assisted projects (i.e., new construction, rehabilitation,
homeowner or rental acquisition and TBRA) and indicated that the
minimal additional cost is worth the potential lifesaving impact. One
other commenter indicated support for compliance with NFPA 72
specifically in homebuyer acquisition (i.e., downpayment assistance)
programs. The third commenter reasoned that hard-wire smoke detectors
would reduce both the removal of batteries and the frustration of
tenants responsible for replacing batteries but could not comment on
the impact of the policy on homebuyer acquisition projects because the
participating jurisdiction does not use funds for that purpose.
HUD Response: HUD thanks the commenters for sharing their views.
HUD is revising the proposed language in order to achieve an approach
that improves safety while addressing feasibility concerns that
commenters raised. This final rule requires that HOME-assisted new
construction projects use hardwired smoke alarms. For rehabilitation
projects, if the use of hardwired smoke alarms places an undue
financial burden on the owner or is infeasible, a participating
jurisdiction may provide a written exception to an owner to allow the
owner to install a sealed and tamper resistant smoke alarm that uses
10-year non-rechargeable, non-replaceable primary batteries.
Participating jurisdictions may also provide exceptions for projects
including the acquisition of standard housing for homeownership, such
as downpayment and closing cost assistance programs. Finally, a
participating jurisdiction's standards must require that existing
rental housing and housing occupied by tenants receiving tenant-based
rental assistance contain smoke alarms in accordance with the
requirements contained in 24 CFR 5.703(b) and (d). These standards do
not require NFPA 72 compliance but do require that units occupied by a
hearing-impaired person contain smoke alarms designed for hearing-
impaired persons.
B. Concerns Over Requiring Installation of NFPA 72 Compliant Smoke
Alarms
Most commenters expressed concerns about the specific proposal to
require the installation of NFPA 72-compliant smoke alarms. Their
primary concerns are costs, availability of such smoke alarms, and
feasibility in projects that do not involve new construction or
rehabilitation. Specifically, commenters were unclear how compliant
smoke alarms would be paid for in homebuyer programs and speculated the
proposal could increase administrative burden and cost in many
jurisdictions where homeownership assistance programs are often
oversubscribed and financially stretched. Many commenters were also
concerned that installation would be challenging and cost-prohibitive
in the rehabilitation of older housing. One of these commenters stated
that adoption of the NFPA 72 standard would cause their participating
jurisdiction to discontinue use of HOME funds for rehabilitation
projects.
HUD Response: HUD acknowledges commenters' concerns and has revised
the proposed language to provide flexibility for participating
jurisdictions. For new construction projects and many rehabilitation
projects, installing hardwired smoke alarms is feasible and promotes
safety and user-friendliness. However, installing hardwired alarms may
be challenging for certain rehabilitation projects. This final rule
allows participating jurisdictions to provide written exceptions to
allow the
[[Page 815]]
owner to install a sealed and tamper resistant smoke alarm that uses
10-year non-rechargeable, non-replaceable primary batteries. Likewise,
the participating jurisdiction may provide an exception for homebuyers
participating in homeownership assistance programs. HUD believes
installing battery-powered smoke alarms is a reasonable cost for
homeowners and owners of rehabilitated rental units. Finally, HUD notes
that smoke alarms are widely available and that their installation is
an eligible use of HOME funds for new construction and rehabilitation
projects.
C. Smoke Alarm Requirements Should Be Optional
To address concerns about costs, one commenter proposed that smoke
alarm requirements should be encouraged but not required. Other
commenters suggested that the rule not require smoke alarms to be hard-
wired. One commenter, however, supported hard-wired smoke alarms only
in HOME-funded new construction projects. Two other commenters agreed
that HUD should differentiate requirements for new construction and
rehabilitation projects. The first commenter suggested that the rule
require 10-year battery-powered smoke alarms in rehabilitation,
homebuyer acquisition, and HOME tenant based rental assistance
projects. However, this commenter's recommendation for homebuyer and
TBRA projects was contingent on the HOME rule allowing the installation
of alarms as an eligible HOME cost.
HUD Response: HUD appreciates the commenters' recommendations. This
final rule requires all HOME-assisted units to contain smoke alarms
while differentiating requirements by project type. Hardwired smoke
alarms are required in new construction projects, while participating
jurisdictions may provide exceptions for rehabilitation and homebuyer
projects. The installation of smoke alarms is not an eligible HOME cost
for homebuyer and tenant-based rental assistance activities. As with
other property standards requirements, homebuyers and owners of tenant-
based rental assistance units must ensure compliance with smoke alarm
requirements. This final rule revises Sec. 92.251(c)(3) to allow a
homebuyer to bring a home up to the participating jurisdiction's
property standards within 6 months after acquisition, rather than
requiring the home to meet all property standards at the time of
purchase. The final rule also allows for the participating jurisdiction
to extend that time up to 12 months through an amendment to its written
agreement with the homebuyer.\56\
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\56\ See 24 CFR 92.251(c)(3).
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D. Cost Concerns Are Not Eliminated by Eliminating Hardwired Smoke
Alarms
Other commenters disagreed that eliminating the requirement for
hard-wired smoke alarms would address cost concerns. They stated that
compliant battery-operated smoke alarms can also be significantly more
expensive and harder to find than more widely available models. One
commenter suggested that 10-year non-rechargeable, non-replaceable
batteries pose the risk of increased replacement costs due to
uncertainty about future safety codes after initial battery life has
expired. In addition, one commenter indicated that these smoke alarms
may require training for the tenant or homeowner to use this system and
creates additional expense for homeowners and rental housing owners to
replace and maintain.
HUD Response: HUD recognizes that the smoke alarms required by this
rule may be more expensive than other smoke alarms in some cases and
that battery-powered alarms will involve future replacement costs.
However, the marginal cost of these smoke alarms is not significant in
the context of rehabilitation or new construction and smoke alarms
required by this rule are widely available in stores and online. HUD
believes potential additional costs are reasonable in order to promote
the safety of tenants and homeowners. Additionally, training for
tenants and homeowners on using battery-powered smoke alarms, if
required, may already be available online from manufacturers and should
be minimal in any case.
E. Consider Availability and Cost of NFPA 72 Smoke Alarms
One commenter urged HUD to assess the availability and cost of NFPA
72 smoke alarms before imposing such a requirement on HOME projects.
Several commenters requested that HUD make additional funds
available to cover the costs of meeting any new smoke detector
requirements. One commenter stated that national standards must not
disadvantage rural places or low-income people, so Federal funds should
be provided to cover the cost of any new Federal standards.
HUD Response: This final rule allows participating jurisdictions to
make exceptions for rehabilitation and homebuyer projects where
installing hardwired alarms would be infeasible or prohibitively
costly. HUD notes that installation of the smoke alarms required by
this rule is an eligible HOME cost for rehabilitation and new
construction costs. Very few projects receive HOME subsidies at or near
the maximum per-unit subsidy limit and this rule increases those
limits. HUD does not believe that installation of these smoke alarms
will be cost prohibitive.
F. Requiring NFPA 72 Smoke Alarms Reduces Ability To Use HOME for
Homeownership Opportunities
Commenters who expressed concern about imposing NFPA 72
requirements on homebuyer acquisition projects stated that the proposal
would reduce single family homeownership opportunities because it would
be difficult for HOME-assisted homebuyers to negotiate specialized
smoke detector requests during the purchase and sales of existing units
on the market with private owners. For this reason, one commenter noted
that such a policy would reinforce its decision to decline to offer
homebuyer assistance independently of HOME-assisted new construction or
rehabilitation projects. Another commenter suggested that even if the
cost of smoke detector installation was permitted as an eligible HOME
cost, low-income homebuyers cannot afford to use their downpayment
assistance for this purpose due to the high cost of housing. A third
commenter suggested that if a household requires a specialized smoke
detector, it should either be requested at the time of construction as
a reasonable accommodation or should be installed by the homeowner
after purchase. However, commenters also expressed concerns about
requiring the assisted family to pay for upgrades after purchase, the
ability of participating jurisdictions to enforce smoke alarm
requirements after closing, and the additional program costs of
additional post-closing inspections.
HUD Response: HUD recognizes that HOME property standards can
sometimes make it challenging for HOME-assisted homebuyers to find a
compliant home to purchase. In this final rule, HUD has revised the
requirements at Sec. 92.251(c)(3) in order to provide HOME-assisted
homebuyers 6 months to make improvements necessary to meet HOME
property standards, with the ability for participating jurisdictions to
extend that period for up to 12 months from purchase. Therefore,
homeowners selling to HOME-assisted buyers will not need to install the
smoke alarms required by this rule prior to closing. In cases where
acquired homes do not have smoke alarms meeting the requirements of
this rule, HUD believes
[[Page 816]]
it is a reasonable cost for homebuyers to install a hardwired alarm or,
with written exception from the participating jurisdiction, a 10-year
battery-powered smoke alarm. Participating jurisdictions will monitor
smoke alarm requirements as part of its final inspection for overall
property standard compliance. HUD notes that the smoke alarms required
by this rule present safety benefits for all tenants and homeowners,
not only for persons experiencing hearing loss.
G. Property Standards Requirements Should Only Require That Housing
Meet State and Local Smoke Alarm Requirements
Several commenters noted that current building codes in some States
and local jurisdictions already require compliance with NFPA 72 smoke
alarm standards for single and multifamily buildings. Consequently, a
number of commenters urged HUD to defer to State and local code
requirements for smoke alarms. Commenters explained that State building
codes facilitate choice and therefore flexibility based on the
conditions of the project.
HUD Response: Due to the safety benefits of the smoke alarms
required by this rule, HUD declines to defer to State and local codes.
This final rule provides participating jurisdictions flexibility in
rehabilitation and homebuyer projects and does not require NFPA 72
smoke alarms for existing rental and TBRA units.
H. Don't Use Only the NFPA 72 Standard
One commenter advised against solely applying NFPA 72 because these
requirements do not align with the Consolidated Appropriations Acts of
2021 and 2023 which require all public housing to meet or exceed the
requirements of Chapters 9 and 11 of the 2018 International Fire Code
and that smoke alarms are installed in Federally assisted housing in
accordance with the International Code Council or NFPA and NFPA 72. The
commenter urged HUD to reference the smoke alarms requirements outlined
in the International Building Code, International Residential Code, and
International Fire Code which the commenter stated are industry-leading
national voluntary consensus standards, are widely used by government
agencies across the nation, and trigger NFPA 72 smoke alarm
installation requirements. The commenter stated that implementation of
the hearing impairment requirements will be difficult because they are
not referenced in the international codes and the technology is limited
in availability. The commenter noted that the international codes
require smoke alarms be hardwired with battery backup unless it is a
first-time install and that the allowance to install seal tamper
resistant non-replaceable 10-year battery operated alarms are intended
to be limited to existing buildings that do not currently contain
hardwired alarms and that it is unclear whether these alarms would
comply with NFPA 72 for hearing impairment.
HUD Response: HUD thanks the commenter for their suggestion. This
final rule requires that, for new construction, rehabilitation, and
homebuyer projects, smoke alarms be installed in accordance with
certain specific requirements of HUD. In addition, meeting the
applicable codes and standards published by the International Code
Council or the National Fire Protection Association ensures compliance
Sec. 92.251(a)(3)(vi)(B). Ongoing property standards require that a
participating jurisdiction's standards require housing contain smoke
alarms in accordance with the requirements contained in 24 CFR 5.703(b)
and (d). All carbon monoxide detectors in HOME-assisted units must be
installed in a manner that meets or exceeds the standards that HUD will
further describe in a forthcoming Federal Register publication.
I. Clarification on Smoke Alarms in Projects With Floating Units
Several commenters asked for clarification of the proposed policy.
One commenter asked how the proposal would apply (f) in HOME-assisted
properties with floating HOME units. Other commenters asked HUD to
clarify monitoring and compliance requirements, especially after resale
for homebuyer activities.
HUD Response: For rental projects with floating units, in
accordance with Sec. 92.252(j), project owners must ensure that units
are comparable in terms of their features, which includes ensuring that
units have compliant smoke alarms. For homebuyer projects,
participating jurisdictions will monitor compliance with smoke alarm
requirements as part of final inspections for overall property standard
compliance. This final rule revises Sec. 92.251(c)(3) to allow a
homebuyer to bring a home to property standards within 6 months after
closing and provides participating jurisdictions the ability to extend
that to 12 months, if necessary. Whether at initial sale or resale, the
participating jurisdiction would therefore inspect the unit once the
homebuyer has completed necessary improvements.
Specific solicitation of comment #4: The Department specifically
seeks public comment on the proposal to require that a participating
jurisdiction inspect at least 20 percent of the HOME assisted units
during its ongoing on-site inspections of rental housing.
A. General Support for 20 Percent Sample Size
Many commenters supported the proposal to require participating
jurisdictions to inspect at least 20 percent of the HOME-assisted
units. One commenter agreed that the current HOME rule requirement that
participating jurisdictions inspect a ``statistically valid'' sample of
units is challenging for participating jurisdictions that lack software
capabilities to develop such a sample. In addition, one commenter in
support of the proposal also recommended that HUD require that each
inspection include accessible units and evaluate the accessibility of
common areas.
HUD Response: HUD thanks the commenters for their support. HUD
notes that accessible units in a project are not always HOME units and
their designation can change during the period of affordability.
Further, requiring each inspection to include accessible units may lead
to the same, limited number of accessible units being inspected
repeatedly. HUD believes this would be burdensome for the tenants of
accessible HOME units. HUD agrees that it is important that common
areas remain accessible to persons with disabilities. While the NSPIRE
inspection protocol does not specifically include an accessibility
section, it requires inspection of common areas for inspection of
walkways, ingress and egress, and railings.
B. General Opposition to 20 Percent Sample Size
Many commenters also opposed the proposal, their primary concern
being that an inspection of 20 percent of the HOME-assisted units will
result in a large sample size, particularly in large projects, and will
place an undue burden on residents, project owners, property managers,
and participating jurisdictions. In response, several commenters
requested that HUD provide additional administrative funds because the
proposal would require additional staff time and costs.
One commenter noted that, for properties with a limited number of
HOME units, it will be difficult to avoid inspecting the same units
each year. Another commenter maintained that current requirements are
sufficient for
[[Page 817]]
ensuring properties' compliance with property standards.
HUD Response: HUD appreciates the comments and shares commenters'
concerns about burden. HUD is providing burden relief in this final
rule by reducing the minimum required sample size to less than 20
percent for projects with 136 or more HOME-assisted units. Beginning
with properties that include between 167 and 214 HOME-assisted units,
the minimum inspection sample size table in this final rule aligns with
the inspection size table included in the NSPIRE Final Rule.\57\ HUD
also considered aligning with the LIHTC sample size chart but felt it
was more appropriate to align HOME with other HUD programs subject to
NSPIRE.
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\57\ See ``Table 9--Number of Units Sampled Under NSPIRE Scoring
and Sampling Methodology Based on Property Size.'' https://www.govinfo.gov/content/pkg/FR-2023-07-07/pdf/2023-14362.pdf.
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C. Impose a Lower Percentage of Units for Larger Projects and Align
With LIHTC
Several commenters proposed reducing the sample size for larger
projects. Two commenters stated that the proposed sampling method
differs from the requirements of other funding sources, including
LIHTC, and recommended that HUD instead align the HOME and LIHTC
program requirements. One of these commenters suggested using the LIHTC
standard of the lesser of 20 percent or an amount on a chart included
in the LIHTC regulation 1.42-5 for larger projects to lessen the burden
for participating jurisdictions.
HUD Response: HUD thanks the commenters for their suggestions. HUD
agrees that the 20 percent sample size in the proposed rule is too
large for very large projects and is adopting the NSPIRE sample size
chart for larger projects to align with other HUD programs.
D. Require a Bifurcated Sampling Standard for Large and Small Projects
One commenter proposed 20 percent of units in projects with 5-50
units and 10 percent in projects with 50 or more units. Similarly, a
different commenter recommended 15 percent of HOME-assisted units in
projects with 20-30 units, and 10 percent for projects with more than
30 HOME assisted units.
HUD Response: HUD thanks the commenters for their suggestions and
agrees that it should have different sample sizes based on whether the
project has a smaller or larger number of units. Although HUD did not
adopt the commenter's precise suggestions, this final rule does reduce
the minimum required sample size for larger projects as suggested by
the commenters.
E. Reduce Sample Size to 10 Percent
One commenter suggested that 10 percent of HOME-assisted units be
inspected in all HOME projects, regardless of the total number of units
in the project with a minimum of one unit per building.
HUD Response: HUD thanks the commenter for the suggestions. HUD
declines to adopt this approach uniformly within the rule because, in
most cases, a sample size of 10 percent of HOME-assisted units would be
insufficient to ensure the project's compliance with HOME property
standards. In larger projects, the Department has determined that it
may be appropriate to reduce the percentage to 10% or less, and for
projects with greater than 300 HOME units, the sample size is 10% or
less.
F. Reduce Sample Size for Small-Scale Rental Housing Projects
One commenter proposed that developers with multiple properties
containing between one and four HOME units should be required to
inspect 20 percent of the HOME-assisted units across their portfolio
every three years.
HUD Response: HUD appreciates the commenter's suggestion but
declines to adopt this change. The HOME statute and regulations apply
HOME requirements individually to each HOME-assisted project. While a
single ownership entity may have multiple HOME-assisted projects in its
portfolio, the physical characteristics, management, and occupancy of
those project may vary significantly. Physical deficiencies or a lack
of deficiencies in one project do not necessarily reflect the condition
of other properties in the portfolio. Therefore, the Department
believes that each project should be on its own on-site inspection
cycle and that the participating jurisdiction cannot sample units
across the owner's portfolio to satisfy the individual project
inspection requirements for that owner.
G. Confusion Over Sampling Units for Unit Inspections in HOME
Several commenters expressed confusion or requested clarification
about the proposed requirements. One commenter stated that the proposed
rule is unclear about how the sample size requirement relates to the
requirements for timing of HOME onsite inspections. The commenter asked
whether annual inspections that, in sum, surpass 20 percent of HOME-
assisted units over three years, but do not in a single year, would
satisfy the proposed requirement. Another commenter stated that they
thought the 20 percent inspection sample size was the existing
requirement. And a commenter also stated that no additional inspections
should be added to the regulations at all because they are
administratively burdensome.
A different commenter requested that HUD clarify whether both HOME
and non-HOME units would be required to be included in the inspection
sample. The commenter suggests that inspection requirements apply only
to HOME-assisted units and that HUD should allow inspection of voucher
units without affordability agreements to qualify as inspection and
monitoring for HOME. In its final rule, we ask HUD to mandate agreement
disbursement for documentation of HOME properties.
HUD Response: This final rule does not change the number or timing
of required inspections. Participating jurisdictions must conduct on-
site inspections within 12 months after project completion and at least
once every 3 years thereafter during the period of affordability. A
participating jurisdiction may choose to conduct ongoing inspections
more frequently, but each inspection must meet the appropriate minimum
inspection sample size defined in this final rule. The inspection must
only include HOME-assisted units, and HUD is unable to allow voucher
units that are not HOME-assisted to be included in the inspection
sample, as these units are not subject to HOME requirements.
H. Other Comments Received on the Solicitation--Adopting Different
Property Standards
One commenter urged HUD to adopt the most recent International
Property Maintenance Code as the basis for on-site inspections of
rental homes to promote standardization of requirements.
HUD Response: HUD thanks the commenter for this suggestion but
declines to adopt this change. The Department has engaged in extensive
rulemaking on the required standards for on-site inspections and is not
going to substantially change those standards at this time.
I. Other Comments Received on the Solicitation--Publish Inspection
Components
One commenter asked HUD to publish the components that will be
included in a required inspection.
HUD Response: HUD encourages the commenter to review the provisions
of this final rule and HOME program resources on HUD.gov. As part of
the
[[Page 818]]
implementation of the NSPIRE Final Rule, HUD will provide additional
guidance and materials aimed at assisting participating jurisdictions
and owners in complying with the requirements, including a streamlined
list of minimum inspectable items that shall be a subset of the larger
set of standards published in the NSPIRE Standards notice at 88 FR
40832.
J. Other Comments Received on the Solicitation--Source Documentation in
Income Determinations During the Sixth Year of Affordability
One commenter also asked whether the sixth year of affordability is
measured by the individual tenant's occupancy date or the date of the
project completion date and how the six-year period of affordability
will be affected if ownership changes during that period. The commenter
expressed confusion between the current six-year period of
affordability and the period of affordability outlined in HOTMA, so
they asked HUD to provide occupant variance probabilities and to
incorporate said variances into the final rule. The commenter also
supported participating jurisdictions making the final determination of
period of affordability based on variance probability guidance from HUD
in the final rule.
HUD Response: The period of affordability in a HOME-assisted rental
project starts when the project meets the definition of project
completion (see Sec. 92.2 definitions), and the project is placed into
service. During the period of affordability, the HOME-assisted units
must be occupied by income eligible families and comply with applicable
rent requirements. To ensure the HOME-assisted units qualify as
affordable housing, the project owner must determine the annual income
of the family using a variety of methods permitted under HOME and
selected by the participating jurisdiction. HUD's rule is that unless a
person is qualifying under Sec. 92.203(a)(1), (a)(2), or (a)(3), the
owner must calculate the person's annual income using source
documentation prior to initial occupancy, and then once every six years
during the period of affordability (e.g., the six-year schedule of
examination for a project with a 20-year period of affordability would
be to perform an income examination with source documents in years 1,
6, 12, and 18). The six-year schedule applies to the period of
affordability and not to a tenant's occupancy. The requirement to
redetermine income eligibility using source documents every sixth year
applies only in units where a participating jurisdiction permits the
use of self-certification in accordance with Sec. 92.203(b)(1)(ii).
The six-year schedule and method of determining income eligibility
under this schedule does not change if there is a change in ownership;
it is based on when the project was completed and placed into service.
When there is a change in ownership during the period of affordability,
the HOME requirements continue to apply to the project and the income
examination cycle remains the same. This is the methodology that HUD
uses to ensure the HOME-assisted units remain affordable during the
period of affordability as established in the table in Sec. 92.252(d).
The Department is also clarifying that the six-year schedule in
this Final Rule is the same as the six-year schedule in the HOTMA Final
Rule, and that the requirements are consistent with one another. HUD
does not believe it necessary to calculate occupant variance
probabilities (within the six-year period of period of affordability)
as requested by a commenter or to reexamine HUD's methodology for
verifying units remain affordable and occupied by low-income families
during the period of affordability.
Specific solicitation of comment #8: The Department specifically
requests public comment from participating jurisdictions, developers,
and other affected members of the public about the appropriateness of
the length of the HUD-required periods of affordability for HOME-
assisted rental housing. The current regulation at 24 CFR 92.252(e)
establishes periods of 5 years for a per-unit HOME investment of under
$15,000, 10 years for a per-unit investment between $15,000 and
$40,000, and 15 years for a per-unit investment of more than $40,000,
15 years for any unit involving refinancing of existing debt, and 20
years for any unit involving new construction. Section 215(a)(1)(E) of
NAHA (42 U.S.C. 12745(a)(1)(E)) requires that the period of
affordability be for the remaining useful life of the HOME-assisted
property, as determined by HUD, without regard to the term of the
mortgage or to transfer of ownership, or for such other period that HUD
determines is the longest feasible period of time consistent with sound
economics and the purposes of NAHA. Since the Department established
these periods of affordability in 1991, costs have increased
significantly, LIHTCs have become the primary funding mechanism for
rental housing, and the housing affordability crisis in the country has
worsened significantly. The Department seeks input about whether the
length of the periods of affordability and the dollar thresholds and
activity thresholds that are the basis of the current periods of
affordability remain appropriate. In addition, the Department seeks
input about any project feasibility challenges of the current HOME
periods of affordability and factors that the HUD should consider in
contemplating changes to the current periods of affordability.
A. General Comments
HUD received a broad range of responses to this solicitation on the
appropriate periods of affordability to impose on HOME-assisted
projects. Commenters recommended that HUD leave the existing
regulations intact, increase the dollar thresholds for existing periods
of affordability, eliminate the longer period of affordability for new
construction of rental housing, align HOME requirements with other
housing program requirements, establish longer periods of
affordability, establish different periods for homeownership
activities, or allow participating jurisdictions to determine their own
periods of affordability.
HUD Response: The Department appreciates the many thoughtful
comments submitted by commenters. HUD is guided by the Act, which
states that HOME-assisted housing must ``remain affordable for the
remaining useful life of the property, as determined by the Secretary,
without regard to the term of the mortgage or to transfer of ownership,
or for such other period that the Secretary determines is the longest
feasible period of time consistent with sound economics and the
purposes of this Act,'' Therefore, HUD carefully balanced commenters
legitimate concerns about increases in land and construction costs in
the past 30 years with the degree to which the nation's affordability
crisis has deepened and spread during that period. HUD also notes that
the most recent HOME appropriation of $1.25 billion is less than the
$1.5 billion appropriated for HOME in Fiscal Year 1992. Had the HOME
appropriation kept pace with the rate of general inflation, the current
appropriation would be nearly $3.9 billion. In this final rule, HUD has
retained the periods of affordability of 5, 10, and 15 years based on
per-unit investment and 20 years for new construction of rental housing
but partially adjusted the thresholds for the per-unit investment-based
periods to reflect cost increases over the past three decades. However,
these limits are not fully adjusted for inflation due to the need to
address the significantly worsened affordability crisis with an
[[Page 819]]
appropriation that in real dollar terms is less than half what it was
in Fiscal Year 1992. The rule imposes the following periods of
affordability: (1) 5 years when per-unit HOME investment is less than
$25,000; (2) 10 years when the per-unit HOME investment is between
$25,000 and $50,000; (3) 15 years when the per-unit HOME investment is
more than $50,000; and (4) 20 years for all projects involving new
construction of rental housing.
B. Make No Changes to Period of Affordability
Some commenters stated that the current length and amount criteria
for period of affordability is appropriate and can remain as currently
written.
HUD Response: HUD appreciates the comments. However, the Department
believes that it is appropriate to partially adjust the dollar ranges
for the period of affordability to reflect the 226 percent increase in
the Consumer Price Index between 1992 and 2024, the increase in
compliance costs, and the current cost of labor and materials.
C. Adjust Dollar Thresholds To Reflect Cost Increases
Numerous commenters stated that the length of the current periods
of affordability are appropriate but recommended that HUD adjust the
dollar thresholds to reflect the significant increase in the cost of
land and construction since the current thresholds were established in
December 1991. Two commenters who supported the length of current
periods of affordability recommended that HUD adjust the existing
dollar thresholds to reflect the cumulative change in the Consumer
Price Index (CPI) since that time. One of these commenters noted that
the existing $15,000 threshold between the 5-year and 10-year periods
would be nearly $35,000 if adjusted by the CPI.
Several commenters cited increased costs of rehabilitation since
1991 and stated that HUD should adopt alternative dollar thresholds.
Commenters recommended thresholds of between $20,000, and $125,000 for
a 5-year period of affordability and between $50,000 and $250,000 for
the 15-year period of affordability. One commenter who supported higher
dollar thresholds also recommended that HUD adopt a 25-year period of
affordability for new construction. One commenter suggested a period of
affordability of 20 years for a HOME investment of less than $1,000,000
and 50 years for a HOME investment of more than $1,000,000.
HUD Response: The Department agrees with commenters that the HOME
periods of affordability should be adjusted to reflect cost increases
over time and appreciates the various suggestions. HUD also declines to
adopt suggestions that would increase the thresholds far beyond the 226
percent increase in the Consumer Price Index as such increases would
reduce the affordability achieved through HOME subsidies below what was
required at the inception of the HOME program. HUD also notes that some
of the suggested amounts far exceed the maximum HOME subsidy that may
be provided to a unit. The thresholds established in this rule
constitute a 66 percent increase in the five-year period of
affordability threshold, and a 25 percent increase in the threshold
separating the 10-year period of affordability and the 15-year period
of affordability, which HUD believes balances the competing needs for
modernized thresholds and the severity of the current shortage of
affordable housing. HUD also declines to extend the period of
affordability for new construction of rental units to 25 years because
even newly constructed units will require rehabilitation and
recapitalization before the expiration of that period. Extending this
period would complicate efforts to recapitalize housing projects,
including efforts to further extend periods of affordability through
additional HOME funds or other funding sources.
D. Eliminate the Longer Period of Affordability for New Construction of
Rental Housing
A commenter recommended eliminating the 20-year requirement for new
construction projects and applying the per-unit subsidy-based periods
of 5-, 10-, or 15-year to all units irrespective of the activity
undertaken. The commenter stated that a gut rehabilitation project has
a 15-year period of affordability and new construction has a 20-year
period of affordability, although there is essentially no difference in
housing quality of these two project types. Another commenter advocated
eliminating the 20-years period of affordability for new construction
to allow for the reinvestment of HOME funds after 15 years.
HUD Response: The Department appreciates the comments but declines
to make this change. HUD believes that the longer period of
affordability for newly constructed rental housing faithfully
implements the statutory requirement that HOME periods of affordability
reflect the useful life of the property or such other period that the
Secretary determines is the longest feasible period of time consistent
with sound economics and the purposes of this Act. The fact that some
substantial rehabilitation or reconstruction projects may be similar in
construction and useful lifespan to new construction is not an adequate
justification to reduce the period of affordability for HOME-funded new
construction projects.
E. Align Period of Affordability Requirements With Other Programs
One commenter stated that periods of affordability are critical to
ensuring that the investment of Federal funds has an impact on housing
availability and affordability over time, but also make project
underwriting at the time of funding and ongoing maintenance of the
financial and physical health of the property more challenging. The
commenter stated that the affordability restrictions in HOME are a
barrier to HOME-assisted rental housing development in high-cost areas,
given the need to layer financing from multiple sources. The commenter
suggested aligning HOME periods of affordability with the 15-year
credit compliance period of the Low-Income Housing Tax Credit (LIHTC)
to enable preservation of existing affordable housing through
recapitalization. Another commenter recommended that HUD align the HOME
period of affordability 30-year LIHTC extended use period to allow
cities to track period of affordability more easily among various
affordable housing project types. One commenter stated HUD should align
its periods of affordability with the minimum 55-year period frequently
used in affordable housing programs in California.
HUD Response: HUD appreciates the comments and recognizes that most
HOME projects also include one or more other Federal, State, local, or
private funding sources, which means that there are multiple restricted
use periods imposed by other affordable housing funding sources to
which HOME could possibly align. The Department believes that the
multiplicity of possible options is a compelling reason not to align
with a single other funding source and maintain the current periods,
which are well-understood among affordable housing developers. HUD also
reads the Act to require it to affirmatively establish periods of
affordability that apply to HOME-assisted units rather than deferring
to one or more other funding sources.
[[Page 820]]
F. Change Lengths of Periods of Affordability
Several commenters stated that HUD should impose longer periods of
affordability. One commenter supported a period of affordability up to
40 years and encouraged HUD to consider mandatory periods coterminous
with the compliance requirements of the superior funding source as long
as they exceed 30 years.
One commenter requested that HUD require HOME periods of
affordability to be the greater of (1) the longest period of
affordability of any other public assistance program supporting the
assisted housing or (2) 10 years for a per-unit HOME investment of
under $15,000, 15 years for a per-unit investment between $15,000 and
$40,000, 20 years for a per-unit investment of more than $40,000 or any
unit involving refinancing of existing debt, and 30 years for any unit
involving new construction. The commenter also recommended that HUD
consider incentivizing permanent or 99-year periods of affordability by
increasing the maximum per-unit HOME subsidy limit in exchange for a
commitment to permanent affordability. Another commenter supported
lengthening the HOME periods of affordability but urged HUD to reduce
long-term compliance requirements to ease administrative burden.
Other commenters opposed longer periods of affordability. One
commenter said that cash flow challenges are already an obstacle to
rental housing development in rural areas, and extending periods of
affordability would increase the difficulty of cash-flowing potential
projects in those areas further limiting already constrained new unit
production. The commenter emphasized that impact on project viability
in rural areas should be a prime factor when HUD contemplates changes,
including changes to the periods of affordability. Another commenter
said that although it requires a 30-year or 40-year affordability terms
on multifamily development projects, it does not recommend extending
the HOME periods due to the prohibition on investing additional HOME
funds in a project during the period of affordability. The commenter
opposed extending HOME periods of affordability beyond the life of the
HOME-funded improvements. A commenter opposed any extensions to the
periods, and especially the 15-year period applicable when HOME funds
are used to refinance existing debt, due to increased liability and
decreased flexibility and recommended that the period begin when a
building is put into service not when it is entered into IDIS.
One commenter stated that the period of affordability is too long
based on the funding provided and recommended that HOME allow
participating jurisdictions to set the period of affordability. The
commenter noted that this change would provide flexibility in various
housing markets, where needs can vary significantly.
HUD Response: HUD thanks the commenters for reviewing the proposed
rule and making suggestions. However, for reasons explained above, HUD
is declining to lengthen, to align to other programs, or to devolve
decision-making on HOME periods of affordability. As required by the
Act, HUD has considered both what is the longest period of
affordability consistent with sound economics and the purposes for
which the HOME program was established in making the determinations
reflected in this rule. HUD believes that a participating
jurisdiction's use of HOME funds to refinance an owner's existing debt
as part of a HOME transaction should be entered into only after careful
consideration and a finding that it is an absolute necessity to enable
a project to proceed. The period of affordability selected by HUD
ensures that the investment of taxpayer funds to pay off an owner's
existing debt results in a tangible benefit.
G. Require Different Periods of Affordability Based on Different
Considerations
One commenter recommended different periods of affordability for
rental and homeowner activities. The commenter stated that a longer
period of affordability is a deterrent for single family homeowner
programs. The commenter also urged HUD to investigate ways to update
the periods of affordability to take into account scenario planning for
varying annual appropriations, how long tenants stay in a HOME unit,
and the average cost of repairs and how long repairs last.
HUD Response: The Department thanks the commenter for reviewing the
proposed rule. HUD declines to establish different periods of
affordability for homebuyer and rental housing. The longest period of
affordability applicable to homebuyer housing is 15 years for a total
investment of more than $50,000 in a homebuyer development project or
direct subsidy to a homebuyer of $50,000 to facilitate the purchase of
a property. The Department does not believe that these periods are
unreasonable given the public subsidy being provided. HUD has taken the
size of recent HOME appropriations, the useful life of construction or
rehabilitation, and the costs of these activities into account in
finalizing this rule.
Sec. 92.252--Qualification as Affordable Housing: Rental Housing
A. Support for Changes to Rent and Utility Allowances
Commenters supported proposed changes that resulted in more
flexible policies with respect to rent and utility allowances. Other
commenters worded their support differently and stated that they
supported the proposed alignment of the HOME program with the rent
limits from other programs involved in a project.
HUD Response: The Department thanks the commenters for reviewing
the proposed rule and providing comments on the proposals related to
HOME rental housing. The Department is moving forward with changes to
the rent and utility allowance requirements, as described in this
preamble.
B. Changes to Marketing Provisions in Introductory Provision
One commenter supported the elimination of the requirement for
participating jurisdictions to submit marketing plans to HUD for HOME-
assisted units not being leased up within 6 months of project
completion. The commenter explained that it, as a participating
jurisdiction, works with owners and managers to ensure lease up is
timely but would not be the best equipped party to create a marketing
plan.
HUD Response: The Department thanks the commenter for their
support. HUD is moving forward with the proposed change.
C. Support for Not Applying Rent Limits to Payments Under Federal or
State Rental Assistance or Subsidy Programs in Sec. 92.252(a)
Commenters stated that they supported the proposal to permit
housing developers to allow an owner of a HOME-assisted unit to charge
the permissible Housing Choice Voucher (HCV), project-based voucher, or
project-based rental assistance rent instead of the maximum HOME rent
because it would increase the financial viability of developments.
One commenter stated that housing developed for persons at or below
30 percent area median income often includes eight or more government
funding sources, each with separate inspection and reporting
requirements.
[[Page 821]]
The commenter stated that the proposed HOME program alignment will
reduce redundancy and increase efficiency. Commenters stated that they
support allowing the public housing authority (PHA) rent reasonableness
study to serve as the upper limit for rents in a property when an
outside subsidy such as Section 8 is used. Another commenter expressed
support for aligning Sec. 92.252(a) requirements with HERA rules, and
LIHTC rules allowing the owner to receive the rent determined by a PHA
in accordance with proposed Sec. 982.507(c)(3) or another Federal or
State rental assistance or subsidy program. A commenter noted that the
change would align with what has been allowed in LIHTC properties for
decades and improve cash flow at properties that have had limited
options previously, but that it would be important to ensure adequate
funding was provided. Another commenter explained this would ease
administrative burden and reduce confusion related to overlapping
requirements.
Several commenters supported only applying the rent limits to the
amounts paid by the tenants in HOME projects. One commenter also
supported the removal of rent subsidy from the rent calculation.
HUD Response: The Department thanks the commenters for reviewing
and is moving forward with the proposed language. In addition, in
response to the commenters, the Department also considered further
streamlining of the rent limit provisions. The Department has
determined that it is permissible to revise the High HOME rent limits
to exclude the tenant payment when a tenant is participating in a
program where the tenant pays no more than 30 percent of their monthly
adjusted income or 10 percent of their monthly income towards rent.\58\
This allows Section 8 voucher holders to pay the total tenant payment
in accordance with Section 8 requirements and permits the HOME rental
housing project owner the ability to accept the rent from both the
rental assistance provider and the tenant without limitation. This
provision will also increase alignment when combining multiple sources
of funding.
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\58\ See 24 CFR 92.252(a)(1)(A).
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D. Opposition to Changes in Rent Limits
One commenter sought clarification on the HOME rent limits and
stated that it would not support rent limits being only applied to the
tenant portion of rent. The commenter wished for the rent limits to
apply to the overall amount received by the owner.
HUD Response: The Department declines to make the changes
recommended by the commenter. HERA is statutory and it is the
Department's legal interpretation that the rent limits under the Act do
not apply to either the tenant contribution or the rental assistance or
subsidy provided to a person or unit under the Section 8 rental
assistance programs. The Department lacks discretion to apply the rent
limits to the overall amount received by the owner, as this is contrary
to law and the intent of Congress.
E. Request To Further Revise HOME Rent Requirements in Sec. 92.252(a)
Another commenter supported the proposed change as it considerably
simplifies compliance for voucher holders. The commenter recommended
that the changes should remove the ``project-based'' language and the
requirement that the ``very low-income family pays as a contribution
toward rent not more than 30 percent of the family's adjusted income''
from Sec. 92.252(b)(2)(ii) because the PHA or subsidy provider should
be determining what the household must contribute to rent under their
program.
HUD Response: The Department is revising the language of Sec.
92.252(a) in response to public comments. The Department has expanded
the provision to state 30 percent of the family's monthly adjusted
income or 10 percent of the family's monthly income, to align with the
Section 8 regulations on total tenant payment. The Department has added
this language to both the High and Low HOME rent provisions and will
allow tenants to pay the amount determined under the Section 8 program
when a voucher holder is also living in a HOME-assisted unit.
F. Permit an Owner To Receive Rent Determined by a Local Government
Rental Assistance or Subsidy Program in Sec. 92.252(a)
Commenters stated that HUD should permit an owner to receive rent
determined by a local government rental assistance or subsidy program
in addition to the allowance of receipt of rent determined by a PHA or
another Federal or State rental assistance or subsidy program. The
commenter recommended HUD amend the proposed language in Sec.
92.252(a) from ``rent limits do not apply to any payment provided under
a Federal or State rental assistance or subsidy program . . .'' to
``rent limits do not apply to any payment provided under a Federal,
State, or local government rental assistance or subsidy program.''
HUD Response: The Department considered the commenter's request,
examined the Act in light of the passage of HERA, and has determined
that Congress did not intend to apply the rent limits to families that
were paying, as a contribution towards rent, no more than 30 percent of
their monthly adjusted income or 10 percent of their monthly income in
another program. The Department has revised Sec. 92.252(a)
accordingly. The Department also expanded the language in Sec.
92.252(a) to cover local rental assistance programs, as requested by
the commenter. This fully addresses the commenter's concerns and allows
owners to accept the rent contribution of a family under Section 8 and
similar rental assistance programs.
G. Change Low HOME Rent Requirements in Sec. 92.252(a) To Be Based on
Gross Income
Commenters also proposed amending the language of Sec.
92.252(a)(2)(ii) to say, ``[T]he rent contribution of the family is not
more than 30 percent of the family's gross income,'' similar to recent
HOTMA changes implemented for rental assistance programs, in order to
align more closely with the intent to streamline housing programs and
assistance.
HUD Response: HUD thanks the commenters for reviewing the proposed
rule. 42 U.S.C. 12745(a)(1)(B) requires that ``not less than 20 percent
of the units (i) occupied by very low-income families who pay as a
contribution toward rent (excluding any Federal or State rental subsidy
provided on behalf of the family) not more than 30 percent of the
family's monthly adjusted income as determined by the Secretary . . .''
HUD lacks the discretion to change the requirement from the statutory
30 percent of ``monthly adjusted income'' to 30 percent of ``gross
income'' that the commenter has recommended.
H. Allow Owners To Collect Full Contract Rent When the Tenant Rental
Contribution of a Family That Received Section 8 Rental Assistance in a
HOME Unit Earns More Than 65 Percent of Area Median Income in Sec.
92.252(a)
A commenter supported the alignment of project- and tenant-based
subsidized rents and Low and High HOME units in Sec. 92.252 but stated
that High HOME rent units still face an issue when tenants paying their
share of the rent under the subsidy program have a tenant rent that
exceeds the otherwise applicable HOME limit. The commenter urged HUD to
allow the collection of the
[[Page 822]]
full subsidy for all HOME units that are currently allowed for Low HOME
rent units where families are paying 30 percent of adjusted income as
required by a rental assistance program. The commenter suggested
addressing this issue by adding the same clause to the definition of
High HOME rent limits as exists for Low HOME by adding a new Sec.
92.252 (b)(1)(iii) which would say ``[t]he rent contribution of the
family is not more than 30 percent of the family's adjusted income.''
The commenter stated that PBRA policy allows families to decide if they
want to keep the security of their subsidy or let it go in favor of
lower rents applicable to another program and stated that this could
also apply to HOME.
One commenter expressed support for the change to allow owners to
charge rents that exceed the HOME rent limits for units occupied by
tenants with tenant-based vouchers (in alignment with changes made to
the Section 8 programs and HERA), but was concerned about how this will
impact underwriting financial feasibility at the time of application
and possible unintended consequences.
Another commenter stated that HUD should align HOME rent limits
with the Section 8 programs for PBVs. The commenter stated that they
support this approach because, from an underwriting perspective, it is
important to not over-subsidize units, and it is easier to underwrite
higher rents when they are guaranteed PBVs.
A commenter stated that, as long as the unit is receiving at least
one dollar in subsidy, the HOME program should not impose any
restrictions on gross rent or the tenant portion of rent for households
receiving PBVs, housing choice vouchers (HCV), or Veterans Affairs
Supporting Housing (VASH) vouchers. The commenter stated that this
approach aligns with the LIHTC program requirements.
A commenter stated that for projects that have both PBVs and HOME
funds, it will be more difficult for PJs to regulate the HOME rent
limit being applied to the tenant portion of the rent.
HUD Response: The Department considered the commenter's request,
examined the Act and HERA, and has determined that Congress did not
intend to apply the HOME rent limits to families that were paying, as a
contribution towards rent, no more than 30 percent of their monthly
adjusted income or 10 percent of their monthly income. The Department
has revised Sec. 92.252(a) accordingly. This fully addresses the
comment and allows for owners to accept the rent contribution of a
family under Section 8, including HUD VASH and similar rental
assistance programs.
I. Underwrite to HOME Rent Limits in Sec. 92.252(a) for Units Without
Project-Based Rental Assistance
One commenter recommended that HUD specifically state in the final
rule that the HOME rent limits must be used for units without project-
based rental assistance (i.e., units that may have tenants with
vouchers, but it is not certain at the time of underwriting). If higher
rents are assumed for those units, rental income may be artificially
inflated; however, after initial occupancy, the commenter believes it
would be appropriate to allow owners to charge the allowable rents
under the tenant based rental assistance program to generate additional
income and help ensure the project is sustainable for the long term.
HUD Response: The Department thanks the commenter for the feedback
and agrees with the commenter that unless a project has been awarded a
HAP contract and is assured continued provision of project-based rental
assistance or project-based vouchers, HOME units should be underwritten
using the High and Low HOME Rents. It would not be consistent with the
regulation at Sec. 92.250(b) to assume that HOME units will be
occupied by people who have Housing Choice Vouchers because there would
be no basis for the assumptions around the operating income for the
project. However, the Department declines to codify this requirement,
as each project is different and there are a variety of other funding
sources that may be layered together in a HOME project, some with their
own rents that must be factored into underwriting.
J. Allowing Owners To Accept the Full Section 8 Contract Rent in Sec.
92.252(a) May Change Owner Behavior
One commenter expressed concern that allowing owners to charge
rents that exceed the HOME rents for units occupied by tenants with
vouchers might inadvertently incentivize owners to rent only to tenants
with vouchers. The commenter notes that many more households need
rental assistance than receive the assistance; however, HOME units are
more affordable than market rate housing, and eligible tenants should
be able to access the units without barriers. The commenter expressed
concern that the unintended incentive for owners to rent only to
tenants with vouchers could have fair housing implications.
HUD Response: The Department appreciates the commenters concern but
would like to note that the Act expressly permits project owners to
accept tenants with Section 8 vouchers. Specifically, section
12745(a)(1)(D) of the Act states that ``Housing that is for rental
shall qualify as affordable housing under this subchapter only if the
housing . . . (D) is not refused for leasing to a holder of a voucher
or certificate of eligibility under section 1437f of this title because
of the status of the prospective tenant as a holder of such voucher or
certificate of eligibility . . .'' This statutory requirement is
reflected in Sec. 92.253 which also requires project owners to have
and follow written tenant selection policies and procedures and provide
for the selection of tenants from a written waiting list in the
chronological order of their application, insofar as is practicable.
Given the statutory and regulatory requirements for tenant selection,
the Department believes it is Congress's intent to incentivize owners
in the HOME program to include tenants with Section 8 vouchers or
rental assistance in their projects and to allow the owners to accept
the total tenant payment and the contract rent for the family's unit.
To that end, the Department has expanded the prohibition against source
of income discrimination to also include State and local rental
assistance programs, as the Department believes it is consistent with
the purposes of the Act to allow holders of such forms of assistance
the ability to use their assistance to live in HOME units.
K. Support for Utility Allowance Changes to Sec. 92.252(b)
One commenter expressed support for the proposed language in Sec.
92.252(b) that would allow use of the HUD Utility Schedule Model
(HUSM), public housing authority utility allowance, or other method
approved by HUD, reasoning that HUD should allow more options because:
there are difficulties in getting detailed utility data in rural areas;
more options would be consistent with other HUD program requirements;
and, if options remain limited, Indian Tribes and Indian Housing
Authorities may operate rental assistance programs with their own
conflicting rules. The commenter explained that the public housing
authority utility allowance would be easier to administer for less-
experienced project owners with small projects and portfolios. The
commenter also encouraged HUD to allow HUSM as an option for all HOME-
assisted rental units rather than just units with specified rental
assistance programs. Furthermore, the commenter requested that both
telephone and internet be
[[Page 823]]
listed as exclusions from utilities and services in Sec. 92.252(b).
Another commenter supported the proposed exceptions for HOME
projects with Section 8 Project Based Voucher (PBV) and HUD-VASH but
noted that utility allowances determined by local public housing
authorities are almost always either significantly higher or lower than
other models, which ends up being inequitable for tenants or unfair for
owners.
HUD Response: The Department thanks the commenters for reviewing
and is moving forward with the proposed language in Sec. 92.252(b)
allowing participating jurisdictions to use the HUD Utility Schedule
Model, the utility allowance established by the applicable local PHA,
or other method approved by HUD for its maximum monthly utility
allowances. This change will make all three options available for all
HOME-assisted rental units. The Department is listing broadband as an
exclusion from utilities and services in Sec. 92.252(b) to help
clarify utilities covered by the utility allowance.
The Department has noted the commenter's concern about inequities
in utility allowances determined by public housing authorities but has
seen no data demonstrating that price differences as drastic or
prevalent as described exist. Furthermore, if a participating
jurisdiction finds the utility allowance determined by its local PHA
unsuitable, it is now able to choose a more suitable model (the HUD
Utility Schedule Model or another method approved by HUD) for its
project.
L. Support for Utility Allowance Changes in Sec. 92.252(b)--Alignment
With PHA Utility Schedule
One commenter supported the use of the PHA utility allowance in all
HOME-assisted rental projects because a standardized utility allowance
allows for better compliance monitoring. In addition, the commenter
stated that, to make compliance significantly easier, a participating
jurisdiction should still be able to establish the effective date of
the utility allowance to align with revisions to the HOME rents.
HUD Response: The Department thanks the commenter for their review
and notes that the final rule does not prescribe a timeline for annual
updates to rents and utility allowances.
M. Confusion Over Utility Allowances in Sec. 92.252(b)
One commenter recommended that HUD create a pathway for compliance
for rental subsidy programs that include the household's contribution
to utilities as part of their rental contribution and that HUD move the
language at Sec. 92.252(b)(2)(ii) out of paragraph (b) so that rent
can go up to the maximum allowed under the Federal or State rental
subsidy.
HUD Response: In the rental subsidy programs that the commenter
describes, the subsidy provider pays the owner directly on behalf of
the renting household or tenant. Under the HOME regulations Sec.
92.252, utility allowances are provided for tenant-paid utilities in
HOME-assisted rental units. The Department declines to change the
existing language, as the situation outlined by the commenter does not
apply to HOME.
N. Support for 60-Day Notice Requirement Before Imposing Rent Increases
in Sec. 92.252(e)
One commenter supported the increase in the minimum number of days
required from 30 to 60 for a rent increase.
HUD Response: HUD thanks the commenter for their support of the
proposed period for rent increases. HUD is adopting propose rule
language to ensure that tenants of HOME-assisted rental units have
adequate notice of rent increases proposed by the owner and approved
the participating jurisdiction.
O. Revise Sec. 92.252(g)(2) To Use Different Terminology
One commenter suggested that the proposed regulatory text at Sec.
92.252(g)(2) be revised to list ``rental'' rather than ``multifamily''.
HUD Response: HUD agrees with the commenter and is making the
change.
P. Rent Restrictions in Sec. 92.252(h)
One commenter stated that the proposed Sec. 92.252(h)(2)(i) should
allow tenants of HOME-assisted projects with multiple sources of
funding to pay the rent amount required under any of the programs'
requirements, not just LIHTC.
HUD Response: The Department agrees with the commenter and has
expanded the owner's ability to accept the rent and total tenant
payment for other programs that are often combined with HOME assistance
in HOME rental housing projects, including programs that require
tenants to pay no more than 30 percent of their monthly adjusted income
or 10 percent of their monthly income. The Department also codified
provisions on LIHTC rents that are contained in 42 U.S.C.
12745(a)(1)(B) of the Act. The Department also expanded the amount of
rent that an owner may receive for over-income tenants by also allowing
the owner to accept the subsidy provided under a program that provides
Federal, State, or local rental assistance or subsidy (see Sec.
92.252(h)(iii)). This should adequately address the commenter's
concerns.
Specific solicitation of comment #6: Rather than permitting all
HOME-assisted projects to use the local PHA's utility allowance, should
HUD limit the use of the PHA utility allowance to only HOME-assisted
projects which also receive PBV or HUD-VASH PBV assistance?
A. Comments in Support of Allowing a Participating Jurisdiction To Use
a Local PHA Utility Allowance
Commenters predominantly supported permitting all HOME-assisted
projects to use the local public housing authority's utility allowance,
noting that the change would make the process simpler, more effective,
provide greater flexibility to participating jurisdictions and
developers, and align HUD's process and operations with programs like
HTF and LIHTC.
HUD Response: The Department thanks commenters for reviewing and is
adopting language permitting participating jurisdictions to use the HUD
Utility Schedule Model, the utility allowance established by a local
PHA, or other methods approved by HUD for their maximum monthly
allowances.
B. Comments in Support of Allowing a Participating Jurisdiction To Use
a Local PHA Utility Allowance With Changes
In expressing their support, many commenters included addendums or
clarifications they suggested be made to this proposed policy. One
commenter advised HUD to clarify that using the housing authority-
established utility allowance is not a requirement for all units, and
that a participating jurisdiction may work with the property owner to
determine whether the public housing authority or a property-specific
utility allowance is more appropriate. This commenter, as well as
another otherwise-supportive commenter, advocated for the use of
alternative energy models to provide flexibility for projects with
different energy use profiles, with the public housing authority's
utility allowance serving as the baseline option to reduce soft costs
and provide clear alignment with other funding programs.
HUD Response: The Department thanks the commenters for reviewing
and is moving forward with the proposed language in Sec. 92.252(b)
allowing participating jurisdictions to use the HUD Utility Schedule
Model, the utility allowance established by the local PHA, or other
method approved by HUD for their maximum monthly utility allowances.
Which of the three methods
[[Page 824]]
is selected is at the participating jurisdictions' discretion.
Participating jurisdictions that wish to utilize alternative energy
models (or any other utility allowance method that is not the HUD
Utility Schedule Model or the utility allowance established by a local
PHA) may submit a request to HUD for review.
C. Requests for Clarification of Utility Allowance Requirements
One commenter recommended that HUD clarify the utility rates for
communities not served by a local public housing authority. Commenters
noted that grantees are confused when State agencies require different
utility allowances than local participating jurisdictions and
recommended that HUD allow participating jurisdictions to coordinate
program funding.
Another commenter recommended HUD clarify which utility allowance
should be used where more than one housing authority has PBVs in a
development layered with HOME units. In the absence of PBVs, the
commenter stated that the participating jurisdiction needs to have
authority to determine the most applicable housing authority utility
allowance. If HUD does not leave this decision to participating
jurisdictions, the commenter suggested that HUD adopt a rule stating
that the applicable public housing authority utility allowance is the
smallest unit of government. The commenter also recommended that HUD
allow participating jurisdictions to establish rules in areas without
applicable housing authorities preventing developments from using a
housing authority's utility allowance.
HUD Response: The Department thanks commenters for their review and
is adopting the proposed language in Sec. 92.252(b) allowing
participating jurisdictions to use the HUD Utility Schedule Model, the
utility allowance established by the applicable local PHA, or other
method approved by HUD for their maximum monthly utility allowances.
HUD does not recommend or require any one of the three available
options over any other--this is left up to the participating
jurisdictions' discretion. If a utility model from a statewide entity
that is funding a project is available, the participating jurisdiction
may submit a request to HUD for use of that model in its project.
Usually, there is at least one public housing authority serving a
specific jurisdiction, whether it be a state, regional, county, or city
public housing authority. The Department believes that the applicable
local public housing authority will typically be the one that
administers the project-based voucher assistance to the property, if
the project contains project-based voucher units, or the public housing
authority that the participating jurisdiction determines is most
representative of the community where the project is located.
D. Request for Technical Assistance on Utility Allowance Requirements
One commenter supported the inclusion of public housing authority
utility allowance but stated that HUD should provide technical
assistance to ensure allowances are updated in a timely manner.
HUD Response: The Department provides technical assistance to
public housing authorities and participating jurisdictions in a variety
of areas, including utility allowances. The Department will examine
further ways to ensure that utility allowances are updated in
accordance with the applicable program regulations, including through
additional guidance and engagement with participating jurisdictions and
public housing authorities.
E. Align Utility Allowances With State LIHTC Requirements
One commenter supported mirroring State agency requirements for
utility allowance use on LIHTC properties.
HUD Response: The Department is adopting the proposed language in
Sec. 92.252(b) allowing participating jurisdictions to use the HUD
Utility Schedule Model, the utility allowance established by the local
PHA, or other method approved by HUD for their maximum monthly utility
allowances. Which of the three methods the participating jurisdiction
uses is up to the participating jurisdictions' discretion. State LIHTC
requirements do not fall under HUD's purview. If a participating
jurisdiction wishes to use a utility model from a statewide entity for
its HOME project, the participating jurisdiction may submit a request
to HUD for use of that model.
F. Opposition or Conflicted Beliefs on Applying PHA Utility Allowance
Two commenters did not support permitting all HOME-assisted
projects to use the local housing authority's utility allowance. The
first commenter stated that using utility information specific to a
property is in the best interests of all parties and suggested that HUD
use gathered data to ensure that tenants will not be harmed with higher
rents caused by less accurate utility allowances (in the case that the
local housing authority's utility allowance be permitted for all HOME-
assisted projects). The second commenter supported no change to the
current method, as HUD has generally expressed flexibility on the rule
in the past, which the commenter found helpful when other funding
sources have different utility allowances.
One commenter was conflicted about whether aligning HOME-assisted
units with PBVs and/or HUD-VASH Vouchers should apply universally to
all HOME-assisted units, explaining that while public housing authority
rates could be more cost- and time-effective for nonprofits, they are
often higher than those found with individual analysis by a developer
using the HUSM at the time of application.
HUD Response: The Department appreciates the recommendations made
by the commenters but believes that allowing participating
jurisdictions to use the HUSM, the utility allowance established by the
local PHA, or other method approved by HUD for their maximum monthly
utility allowances provides participating jurisdictions with far more
flexibility than was permitted prior to this change. With the ability
to choose one of the three options presented, participating
jurisdictions will be able to select a method that they have determined
to be in the best interests of all parties, whether that is in regard
to accuracy, time-, or cost-effectiveness. If the Department does not
include the local public housing authority's utility allowance as one
of the options, then each time that HOME assistance is combined with
project-based vouchers or project-based VASH units, the Department will
have to waive the utility allowance regulations in Sec. 92.252. This
misalignment between HUD programs delays the provision of HOME
assistance and projects, requires the Department to waive the
regulation, and causes some owners and developers not to combine the
two forms of assistance in the same project.
Specific solicitation of comment #5: The Department specifically
requests public comment from participating jurisdictions and program
participants regarding the challenges they have encountered in using
HOME funds to assist small-scale housing, as defined in this proposed
rule. The Department also requests public comment regarding the costs
and benefits of the changes that HUD is proposing for small-scale
housing in requirements for the frequency of income determinations and
inspections and the use of alternative waiting lists.
A. Support for Small-Scale Changes
Several commenters supported the changes to monitoring compliance
in
[[Page 825]]
small-scale housing projects. One commenter supported the lowering of
barriers for small-scale rental properties through the proposed changes
to Sec. Sec. 92.2, 92.251, 92.252, and 92.253. The commenter
emphasized their belief that rural areas, as well as areas with limited
buildable land, would greatly benefit from the same lowering of
barriers, due to a dearth of CRA-driven investment, and economic
challenges to new rental unit development in these communities. One
commenter believed that small-scale housing provides a tremendous
investment opportunity for production and preservation of affordable
housing.
Another commenter supported HUD's proposed changes and believes the
benefits of reducing the burden for owners of small-scale housing
outweigh the possible public benefit loss of reduced compliance
requirements.
HUD Response: HUD thanks the commenters for their review of the HOME
rule. HUD is moving forward with the small-scale flexibilities it
proposed.
B. Support for Small-Scale Housing Inspection Requirements
Several commenters supported a three-year property inspection for
small-scale HOME-assisted projects. One commenter supported inspecting
small-scale housing every three years instead of using a risk-based
schedule for small-scale housing inspections. One commenter supported
the proposal to allow participating jurisdictions to adopt customized
inspection schedule for small-scale housing where health and safety
deficiencies have been identified and corrected.
One commenter stated that the streamlined inspection procedures for
small-scale rental projects would not likely assist emerging
developers, but would assist existing affordable housing developers
acquire, rehabilitate, or build new small-scale units.
HUD Response: HUD appreciates the commenter's review of the
proposed rule. HUD is adopting the proposed rule language related to
the frequency of physical inspections. HUD believes the flexibilities
provided to small-scale housing owners will help all owners of small-
scale housing projects, whether they be emerging developers, homebuyers
that purchase multi-unit structures and rent them as HOME rental
housing units, or developers that have significant experience in the
program already.
C. Objections to Small-Scale Housing Inspection Requirements
One commenter objected to HUD's changes to property inspection
requirements for small-scale rental housing. The commenter explained
that small-scale projects already struggled to maintain compliance with
physical condition requirements, that this was exacerbated by the
pandemic and the shortage of qualified property managers in their
State. The commenter believed that reducing the frequency of
inspections will lead to the rapid deterioration of units and to
ongoing compliance challenges.
HUD Response: The Department appreciates the commenter's concern
about inspections of physical condition for small-scale rental
projects. The HOME program is a block grant program that permits
participating jurisdictions to determine how best to design and
administer their affordable housing programs, as long as they comply
with the minimum requirements established in the HOME regulations. As a
participating jurisdiction, the commenter has the flexibility to adopt
inspections procedures for small-scale rental projects and other rental
projects that are more frequent than required in the regulations. HUD
is adopting the alternative inspection protocol for small-scale
projects to help facilitate the use of HOME for small-scale rental
housing. As a reminder, participating jurisdictions must also comply
with all applicable Federal fair housing and civil rights requirements
in the administration of their affordable housing programs in addition
to the HOME regulations.
D. Support for Small-Scale Rental Housing Waiting List Requirements
Several commenters supported the proposed changes to tenant
selection procedures in small-scale rental housing. Commenters
specifically supported permitting participating jurisdictions to
establish policies to identify tenants when vacancies occur in small-
scale housing. One commenter believed that HUD's proposed update
allowing participating jurisdictions to create alternative waiting list
procedures would empower participating jurisdictions to create and
enact policies aligned with their respective programs and more
responsive to owner and tenant needs. One commenter stated that they
support HUD's proposed changes to the alternative waiting list
requirements because they would reduce the length of turnover of units
from one renter to the next.
HUD Response: HUD thanks the commenters for reviewing the rule and
is adopting the alternative waiting list provision with a revision
described below.
E. HUD Approval of Waiting List Requirements
One commenter stated the requirement to get pre-written HUD
approval of alternative procedures for a written waiting list for
small-scale housing would hamper small-scale housing. The commenter
recommended that HUD publish in a manner viewable by all participating
jurisdictions and a list of previously approved alternative tenant
selection procedures, as well as grant participating jurisdictions
presumptive approval if they implement one of the previously approved
methods for small-scale housing. Another commenter similarly requested
clarification or examples of acceptable alternatives to written tenant
waitlists.
HUD Response: HUD thanks the commenter for reviewing the proposed
rule. To reduce burden, the Department is removing the requirement that
it approve a participating jurisdiction's alternative written waiting
list and will provide further guidance on required and recommended
elements of such plans. Such plans, among other obligations, must be
nondiscriminatory and all tenant selection plans and waiting list
procedures must comply with Federal fair housing and civil rights
requirements. Participating jurisdictions' alternative waiting lists
will be subject to compliance monitoring rather than prior approval.
F. Support for Reducing Income Examination Requirements
Several commenters supported permitting streamlined or less
frequent procedures for small-scale rental housing projects (one to
four total units) for reexamination of annual income. One commenter
supported the changes HUD made to reduce the burden but believed that
HUD should make income recertifications more flexible.
HUD Response: HUD believes that it is being as flexible as it can
be with income recertifications. By moving to a triennial income
recertification process for small-scale rental housing, the Department
is balancing the need to examine income for families whose rents are
income-dependent with the need to provide administrative relief to
participating jurisdictions administering small-scale projects across
their jurisdictions. HUD has provided additional flexibilities to
expand safe harbors in income examinations and believes that the
combination of these flexibilities is sufficient to address the
commenters concerns. HUD will continue to review income examination
policies in the future as the Department seeks to balance the need for
accurate
[[Page 826]]
family income data with the burden of income reexamination placed on
tenants, owners, and participating jurisdictions.
G. Eliminate Income Reexaminations in Small-Scale Rental Housing
Projects
One commenter suggested conducting income determinations only upon
unit turnover to reduce administrative burden and impact on tenants.
The commenter also suggested requiring that 100 percent of beneficiary
households have incomes at or below 60 percent of area median income at
initial lease up, which is what the City of Madison and State of
Wisconsin require, to address concerns regarding benefitting households
over 80 percent of area median income.
HUD Response: The HOME statute at 42 U.S.C. 12756(b) and 42 U.S.C.
12745(a) require that participating jurisdictions monitor owners for
compliance with HOME requirements, including income examination
requirements, and that rents be determined based upon income
examinations. The commenter is proposing that tenants never be
reexamined for income, similar to HOME's homeownership activities. This
is not consistent with the HOME statute. 42 U.S.C. 12756(c) permits the
Secretary to ``provide for such streamlined procedures for achieving
the purposes of this section'' for small-scale or scattered site
projects. The Department has determined that eliminating income
reexamination requirements for tenants in small-scale rental housing is
inconsistent with the HOME statute, which requires income
reexaminations for all tenants in rental housing. Rents for over-income
tenants have an income-based component and to ignore those requirements
completely would not be achieving the purposes of the monitoring
provisions of the Act.
H. Small-Scale Housing Projects Present Monitoring and Oversight
Challenges
One commenter was critical of the small-scale and scattered site
housing models. The commenter said that the new rules would make it
challenging to produce small-scale and scattered site housing. The
commenter believed that enforcing the period of affordability and
monitoring requirements on these owners causes additional
administrative burden to participating jurisdictions. The commenter
also thought that this was encouraging an inefficient use of scare
program resources. The commenter encouraged HUD to review financial and
commercial viability of the scattered site approach for housing
fulfillment, given these concerns.
Two commenters stated they were concerned about the small-scale
housing inspections and monitoring because small-scale housing
providers often have less oversight experience or ability. One of these
commenters stated that this lack of experience may unintentionally
decrease the frequency and quality of inspections.
HUD Response: HUD thanks the commenters for reviewing the proposed
rule. One commenter mistakenly believes that the small-scale housing
requirements are new requirements imposed on participating
jurisdictions. This is incorrect. The commenter also states that
enforcing the period of affordability and monitoring small-scale
projects are too burdensome for participating jurisdictions. Small-
scale housing has heretofore been subject to all HOME rental housing
requirements; this final rule reduces this burden to make it easier to
use HOME for these projects. The Department is adding these monitoring
flexibilities for small-scale housing projects to better implement the
Act, which authorized the Department to provide streamlined procedures
for achieving the purposes of the Act as the Secretary determines to be
appropriate.\59\ The Department believes that the drafters of the Act
intended for small-scale housing projects, including scattered site
projects, to be funded under HOME, and that it is best left to
participating jurisdictions on whether to fund these types of projects.
---------------------------------------------------------------------------
\59\ See 42 U.S.C. 12756(c).
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Other commenters who expressed concerns about the adequacy of
monitoring and inspections under this proposal mistakenly assume that
owners, not participating jurisdictions conduct physical inspections
and monitoring. HUD is not changing the requirement that the
participating jurisdiction engage in onsite monitoring and review of
small-scale projects, it is just changing how this monitoring is
performed to reduce the burden on participating jurisdictions and
owners. HUD believes that this final rule appropriately balances burden
reduction and compliance for small-scale housing projects.
I. Opposition to Changes to Small-Scale Housing
One commenter believed that the small-scale changes were not
helpful. The commenter was not supportive of using HOME funds for
small-scale rental housing projects, believed that CDBG funding was
more attractive because it entailed fewer requirements, and believed
that owners of small-scale rental housing had no interest in complying
with HOME requirements. In the commenter's experience, when the
commenter did provide CDBG funds to owners of small-scale housing
projects, it was difficult to obtain required documentation, including
tenant rents, ethnicity, and income. The commenter also believed that
the small-scale housing project requirements did not streamline
requirements for the development small-scale housing but only improved
how the ongoing requirements are monitored.
Another commenter expressed concerns about enabling increased
owner-occupied HOME-assisted rental unit creation, as the commenter's
experience is that low-income homebuyers who are immediately made the
owners of HOME-assisted rental units have a very high failure rate when
it comes to compliance with HUD regulations. The commenter said that
the administrative burden on such homeowners would still be too high
even despite the lowering of barriers in this proposed rule and the
commenter does not support a system that sets its neighbors up to fail.
Further, the commenter said that a newly rehabilitated or constructed
duplex or triplex would better serve their communities as either
individual homeownership units or as properly administered affordable
rental units.
HUD Response: HUD thanks the commenters for reviewing the proposed
rule. The Department understands that developing and managing small-
scale housing can be challenging. Despite these challenges, such
housing can play an important role in meeting a community's affordable
housing needs. HUD notes that NAHA provides it with authority to
establish streamlined requirements with ongoing oversight and
compliance of small-scale and scattered site projects, not with respect
to the development of that housing. HUD recognizes that not all
communities will decide to pursue small-scale housing due to the
challenges and priorities cited by the commenters. However, the
Department believes that burden relief is beneficial to participating
jurisdictions that wish to pursue that strategy and that such revisions
are in furtherance of the Act.
J. Small-Scale Housing Project Flexibilities Are Insufficient or Not
Helpful
One commenter supported HUD's changes but noted that leading
challenges of applying HOME towards small-scale housing include high
costs in providing gap financing in rural areas and a lack of training.
The commenter
[[Page 827]]
encouraged HUD to create policies that are responsive to State and
local conditions and empower participating jurisdictions to use HOME
funds for targeted developments accordingly. The commenter noted that
the use of property management firms may assist in managing small-scale
rental housing.
Another commenter said that the reduction or streamlining of
regulatory requirements such as inspections and wait lists would make
it more attractive to use HOME funding, but compliance would still
remain more onerous than the commenter's city-funded program. The
commenter explained that their city offers a rental rehabilitation loan
program for properties with seven or fewer units where landlords are
required only to preserve 50 percent of units for occupants earning at
or less than 60 percent of area median income through a 10-year loan
term; but that HOME's compliance requirements make it undesirable to
utilize HOME for such programs.
Another commenter urged HUD to consider how private market
financing conflicts with HOME requirements, especially for condominium
development which have early pre-sale requirements from Fannie Mae and
Freddie Mac that conflict with HOME's requirement to recheck income
after six months.
HUD Response: HUD thanks the commenters for reviewing the proposed
rule. As stated above, the Department understands that developing and
managing small-scale housing can be challenging, as can oversight by
participating jurisdictions and other funders. HUD did not propose
these streamlining measures for small-scale rental housing because it
believed that every jurisdiction would or should adopt this activity
with its HOME funds. Rather, HUD's intent is to make small-scale
housing easier to manage and oversee for owners and participating
jurisdictions that choose to undertake it with HOME funds. With respect
to the comments regarding conflicts between HOME requirements and
Fannie Mae and Freddie Mac pre-sale programs, HUD notes that while a
small-scale housing project can have a homeownership unit, the rest of
the units in the project must be for rental. Therefore, the condominium
purchase rules being described are likely not applicable. In any event,
the Department has given exhaustive explanation earlier in this
preamble about why it is declining to extend the amount of time that an
income determination is valid when purchasing housing with HOME
homeownership assistance.
K. Accessibility Requirements Are a Barrier to Small-Scale Housing
Projects
One commenter stated that the Uniform Federal Accessibility
Standards (UFAS) requirements for small-scale housing have made it
virtually impossible to fund small rehabilitation developments. The
commenter supported more waivers or modified requirements for small
rehabilitation developments.
HUD Response: The Department thanks the commenter for reviewing the
proposed rule. Section 504 of the Rehabilitation Act of 1973 (Section
504), and HUD's implementing Section 504 regulation at 24 CFR part 8
prohibit recipients from discriminating on the basis of disability. By
definition, small-scale housing projects are single family housing
consisting of no more than four units or scattered-site projects
consisting of no more than four units. These projects do not meet the
definition of multifamily housing subject to the requirements that a
percentage of newly constructed or rehabilitated units be accessible to
individuals with mobility impairments and an additional percentage of
units be accessible to individuals with vision and hearing impairments
in compliance with HUD's accessibility standards, (i.e., UFAS or HUD's
Deeming Notice).
A recipient must provide for reasonable accommodations that may be
necessary for individuals with disabilities. A recipient's obligations
under Section 504 cannot be waived. Such requirements ensure that
individuals with disabilities are able to participate in, and are not
denied the benefits of, such programs or activities. As a reminder,
recipients may also be subject to additional accessibility requirements
under the Fair Housing Act, and title II of the Americans with
Disabilities Act (ADA).
L. Request To Reduce Environmental Review Requirements for Small-Scale
Housing Projects--HUD Should Change Environmental Review Requirements
for Small-Scale Projects
One commenter suggested that, to lower the cost of the production
of affordable housing and encourage more supply while still protecting
the environment, HUD should change its regulations governing the three
project/activity types in this paragraph. They are currently governed
under 24 CFR 58.35(a) but should be governed under 24 CFR 58.35(b). The
commenter stated that this change would still ensure that reasonable
impacts were examined before project commencement, while lowering the
burdens and costs to re-entering dilapidated housing stock back onto
the market. The commenter also supported retaining limited historic
preservation protections, explaining that such limited protections
would reduce the delays incumbent in current historic preservation
compliance, while retaining State Historic Preservation Officer
notification. The commenter suggested that flexibility for waiting
periods to run concurrently with participating jurisdictions and HUD
review should be explored.
The commenter stated that to lower the cost of the production of
affordable housing and encourage more supply while still protecting the
environment, HUD should expand the scale of projects that can qualify
as categorically excluded. The commenter reasoned that increasing the
current categorical exclusion to individual actions on between 5 and 15
scattered site dwelling units or housing units will lower costs,
burdens, and speed the delivery of units, while still examining all
environmental impacts.
Lastly, the commenter recommended that HUD should use this existing
authority to include HOME funds deployed for small (one-four unit)
residential projects via nonprofit affordable housing developers as an
exception criterion35. The commenter explained that this would allow
the nonprofits to work with their local governments, who act as the
responsible entity, for speedier resolutions of all existing
environmental review processes.
HUD Response: HUD appreciates the commenter's suggestions related
to streamlining the environmental review procedures at 24 CFR part 58.
However, the authority granted to HUD at 42 U.S.C. Sec. 12756 to
establish streamlined procedures for small-scale and scattered site
housing extends only to monitoring of such housing after project
completion. The commenter's suggestions relate to project development
rather than ongoing compliance and thus are outside the scope of this
rulemaking. Moreover, the Department did not propose making any
revisions to environmental review requirements for HOME projects in the
proposed rule and believes that such changes are also beyond the scope
of this rulemaking.
M. Other Comments in Solicitation--Create New Eligible Activity for
Inspections
One commenter stated that participating jurisdictions stated that
the need to regularly inspect all units in small-scale housing every
three years is a major expense. The commenter
[[Page 828]]
recommended that HUD allow participating jurisdictions to create an
IDIS activity called ``HOME Inspections'' that would enable inspection
costs to be charged to that activity and not count the on-site
inspection expenses as a part of HOME administration. The commenter
recommended that the planning and preparation for the HOME inspections
be counted as an administrative cost while the actual site inspection
costs would be counted as activity delivery expenses.
HUD Response: The Department appreciates the comment. However, the
HOME statute The Act does not permit HUD to establish new activities in
IDIS for the types of ongoing administrative costs described by the
commenter. See 42 U.S.C. 12742. During the HOME period of
affordability, the participating jurisdiction may charge the cost of
periodic inspections to HOME administration in accordance with Sec.
92.207, or the participating jurisdiction may charge a reasonable
monitoring fee to the project owner in accordance with Sec.
92.214(b)(1)(i).
N. Other Comments in Solicitation--Opposition to Financial Oversight
Requirements
One commenter believed that the current financial oversight
requirements are inadequate and that not performing financial oversight
on small-scale rental housing ignores an invaluable tool in
understanding how properties are performing. The commenter believed
that such oversight detects signs of financial distress or over
subsidization and assists in the rent setting process and other
processes involved in LIHTC, HOME, HTF, and local resources.
HUD Response: Though it does apply to small-scale housing, the 10-
unit threshold for performing financial oversight that the commenter is
objecting to is not a small-scale housing flexibility. This is a
provision within Sec. 92.504(d)(2) that is being moved to Sec.
92.251(f). Please see HUD's response above on financial oversight for
the HOME program for why HUD is declining to reduce the 10-unit
threshold.
Sec. 92.253--Tenant Protections and Selection
A. General Comments on Requiring a Tenancy Addendum in Sec. 92.253(a)
Commenters supported the tenant addendum changes. One commenter
stated that outlining the required elements of the HOME lease addendum
in the affirmative is much more effective and provides clarity for all
parties. Some commenters expressed broad support for the proposed
expansion of tenant rights and protections provisions. Another
commenter supported HUD's proposed changes to Sec. 92.253(a)-(b) and
the proposed addition of paragraph (c), which the commenter stated
would simplify TBRA and improve TBRA for tenants, landlords, and
participating jurisdictions.
Another commenter strongly supported the proposed requirement of a
HOME lease addendum. The commenter suggested that HUD should consider
providing additional means of enforcement. For example, the commenter
suggested that tenants should have the right to access a grievance
procedure, which would permit tenants to request an information
conference with the owner when their rights are violated. The commenter
further suggested that tenants should be able to appeal the owner's
decision to the participating jurisdiction, and they should also have
an explicit avenue to bring a complaint to HUD.
One commenter requested that HUD develop a HOME addendum template
that contains all of the HOME program requirements in a single
addendum. Another commenter supported the tenancy addendum requirement
but stated that it should not be a requirement until there is a HUD
HOME tenancy addendum that can be used on all rental housing projects.
One commenter generally opposed the proposed tenant protections to
the HOME program. The commenter explained that apartment owners and
managers already are subject to a myriad of tenant protection and fair
housing statutes, regulations, administrative policies, and case law
from all levels of government. The commenter further explained that
this existing framework provides balanced protections for both tenants
and landlords. Specifically, the commenter points out that the proposed
mandatory HOME lease addendum would impose a set of one-size-fits-all
tenant protections for HOME-assisted rental housing and HOME tenant-
based rental assistance (TBRA) recipients.
One commenter preferred that lease addendum and protections be left
to State landlord-tenant law but did not strongly oppose the use of a
Federal addendum for purposes of consistency and reducing participating
jurisdiction burden. Another commenter stated that HUD should not
engage in tenant protection rulemaking because State and local
regulations are sufficient.
One commenter stated that tenant protections will increase a
tenant's ability to locate and sustain units that are affordable and
that tenant protections should be included in a tenant's lease
agreement. However, that commenter was also concerned that since the
HOME funds they used made up a small percentage of the total cost of
the project and resulted in a limited number of HOME-assisted units
(usually 5-10), a HOME-specific lease addendum would be impractical to
implement.
One commenter supported the proposal (under Sec. 92.253(a)) to
require owners to attach VAWA and HOME addenda to the lease, as this
would help ensure that owners, tenants, and eviction court judges
clearly understand tenant rights and owner obligations. However, this
commenter suggested simplifying the addendum by drafting an addendum
that cites to HOME regulations for additional detail.
HUD Response: HUD appreciates the comments and is moving forward
with requiring a HOME tenancy addendum for rental housing, tenant-based
rental assistance, and security deposit assistance only. The Act states
that the lease between a tenant and owner of HOME-assisted rental
housing and HOME tenant-based rental assistance ``shall contain such
terms and conditions as the Secretary shall determine to be
appropriate.'' (42 U.S.C. 12755(a)). HUD has determined that Congress
intended that HUD use the terms and conditions of the lease to provide
tenant protections in the HOME program. Instead of requiring a standard
form lease or prohibiting terms contained in an owner's lease, HUD
believes that creating HOME tenancy addenda for rental housing, tenant-
based rental assistance, and security deposit assistance is the best
way to enforce reasonable tenant protections in a consistent manner
while reducing participating jurisdiction burden.
HUD's HOME tenancy addenda will include the tenant protections
listed in the HOME regulations. HUD maintains that the tenant
protections it is including in the HOME tenancy addenda represent a
minimum standard that is based in a thorough analysis of Federal,
State, and local laws. Before proposing these protections, HUD examined
State and local landlord-tenant laws and protections and the
requirements of other Federal programs that serve the same tenants and
are frequently combined with the HOME program (such as the Section 8
programs). Through this analysis and comment from the public, HUD is
confident that the inclusion of the tenant protections contained in the
HOME tenancy addenda are consistent with the intent of the drafters of
the Act.
The Department understands some commenters' desire to formalize a
[[Page 829]]
grievance process and an appeal right to HUD. However, the Act does not
require participating jurisdictions to establish a grievance process or
for HUD to establish a right to appeal to the Department. Participating
jurisdictions must determine their own systems for assessing risk and
methods for enforcing compliance with the requirements of 24 CFR part
92.
The Department also recognizes that some commenters have
significant concerns about the one-size-fits-all nature of tenancy
addenda and the potential for adding new HOME tenant protections to
other Federal, State, and local requirements. The Department did its
best to address the commenters' concerns by aligning certain tenant
protection provisions with other Federal programs (most notably the
Section 8 programs) and tailoring each tenancy addendum to the type of
HOME program (i.e., rental housing, tenant-based rental assistance,
security deposit assistance only).
In response to commenters that stated that the Department should
not require tenant protections for HOME because the HOME funding may
only be a small portion of the overall financing or fund only a few
housing units, the Department understands the concerns, but this does
not diminish the need to guarantee tenants of HOME rental housing
projects a baseline level of tenant protections, as intended under the
Act. Some participating jurisdictions provide HOME funds to projects
that require only a small amount of funding to move forward. Others
provide much more significant amount of funding and fund much larger
HOME projects. Tenants should receive the same protections regardless
of the decisions made by the participating jurisdiction on how much
funding to provide to a particular rental housing project. The Act did
not specify that tenant protections were to be based upon the level of
HOME funds and the Department is declining to draw such distinctions or
only require a reduced set of protections for HOME simply because some
participating jurisdictions may use HOME funds to fund fewer units in
larger rental projects.
The Department considered one commenter's request that the HOME
tenancy addenda should cite to the appropriate regulations and be as
simple as possible. However, the Department intends to create tenancy
addenda that do not require a tenant or owner to look up HUD
regulations in order to know what they are agreeing to and shall
provide a standalone tenancy addendum for HOME rental housing, tenant-
based rental assistance, and security deposit assistance only.
B. Requiring a Tenancy Addendum Under Sec. 92.253(a) Violates the
Rights of Housing Project Owners
Commenters said that the rule infringes on property rights by
circumventing the established legal process for eviction, denying
housing providers due process rights, and creating an imbalance in
tenant-landlord relations by making nonpayment of rent a protected
class. Commenters also called on HUD to be fair and not overreach.
HUD Response: The Act states that the lease between a tenant and
owner of HOME-assisted rental housing and HOME tenant-based rental
assistance ``shall contain such terms and conditions as the Secretary
shall determine to be appropriate.'' (42 U.S.C. 12755(a)). HUD has
determined that this is a Congressional delegation of authority to the
Secretary and provides the Secretary with the discretion to determine
the appropriate lease terms for tenants living in HOME-assisted rental
units. Owners accept HOME assistance in the development of their rental
housing projects with the knowledge that they do so subject to Federal
laws and regulations. This includes the prohibited lease terms and the
current termination of tenancy and refusal to renew provisions that are
currently listed in Sec. 92.253. HUD is updating these protections but
will not, and does not have legal authority to, circumvent State or
local eviction processes, alter any due process rights of owners under
State or local law, or define any new protected classes.
In recognition of the concerns that the commenter raises, the
Department is requiring that the new and revised tenant protections
only apply prospectively (See Sec. 92.3). This will allow owners of
HOME rental housing to knowingly agree to the new tenant protections
before accepting the HOME funds for a project. This will allow the same
for owners entering into a rental assistance contract with
participating jurisdictions. The Department believes that this
meaningfully addresses any legal concerns that the commenter had, even
though the Department disagrees with the assertion that imposing such
protections upon existing owners would violate their rights.
C. Requirement To Provide the Participating Jurisdiction With a Copy of
the Lease in Sec. 92.253(a)
One commenter stated that the components in the rule related to
lease contents are generally reasonable, but that the requirement that
the owner provide the participating jurisdiction with a copy of the
written lease before it is executed and once revised is unclear and
potentially troublesome. The commenter recommended that HUD reconsider
this requirement because it could be burdensome and lack an
understandable review process. The commenter noted that if HUD
proceeded with the requirements, to avoid significant confusion and
delays, HUD should clarify that a participating jurisdiction would not
be required to review or approve individual leases and that a model
lease would be sufficient.
HUD Response: HUD is adding the requirement to Sec. 92.253(a) that
owners must provide the participating jurisdiction with a copy of the
written lease to allow the participating jurisdiction to verify that
the lease complies with the requirements in Sec. 92.253, including
that it includes the applicable HOME tenancy addendum. This should not
be disruptive for participating jurisdictions or owners. HUD is not
changing its requirement that each lease comply with the requirements
in Sec. 92.253 (See Sec. 92.252 (rental housing) and Sec. 92.209
(TBRA)). Section 92.504(a) already requires participating jurisdictions
to have and follow written policies, procedures, and systems, including
a system for assessing risk of activities and projects and a system for
monitoring entities consistent with 24 CFR part 92 to ensure that the
HOME requirements are met, including lease requirements. Also
unchanged, Sec. 92.508(a)(3)(ix) requires the participating
jurisdiction to maintain records demonstrating that each lease complies
with HUD requirements. A participating jurisdiction is therefore
already required to determine that each lease complies with HOME
requirements and maintain project records proving that the leases are
compliant. HUD is adding the requirement that the owner provide the
participating jurisdiction with the lease in advance to allow a
participating jurisdiction to review under their procedures before any
potential noncompliant leases are executed.
D. Methods of Communication in Sec. 92.253(a)
Commenters expressed strong support for the requirements to provide
essential information to tenants, including those in proposed Sec.
92.253(a) regarding (1) accessible means to contact owners, managers,
and participating jurisdictions; (2) accessible notice specifying the
grounds for any adverse action; and (3) that owners provide 30 days
advance notice of an impending
[[Page 830]]
sale or foreclosure of the property. A commenter explained that these
are important for maintaining decent, safe, and sanitary conditions in
assisted housing; allowing tenants to clear misunderstandings and
giving them information needed to challenge adverse actions and avoid
unjust outcomes; and allowing tenants to prepare for possible
disruptions. However, the commenter stated that without an enforcement
mechanism, the requirements will be meaningless and the burden for
enforcement will fall on individual tenants. The commenter suggested
that for (1) and (2), HUD should require participating jurisdictions to
develop and publish an enforcement mechanism. For (3), the commenter
suggested that HUD's rulemaking should specify that no adverse action
shall become effective unless such notice has been provided. Another
commenter supported the HOME lease addendum but suggested that HUD
simplify the addendum to make it more user friendly.
One commenter recommended deleting the requirement in Sec.
92.253(a)(2) that leases include the participating jurisdiction's
contact information to avoid tenants calling participating
jurisdictions. If HUD keeps the requirement the commenter recommended
moving it to a new Sec. 92.253(b)(8) so that contact information would
be included in the HOME tenancy addendum. Another commenter supported
the requirement for tenant leases to contain more than one method to
communicate directly with the owner or property manager but stated that
as a participating jurisdiction, it does not feel that review prior to
lease execution or revision is necessary. Additionally, owners must
ensure effective communication with persons with disabilities,
including, for example those with hearing, visual, speech, or
disabilities consistent with Section 504 and the ADA, as applicable.
HUD Response: The Department is moving forward with the changes and
will require that contact information be provided in the lease. The
Department is not embedding this requirement in the tenancy addenda
regulations in Sec. 92.253(b)-(d) but will include an area in the HOME
rental housing tenancy addendum and the HOME tenant-based rental
assistance tenancy addendum for this information to be added. By
building this information into the addendum, it should reduce the need
to create an enforcement mechanism. However, there are other
enforcement mechanisms in Sec. 92.504. The Department is committed to
ensuring that the tenancy addenda are user-friendly. The Department
also recognizes the commenter's concern that no adverse action should
occur for a tenant until the notice in the proposed rule's paragraph
(a)(3) had been provided. The Department would like to clarify that the
proposed rule paragraph (a)(3) was the requirement that a VAWA addendum
be added and not the requirement that notice be provided of VAWA
protections. The notice the commenter is describing is required under
Sec. 92.359(c) and is unchanged by this rulemaking.
The Department has noted the concerns of participating
jurisdictions and owners who do not believe that it is appropriate to
provide contact information but strongly disagrees. When tenants have
clear ways to communicate with the participating jurisdiction that is
monitoring the HOME rental housing owner or that is assisting them with
tenant-based rental assistance, it empowers them to be able to assert
their rights or protections, and better enables participating
jurisdictions to learn about potential compliance problems.
E. General Support for Changes to HOME Tenancy Addendum Physical
Condition Requirements in Sec. 92.253(b) Description of Tenancy
Addendum Contents
One commenter supported HUD's proposed changes requiring owners to
provide tenants with the expected timeframe for maintenance and/or
repair work, prohibiting owners from charging tenants for normal wear
and tear, and requiring owners to prompt relocate tenants to decent,
safe, and sanitary housing, or to suitable lodging when there is a
life-threatening deficiency that can't be repaired the same day--at no
cost to the tenant.
HUD Response: The Department thanks the commenter for their support
of the proposed changes. The Department agrees and believes that these
changes will promote a better, safer environment for tenants and will
enable them to live in units that meet property standards. Tenants must
not be exposed to life-threatening deficiencies. Where such
deficiencies are present, they should be corrected by owners
expeditiously and with as few disruptions to the family as possible.
Requiring owners to provide alternative suitable units until such
repairs are made is a strong incentive to repair life-threatening
deficiencies quickly and comprehensively to avoid future disruption and
expense. Notwithstanding the foregoing, the Department believes this
requirement is only acceptable where the participating jurisdiction has
provided the owner with HOME assistance in the acquisition or
development of the project and therefore is not applying the
requirement to owners whose units are occupied by tenants with tenant-
based rental assistance. This is because the requirement could have the
potential to chill participation from private landlords whose only
assistance is the rental assistance received from the participating
jurisdiction on behalf of the tenant.
F. Unit Maintenance and Repair in Sec. 92.253(b) Description of
Tenancy Addendum Contents
One commenter suggested that HUD should require that the owner
``provide expected time frames for maintaining or repairing units'' in
writing in Sec. 92.253(b)(1)(ii)(A). The commenter explained that this
encourages transparency between the owner and tenant and provides the
tenant with the information needed to hold owners accountable in case
of delayed maintenance.
HUD Response: The Department thanks the commenter for reviewing the
proposed rule. HUD agrees with the commenter that the owner must
provide written notice to a tenant of the expected timeframes for
maintaining or repairing a HOME-assisted unit. HUD is revising Sec.
92.253(b)(1)(A) to incorporate this change. HUD is also adding similar
language to the HOME tenant-based rental assistance tenancy addendum in
Sec. 92.253(c)(1)(A).
G. Unit Damage and Charges in Sec. 92.253(b) Description of Tenancy
Addendum Contents
One commenter recommended, for HUD's proposed regulatory text in
Sec. 92.253(b)(1)(ii)(C), that HUD provide text enabling a tenant to
bring a challenge to the participating jurisdiction regarding any
charges the tenant believes are unwarranted and requested sub-
regulatory guidance regarding such proceedings.
HUD Response: The Department appreciates the comment but is moving
forward without the commenter's proposed change. A participating
jurisdiction is not responsible for litigating disputes between tenants
and owners for charges a tenant may feel are unwarranted. However, the
participating jurisdiction is required to monitor and enforce the
requirements of 24 CFR part 92, including the tenant protections
requirements. The Department defers to participating jurisdictions in
determining the best method for enforcing the tenant protections
requirements. While some
[[Page 831]]
participating jurisdictions may establish or use existing grievance
procedures, there may be others that take a more targeted or risk-based
monitoring and enforcement approach.
H. Temporarily Moving Tenants Due to Emergencies on the Property in
Sec. 92.253(b) Description of Tenancy Addendum Contents
One commenter supported HUD's proposal in Sec. 92.253(b)(1)(iii)
to require owners to temporarily relocate tenants, at the owner's
expense, in the situations involving a life-threatening emergency
because this clarifies owners' existing duty to provide decent, safe,
and sanitary housing for tenants. The commenter expressed concern that
``life'' was too high a bar to achieve HUD's purpose for the change
stated in the preamble of the proposed rule, ``to prevent HOME tenants
from remaining in housing that poses a threat to their physical safety
and from being subjected to additional costs as a result of physical
housing conditions outside their control.'' The commenter explained
that many housing conditions pose serious but not life-threatening
threats to occupants' physical safety, including mold, infestation, and
lead-based paint. The commenter also noted that occupants remaining in
the home during remediation of emergencies or adverse conditions may
not be safe. The commenter suggested extending the relocation
requirement to cover all conditions and repair activities that ``pose a
threat to the health and safety of the tenant household.'' Another
commenter stated that the requirement that owners temporarily relocate
tenants at the owner's expense should apply to all conditions that pose
an immediate threat to the health and safety of the tenant household.
One commenter recommended that HUD should modify the standard at
which an owner must relocate a tenant in Sec. 92.253(b)(1)(iii) to
reflect more commonly used standards. Specifically, HUD should require
that an owner relocate the tenant when ``maintenance or repairs are
necessary to ensure the habitability of the housing unit''--rather than
when the unit's physical condition creates ``a life-threatening
deficiency.''
HUD Response: HUD thanks the commenters for reviewing the proposed
rule but disagrees that HUD should adopt a different standard for
relocating tenants in the case of physical deficiencies in the unit.
The proposed language in Sec. 92.253(b)(1)(iii) seeks to prevent HOME
tenants from remaining in units that pose a threat to their physical
safety if a life-threatening deficiency cannot be corrected on the day
the deficiency is identified. This provides a strong incentive to fix
immediate, life-threatening problems with the unit. Requiring project
owners to relocate tenants for health and safety deficiencies that are
severe but not life-threatening, especially when those deficiencies
could be corrected in a reasonable time frame without posing a life-
threatening risk to the tenant, may impose too significant of a
financial burden on project owners or deter participation in the HOME
program. HUD is moving forward with its proposed change. Participating
jurisdictions are always capable of requiring more stringent
requirements through their written agreements, but the Department
believes that the minimum requirement must prevent families from living
in units with life-threatening deficiencies.
I. Owner Requests for Access to Unit Under Sec. 92.253(b) Description
of Tenancy Addendum Contents
One commenter supported the new tenant protections except for the
notice to enter requirement which it believed should be 24 hours, not 2
days. The commenter stated that 2 days' notice to enter is longer than
what many States and HUD programs require and that it may be too long
in non-emergency situations where time is still of the essence. One
commenter suggested that HUD should strengthen the written statement
requirement in Sec. 92.253(b)(2)(iii)(A) by requiring the written
statement to include the date and time, as well as the purpose of the
owner's entry. The commenter further suggested that HUD should require
that the owner deliver the written statement to the tenant, not simply
the ``dwelling unit,'' to ensure that the tenant actually received the
statement. The commenter stated that it would also encourage
accountability and transparency on the owner's behalf.
One commenter supported HUD's proposed changes requiring at least
two days' notice before entering a tenant's unit for normal business,
but anytime without advanced notice if there is a reasonable belief
that there is an emergency.
One commenter suggested that for emergency entries in Sec.
92.253(b)(2)(iii)(B), HUD should require that the owner provide the
tenant with a notice similar to the notice required in Sec.
92.253(b)(2)(iii)(C).
HUD Response: The Department thanks the commenters for reviewing
the proposed rule. HUD disagrees with commenters that feel that
providing the owner providing the tenant with 2 days' notice prior to
entry is too long. This is a commercially reasonable time period in
much of the country and a best practice in many jurisdictions already.
The Department also believes that 2 days' notice provides tenants with
ample time to arrange to be present for the repairs and make other
arrangements, such as childcare. In non-emergency situations, owners
should be able to appropriately plan to notify a tenant 48 hours before
repairs or maintenance.
HUD is requiring owners to provide the tenant a written statement
specifying the date, time, and purpose of entry when the tenant is not
present in the unit but declines to require this notice under all
circumstances. This notice is not always necessary, especially if the
original notice was already delivered and the tenant is present in the
unit when the owner or their agent enters the unit to perform the
repairs. The Department does agree that a project owner that enters a
unit in the case of emergency should provide the tenant with a written
notice of entry upon entering the unit. HUD is revising Sec.
92.253(b)(2)(iii)(C) to require an owner to provide the tenant a
written statement specifying the date, time, and purpose of entry after
entering the unit in the case of emergency. HUD is also adding similar
language to the HOME tenant-based rental assistance tenancy addendum in
Sec. 92.253(c)(2)(iii)(2).
HUD disagrees that an owner should be required to serve notice
directly to the tenant instead of to the unit. Requiring an owner to
locate a tenant to serve notice of entry to the unit is not customary
and could cause undue delays to project owners attempting to perform
emergency repairs.
J. Reasonable Use of Common Areas in Sec. 92.253(b) Description of
Tenancy Addendum Contents
One commenter supported HUD's proposal to require HOME-assisted
tenants to have reasonable access to, and use of, common areas and to
prohibit having separate elevators or amenities that are only available
to non-assisted tenants, which furthers HUD's commitment to fair
housing and equity.
HUD Response: The Department thanks the commenter for reviewing the
proposed rule and is moving forward with the proposed change.
K. Right To Organize in Sec. 92.253(b) Description of Tenancy Addendum
Contents
Commenters supported HUD's proposal in Sec. 92.253(b)(2)(v) to
explicitly state that tenants have the right to organize, create tenant
associations, convene meetings, and
[[Page 832]]
conduct other similar actions. Two commenters suggested HUD issue
guidance mirroring the details of 24 CFR part 245 for clarity and
consistency. One of those commenters urged HUD to explicitly state that
the rights are further elaborated in sub-regulatory guidance. One
commenter recommended elaborating on the tenant's protected organizing
activities in Sec. 92.253(b)(2)(v). In addition to the rights under
the proposed rule, the commenter suggested that tenants should have the
right to provide building access to outside tenant organizers, conduct
door-to-door surveys of tenants' interest in establishing a tenant
organization and/or offer information about tenant organizations, and
distribute leaflets in lobby areas, other common areas, or under
tenants' doors.
HUD Response: The Department believes that the final rule's right
to organize language sufficiently protects tenants and declines to
implement 24 CFR part 245 for HOME tenants. The 24 CFR part 245
protections apply to only a few programs and were not part of HUD's
proposed rule. The Department does not believe it is appropriate to add
these requirements and the level of detail in 24 CFR part 245 into the
tenancy addenda for either HOME rental housing or tenant-based rental
assistance. The Department will consider providing additional guidance
and best practices based on the lessons learned from implementing 24
CFR part 245 requirements in the future but will not revise the
regulation to refer to outside guidance.
L. Notice of Adverse Action in Sec. 92.253(b) Description of Tenancy
Addendum Contents
One commenter supported the proposed requirement for owners to
provide written notice to tenants for any adverse actions. Another
commenter recommended that the notice required prior to an owner
carrying out an adverse action in Sec. 92.253(b)(3)(i) specify that
the notice be two-weeks advanced notice. The commenter also recommended
that the final rule provide for a tenant's ability to bring to the
participating jurisdiction a challenge of any adverse action the tenant
believes is unwarranted and requested sub-regulatory guidance for such
proceedings.
HUD Response: The Department appreciates the comments. HUD agrees
that a tenant should be notified in writing of an adverse action prior
to the adverse action taking effect. Consequently, HUD is revising
Sec. 92.253(b)(3)(i) to state that before an owner may take an adverse
action against a tenant, the tenant must be notified in writing. HUD is
also adding similar language to the HOME tenant-based rental assistance
tenancy addendum in Sec. 92.253(c)(3)(i).
The Department disagrees with the commenter that two weeks' notice
should be required prior to any adverse action. This time period is too
long, especially when the adverse action is one that may require more
immediate correction. HUD also disagrees that the participating
jurisdiction must have a formal process for adjudicating any tenant
challenges to an owner's adverse action. NAHA does not require a
grievance progress for participating jurisdictions to settle disputes
between tenants and owners. Participating jurisdictions must determine
what is best for monitoring and enforcing compliance with the new
tenant protections requirements. Some may wish to establish grievance
procedures, while others may choose to perform risk-based monitoring or
take other preventative measures to address landlord-tenant disputes in
their HOME programs.
M. Take Into Account Income and Medical Expenses Before Imposing
Adverse Actions in Paragraph Description of Tenancy Addendum Contents
A commenter suggested that for tenants whose income and medical
expenses were high, the expenses (including rent, fines, or damage)
should be prorated based on benefit income, taking into account medical
spend downs. The commenter believed that this would reduce the number
of people that would have to choose between paying housing expenses or
paying healthcare expenses.
HUD Response: The Department thanks the commenter for reviewing the
proposed rule. Requiring project owners to request and review a
tenant's medical expenses to determine a prorated fine or other damage
prior to taking an adverse action would be unduly burdensome for
project owners and may conflict with other statutes such as the Health
Insurance Portability and Accountability Act (Pub. L. 104-191). The Act
also does not permit HUD to impose this type of requirement, as it was
never contemplated. For families receiving tenant-based rental
assistance, families living in Low HOME rent units where their rental
payment is based upon 30 percent of their adjusted income, or families
receiving rental assistance or living in a subsidized rental unit under
another program that calculates adjusted income, the adjusted income
calculation will consider health and medical expenses as a deduction
from annual income (see 24 CFR 92.203(f)). Moreover, participating
jurisdictions that administer a tenant-based rental assistance program
may also wish to establish hardship policies as now permitted in Sec.
92.209(h)(2). A TBRA family receiving a hardship would be provided an
exception to the requirement that the family contribute a minimum
amount of rent which would alleviate some of the financial burden on
the family. As a reminder, participating jurisdictions must also
provide reasonable accommodations that may be necessary for individuals
with disabilities in accordance with Section 504, the Fair Housing Act,
and the ADA, as applicable.
N. Notice of Intent To Sell Property or Foreclosure of Property in
Description of Tenancy Addendum Contents
One commenter supported the proposed requirement for owners to
provide written notice to tenants within 5 business days of any change
in ownership (including foreclosure) and at least 30 days' notice
before a sale or foreclosure. One commenter also supported the delivery
of a 5-day notice for ownership or management company change.
Commenters asked HUD to amend Sec. 92.253(b)(3)(ii) to require an
owner to provide a 60-day notice of intent to sell property or
foreclosure of property. The commenters stated that 60 days' notice was
appropriate given the burdens of finding new housing and moving.
HUD Response: The Department thanks the commenters for reviewing
the proposed rule. HUD agrees with the commenter that tenants should be
notified of a change in the property management company and is revising
Sec. 92.253(b)(3)(ii) and Sec. 92.253(c)(3)(ii) to require the
property owner to notify tenants within 5 days of any change to the
property management company managing the property. Property management
staff are often the face of the owner and have the most communication
with tenants. Adding a requirement that tenants be notified if the
management company changes is prudent to prevent disruption to families
and ensures clear lines of communication between tenants and an owner's
representatives at all times. HUD is moving forward with the proposed
change to require 30 days' notice prior to an impending sale or
foreclosure of the property.
The Department believes that 60 days' notice may be too long and
may not always be reasonable or possible. The Department would note
that when there is a change in ownership in HOME
[[Page 833]]
rental housing during the period of affordability that is not due to
foreclosure, the owner takes the property subject to all the
requirements of 24 CFR part 92. Therefore, the change in ownership may
not always result in an immediate move from the property or disruption
to tenants. The Department understands the concern may be greater for
tenant-based rental assistance and is noting that HUD's requirement is
a minimum standard, and participating jurisdictions can always require
more advance notice of a potential sale or foreclosure in rental
assistance contracts or written agreements with owners of rental
housing projects, especially if those participating jurisdictions wish
to exercise any rights to preserve the affordability of the rental
housing project.
O. Act or Failure To Act in Description of Tenancy Addendum Contents
A commenter suggested that HUD add clarifying language to Sec.
92.253(b)(4)(iii) specifying that the liability for action or failure
to act is only in connection with the lease. The commenter suggested
revisions to HUD's proposed language, ``(iii) The tenant may hold the
owner or the owner's agents legally responsible for any action or
failure to act in connection with the lease, whether intentional or
negligent.''
HUD Response: The Department considered the commenter's
recommendation but disagrees with the commenter. The prohibited lease
term upon which this is based was one that prohibited excusing an owner
from responsibility and was written to apply to owners broadly. It
prohibited the tenant from agreeing not to hold owners responsible for
any action or failure to act. The Department understands that not every
adverse action that an owner can take against a tenant or household
relates to the lease. For instance, retaliatory acts may not be acts
that are entirely born from or related to the lease; they may be
personal in nature. Narrowing potential liability to only matters
pertaining to the lease could create a gap in protections that could be
exploited by unscrupulous owners who could claim that the negative
actions were related to personal matters and not the lease.
P. Retaliation and Unreasonable Interference With the Tenant's Comfort,
Safety, or Enjoyment of the Tenant's Housing Unit in Sec. 92.253(b)
Description of Tenancy Addendum Contents
One commenter supported the addition of anti-retaliation provisions
in Sec. 92.253. Another commenter supported the addition of specific
language to the regulations prohibiting owners from retaliating against
tenants who exercise their rights, by decreasing services, interfering
with a tenant's right to privacy, and/or harassing households or their
guests.
One commenter supported the non-exhaustive list of tenants' rights
protected by a right against retaliation in Sec. 92.253(b)(5).
However, the commenter stated that, as currently written, the
prohibition against retaliation provision is ineffective. The commenter
said that the actions described in the prohibition against retaliation
are independently prohibited as unjust interference, regardless of
retaliatory motive. The commenter also stated that the rule fails to
specify consequences for retaliation. The commenter suggested that HUD
adopt a mechanism similar to that used by States and municipalities to
discourage retaliation, and state in regulation that (1) no termination
or non-renewal of a lease or alteration of a term or condition of the
lease is valid if taken in retaliation for the exercise of a legal
right by the tenant or member of the tenant's household, and (2) any
such adverse action taken within a specified period of time (the
commenter suggested 12 months) of the exercise of a legal right will be
presumed to have been taken in retaliation unless the owner proves that
the action was taken solely for a non-retaliatory purpose. Another
commenter expressed a similar objection to the protection against
retaliation in Sec. 92.253(b)(5), stating that it is ineffective as
currently written and should specify consequences for violations.
One commenter suggested that HUD should revise Sec. 92.253(b)(5)
to more clearly convey that subsection (i) includes examples of owner
interference or retaliation and that subsection (ii) includes examples
of tenant rights. To better reflect commonly used terms, the commenter
recommended that HUD should replace ``comfort, safety, or enjoyment''
with ``right to peaceful enjoyment.''
One commenter recommended adding ``refusal to renew a tenant lease
agreement'' and ``increase rental amount in renewal or otherwise
initiate a termination of tenancy'' as protections against retaliation
in 92.253(b)(5)(i), either by addition or explicit reference to
92.253(d)(1)(i)-(v).
HUD Response: The Department thanks the commenters for reviewing
the proposed rule and is making several revisions to the HOME rental
housing tenancy addendum retaliation and unreasonable interference
regulations in Sec. 92.253(b)(5), and similar provisions in the
tenant-based rental assistance tenancy addendum provisions in Sec.
92.253(c)(5). The Department agrees with the commenter that Sec.
92.243(b)(5) and Sec. 92.253(c)(5) should differentiate between
unreasonable interference and retaliation by the owner. Consequently,
HUD is revising the section headings to include unreasonable
interference as its own standalone prohibition and reorganizing the
sections to clarify that the consequences for retaliation are that the
owner is in breach of the tenant lease, is violating the requirements
in 24 CFR part 92, and is in violation of the written agreement with
the participating jurisdiction (in the case of rental housing) or the
rental assistance contract (in the case of tenant-based rental
assistance).
The Department considered changes to shift burden or create
presumptions that certain actions were interference or retaliation
based upon the time in which they occurred in relation to the protected
acts that the Department had initially linked to the retaliation
provisions. The Department also considered stating that refusal to
renew or termination of tenancy would not be effective if it was to
retaliate or interfere with a tenant. However, after the Department
specified consequences relating to the written agreement, and made
examples of rights that a tenant could take free from retaliation or
interference into explicit rights in the tenancy addendum, the
Department believed these further revisions would be unnecessary and
add undue complexity to the regulation. The Department will consider
guidance on how to determine that an action is retaliation in response
to a protected act by a tenant or household member in the future.
The Department also agrees with the commenter that recommended that
both ``refusal to renew a tenant lease agreement'' and ``increase
rental amount in renewal or otherwise initiate a termination of
tenancy'' should be examples of retaliation or unreasonable
interference. Section 92.253(b)(5)(iii)(A) states that ``[r]ecovery of,
or attempt to recover, possession of the housing unit in a manner that
is not in accordance with paragraph (b)(10) of this section'' is an
action evidencing retaliation or unreasonable interference. HUD is also
adding similar language to the HOME tenant-based rental assistance
tenancy addendum in Sec. 92.253(c)(5)(iii)(A). Paragraphs Sec.
92.253(b)(10) and Sec. 92.253(c)(10) provide both the termination of
tenancy and refusal to renew lease provisions. The Department has also
revised Sec. 92.253(b)(5)(iii)(B) and Sec. 92.253(c)(5)(iii)(B) to
state that ``[d]ecreasing services to the housing
[[Page 834]]
unit (e.g., trash removal, maintenance) or increasing the obligations
of a tenant (e.g., new or increased monetary obligations, etc.) in a
manner that is not in accordance with the requirements of this part''
is an example of retaliation or unreasonable interference. Increasing
monetary obligations in retaliation or in an attempt to unreasonably
interfere with a tenant is now explicitly prohibited by the tenant
protections in Sec. 92.253(b)(5)(iii)(B) and Sec.
92.253(c)(5)(iii)(B) in addition to the rent setting provisions in
Sec. 92.252.
Q. Other Recommend Provisions in Sec. 92.253(b) Description of Tenancy
Addendum Contents
One commenter stated that the HOME tenancy addendum should provide
notice to the tenant that there are income restrictions for occupancy
and the tenant is required to re-certify and document changes in their
household income. The commenter stated that the regulations allow a
lease to state that the rent may change if the household income exceeds
the income limit at the time of re-certification.
HUD Response: The Department understands the desire to enforce
income requirements as part of the tenant lease. This is inappropriate
as a required term of the lease addendum. It is up to the participating
jurisdiction to determine how best to obtain the necessary income
information to determine income for HOME rental housing projects and
tenants with tenant-based rental assistance. The Department provides
participating jurisdictions with a variety of options for calculating
income, including the use of safe harbors, and gives participating
jurisdictions the discretion to allow owners to accept self-
certification of tenant income in years 2-5, 7-11, and 13-17 of a
rental housing project's period of affordability. As such, the
Department is declining to add these terms as an explicit part of the
lease.
R. Security Deposit Requirements Should Be in the Tenancy Addendum
One commenter suggested that HUD should include the security
deposit protections in the HOME tenancy addendum.
HUD Response: HUD agrees with the commenter that security deposit
provisions are a material term of the lease, as described earlier in
Section III of this preamble, and agrees that these provisions are best
contained and enforced through the lease. The Department is revising
Sec. 92.253(b) and (c) to add security deposit provisions as part of
the terms of the HOME rental housing tenancy addendum and the HOME
tenant-based rental assistance tenancy addendum.
S. Security Deposit Limit--Two Month's Rent
One commenter supported the proposed changes to the HOME rule
requiring security deposits to be no greater than two months' rent and
refundable. One commenter supported imposing a maximum on security
deposits but stated that two months of rent is an insurmountable
barrier to tenancy and suggested HUD limit security deposits to no more
than 1 month's rent. The commenter stated that if HUD does not change
the limit, it should require the option of paying any amount over one
month's rent monthly installments. Another commenter also recommended
that HUD should limit security deposits to the equivalent of one-
month's rent, not two months' rent. This commenter asserted that of the
States that have enacted limits on security deposit amounts, the
majority have opted for a one-month limit over a two-month limit. The
commenter provided citations for 14 States that had enacted one-month
security deposit limits and three States that had enacted one and one
half-month security deposit limits.
HUD Response: HUD understands the commenter's concern that paying a
security deposit of two months' rent is not always affordable for HOME
tenants, even when that rent is set at the Low HOME Rent Limits.
However, HUD also recognizes that a two-month security deposit is a
commercially reasonable request that is consistent with most State
laws. The Department also understands that there are different ways to
reduce that type of barrier, such as by allowing the security deposit
to be paid in installments. HOME is a block grant program.
Participating jurisdictions and owners must underwrite and determine
the level of risk they wish to expose themselves to when determining
the amount they wish to charge for a security deposit. Moreover,
participating jurisdictions and owners also must determine what is
commercially reasonable for affordable housing in their markets. In
many of those markets, this necessitates charging a security deposit
equal to two months' rent or requiring the security deposit to be paid
all at once.
HUD also recognizes that a number of States have different, more
stringent security deposit requirements that require that the security
deposit be less than the maximum security proposed in Sec. 92.253(c).
A lease for a HOME tenant must comply with State and local landlord-
tenant law, and where State landlord-tenant laws are more restrictive
than HUD requirements, then the owner must follow the more restrictive
requirements. Therefore, in those States or localities where landlord-
tenant law requires the security deposit be less than two month's rent,
the owner may only charge the maximum amount allowable under the
applicable law.
T. Use of Surety Bonds and Security Deposit Insurance
Many commenters supported HUD's proposal to prohibit the use of
surety bonds and security deposit insurance. The commenters supported
HUD's reasoning that these tools disadvantage tenants without any
material benefit for landlords. One commenter noted that surety bonds
can be costly to both tenants and housing providers. Another commenter
believed the use of surety bonds or security deposit insurance in lieu
of security deposits don't meet the intent of the National Affordable
Housing Act (NAHA) and aren't treated as security deposits under-State
statutes.
Other commenters opposed the proposed rule's prohibition of surety
bonds or security deposit insurance in lieu of a security deposit. One
commenter believed it would be cost-prohibitive for potential renters
of HOME-assisted rental housing. The commenter explained that the use
of a surety bond or security deposit insurance can be a more affordable
option for low-income renters who may not be able to pay up to the
allowable two-months' rent in advance as security deposit.
Another commenter asked HUD to remove the prohibition in Sec.
92.209(j)(6) on surety bonds or security deposit insurance and similar
instruments in lieu of or in addition to a security deposit because it
may deter landlords from renting to TBRA tenants. The commenter also
pointed to the possibility that a TBRA tenant could receive assistance
in a unit they already occupy and for which a security bond was already
purchased. The commenter recommended that HUD only prohibit the use of
HOME funds for surety bonds or security deposit insurance as an
ineligible fee as proposed in Sec. 92.214(a)(10). Another commenter
also stated that a property owner should not be allowed to require a
tenant to pay for security deposit insurance but that the regulations
should not prohibit property owners from informing the tenant about the
availability of third-party insurance coverage.
HUD Response: As HUD explained in the preamble to the proposed
rule, HUD
[[Page 835]]
determined as a matter of law that surety bonds and security deposit
insurance are not security deposits within the meaning of NAHA nor are
they treated as security deposits under State statutes.'' \60\ The
drafters of NAHA contemplated that renters would pay security deposits
and authorized security deposit assistance as part of the tenant-based
rental assistance program.\61\
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\60\ 89 FR 46266.
\61\ 42 U.S.C. 12742(a)(3)(E).
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The Department recognizes that commenters are requesting
flexibility to accept these instruments, which are generally insurance
instruments, in lieu of security deposits and not just as a substitute
form of security deposit. To that end, some commenters described
allowing the owner to waive the security deposit requirement entirely
in exchange for a surety bond or security deposit insurance. Beyond the
legal barriers the Department identified, the Department also believes
that at each phase of the process, surety bonds and security deposit
insurance can pose a risk to both tenants and owners. Tenants must pay
a nonrefundable fee or premium and are still liable under State
landlord-tenant law and the lease contract for damages that are not
covered by the issuer. The owner must submit a claim through a claims
process and there is a risk of nonpayment or delayed payment that is
significantly higher than if the owner itself held the security deposit
in a bank account. Finally, the payment by the issuer of the surety
bond or security deposit insurance is reliant upon the sufficiency of
the overall fund itself. If the fund's underwriting standards or fund
management are insufficient to enable the issuer to pay claims on the
instruments it issued, then the owner will still be required to press
their claim against the tenant.
While the Department strenuously objects to the use of these
instruments in the HOME program, it also recognizes the commenter's
concern that there may be some tenants that are already in a lease and
are seeking to obtain tenant-based rental assistance. The Department
believes that these instances will be rare but has added language to
the HOME tenant-based rental assistance tenancy addendum provisions to
hold landlords and tenants harmless if the tenant is already leasing
the unit from the owner at the time that the HOME tenant-based rental
assistance is provided. The Department is doing this because it does
not wish to create unnecessary barriers to obtaining tenant-based
rental assistance, especially when a tenant has already fulfilled
whatever security deposit requirements the owner had set forth under
the lease, before the participating jurisdiction provided the tenant-
based rental assistance.
As a result of the above, the Department will be moving forward
with language barring the use of surety bonds and security deposit
insurance in Sec. 92.253(b)(9) and (c)(9). The Department considered
tenants that would be receiving tenant-based rental assistance after
the beginning of their lease and has revised Sec. 92.253(c)(9) to
address the commenter's concerns.
U. Charges Against Security Deposit
One commenter supported the proposed changes to the HOME rule
requiring that if charges are made against the tenant's security
deposit, owners must list all items charged and their cost, and
promptly refund the security deposit to the tenant at move-out, less
any documented charges made.
Another commenter recommended that HUD's final rule should enable a
tenant to bring to a participating jurisdiction a challenge to any
damage claims made by an owner and/or amounts charged against a
tenant's security deposit refund. The commenter suggested that a tenant
could use this challenge process if an owner does not refund all or a
portion of a security deposit within two weeks. The commenter noted
that sub-regulatory guidance regarding any such proceedings would be
helpful.
HUD Response: The Department is maintaining its proposed language
on charges against the security deposit and embedding the language in
both the HOME rental housing tenancy addendum (Sec. 92.253(b)(9)) and
HOME tenant-based rental assistance tenancy addendum (Sec.
92.253(c)(9)). The Department believes that requiring owners to list
all items charged against the security deposit and the amount of each
item is a minimum standard that should be required of all owners
assisted by HOME or whose units are occupied by tenants with HOME
assistance.
The Department understands the desire to require participating
jurisdictions to decide disputes between owners and tenants, especially
when the participating jurisdiction has an agreement with the owner.
However, it is up to the participating jurisdiction to determine how
best to enforce compliance with the tenant protections provisions and
the provisions of the lease addenda. While many participating
jurisdictions may wish to inject themselves in disputes such as those
over property damage and returning security deposits, there will be
many other participating jurisdictions that only respond when the
tenant alleges a violation of the HOME requirements and will leave more
commonplace landlord-tenant disputes to the courts. The Department
defers to participating jurisdictions to choose what is best for their
jurisdictions but reminds them that they must demonstrate that they
monitored and enforced the tenant protection requirements.
V. Direct Threats to Health and Safety Should Constitute Good Cause
Regardless of Whether a Criminal Violation Has Occurred
One commenter emphasized that the proposed changes do not address
situations where eviction is necessary due to violence or other lease
violations that may endanger other residents or the integrity of the
property--situations that the commenter stated the housing provider
should have the ability to take appropriate legal action against.
HUD Response: The Department agrees with the commenter that there
are explicit grounds for termination of tenancy or refusal to renew
under the Act when a tenant poses a direct threat to the safety of the
tenants or employees of the housing, or an imminent and serious threat
to the property. The Department is adding these grounds to the
termination of tenancy provisions at Sec. 92.253(b)(10)(i)(B)(1) and
Sec. 92.253(c)(10)(i)(B)(1) in this final rule.
W. Nonpayment of Rent as Grounds for Termination or Refusal To Renew
One commenter questioned whether nonpayment of rent qualified as a
``serious violation of the lease.'' The commenter believed that because
the Department further specified the grounds for termination of tenancy
or refusal to renew, the omission of nonpayment of rent as a ground for
eviction could be interpreted as HUD stating that it is not grounds to
take those actions. The commenter was certain it was not HUD's
intention to exclude nonpayment of rent as grounds for termination or
refusal to renew but believed that one could interpret the new
regulations to exclude this as grounds due to its omission.
HUD Response: The Department is not changing its position that
nonpayment of rent is a violation of the lease and that violation of
this term of the lease is grounds to terminate a tenancy or refusal to
renew. The Department disagrees with the commenter that any silence or
omissions in the regulation would allow a determination that nonpayment
of rent
[[Page 836]]
is not grounds for termination or refusal to renew under the HOME
regulations. The Department declines to further explain each type of
lease violation that could be considered by an owner. If HUD were
exhaustive in its explanation of each type of lease violation that an
owner could consider, HUD may inadvertently omit grounds for
termination and make the very mistake that the commenter is describing
in their comment.
X. Increase in Income or Assets Is Not ``Other Good Cause''
One commenter supported HUD's proposed changes that clarify ``other
good cause'' may not include a tenant's assets or the type of income or
assets.
One commenter objected to the proposed change. The commenter stated
that this was an example of a conflict with the Section 8 program. The
commenter noted that if a PHA terminates the Housing Assistance Payment
for a tenant who becomes over-income, in accordance with existing HUD
regulations, ``the lease automatically terminates''. However, neither
being over-income nor the termination of a rental assistance contract
are allowable reasons for the termination of a tenancy under the
proposed regulations for a HOME-assisted unit. The commenter questioned
whether HUD defines ``governmental entity'' as including PHAs, and
whether a PHA termination represents ``an order from a governmental
entity.'' The commenter requested clarity on how to apply the
requirements where a PHA terminates assistance because the tenant is
over-income or over the asset limitation in 24 CFR 5.618.
HUD Response: The Department thanks the commenter for reviewing the
proposed rule and supporting the proposed change. Continuing to live in
a HOME rental housing unit when there has been an increase in income is
statutorily protected for tenants of HOME rental housing (see 42 U.S.C.
12745(a)(3)). The Act does not permit an increase in assets or assets
of a certain type or amount to be considered good cause, even though
this is good cause in other programs, most notably certain programs
under the U.S. Housing Act of 1937 (42 U.S.C. 1437 et seq.) such as the
Housing Choice Voucher program. The Department does not have discretion
to permit termination or refusals to renew for these reasons and is
clarifying this so that owners continue to comply with HOME
requirements when assistance is combined with programs that do consider
an increase in income or assets to be good cause for termination or
refusal to renew. To that end, the Department is clarifying for the
commenters that termination of tenancy due to the amount, form, or type
of income or assets is a violation of the Act and current HOME
regulations. The Department clarified this for the amount and type of
assets in the preamble to the HOTMA final rule and is now further
clarifying for over income tenants as well.\62\
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\62\ See 88 FR 9625, which states:
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.
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Y. Other Good Cause Should Include Unreasonably Denying Access to the
Owner To Make Repairs
One commenter supported HUD's proposed changes that clarify ``other
good cause'' may include when a tenant unreasonably refuses to provide
the owner access to the unit for repairs.
HUD Response: The Department thanks the commenter for reviewing the
proposed rule and supporting the proposed change. Owners must be able
to reasonably access and repair units. All HOME-assisted rental housing
units and units occupied by tenants with tenant-based rental assistance
must meet applicable property standards. Requiring tenants to allow
owners reasonable access to properly maintain the units in accordance
with applicable property standards is prudent and protects tenants and
owners alike.
Z. Other Good Cause Requirements--Material Lease Violations, Nuisance,
and Nondiscrimination Requirements
One commenter suggested that in Sec. 92.253(d)(1)(i) HUD should
amend the rule by adding ``material'' to clarify that good cause exists
for serious or repeated violations of the material terms of the lease.
Alternatively, the commenter suggested HUD put landlords on notice
that nuisance ordinances may violate Federal civil rights law and
recommended the following potential language: Other good cause may
include when a tenant creates a documented nuisance under applicable
State or local law or when a tenant unreasonably refuses to provide the
owner access to the unit to allow the owner to repair the unit, but
only when termination or refusal to renew a tenancy would be consistent
with Federal civil rights law, such as the Fair Housing Act.
One commenter supported HUD's proposed changes that clarify ``other
good cause'' may include a tenant creating a documented nuisance under
applicable State or local law. Some commenters expressed concern with
the language at Sec. 92.253(d)(1)(i)(B) and asked HUD to remove it as
a basis for good cause, stating that it is their experience that
alleged nuisances are often disability related.
Commenters recommended that HUD not use the term ``nuisance'' in
Sec. 92.253(d)(1)(i)(B) and (C) because States and local governments
have laws that target residents responsible for alleged nuisance
activity, including calls to emergency services or noise disturbances
related to domestic violence, with penalties such as fines and
evictions. One commenter stated that these policies stand in opposition
to HUD's efforts to protect tenants against unjustified evictions, and
that HUD should instead establish a ``good cause'' for eviction that
requires an actual, substantial, and imminent threat to the health and
safety of, and right to peaceful enjoyment of the premises by, others.
HUD Response: The Department agrees with the comment regarding
addition of ``material'' and is adding ``material'' in Sec.
92.253(b)(10) and Sec. 92.253(c)(10) of this final rule to
characterize the types of lease violations that constitute good cause
to terminate a tenancy or refuse to renew a tenancy of a tenant in HOME
rental housing or assisted with HOME tenant-based rental assistance.
Inconsequential or minor lease violations that are easily curable or
whose conditions no longer exist should not be the basis for a
termination or refusal to renew.
The Department has removed from this final rule the use of nuisance
as grounds for termination of tenancy or refusal to renew. The
Department agrees that this ground has been the subject of significant
fair housing and civil rights abuses and has led to the denial of
necessary housing for survivors of domestic violence, dating violence,
sexual assault, or stalking. The Department does not wish to perpetuate
this cycle of discrimination through the
[[Page 837]]
use of this terminology as an explicit ground for termination or
refusal to renew.
The Department already required that all terminations or refusals
to renew are in accordance with all applicable Federal, State, and
local laws and believes its revisions have addressed the commenter's
concerns.
AA. Good Cause in Lease-Purchase Projects
One commenter expressed concerns about the ``good cause''
definition, at proposed Sec. 92.253(d)(1)(i)(A), stating that the
language provides no provision for when a homebuyer fails to purchase a
housing unit in a lease-purchase project. The commenter stated that
this creates a loophole where after the failure of a lease-purchase
agreement, a developer of property specifically for homeownership
becomes locked into the long-term ownership and management of a HOME-
assisted rental unit because the Department is not allowing this
failure to be good cause to terminate the tenancy. The commenter
recommended that a ``business or economic reason'' clause be added to
the proposed ``good cause'' definition.
HUD Response: The Department agrees with the commenter and is
adding to this final rule a provision in Sec. 92.253(b)(10)(i)(A) and
Sec. 92.253(c)(10)(i)(A) allowing for termination of a tenancy for a
family that is occupying a unit under a lease-purchase program when
that family does not acquire the housing unit in accordance with a
lease-purchase agreement. The Department recognizes that owners of
homeownership development projects should have the ability to terminate
the tenancy of a tenant that fails to purchase the housing so that the
owner may sell the homeownership unit to another eligible low-income
homebuyer before the housing is converted to rental housing (see Sec.
92.254(a)(7) for more information).
The Department is declining to consider a business or economic
reason as adequate grounds for termination of tenancy for the HOME
rental housing tenancy addendum. In the proposed rule, HUD proposed
that it would be good cause to terminate a tenancy when an owner
intends to withdraw the unit from the rental market to occupy the unit;
allow an owner's family member to occupy the unit; or demolish or
substantially rehabilitate the unit. This language is being maintained
in this final rule and will allow owners to terminate for certain
specific business or economic reasons. However, the Department was
concerned that providing the more general grounds that the commenter
requested would be too broad and could have unintended consequences.
BB. Use of Previous Convictions To Terminate Tenancy or Refuse To Renew
a Tenancy
Commenters stated that the preamble for Sec. 92.253(d)(1)(i)(D)
discusses how the crime for which there has been a conviction is a
crime ``during the tenancy period'' and that good cause cannot be based
on a violation ``that occurred prior to tenancy.'' However, the
commenter pointed out that these are not explicit in the regulatory
text and urged HUD to explicitly state in the final rule that the
record of conviction be of a crime that took place during a person's
tenancy and not prior to tenancy. The commenter also urged HUD to
specify in the final rule that for ``good cause'' the conviction must
have a direct bearing on the tenant's continued occupancy and pose an
actual, substantial, and imminent threat to the health and safety of,
and peaceful enjoyment of the premises by, others. The commenter
repeated these suggestions as applied to the proposed TBRA provisions
in Sec. 92.253(d)(2)(i)(B).
One commenter added that HUD should consider limiting this
provision to convictions by a tenant, household member, current guest,
or other person under the tenant's control. The commenter further
suggested that HUD should consider adding a definition of ``crime that
bears directly on the tenant's continued tenancy'' or, alternatively,
provide examples in sub-regulatory guidance accompanying the final
rule. The commenter stated that the standard in the proposed rule is
vague and could result in owners evicting for pretextual reasons and
for criminal activity that does not pose a real threat to the health
and safety of others.
One commenter noted that the preamble states there must be a record
of conviction for a crime ``during the tenancy period'' to justify
termination of tenancy or refusal to renew a lease, but the text of the
rule is not as explicit, and the commenter recommended HUD make the
final rule text as clear as the preamble discussion.
HUD Response: The Department agrees with the commenter that stated
that the Department should define or provide examples of a ``crime that
bears directly on the tenant's continued tenancy.'' After much
consideration, the Department is revising the language in the new
paragraphs Sec. 92.253(b)(10)(i)(C) and Sec. 92.253(c)(10)(i)(B)(3)
to state that an owner may establish good cause for a violation of an
applicable Federal, State, or local law through a record of conviction
of a crime that threatens the health, safety, or right to peaceful
enjoyment of the premises by other tenants in the project. This
standard is a sufficient threshold and is directly related to the
statutory good cause conditions found in 42 U.S.C. 12755.
The Department is declining to specify the time period of the
conviction of the crime in the regulation itself. There may be times,
such as when a person moves into a unit during a family's ongoing
tenancy, where tying the conviction to the family's initial occupancy
may be inappropriate. However, the Department maintains, as it stated
in the proposed rule, that for tenants that have already been screened
by the owner--
``good cause based on a violation of applicable Federal, State, or
local law cannot be based on a violation that occurred prior to
tenancy, a violation that does not have a direct bearing on a tenant's
continued tenancy, or a basis other than a record of conviction. An
owner may consider any mitigating circumstances relevant to whether the
tenant will commit further violations of the lease or applicable
Federal, State, or local law.'' \63\
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\63\ 89 FR 46639.
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CC. Good Cause for Violation of Law Evidenced by Arrest for a Crime
One commenter supported HUD's proposal that an owner shall not use
a record or arrest, parole or probation, or current indictment to
establish a violation of law.
Some commenters expressed opposition to the proposed language in
Sec. 92.253(d)(1)(i)(D) that would require that establishment of good
cause for violation of law to be predicated on the conviction of a
crime. One commenter explained that this lease renewal requirement is
an excessively high standard because a criminal conviction requires a
``beyond a reasonable doubt'' evidentiary standard. The commenter
suggested that the rule should require a more reasonable
``preponderance of the evidence'' standard. Additionally, the commenter
suggested that the proposed rule specify the types of criminal activity
that would qualify as affecting the safety of persons or property, as
it does not consider the potential risks to tenant and staff safety in
cases where an arrest or current indictment is due to violent actions
of the tenant.
The commenter also noted that the proposed rule requires ``that an
owner shall not use a record of arrest, parole or probation, or current
indictment to
[[Page 838]]
establish a violation of applicable Federal, State, or local law.'' The
commenter expressed concerned that this language only gives power to
owners in cases where a tenant has a record of conviction. The
commenter suggested that the rule should allow for other evidence to be
used besides just a conviction in cases where the owner believes the
tenant or prospective tenant is a threat to the safety of residents,
staff, or property.
HUD Response: The Department understands the concerns of the
commenters. The Department believes that direct threats to the safety
of the tenants or employees of the housing, or imminent and serious
threats to the property should constitute separate grounds for
terminating a tenancy or refusing to renew a lease and is adding Sec.
92.253(b)(i)(B)(1) and Sec. 92.253(c)(i)(B)(1). The Department does
not believe that such threats require a record of conviction so long as
the threat to safety or property is evidenced by credible acts or
threats that the harm will occur. As described in Section III of this
preamble, this is not a low standard, but it is also not the legal
standard of ``beyond a reasonable doubt'' evidenced by a conviction.
The Department believes that with this change, and the change to allow
termination in accordance with certain rules of other programs when
tenants are assisted by each (see the next comment response), it has
addressed the commenters' concerns.
DD. Conviction of a Crime and Section 8 Housing Choice Voucher
Regulations
One commenter opposed the proposed changes to Sec. 92.253(c) and
(d), citing that many of the changes would create conflicts with
existing HUD regulations because they go beyond what other HUD programs
require and create conflict with the Housing Choice Voucher program.
One commenter stated that the proposed changes to the current
termination of tenancy regulations should match more closely the
Housing Choice Voucher program's termination of tenancy regulations to
avoid conflicting interpretations. The commenter cites to examples
where language mirrors section 8 regulations but is silent as to
definitions of key terms. The commenter also stated that the
requirement that ``good cause'' be established by conviction of a crime
at the proposed Sec. 92.253(d)(1)(i)(D) conflicts with treatment of
criminal convictions under section 8 regulations, which allow for
termination of tenancy for criminal activity regardless of conviction.
The commenter also wanted clarification about whether signs of repeated
drug activity on the premises through objectively verifiable contacts
by emergency services were sufficient to constitute good cause to evict
or if such activity must be coupled with a conviction because it
constituted criminal activity in the jurisdiction.
The commenter also explains that where a household member is
engaged in criminal activity in the Section 8 program, the requirements
of 24 CFR 982.310(h)(2) permit an owner to require a tenant to exclude
a household member in order to continue to reside in the assisted unit,
where that household member has participated in or been culpable for
action or failure to act that warrants termination. The commenter
believes that the HOME rule conflicts with the Section 8 rule because
it requires that a civil court proceeding is instituted against the
household member to remove them from the unit.
HUD Response: The Department has revised the regulation at Sec.
92.253(b)(10)(i) to address the commenter's concerns. If the tenant is
participating in a program that is subject to 24 CFR part 5, subpart I;
24 CFR 882.511; or 24 CFR 982.310, then the owner is permitted to
terminate the tenancy of any tenant or household member or refuse to
renew the lease of a tenant of rental housing assisted with HOME funds
pursuant to those provisions. This new provision will allow these
regulations that govern other programs to form the basis of a
termination or refusal to renew and constitute good cause under the
HOME program even though these would not necessarily be grounds for
HOME tenants that are not assisted through programs subject to those
regulations. This improves alignment and addresses the commenter's
concerns.
EE. 60-Day Notice Before Termination of Tenancy or Refusal To Renew
Some commenters supported the proposed change in Sec.
92.253(d)(1)(ii) that would require owners to provide 60 days notice to
tenants before termination of tenancy or refusal to renew instead of 30
days notice before termination of tenancy or refusal to renew. One
commenter stated that HUD should amend 92.253(d)(1)(ii) and
92.253(d)(2)(ii) to require a 60-day notice of intent to terminate
tenancy and/or not renew (both rental housing and TBRA should get 60-
day notice). Another commenter suggested extending the 30-day eviction
notice period for TBRA to 60 days to allow time for finding a suitable
housing alternative.
One commenter explained that this would help tenants avoid eviction
by providing sufficient time to dispute or cure lease violations and,
where tenants are unable to do so, 60 days notice would provide better
opportunity for those tenants to find new affordable housing and avoid
being rendered homeless. One commenter suggested that HUD should
clarify that the tenant has the right to cure a lease violation during
the notice period in 92.253(d)(1)(ii). The commenter explained that
allowing tenants to cure evictions in that time period promotes clarity
in the law, and also prevents needless evictions.
One commenter noted that while a 60-day notice could provide better
tenant protections, a concern would be if an industry norm of
reciprocated notice periods pushed landlords to extend these expanded
60-day timeline for tenants to notify landlords beyond HOME supported
units.
Some commenters opposed the provisions in the proposed rule that
would extend the current requirement of a 30-day notice before a
termination of tenancy to 60 days. Commenters expressed concern that
the extension of the 30-day notice to a 60-day notice would conflict
with local or State laws that vary widely on timing and requirements
for eviction. A commenter stated that when a State has a 30-day notice
in place for non-HOME tenants, administering and determining evictions
in mixed-income communities will become difficult and may
unintentionally cause confusion and inequity. The commenter recommended
that HUD not institute a 60-day notice requirement and maintain the
current 30-day notice requirement.
Other commenters also expressed concern with the extension of the
notice period, contending that many housing providers cannot sustain
the financial burden of nonpayment for an extended period of time and
that the 30-day timeframe already leads to loss of income, increased
operational costs, unsustainable balances for tenants, and disruptive
delays. One commenter stated that the proposed 60-day notice of lease
termination provision is particularly onerous and does not provide
financially distressed tenants with the financial support that they
need. Another commenter noted that owners should have access to timely
recourse in the event of continued and ongoing lease violations and
there are risks to housing providers, property operations, and
maintenance when landlords are unable to collect rent revenue for
extended periods and that HUD should not further extend the
[[Page 839]]
HOME notice to quit period without additional resources for owners to
weather the resulting ``economic vacancies'' or the resources for
residents to find alternate housing.
Commenters opposed increasing the notice of termination of tenancy
to 60 days for nonpayment of rent because it adds challenges to owners
and current and prospective tenants. The commenters explained that
increasing the timeline for nonpayment of rent to 60 days increases the
financial burden on owners who need rent to sustain property
operations. The commenter further explained that enforcement of a
longer notice period may incentivize owners to file for evictions
sooner due to the slow pace of the court process and the costs it will
incur.
One commenter emphasized that its members are affordable housing
providers; they are not in the ``eviction business'' as they are
sometimes ``branded,'' and a 60-day notice period would lead to a
significant departure of some great housing providers from
participation in the HOME program. This commenter further stated that
its member housing providers often face noncommunication from tenants
who are unable to pay their rent and argued that HUD needed to be fair
and require tenants to communicate with landlords when they can't pay
their rent and make their best efforts to make timely partial payments
as possible. The commenter also stated that housing providers are
facing 60-120 days of nonpayment and uncollected rent in the millions,
which leads to decreased operating budgets and fewer households
assisted. Additionally, the commenter said that eviction cases can last
several months.
Another commenter objected to the eviction period extension from 30
days to 60 days, stating that it finds that statistically the longer
someone is permitted to stay in a unit without paying rent, the longer
they will stay without paying rent. The commenter said that it is more
likely that the month's rent will be just another month's rent that
goes unpaid to the landlord and decreases the cash available for that
landlord to pay its bills or maintain the property. The commenter also
stated that anything longer than a 30-day eviction notice would not
benefit tenants because it could increase exposure to harmful
conditions and increase owners' scrutiny of tenants' background records
relative to past-owed amounts to landlords, bad landlord references,
and credit issues.
HUD Response: The Department thanks the commenters for reviewing
the proposed rule. HUD agrees with commenters that the 60-day eviction
notice for tenants in HOME-assisted rental units may conflict with
State and local laws as well as the eviction requirements for tenants
in units with project-based vouchers. HUD agrees that requiring owners
to provide 60 days' notice may be a financial burden to owners,
particularly when the good cause for eviction is the tenant's failure
to pay rent. This burden may negatively impact the overall financial
stability of the rental housing project, given local court processes
and other delays once a termination action has been filed. The
Department also understands that extending the notice period from 30
days to 60 days reduces alignment with other HUD programs that require
only 30 days' notice and could have a chilling effect on new and
existing landlords. For these reasons, HUD is maintaining the existing
regulatory requirement that a project owner provide a written notice to
vacate at least 30 days before the termination of tenancy or refusal to
renew in this final rule.
FF. Providing Notice To Vacate to Participating Jurisdictions
One commenter requested HUD explain what a participating
jurisdiction is required to do once they receive an owner's notice to
vacate in accordance with the proposed Sec. 92.253(d). For example,
the commenter suggested that the final rule could clarify that, once
collected, the participating jurisdiction should make the information
available to HUD for compliance review.
HUD Response: The participating jurisdiction already must maintain
the documentation for its files and provide it to HUD upon request. So,
the commenter's recommendation is already covered by the recordkeeping
requirements in Sec. 92.508. The Department defers to participating
jurisdictions on how best to use the notice to vacate. Some
participating jurisdictions may wish to monitor the owners of projects
that issue notices to vacate, especially if such notices are frequent.
In other instances, participating jurisdictions may wish to intercede
to attempt to stabilize the landlord-tenant relationship, if it is
possible and practicable. These decisions are best left to
participating jurisdictions and the owners they assist. The Department
is simply attempting to empower participating jurisdictions by making
sure they have current information on lease terminations in their HOME
rental housing and tenant-based rental assistance portfolios.
GG. Difference Between HOME Requirements and State Law Requirements on
Notice of Termination of Tenancy or Refusal To Renew
A commenter stated that many States have a rule of a 7-day ``pay or
quit'' for an eviction based on non-payment of rent. The commenter
asked for additional clarity on how to manage the 7-day notice
requirement in States with the proposed requirement of providing an
accessible notice to vacate at least 30 days prior to termination.
HUD Response: Regardless of other State laws that may be more
permissive, the HOME statutory minimum notice period prior to
termination of tenancy or refusal to renew is 30 days (see 42 U.S.C.
12755(b)). The only exception to the 30-day notice period is when the
person poses a direct threat to the safety of the tenants or employees
of the housing or an imminent and serious threat to the property and
the termination or refusal to renew is in accordance with the
requirements of State or local law.
If an owner is in a State where the notice requirements are less
stringent (i.e., States that require shorter notice periods) than the
HOME statutory notice requirements, then the owner must still comply
with the HOME tenant protections and adhere to the HOME requirements.
The owner is making the decision to adhere to these stricter notice
requirements when the owner and participating jurisdiction enter into a
HOME agreement where the owner agrees to comply with the tenant
protection requirements (see 24 CFR 92.504(c)). This treatment and the
statutory requirements are not being changed as part of this
rulemaking.
HH. Termination of Tenancy for Refusal To Provide Income Documentation
One commenter suggested that the provision should also clearly
state that the landlord may terminate their tenancy or not renew their
lease for failure to provide satisfactory documentation.
HUD Response: The Department declines to make failure to provide
sufficient documentation an explicit form of good cause to terminate
tenancy or refusal to renew in this final rule. The participating
jurisdiction and owner must work with HOME-assisted tenants to obtain
the appropriate documentation to determine the applicable income and
HOME rents for HOME-assisted rental housing tenants. Failure to provide
documentation may be for legitimate reasons. Further, the Department is
attempting to reduce the burden of providing source documents during
[[Page 840]]
income determinations by providing an additional safe harbor that can
be used at initial and annual income examinations in the new Sec.
92.203(a)(3).
II. Right To Renew Clause
One commenter stated that HUD should have a right to renew clause
for all tenants unless the tenants have violated the terms of their
agreement. The commenter stated that HUD should require a landlord to
provide 180 days advanced notice of their decision not to renew and
said notice must offer a written explanation of the good cause for non-
renewal. The commenter recommended that good cause be defined as
follows: (1) the tenant has not accepted the renewal offer in writing
within the time allowed; (2) the tenants who accepted the renewal
offer, along with any replacement tenants acceptable to the landlord,
have not returned a signed lease to the landlord within 10 days of
receipt; (3) the landlord can demonstrate a lease violation; (4) the
owner or a member of the owner's immediate family is going to occupy
the unit for a succeeding term; or (5) the landlord will no longer be
renting the property out.
HUD Response: The Department declines to create the right to renew
clause described by the commenter in this final rule. The Department is
also not going to impose through this final rule a requirement that an
owner provide a family with 180 days' notice before refusing to renew a
lease. The Department believes 180 days is an unreasonably long amount
of time and has reverted its notice requirements to 30 days' notice in
response to public comment (see earlier preamble responses).
The good cause requirements in the HOME program are statutory. In
HOME, the tenant has the right to renew unless the owner has good cause
to refuse to renew or terminate the tenancy.\64\ The Department is
providing different forms of good cause that may allow an owner to
terminate the tenancy but many of the grounds provided by the commenter
provide insufficient protections to families or are inherent in the way
that HOME projects and private market properties are managed.
---------------------------------------------------------------------------
\64\ See 42 U.S.C. 12755(b).
---------------------------------------------------------------------------
The Department is declining to describe in this final rule whether
a tenant's failure to accept a lease renewal offer or failing to
execute a lease would constitute good cause to refuse to renew the
tenants lease because in each case, the tenant has not renewed the
lease. The Act requires that only serious or repeated lease violations
be good cause. The Department is further defining the types of lease
violations that should constitute good cause as ``material'' as the
Department does not believe that frivolous or inconsequential lease
violations should constitute good cause. As such, the Department
believes the commenter's language that ``the landlord can demonstrate a
lease violation'' is not legally acceptable under the Act and is
declining to adopt it. The Department does allow for owners of units
occupied by tenants receiving tenant-based rental assistance to
terminate a tenancy or refuse to renew if the owner wishes to occupy
the unit, allow family to occupy the unit, or take the property off the
market. The Department had proposed those as appropriate grounds for
termination of tenancy or refusal to renew the lease in the proposed
rule in Sec. 92.253(d) and is maintaining those grounds in the
redesignated Sec. 92.253(c)(10)(i)(B)(5). As these grounds apply only
to units on the private market and not to HOME rental housing, which
must be owned and operated in accordance with the requirements of 24
CFR part 92 for the minimum period of affordability, the Department
declines to include in this final rule these grounds for HOME rental
housing terminations of tenancy or refusals to renew.
JJ. Termination of Tenancy in Tenant-Based Rental Assistance
One commenter recommended that any deviations between the two sets
of protections be clearly stated. One commenter opposed the addition of
Sec. 92.253(d)(2) because, according to the commenter, these standards
should already apply more broadly and not just for TBRA clients.
Additionally, the commenter stated that the word ``reasonable'' would
be too subjective and not allow for standardization of tenant selection
across the program.
This commenter also asserted that TBRA contracts should continue to
be executed by the owner and support tri-party rental assistance
contracts where the owner, tenant, and participating jurisdiction all
sign, as an option. This method would ensure the lease contains the
HOME tenancy addendum and that the owner follows applicable TBRA
requirements.
HUD Response: The Department has reorganized the tenant protections
in Sec. 92.253 and the tenant-based rental assistance contract
provisions in Sec. 92.209(e) in this final rule in a way that
addresses some of the commenters' concerns. The Department is now
placing the termination provisions directly in the HOME rental housing
tenancy addendum and the HOME tenant-based rental assistance tenancy
addendum. The Department is also requiring in Sec. 92.209(e)(1) that
owners and tenants each enter into a rental assistance contract with
the participating jurisdiction when tenant-based rental assistance is
provided. This may take the form of a tri-party contract or individual
agreements between the participating jurisdiction and the owner and the
participating jurisdiction and the tenant.
The Department is declining in this final rule to define reasonable
or to remove its usage in HUD regulations. Reasonable is a commonly
used and understood term and is not too subjective. There is a body of
caselaw and jurisprudence surrounding what is and is not reasonable
under certain circumstances and HUD declines to further specify what
reasonableness is in tenant selection. The Department also declines in
this final rule to apply the termination of tenancy provisions
applicable to tenant-based rental assistance to HOME rental housing
tenants. The termination provisions for tenant-based rental assistance
contain certain provisions that only apply to owners of private rental
housing and not HOME rental housing projects, such as termination of
tenancy so that the owner may move into their unit (See Sec.
92.253(c)(10)(i)(B)(5)).
The Department agrees with the commenter on the benefits of tri-
party rental assistance contracts but is providing participating
jurisdictions with the option of entering into tri-party rental
assistance contracts or into separate agreements with the owner and the
tenant. This is because HOME is a block grant program, and
participating jurisdictions should have discretion in how they bind
owners and tenants to the requirements of their tenant-based rental
assistance program.
KK. Prohibiting Constructive Evictions
One commenter supported HUD's proposal to prohibit owners from
performing ``constructive evictions'' (aka ``self-help'' evictions''),
such as locking a tenant out of their unit or stopping service on their
utilities. One commenter supported requiring owners to provide tenants
with uninterrupted utility service to ``counteract a disturbing trend
of so-called `self-help' evictions'', whereby owners use their control
of utilities to force tenants to end their tenancy.
HUD Response: The Department thanks the commenters and is including
these provisions in this final rule. Due to reorganization of the
tenancy addenda provisions, these provisions are now contained in Sec.
92.253(b)(10)(v)
[[Page 841]]
and Sec. 92.253(c)(10)(iv) and shall apply to both tenants in rental
housing and tenants receiving tenant-based rental assistance.
LL. Termination of Tenancy Because of Termination of Rental Assistance
Contract
One commenter opposed the revisions to Sec. 92.253(d)(2)(i)(E)
because the commenter believes tenants should have the ability to
request termination if the rental assistance contract ends, but the
landlord should not have the discretion to do so. The commenter also
suggested adding tenant liens as a prohibited action in Sec.
92.253(d)(1)(v). The commenter urged HUD to further indicate how
confidential tenant information is handled.
HUD Response: The Department agrees with the commenter and is
removing from this final rule the termination of the rental assistance
contract as specific grounds for termination of tenancy or refusal to
renew. Instead, the Department is revising Sec. 92.253 of this final
rule to state that the HOME tenant-based rental assistance tenancy
addendum shall terminate upon the termination of the rental assistance
contract.
The Department is declining to enumerate in this final rule
specific measures projects owners must take to ensure tenant
information is handled confidentially. Participating jurisdictions and
owners should take reasonable measures to prevent unauthorized access
to confidential information by persons without a need to know, (e.g.,
password protected systems, locking file cabinets and desk drawers that
contain personal identifying information, etc.).
MM. Tenant Selection Procedures Should Require That Owners Do Not
Evaluate Previous Bankruptcies
A commenter stated that a previous bankruptcy should not be treated
as equivalent to a previous eviction when a person is applying for low-
income housing. The commenter also recommended that, prior to charging
an application processing fee, properties must inform persons applying
for housing that a previous bankruptcy disqualifies them from housing
at the property, if applicable.
HUD Response: HOME is a block grant program, and neither the
statute nor the regulations address whether or how previous
bankruptcies are treated in the tenant screening process. The Act
provides owners with discretion in tenant selection. As long as tenant
selection is performed in accordance with the Act, all applicable
Federal, State, and local laws (including but not limited to
nondiscrimination and VAWA requirements), the owner has discretion to
consider the effect of prior bankruptcies or past financial problems.
The Department encourages tenant selection policies that do not
unfairly penalize families for factors that no longer negatively impact
their ability to pay or to live in HOME-assisted rental housing but
recognizes that these determinations are fact-sensitive. The Department
therefore declines to further impose requirements in this area at this
time, including requiring notice prior to submission of application.
HUD notes that the comment appears to address all low-income housing,
not only housing funded through the HOME program. To the extent that
this comment also describes programs that are not part of this
rulemaking, that portion of the comment is outside the scope of this
rulemaking.
NN. Tenant Selection Procedures Should Incorporate Fair Chance Housing
Practices
One commenter suggested that HUD prohibit the use of explicit
credit score and criminal history requirements, as well as limit the
``look-back'' period for eviction records to one year from the date of
application.
HUD Response: HUD appreciates the commenter's feedback, but HOME is
a block grant program, and participating jurisdictions and project
owners are permitted to establish tenant screening and selection
criteria. Similar to the previous response, the Department encourages
tenant selection policies that do not unfairly penalize families for
factors that no longer negatively impact their ability to pay or to
live in HOME-assisted rental housing. The Department also reminds
owners and participating jurisdictions that all tenant selection is
subject to Federal, State and local requirements, including
nondiscrimination and VAWA protections. However, as these
determinations are fact-sensitive and the Act provided owners with
discretion in tenant selection,\65\ the Department declines to further
impose requirements in this area at this time.
---------------------------------------------------------------------------
\65\ See 42 U.S.C. 12755(d).
---------------------------------------------------------------------------
Owners should be aware that screening based on credit score and
criminal history can have a disparate impact against protected classes
in violation of the Fair Housing Act \66\ and should ensure that their
screening procedures do not run afoul of these laws.
---------------------------------------------------------------------------
\66\ See Guidance on the Application of the Fair Housing Act to
the Screening of Applicants for Housing'' https://www.hud.gov/sites/dfiles/FHEO/documents/FHEO_Guidance_on_Screening_of_Applicants_for_Rental_Housing.pdf,
mentioned by a commenter, and ``Tenant Background Checks and Your
Rights'', https://www.hud.gov/sites/dfiles/FHEO/documents/HUD_Tenant_Background_Checks_and_Your_Rights.pdf, which is joint
guidance developed by HUD, the Federal Trade Commission, the
Department of Justice, and the Consumer Financial Protection Bureau.
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OO. Notification of Grounds of Disapproval Under Sec. 92.253(e) Tenant
Selection Procedures
With regard to Sec. 92.253(e)(6), one commenter suggested that HUD
should require that the written notification to reject applicants
describe the grounds for rejection with sufficient specificity that a
person can prepare an appeal of the housing provider's decision. The
commenter stated that any supporting materials, such as a consumer
report, must be provided to the tenant. The commenter further stated
that these additional requirements align with HUD's recent fair housing
guidance on tenant screening.
HUD Response: 42 U.S.C. 12755(d)(4)(B) only requires ``the prompt
notification in writing of any rejected applicant of the grounds for
any rejection'' and does not provide any additional recourse. If an
applicant believes that the grounds for disapproval violate Federal,
State, or local law, they may make a complaint with the relevant legal
authorities in accordance with the applicable process (e.g., contact
HUD's Office of Fair Housing and Equal Opportunity if an applicant has
reason to believe that the grounds for rejection are due to
discrimination). The Department has issued guidance on tenant screening
and the Fair Housing Act, and such guidance applies to all HOME rental
housing units and HOME tenant-based rental assistance.\67\
---------------------------------------------------------------------------
\67\ See the Fair Housing Act guidance for tenant screening in
rental housing here: https://www.hud.gov/sites/dfiles/FHEO/documents/FHEO_Guidance_on_Screening_of_Applicants_for_Rental_Housing.pdf.
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PP. Environmental, Health, and Safety Hazards
One commenter supported the change to add language requiring a
participating jurisdiction to notify owners and tenants of any
environmental, health, or safety hazards affecting the project, a unit,
or tenants, and provide them with a summary of the nature, date, and
scope of the hazard.
One commenter urged HUD to include in the final rule, in Sec.
92.253(f), a requirement that where an owner has actual knowledge of an
environmental, health or safety hazard, the owner must inform tenants
(in addition to the
[[Page 842]]
participating jurisdiction), and provide them with a summary of the
nature, date, and scope of the hazard as well as actions the owner will
take, if able, to address the hazard. Furthermore, one commenter
suggested that HUD should require that the summary be in writing and
that the owner should provide notice of the hazard to tenants, in
addition to the participating jurisdiction.
One commenter expressed concern regarding the proposed language at
Sec. 92.253(f) requiring both a participating jurisdiction and an
owner to notify the other party if one party has ``actual knowledge of
an environmental, health, or safety hazard affecting a project, unit,
or HOME tenants.'' The commenter noted that it is unclear what HUD
intends ``environmental, health, or safety hazards'' to mean and
expressed concern about the lack of any defining language to guide
participating jurisdictions' and owners' actions to comply. The
commenter stated that without definitions, several interpretations are
possible. The commenter also noted concerns about the burden of
paperwork and compliance monitoring on participating jurisdictions,
their partners, and their staff.
HUD Response: The Department has taken the comments into
consideration and revised the language of Sec. 92.253(f) to specify
that a summary of the nature, date, and scope of such hazards be
provided in writing. The Department also revised paragraph (f) to state
that an owner must provide notice of the environmental, health, or
safety hazard affecting their project, units within their project, or
tenants residing within their projects to tenants in addition to the
participating jurisdiction. The Department believes both commenters
making recommendations are right. The Department is not further
defining the language in regulation and has provided examples of the
types of hazards in the proposed rule. The Department will provide
additional implementation guidance on this provision and other tenant
protections after publication of the final rule. The Department is also
declining to require owners to further specify how they will address
the damage. While the commenter's intent is noble, most environmental,
health, or safety hazards are not caused by owners of rental housing
projects but by other intervening outside events. It is inappropriate
to require owners to specify how they will address hazards they did not
cause and are not responsible for resolving.
QQ. Increasing Tenant Protections Could Increase Litigation or Other
Costs
One commenter expressed concerns about the potential for litigation
and increased costs for nonprofit affordable housing developers and
operators. The commenter expressed concerns about the provision of the
proposed rule requiring ``secure and confidential'' storage of the
personal records of applicants and residents and how HUD will monitor
and enforce this requirement. The commenter stated that the costs for
information technology staff or software packages would be burdensome,
particularly for smaller organizations or organizations in rural areas
that do not already have that capacity. The commenter also questioned
whether HUD intended to require a certain information security
standard, and, if so, at what cost. The commenter also stated that the
vague nature of proposed language in the lease addendum section could
expose owners to frivolous lawsuits and be difficult to comply with.
The commenter recommended further clarification and definitions
regarding words like ``unreasonably'' or ``reasonable'' to avoid
compliance issues, unnecessary litigation, or uneven application across
participating jurisdictions.
HUD Response: The Department disputes the commenter's assertion
that litigation costs are likely to increase through the provision of a
baseline level of tenant protections. In response to the commenter's
concerns about how an owner can maintain confidential records, the
Department notes that an owner can maintain confidentiality and
securely store records through storing files in locked drawers,
password protecting their computers, and using basic encryption if
transmitting personally identifying information through email. This
standard is not as burdensome as what the commenter describes and
represents standard industry practices. Commonly used terms such as
``reasonable'' and ``unreasonably'' have a body of jurisprudence and
common law precedent that should provide greater predictability not
less. The ``frivolous'' or ``unnecessary'' litigation that the
commenter is describing would be litigation if an owner were to
disclose or otherwise not protect confidential information of a tenant
or household member participating in a Federal program. The Department
does not believe that this is an accurate characterization and that
violations of confidentiality are serious matters that may have major
negative ramifications on people's lives. As such, the Department is
not removing the confidentiality requirements in the final rule.
RR. Tenant Protections in the Rule May Conflict With Other Laws and
Programs That Have Different Standards
One commenter stated that the proposed language does not account
for possible conflicts between local, State and other regulatory
schemes and the protections in the proposed rule. Commenters
recommended that HUD add language clarifying that the protections in
the rule are not exhaustive and that they do not preempt participating
jurisdictions, States or local governments from requiring other tenant
protections.
HUD Response: The Department revised the tenant protections to make
the protections more consistent with Federal laws and HUD programs. The
Department has revised Sec. 92.253(b)(10) to enable owners to
terminate tenancy in accordance with the requirements in 24 CFR part 5,
subpart I; 24 CFR 882.511; or 24 CFR 982.310. This will apply to
tenants living in units or receiving assistance that are covered by one
of these regulations and allows owners to maintain a consistent
approach to termination of tenancy when overlapping HUD program
requirements apply. Similarly, the Department withdrew the proposal to
extend the notice period for termination of tenancy or refusal to renew
tenancy in rental housing to also maintain alignment with other
Departmental rulemaking efforts.
The Department agrees with the commenter that these requirements do
not preempt a participating jurisdiction, State, or local government
from providing additional protections. The Department has revised Sec.
92.253(b)(6) and Sec. 92.253(c)(6) to explicitly state that tenants
may assert any protection under their lease and any applicable Federal,
State, or local tenant protections. Where State or local landlord-
tenant laws are more restrictive than HUD requirements, then the owner
must follow the more restrictive requirements.
Sec. 92.254--Qualification as Affordable Housing: Homeownership
A. Downpayment Assistance Programs Help Low-Income Households
One commenter stated that downpayment assistance programs are vital
for low-income households to be able to purchase homes.
HUD Response: HUD agrees with the commenter.
[[Page 843]]
B. Homeownership Value Limits in Sec. 92.254(a)
HUD received several comments on the HOME homeownership value
limits, with many commentors stating that the limits are too low and
that the data and process for calculating them should be updated to
reduce burden on participating jurisdictions and increase options for
homebuyers. One commenter noted that by limiting the value to 95
percent of area median home prices, families at or below 80 percent of
area median income struggle to access homeownership in the community of
their choosing.
Some commentors pointed out that the value limits disproportionally
impact rural communities or concentrate opportunities in minority
communities while limiting opportunities in predominately white
neighborhoods. One commenter stated the 95 percent HOME price limit
hinders developers and homebuyers from accessing high opportunity
neighborhoods. Another commenter agreed that the limitation creates a
barrier for both developers looking to meet housing demand and
homebuyers wanting to live in communities of their choice. The
commenter said that the home price limit has long been an impediment to
fair housing but given unprecedented home prices it is now an
insurmountable obstacle.
Several commentors suggested that HUD revert to using the FHA
203(b) Single Family Mortgage Market data. Commenters suggested the
data from FHA 203(b) better supports rural communities as it is more
dynamic than the current numbers and offers a higher national floor.
Additionally, the commenters noted that there is precedent for this
practice as HUD used 203(b) data as the basis for the 95 percent of
median home price calculation ahead of its 2013 rulemaking.
One commentor stated that the homeownership value limit has been a
problem for years, particularly in rural areas, because it is too low
to enable the construction of new units or the acquisition-rehab of
homeownership units for affordable sale. The commenter noted that HUD
cited statutory restrictions against changing the limit but argued that
there is significant room for HUD to make regulatory changes. For
example, the commenter said that the statute is silent on how HUD
should determine the median purchase price for an area, and, in fact,
in 2013 HUD changed the source of the median home purchase price data
from the FHA Single Family Mortgage Limits (203(b) limits) to the
current source.
One commentor stated that the limits are too low to cover repairs
to older homes or meet the needs of larger families due to a lack of
flexibility in rural areas to account for high costs from limited local
contractor availability and infrastructure.
A commentor stated that giving local participating jurisdictions a
chance to calculate their own price limits is well-intentioned but of
limited use. Another commenter stated that participating jurisdictions
struggle with cost and capacity issues while attempting to establish
their own limits. Commenters recommended that HUD build out its
regulations to further limit the effect of the HOME homeownership value
limits as much as possible.
Another commentor argued that homeownership value limits were not
needed as other quantitative controls exist in the form of income
limits and affordability limits but acknowledged that HUD is still
statutorily required to provide them.
One commentor suggested that HUD use an alternative maximum sales
price allowed to align with certain State programs that use 90 percent
of the IRS annually published Average Area and Nationwide Area Average
Purchase Prices.
Commentors acknowledged congressional action, or new legislation
would be needed to eliminate the 95 percent limit, with one commentator
suggesting that it be replaced with a 110 percent limit or a percentage
established by the Secretary.
HUD Response: HUD acknowledges the numerous challenges communities
face implementing homebuyer and homeowner rehabilitation programs.
Section 215(b) of NAHA requires that the initial purchase price or
after-rehabilitation value of homeownership units assisted with HOME
funds not exceed 95 percent of the area median purchase price for
single family housing, as determined by HUD. Historically, HUD used the
FHA Single Family Mortgage Limit (known as the 203(b) limits) as a
surrogate for 95 percent of area median purchase price. However,
statutory changes require the 203(b) limits to be set at 125 percent of
area median purchase price. Consequently, in its July 2013 final rule,
HUD eliminated the 203(b) limit as the sales price or after
rehabilitation value limit for HOME-assisted homeownership housing. The
2013 Final Rule established that HUD would begin to provide limits for
affordable newly constructed housing based on 95 percent of the median
purchase price of newly constructed housing in the area using data from
the Federal Housing Administration (FHA) and other appropriate data
sources, with a minimum limit based on 95 percent of the U.S. median
purchase price for new construction for nonmetropolitan areas. For
existing single family housing units being acquired or rehabilitated
with HOME funds, HUD would begin to provide limits for affordable
existing housing based on 95 percent of the median purchase price of
existing housing in the area using data from the FHA and other
appropriate data sources on sale prices of existing homes in standard
condition, with a minimum limit based on 95 percent of the State-wide
nonmetropolitan area median purchase price using this data.
The Department understands the unique challenges rural communities
face using the HUD published homeownership value limits and has begun
taking steps to assist those communities. In 2024, HUD made a major
revision to the homeownership value limit methodology outlined in
section 92.254(a)(2)(iii) of the July 2013 Final Rule. For existing
housing, HUD is now using the greater (rather than the lesser) of the
State non-metropolitan and U.S. non-metropolitan media sales values as
the minimum value in which the limit is calculated. This change will
substitute more local, State-level data for national-level data.
C. Beginning the Period of Affordability at Project Completion
One commenter stated that the period of affordability for homebuyer
projects should be measured by the assisted-homebuyer's acquisition of
the unit, not the project completion date. This is because the current
rule is administratively burdensome, leads to unintentional
noncompliance by participating jurisdictions, and confuses assisted
buyers. The commenter noted that parties never know when the period of
affordability ends because none of the parties knows for certain when
the project is marked complete in the Integrated Disbursement and
Information System (IDIS), which leaves participating jurisdictions
confused. The commenter noted there is often unintentional compliance
because participating jurisdictions need some time, if even only a few
days, to review and compile final financial information needed to
complete a project in IDIS, which means that project completion cannot
be achieved on the same day an assisted buyer purchases the unit.
One commenter noted that the period of affordability is a problem
in multi-address homeownership projects
[[Page 844]]
because the buyer of the first HOME-assisted unit in a multi-address
project may have taken possession and lived in their unit for months
while other units were still under construction. The commenter stated
that the project would not be considered complete under the definition
until all assisted units have been transferred to eligible buyers, so
no buyer's POA has started to run until the last assisted unit is sold.
The commenter recommended that HUD could encourage this information to
be disclosed to buyers.
HUD Response: The Department agrees with the commenter and is
revising Sec. 92.254(a)(4) to begin the period of affordability after
execution of the instrument that requires the recapture of the HOME
investment or recordation of the resale restrictions for sale to the
next homebuyer. The Department is further requiring that execution of
the instrument that requires the recapture of the HOME investment or
recordation of the resale restrictions for sale to the next homebuyer
only occur after the housing meets the participating jurisdiction's
property standards in accordance with Sec. 92.251(c)(3) and the
property title is transferred to the homebuyer. This will provide the
same necessary protections for homebuyers (i.e., that the property
meets property standards, that title has transferred, and that the
resale or recapture provisions have been applied to the property)
without conditioning the period of affordability on the participating
jurisdiction's completion of the information in the disbursement and
information system.
D. Data Sources and Methodology Recommendations
Commenters suggested that HUD change the data that it uses to
calculate the homeownership limit to make the data more accurate or
timely, with one commentor even suggesting that HUD remove the value
limits if more accurate data couldn't be used. One commentor
recommended HUD incorporate an adjustment factor or inflation factor to
make limits more current. Another commentor suggested using data that
excludes investor-purchased homes and only includes owner-occupied
sales, as investor purchases can skew data thereby undermining
affordability goals. The commenter also suggested replacing the limit
with a HOME Subsidy Limit focused on the ``appropriateness of the
amount of assistance'' by participating jurisdictions to address
concerns around the prudent use of funds without restricting
homebuyers' choices in neighborhood or home.
HUD Response: While the Department is somewhat limited by NAHA, HUD
will continue to look for ways to ensure the data used to calculate
area median purchase price is as accurate as possible to support the
use of HOME funds for homeownership assistance. Unfortunately, for the
reasons stated earlier in this preamble, the Department cannot change
the 95% limit itself.
E. Support for Resale Formula Revisions in Sec. 92.254(a)(5)(i)
Several commentors expressed support and appreciation for providing
resale formulas. Commenters stated that the formulas would improve
consistency and fairness to homebuyers while resolving the frustrations
felt by participating jurisdictions as they develop provisions or rely
on inconsistent guidance. Commenters also expressed appreciation for
retaining the ability to submit their own resale formulas for HUD
approval, with one commentor asking HUD to provide more detail on the
HUD approval process for submitting their own formulas. A commenter
encouraged HUD to work with Congress to amend the relevant statutory
language to better facilitate the homebuyer resale provision process.
HUD Response: Through this rule making, HUD has worked within the
statutory requirements of the Act to amend and clarify the homebuyer
requirements at Sec. 92.254 to assist participating jurisdictions that
undertake homebuyer activities. HUD thanks the commenters for reviewing
the proposed rule and is moving forward with the resale models without
change.
F. Undefined Terms in Resale Sec. 92.254(a)(5)(i)
One commenter stated that a ``reasonable range of low-income
buyers'', ``capital improvement'', and how to value a capital
improvement are not explained and are open to interpretation. A
commenter suggested that HUD provide a definition of ``fair return on
investment'' in precise percentage terms and recommended that HUD, or
the participating jurisdiction, be responsible for providing down
payment assistance to ensure the sale price provides an ROI that meets
the definition.
HUD Response: As a Federal block grant program, HOME provides
flexibility to State and local governments to determine how best to
address community needs. By giving participating jurisdictions the
ability to define what constitutes a fair return on investment, and a
reasonable range of low-income buyers, HUD is permitting participating
jurisdictions to design resale provisions to address community goals
and adapt to local market conditions. The Department also believes that
``capital improvement'' is a known term in real estate and that a
participating jurisdiction should not have difficulty determining
whether a capital improvement has been made to the property. Capital
improvements can be valued based on appraisals, the cost-to-build, or
other commercially reasonable methods. The Department is providing four
models that can be used to determine resale, some of which involve the
selection of a fixed percentage or use of an index that can assist the
participating jurisdiction in determining the fair return on investment
in accordance with the HOME regulations and statute. The Department
refuses, however, to provide a fixed percentage or range, as the
commenter suggests. To assist participating jurisdictions in defining
these terms, HUD has published guidance in CPD Notices and technical
assistance products. For the reasons listed above, HUD has declined to
further define these terms in regulation.
G. Use of HUD-Provided Formulas in Sec. 92.254(a)(5)(i) Will Not
Provide Significant Return to Homebuyer
One commenter, that does not use the resale option in its program,
stated that a HOME-assisted buyer who sells their home wouldn't receive
much of a return using HUD's four proposed formulas. The commenter
noted that the benefit of homeownership is wealth building through the
appreciation of home value and equity.
HUD Response: HUD does not agree with this comment. HOME is a block
grant program. Participating jurisdictions have the flexibility to
establish fair return standards that are more or less generous
depending on their markets and their policy objectives. Moreover, if an
assisted homebuyer owns the housing as their principal residence
through the period of affordability, then the resale provisions
terminate, and they will be able to realize the full benefits of wealth
accumulation that come with homeownership.
H. Support for Recapture of Investment Revisions in Sec.
92.254(a)(5)(ii)
A commenter stated that they support the proposed changes to the
HOME recapture language clarifying that the recapture amount is the
direct assistance to the homebuyer that enabled the homebuyer to
purchase the unit.
[[Page 845]]
HUD Response: HUD thanks the commenter for reviewing and is moving
forward with this clarification.
I. Adding Rent Restrictions to Accessory Dwelling Units in Sec.
92.254(a)(6)
A commenter stated that the HOME program should set a rent cap on
ADUs where a homebuyer is purchasing a multi-unit property with HOME
assistance. The commenter stated that this would prevent the misuse of
HOME funds. The commenter also stated that real estate tax exemptions
should be provided to homebuyers who are operating within an ADU rent
cap limit. The commenter stated that these suggestions would help
increase community support for ADU projects and benefit the wider
community while offering a modest boost to homeowners.
HUD Response: Whether a unit is subject to the HOME rental housing
period of affordability requirements in Sec. 92.252 depends upon
whether HOME funds were used to assist in the acquisition of the unit,
as described more fully in Sec. 92.254(a)(6), which was only revised
for minor technical corrections. The Department believes that through
its revisions to small-scale housing provisions in Sec. Sec. 92.2,
92.251, 92.252, and 92.253, it has enabled purchasers of single family
housing, including housing with ADUs, to more effectively manage these
units as HOME rental housing units when those requirements apply. State
and local property tax exemptions are outside the scope of this rule.
J. Preserving Affordability in Sec. 92.254(b)--Clarify the Parties
That Have Rights of First Refusal
One commenter expressed concerns that neither participating
jurisdictions nor program participants fully understand that rights of
first refusal and other preemptive rights are not acceptable beyond
those permitted to a participating jurisdiction and a community land
trust. The commenter noted that some developers seek to retain rights
of first refusal, particularly in the case of homeownership units under
recapture provisions, and the repurchase price prevents buyers from
realizing any appreciation otherwise attributable to the owner. The
commenter noted that HUD should make clear that only participating
jurisdictions and community land trusts are permitted by statute to
exercise rights of first refusal.
HUD Response: The Department appreciates the commenter's concern
that program participants often fail to understand when preemptive
rights are granted and to whom. The Continuing Appropriations Act, 2016
(Pub. L. 114-113) extended a participating jurisdiction's right to
exercise purchase options, rights of first refusal or other preemptive
rights provided in 42 U.S.C. 12742 of the Act to Community Land Trusts
that developed the homeownership units. Neither the Act nor the
Continuing Appropriations Act, 2016 (Pub. L. 114-113) provide any other
entity the right to exercise purchase options, rights of first refusal
or other preemptive rights to acquire housing when there is a
termination event threatening the affordability restrictions (e.g.,
foreclosure, transfer in lieu of foreclosure or assignment of an FHA-
insured mortgage to HUD). If a developer of HOME-assisted homebuyer
housing attempts to exercise a right of first refusal during the HOME
period of affordability, the unit will no longer be in compliance with
HOME period of affordability requirements. Section 12744(b) of the Act
requires owners of HOME-assisted homebuyer units under a resale
provision to sell only to another low-income homebuyer, while units
under a recapture provision must be sold on the open market and the
participating jurisdiction must use the recaptured funds for other
eligible activities in accordance with HOME requirements. Thus, if
another entity other than the participating jurisdiction or community
land trust that developed the project attempts to exercise a right of
first refusal, it could lead to repayment of the HOME investment
because the unit will cease to be affordable housing under the Act.
K. Concerns With Sec. 92.254(b) Requirement That the Home Be Resold
Within 6 Months to an Eligible Homebuyer
Two commenters expressed concerns regarding the proposed
requirement in Sec. 92.254(b)(1)(i) that would require a participating
jurisdiction to resell a home acquired by the participating
jurisdiction through preemptive rights to an eligible low-income
homebuyer within 6 months. Both commenters recommended that HUD extend
the deadline for the participating jurisdiction to resell a home
acquired through preemptive rights to 12 months instead of 6 months.
Several commenters expressed concern that the proposed Sec.
92.254(b)(3)(i) would require community land trusts that acquire HOME-
assisted housing through preemptive rights to resell the housing to an
eligible homebuyer within 6 months. These commenters stated that HUD
should raise the 6-month resale requirement to 9 or 12 months, which
several commenters noted would align with the current regulation or
proposed revisions in Sec. 92.254(a)(3). One commenter noted that HUD
may want to measure compliance with any established resale date against
the date of a ratified sales contract. The commenter also suggested
that HUD could establish provisions that would extend the period of
affordability by the period the community land trust is in possession
of the property prior to transferring it to another buyer. Another
commenter stated that establishing a minimum deadline of no less than
12 months for both community land trusts and participating
jurisdictions to complete the sale of a property would allow community
land trusts, which often have limited resources a reasonable amount of
time to bring the housing to an appropriate standard and identify an
appropriate buyer.
HUD Response: HUD agrees that extending the timeframe from 6 to 12
months to resell a homebuyer unit acquired through purchase options,
rights of first refusal, or other preemptive rights will provide both
participating jurisdictions and community land trusts additional time
to rehabilitate a unit, identify a qualified buyer, and permit the
buyer to obtain the financing necessary to acquire the unit. Extending
the timeframe from 6 to 12 months will also align with the 12-month
homebuyer sales deadline in Sec. 92.254(a)(3).
L. Confusion Over Preserving Affordability in Sec. 92.254(b)
One commenter found the language on preserving affordability of
housing assisted with HOME funds in Sec. 92.254(b) confusing and
suggested reversing sections (1) and (2) such that the proposed
language would begin by stating how the participating jurisdiction may
acquire the housing by using additional HOME funds, followed by the
requirements for selling the housing.
HUD Response: HUD thanks the commenter for the suggested
reorganization but is maintaining the order of sections (1) and (2) in
Sec. 92.254(b), as section (b)(1) defines the specific actions a
participating jurisdiction may take to preserve affordability of
homebuyer housing when there is a termination event, and section (b)(2)
defines the eligible use of additional HOME funds should the
participating jurisdictions choose to preserve the affordability of the
housing.
[[Page 846]]
M. Community Land Trusts Exercising Preemptive Purchase Rights Under
Sec. 92.254(b)
One commenter supported the inclusion of community land trusts'
right to exercise preemptive purchase rights while several commenters
expressed concern or opposition to HUD's proposed language codifying
the amendments to NAHA in the Consolidated Appropriations Act, 2016
(Pub. L. 114-113) that community land trusts may hold and exercise
purchase options, rights of first refusal, or other preemptive rights
to purchase housing to preserve affordability, including but not
limited to the right to purchase the housing in lieu of foreclosure.
One commenter expressed broad concerns about the proposed language
in Sec. 92.254(b)(3) stating that it was unclear what would happen
should a community land trust be unable to purchase a home prior to
foreclosure, find an eligible household within 6 months, and the
participating jurisdiction cannot provide additional HOME funds to
assist the unit. The commenter noted that proposed language would
create barriers for the community land trust, the participating
jurisdiction because the unit would likely be sold on the private
market, and the participating jurisdiction may be required to repay the
HOME funds. The commenter stated it would welcome additional guidance
from HUD.
HUD Response: The Department appreciates the comments. HUD
understands that a community land trust may need additional funds to
exercise a preemptive purchase right on a HOME-assisted homebuyer unit
to preserve affordability. Because it cannot use additional HOME funds
for this purpose, community land trusts interested in exercising the
preemptive rights pursuant to the Continuing Appropriations Act, 2016
(Pub. L. 114-113) and the requirements promulgated in Sec.
92.254(b)(3) must either use other non-HOME funds to acquire the unit
and preserve affordability, or may request the participating
jurisdiction to preserve affordability of the unit through the
preemptive rights provided to the participating jurisdiction under
Sec. 92.254(b)(1) and (2).
Further, even if a community land trust may not assist the next
homebuyer using HOME funds, the participating jurisdiction is permitted
to provide additional HOME assistance directly to the next homebuyer
should a community land trust exercise its preemptive purchase rights
to preserve the affordability of the unit. HUD thanks the commenter
that believed that a participating jurisdiction is prohibited from
directly assisting the next homebuyer. This was not HUD's intent, and
to address any confusion, HUD is adding clarifying language to Sec.
92.254(b)(3)(iv) to state that a participating jurisdiction may provide
direct assistance to the next homebuyer of a unit preserved by a
community land trust through preemptive purchase rights.
N. Other Organizations Should Be Able To Use Preemptive Purchase Rights
Under Sec. 92.254(b)
Two commenters encouraged HUD to evaluate whether preemptive
purchase rights could be made available to a wider range of
organizations or affordable housing models. One commenter stated that
they believed Congress meant to apply preemptive rights broadly to non-
profit organizations whose purpose and goal is to preserve affordable
homeownership opportunities, including shared equity/long-term
affordability homeownership programs and not just to community land
trusts. The commenter noted that many participating jurisdictions do
not have the capacity or desire to expend time and resources to
repurchase properties and should be permitted to allow nonprofit
developers to use a preemptive purchase option or to assign the
participating jurisdiction's preemptive purchase options to nonprofit
developers to ensure long-term affordability. The commenter also states
that limiting preemptive rights to participating jurisdictions and
community land trusts only in the case of foreclosure is too limiting,
particularly if HUD and Congress' goal is for HOME-assisted housing to
fulfill the required period of affordability. The commenter states that
the homeowner is unnecessarily burdened by these restrictions because
they are responsible for finding and qualifying a subsequent, eligible
homebuyer. The commenter suggests that eligibility for using preemptive
purchase options should be determined based on the intent of the
nonprofit developer to exercise the right for the purpose of preserving
affordability and reselling to another eligible homebuyer, not whether
the nonprofit formerly owned the land after the initial sale or
acquired both land and improvements through exercise of the preemptive
purchase right.
HUD Response: The Continuing Appropriation Act, 2016 (Pub. L. 114-
113) provided preemptive purchase rights only to community land trusts
and only with respect to properties these community land trusts
properties developed with HOME funds. Congress did not intend broader
applicability of these preemptive purchase right than HUD is
promulgating in this final rule.
The Department disagrees with the commenter's statement that
participating jurisdictions do not have the capacity or resources to
exercise preemptive rights. HUD clarified in Sec. 92.254 (b)(2) that
participating jurisdictions may use additional HOME funds for certain
eligible costs. Specifically, a participating jurisdiction may use
additional HOME funds in accordance with Sec. 92.254(b)(2) to obtain
ownership of the housing, undertake any necessary rehabilitation, hold
the housing pending sale to another homebuyer, and assist an eligible
homebuyer in purchasing the unit. Consequently, a participating
jurisdiction that chooses to exercise preemptive rights should have the
resources necessary to preserve affordable housing.
Further, a participating jurisdiction is not permitted to assign
its preemptive rights to a developer to exercise in response to a
termination event, or in the case of a right of first refusal should a
developer wish to acquire a HOME-assisted unit at resale. The commenter
incorrectly states that homeowners' seeking to sell the HOME-assisted
unit during the period of affordability are responsible for identifying
and qualifying another eligible low-income homebuyer. While a homebuyer
unit under a resale provision must be sold to another low-income buyer
at a price that provides the seller with a fair return on investment,
the homeowner is not responsible for identifying the next buyer or
determining whether the buyer is income eligible. The participating
jurisdiction is responsible for overseeing the subsequent sale of a
homebuyer unit under resale and ensuring that all HOME requirements are
met. Homebuyer units under a recapture provision must be sold on the
open market with any recaptured funds returned to the participating
jurisdiction to use for other eligible activities in accordance with
HOME requirements.
O. Recalculating the Period of Affordability When a Participating
Jurisdiction or Community Land Trust Exercises a Preemptive Purchase
Right Under Sec. 92.254(b)
One commenter stated that the proposed requirement at Sec.
92.254(b)(3)(iii) that the period of affordability for the eligible
buyer must be equal to the remaining period of affordability of the
former homeowner will inadvertently bar a community land trust from
requiring a new 99-year affordability restrictions upon resale of
[[Page 847]]
a previously assisted home. The commenter stated that rather than
requiring a fixed period of period of affordability upon resale as a
condition to a community land trust's preemptive acquisition and resale
of a HOME-assisted property in order to preserve its affordability, HUD
should encourage long-term affordability by stating that the new period
of affordability must be ``at least equal to'' or ``equal to or greater
than'' the remaining period of affordability of the former homeowner.
HUD Response: The Department appreciates the commenter's feedback
but believes the commenter is confusing the community land trust long-
term ground lease with the HOME period of affordability required in
Sec. 92.254(a)(4). The HOME period of affordability and associated
affordability restrictions are separate from the long-term ground lease
the homeowner executes with the community land trust. Nothing in the
HOME regulations would prohibit a community land trust from continuing
to enforce a 99-year ground lease on a new homebuyer following the
community land trust executing its preemptive rights under Sec.
92.254(b)(3). Should a community land trust choose to exercise its
preemptive rights during the period of affordability in accordance with
Sec. 92.254(b)(3), the new HOME-assisted homebuyer would be required
to meet the HOME affordability restrictions (i.e., principal residency
and resale requirements) for the remaining period of affordability on
land held by the community land trust under a ground lease for a term
established by the community land trust. Participating jurisdictions
are permitted to impose longer periods of affordability, perhaps even
aligning with the term of the ground lease but would be required to
monitor the HOME affordability restrictions for the longer period.
P. Providing Additional HOME Assistance to Property Purchased Through
Preemptive Purchase Rights Under Sec. 92.254(b)
Several commenters expressed concern or opposition to the proposed
language at Sec. 92.254(b)(3)(iv) that states that a participating
jurisdiction may not provide additional HOME funds to a community land
trust to obtain ownership, rehabilitate the housing, own/hold the
housing pending sale to the next homebuyer, or provide down payment
assistance to the next eligible homebuyer.
A commenter questioned why HUD would prohibit community land trusts
from providing additional HOME funds to rehabilitate units acquired
through their right of first refusal or from assisting buyers of such
units because a property may need renovations or upgrades to comply
with codes between owners. Several commenters expressed concern or
opposition to the proposed language at Sec. 92.254(b)(3)(iv) that
states that a participating jurisdiction may not provide additional
HOME funds to a community land trust to obtain ownership, rehabilitate
the housing, own/hold the housing pending sale to the next homebuyer,
or provide down payment assistance to the next eligible homebuyer. A
commenter questioned why HUD would prohibit community land trusts from
providing additional HOME funds to rehabilitate units acquired through
the next eligible homebuyer.
Two commenters questioned why participating jurisdictions may use
additional HOME funds to obtain ownership, rehabilitate, hold the
housing pending resale, or provide downpayment assistance, yet a
community land trust is not. Both commenters questioned the policy
rationale behind this distinction, and one commenter stated that this
prohibition runs counter to the regulatory definition's purpose of
enshrining the preemptive right to purchase,\68\ and urged HUD to
provide community land trusts with a more complete array of tools to
preserve the structure and affordability of their housing units.
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\68\ See the proposed definition of community land trust in
Sec. 92.2, paragraph (4), in the proposed rule. 89 FR 46657.
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One commenter expressed concern regarding the proposed restrictions
on community land trusts that would prevent community land trusts from
obtaining ownership through a preemptive purchase option. The commenter
argued that disallowing the use of HOME funds undercuts the benefit to
a community land trust of having a preemptive purchase option at all,
and as a result of this restriction participating jurisdictions would
not support community land trusts' purchase option since exercising
their own would allow them to apply additional funding to the HOME-
assisted project, and that the restriction places the burden of
rehabilitation and management on a community land trust without
providing additional resources to do so responsibly. The commenter said
that it is essential that a community land trust exercising the
preemptive purchase option be able to access HOME funds to rehab a home
in preparation for a new homebuyer and recommended that community land
trusts be able to use HOME funds for the same purposes as participating
jurisdictions.
One commenter stated that the proposed language creates ambiguity
regarding assistance to subsequent homebuyers purchasing property in a
community land trust. The commenter stated that the language is unclear
on whether the term ``to the Community Land Trust'' modifies each of
the following listed elements in Sec. 92.254(b)(3)(iv) or only applies
to the ``to obtain ownership'' element. The commenter stated that the
lack of clarity led to confusion on whether it could provide
homeownership assistance directly to a subsequent buyer of a home in a
community land trust where it had provided assistance to a previous
buyer and the prior period of affordability was still applicable. The
commenter suggested that HUD could address the issue by updating the
proposed definition to the following: ``The participating jurisdiction
may not provide additional HOME funds to the Community Land Trust to
obtain ownership, to rehabilitate the housing, to own/hold the housing
pending resale to the next homebuyer, or to provide homeownership
assistance to the next eligible homebuyer.'' One commenter asked for
clarification on the preemption of providing HOME funds to community
land trusts for ownership, rehab, holds pending resale, or downpayment
under proposed Sec. 92.254(b)(3)(iv). The commenter also sought
clarification on the misalignment with Sec. 92.254(a)(9)(ii) that
permits additional HOME funds if it meets the maximum-per-unit subsidy
cap. One commenter explained that community land trusts require an
enforcement mechanism due to their structure and purpose to provide
permanent affordability, requiring financially sound operators to
adhere to covenant enforcement and to retain sufficient resources to
execute the right of first refusal. The commenter further explained
that because of these additional measures, HUD should consider if
participating jurisdictions should perform underwriting similar to that
of a robust organization to cover these mechanisms, perhaps using the
multifamily requirements as a template. The commenter stated that this
could better ensure a sound operational foundation for the organization
during the duration of the period of affordability.
HUD Response: The Department thanks the commenters for their
feedback. However, HUD is moving forward with the provisions in Sec.
92.254(b)(3), which do not permit a participating jurisdiction from
[[Page 848]]
providing additional HOME funds to a community land trust that has
exercised preemptive rights to preserve affordability of HOME-assisted
homebuyer housing. The Continuing Appropriations Act, 2016 (Pub. L.
114-113) did not authorize HUD to permit a community land trust, during
the HOME period of affordability, to request additional HOME funds from
a participating jurisdiction. Instead, the Continuing Appropriations
Act, 2016 (Pub. L. 114-113) only allowed a community land trust to take
possession of the property and resell to an eligible low-income
homebuyer, thereby preventing the participating jurisdiction from
having to repay the HOME investment because the property failed to meet
the HOME requirements for the full period of affordability.
While the Continuing Appropriations Act, 2016 (Pub. L. 114-113)
permitted community land trusts to exercise preemptive rights to
preserve the affordability of housing, a community land trust is not
required to exercise such options and may instead notify the
participating jurisdiction that action is required to preserve the
HOME-assisted unit. The participating jurisdiction may invest
additional HOME funds in accordance with Sec. 92.254(b)(1) and (2) to
acquire, rehabilitate, hold the housing pending sale, and assist an
eligible homebuyer to purchase the unit. The total amount of HOME funds
invested, (i.e., the original investment plus additional investment)
cannot exceed the maximum per-unit subsidy in effect at the time of the
additional investment, subject to HUD approval.
A community land trust that chooses to exercise its preemptive
rights under Sec. 92.254(b)(3) may use existing organizational
resources or other funding sources to acquire, rehabilitate, hold the
unit pending sale to another eligible homebuyer, and assist the next
eligible homebuyer. The Department is adding clarifying language to
Sec. 92.254(b)(3)(iv) that a participating jurisdiction may provide
direct assistance to an eligible homebuyer of a unit preserved by a
community land trust through preemptive rights. The Department agrees
with the commenter that the original proposed language in Sec.
92.254(b)(3)(iv) was not clear about whether a participating
jurisdiction could directly assist the subsequent buyer should a
community land trust take action to preserve the affordability of the
unit. The Department is also clarifying the period of affordability
applicable to any homeownership assistance provided by the
participating jurisdiction to the next eligible homebuyer.
While the Department agrees with the commenter that community land
trusts that exercise preemptive rights under Sec. 92.254(b)(3) should
have sufficient resources to execute these rights and resell the unit
to an eligible homebuyer, the Department is not requiring a
participating jurisdiction to underwrite the community land trust. The
participating jurisdiction may choose to exercise its own preemptive
rights in lieu of the community land trust should the community land
trust not have the financial resources needed.
Q. Revise the Lease-Purchase Requirements in Sec. 92.254(e)(7)
One commenter recommended HUD extend the lease purchase completion
deadline from 36 months to 5 years because they believe local
experience suggests that the model is more effective when a client has
more time from the date of offer and is offered homebuyer education.
One commenter requested that the proposed Sec. 92.254(a)(7) enable a
second chance at a successful lease-purchase agreement if an initial
lease-purchase on the property fails. One commenter stated that if a
lease-purchase fails, the developer is locked into a lengthy cycle of
rental administration, closing off much-needed affordable inventory for
homeownership.
HUD Response: The Department appreciates the comments on the
proposed lease-purchase changes and agrees that providing additional
time to identify an eligible homebuyer is beneficial. However, if the
first homebuyer is unable to acquire the housing within 36 months, the
Department does not agree that entering into a subsequent lease-
purchase agreement with a new homebuyer is prudent as an indefinite
period cannot be permitted to pass before the homeownership unit meets
the HOME homeownership requirements. Instead, HUD is revising Sec.
92.254(a)(7) to provide the owner with an additional 12 months to sell
the housing to another eligible low-income homebuyer. While the owner
would be prohibited from selling the unit through another lease-
purchase agreement, the participating jurisdiction could provide
homeownership assistance to the next eligible homebuyer. If the owner
is unable to sell the unit to an eligible homebuyer within 48 months of
the execution of the original lease-purchase agreement, the unit must
convert to rental housing in accordance with Sec. 92.252.
R. Support for Nonprofit Lender Revisions to Sec. 92.254(f)
One commenter expressed support for HUD's clarification that
participating jurisdictions may provide HOME funds to nonprofit lending
institutions as a contractor or subrecipient. The commenter stated this
would allow nonprofit lenders to provide HOME homeownership assistance
alongside first mortgage financing and thereby strengthen the nonprofit
delivery system's ability to meet affordable homeownership needs.
HUD Response: HUD thanks the commenter for reviewing and is moving
forward with revisions to specify that nonprofit lenders can be either
contractors or subrecipients.
S. Changes to Homebuyer Underwriting in Sec. 92.254(g)
Several commenters voiced support for the changes to Sec.
92.254(g)(1) that revise the homebuyer underwriting standards. Some
commenters praised the simplified focus on evaluating the projected
overall after-purchase debt of a family, while others were concerned
that families could be subjected to foreclosure if monthly expenses are
not properly evaluated. Other commenters suggested HUD instead follow
the standards provided by Qualified Mortgages or Community Development
Financial Institutions while a few commentors disagreed with HUD's
clarification on providing a single amount of assistance to all
homebuyers.
HUD Response: HUD appreciates the comments and is moving forward
with the proposed change.
T. Standardize or Align Third-Party Underwriting Standards in Sec.
92.254(g)
Some commenters noted that the existing structure in which each
participating jurisdiction develops their own underwriting standards
can create confusion and inconsistencies and suggested that HUD
standardize and align with existing mortgage products to help address
the issue. These commenters suggested HUD consider establishing a safe
harbor if the underwriting of the first mortgage meets the standards of
a Qualified Mortgage as defined by the Consumer Financial Protection
Bureau (CFPB). Two commentors suggested HUD defer to the underwriting
standards of a certified Community Development Financial Institution
(CDFI) as CDFIs have experience underwriting loans to low- and
moderate-income borrowers.
HUD Response: The Department disagrees with the commenters that HUD
should align homebuyer
[[Page 849]]
underwriting requirements with standard mortgage requirements such as
the Qualified Mortgage standards established by the CFPB. HOME
participating jurisdictions must have separate underwriting standards
for HOME-assisted homebuyers because the first mortgage underwriting is
not a valid proxy for underwriting a second HOME-mortgage where the
participating jurisdiction must consider the homebuyer's overall debt,
including the first mortgage debt. Further, Qualified Mortgages, as
defined by the CFPB, are not focused on evaluating the low-income
populations participating jurisdictions are required to serve. While
the CFPB requirements are a good starting point for assessing the
appropriateness of private first mortgages, a participating
jurisdiction's underwriting policy must consider additional factors
because HOME-assisted homebuyers are low-income. Participating
jurisdictions must continue to establish and use their own homebuyer
underwriting standards in accordance with Sec. 92.254(g) to adequately
protect the low-income homebuyers from risky and unsustainable
mortgages. The Department is moving forward with the proposed change.
U. Changes to Evaluation of Family Debt in Underwriting in Sec.
92.254(g)
Two commenters noted that HUD correctly identified that the current
regulation excludes households that have overall debt and monthly
expenses that exceed a participating jurisdiction's underwriting
standards but demonstrate an ability to sustain a mortgage through
other indicators and argued that rigid ratios for housing expense and
total debt is reflective of an outdated practice. The commenters stated
that the current requirements can prevent a buyer from buying their
preferred home in their location of choice because they favor borrowers
with strong credit ratings, high down payments and cash reserves, and
other factors. The commenters supported HUD's proposal to eliminate the
requirement that a participating jurisdiction evaluate monthly
expenses, to establish a standard to determine the maximum amount of
direct HOME assistance, and to prohibit participating jurisdictions
from providing a single, fixed amount of assistance to every homebuyer
receiving assistance but asked HUD to provide additional guidance to
participating jurisdictions as it finalizes this rulemaking and
implements the requirements. One commenter agreed with some changes
that would eliminate the need to evaluate both the housing debt and
overall debt of the family in favor of evaluating overall debt of the
family projected after purchase, but this commenter expressed concerns
with the proposed rule's elimination of the requirement that
participating jurisdictions evaluate the monthly expenses of the
family. The commenter stated that the lender cannot see if a family can
afford a loan if they are not doing their due diligence. The commenter
recommended that HUD interpret the rule's language that ``the standards
must evaluate the... financial resources to sustain housing'' as
requiring robust evaluations to ensure that the overall financial
health of the family is still assured prior to home purchase.
Two commenters stated that they do not support HUD's proposal to
eliminate the requirement that participating jurisdictions evaluate a
family's debt during underwriting. One commenter explained that debt
evaluation prevents a family from purchasing a home that is over their
income capacity and from putting the family at risk of foreclosure.
Another commenter stated that this proposed change is counterintuitive
to protecting families from financial distress, jeopardizing the
investment of HOME funds due to foreclosure, short sale, or other
issues.
HUD Response: HUD is removing the requirement that the overall debt
of the family be reviewed as part of the HUD-required underwriting
analysis performed by the participating jurisdiction but is retaining
the requirement in Sec. 92.254(g)(1) that ``[t]hese standards must
evaluate the projected overall debt of the family after the purchase of
the housing.'' HUD believes that the evaluation of the overall debt of
the family after the purchase of the housing is the correct measure for
determining whether the housing would be at risk of foreclosure and
whether the family would be in financial distress. HUD does not believe
that separately accounting for the current overall debt of the family
adds to this analysis. HUD notes that restructuring of debt can occur
throughout the closing process, and so overall debt of the family pre-
closing is not as informative as overall debt of the family after
closing and any necessary repair or rehabilitation work that may be
needed on the property.
V. Prohibition of Providing a Single Amount of Assistance in Sec.
92.254(g)
Several commenters stated they do not support the proposed change
to Sec. 92.254(g)(1) of explicitly stating that a participating
jurisdiction may not provide a single, fixed amount of assistance to
every homebuyer receiving assistance in the participating
jurisdiction's homebuyer program. Two commenters expressed concerns
that tailoring the amount of assistance to each homebuyer is difficult
and could be seen as arbitrary. Other commenters stated that tailoring
assistance may result in a higher subsidy amount to a higher income
buyers or buyers purchasing more expensive homes.
One commenter stated that HUD should base appropriateness of
assistance on the local housing market through methods such as percent
of median home value. Another commenter supported HUD's attempt to add
clarity by stating that a participating jurisdiction establishes a
standard to determine the maximum amount of assistance per family by
market area but believes that by establishing a cap, a participating
jurisdiction should be considered compliant. The commenter also
recommended basing the appropriateness of the assistance on the local
housing market and using a percentage of the median home value.
HUD Response: While the Department appreciates the comments, the
prohibition against providing a single amount of homebuyer assistance
is not a proposed change. The 2013 HOME Final Rule required
participating jurisdiction to establish homebuyer program policies and
procedures, including but not limited to homebuyer underwriting
guidelines. In accordance with Sec. 92.254(g), a participating
jurisdiction must utilize underwriting standards to determine the
amount of HOME assistance each applicant needs to sustain
homeownership. HUD is declining to make a change that would permit
participating jurisdictions to establish programs that provide the same
amount of HOME assistance to every homebuyer irrespective of need. The
Department is also not providing a safe harbor where the participating
jurisdiction establishes a maximum cap. A participating jurisdiction
can always establish a maximum cap for assistance, but if that cap is
too low, and every homebuyer is provided the same amount, then the
participating jurisdiction is not evidencing that it is appropriately
sizing the assistance to meet the requirements of Sec. 92.254.
The Department also disagrees with establishing the appropriateness
of assistance based on a set percentage of median home value or the
local housing market. Participating jurisdictions must perform the
necessary underwriting to determine whether it is possible to assist
the family, and how much assistance the family requires in order to be
able to maintain sustainable
[[Page 850]]
homeownership. Establishing set percentages or basing assistance on
factors that do not involve an evaluation of the family's finances and
do not ensure that the homeownership is sustainable. Impact of other
resale restrictions on the property.
X. Resale Restrictions
One commenter stated that HUD should clarify whether it is
appropriate to allow non-HOME resale restrictions to be imposed by non-
participating jurisdiction State or local government programs that are
funded by HOME. The commenter noted this clarification is needed
because participating jurisdictions have declined to provide homebuyer
assistance to low-income buyers from local density bonus programs
because the housing was deed restricted in a resale-like manner by non-
HOME State or local programs.
HUD Response: The only resale or recapture restrictions that may be
placed on a HOME homeownership property are those that are consistent
with the restrictions provided in the participating jurisdiction's
consolidated plan in accordance with 24 CFR 91.220(l)(2)(iii) or 24 CFR
91.320(k)(2)(ii), as applicable, and included in the participating
jurisdictions written agreement in accordance with Sec. 92.504.
Y. Manufactured Housing in HOME Homeownership Programs
One commenter stated that it is important that when States and
localities use funds for down payment assistance for affordable first-
time home purchase, that these programs do not inadvertently exclude
manufactured homes. The commenter noted that personal property
manufactured home loans have distinctive attributes that can sometimes
result in down payment assistance programs not reaching these
homebuyers. The commenter referenced 2003 guidance and requested that
HUD updated the program to consider any changes to the regulations
would negatively impact manufactured housing homeownership
opportunities. The commenter also stated that since manufactured home
purchases and financing can be sold differently than site-built home
purchases, it is important that States and localities conduct
appropriate outreach to these channels, to ensure manufactured
homebuyers have the same access to these down payment programs.
One commenter stated that while the purchase, rehabilitation, and
development of manufactured homes and manufactured home communities are
statutorily eligible uses of HOME funds, HOME is not being used to
preserve and improve manufactured home communities as affordable
housing and homebuyers and homeowners are routinely denied access to
HOME-funded programs, even though they are some of the lowest-income
homeowners in America and play a crucial role in the inventory of
affordable housing. One commenter stated HUD should engage in outreach
to States and localities to ensure that their HOME-funded downpayment
assistance programs do not exclude manufactured homes. The commenter
stated that this unintentional exclusion has persisted for some time
often because manufactured homes are ordered in a different manner, and
it is imperative to address the issue.
HUD Response: HUD agrees that the acquisition, rehabilitation, and
installation of manufactured homes and manufactured home communities
are all eligible HOME projects if they meet the requirements in the
HOME regulations. HUD also agrees that manufactured housing is an
important source of affordable housing, and that participating
jurisdictions and other program partners may not fully understand the
ways in which HOME funds can be used for manufactured homes and
manufactured home communities, including homeownership assistance and
rehabilitation. Because manufactured homes may be personal property in
some states and real property in others, there is variation in how HOME
funds can be used to assist the acquisition of these units. HOME funds
can be used to acquire both the unit and the lot, or to lease the lot
for the period of affordability and purchase the housing unit. HOME
funds can also be used to rehabilitate manufactured housing as
homeowner rehabilitation projects, so long as the units meet the
property standards in Sec. 92.251 upon completion. The Department will
consider further ways in which to address any misunderstandings about
the allowable use of HOME funds in supporting manufactured home
homeownership through guidance or technical assistance products.
Z. Barriers to Using HOME To Purchase Manufactured Home Communities
The commenter pointed to regulatory barriers that prevent HOME
funds from being used for resident acquisition of manufactured home
communities and stated that HOME funds for acquisition need to be
implemented through an entity that can meet strict timeframes and work
with manufactured home communities owners, that HOME funds should be
used to reduce the cost of debt for acquisition, and that HOME funds
should be used by participating jurisdictions to make equity grants in
CDFIs to specifically finance resident purchases of manufactured home
communities.
HUD Response: The Department thanks the commenter for reviewing the
rule and notes that some of the suggestions fall outside the scope of
this rulemaking. However, HUD agrees that, while an eligible use of
funds, it can be challenging to use HOME funds to acquire and
rehabilitate manufactured home communities. A primary reason for this
is that not all residents of a manufactured home community qualify as
low-income, and ownership can vary from resident to resident. A more
viable model might be to use another financing source such as CDBG to
acquire the manufactured housing community and reserve HOME funds to
acquire or rehabilitate manufactured housing units for income eligible
residents. HUD can provide technical assistance to participating
jurisdictions in structuring HOME projects involving manufactured home
communities.
AA. Encourage Homeownership Activities
One commenter also suggested that HUD take further steps to
encourage participating jurisdictions to make HOME funding available in
their communities for affordable homeownership construction,
rehabilitation, and repair by promoting guidance for best practices by
participating jurisdictions.
HUD Response: Supporting State and local efforts to expand
homeownership is a key goal of the HOME program. HUD appreciates the
comment and will continue to provide technical assistance and guidance
to participating jurisdictions interested in using HOME funds for
homeownership. In recent years, HUD has developed and administered
several webinars, and in-person trainings focused on providing in-depth
guidance and sharing best practices to participating jurisdictions
looking to create or expand their homebuyer programs. HUD will continue
to offer trainings and look for new ways to ensure participating
jurisdictions have the resources and capacity to expand affordable
homeownership.
Specific solicitation of comment #11: The Department requests
public comment on whether the existing 9-month deadline for the sale of
homebuyer units acquired, rehabilitated, or constructed with HOME funds
is reasonable and whether
[[Page 851]]
extending the deadline to 12 months would increase the use of HOME
funds for homeownership programs.
A. Comments in Support of a 12-Month Deadline for Purchase by an
Eligible Homebuyer
Several commenters supported the extension to 12 months. Commenters
stated that they support the proposed extension for the sale of a
homebuyer unit acquired, rehabilitated, or constructed with HOME funds
to 12 months because 9 months is an insufficient amount of time. One
commenter stated that less than 12 months is an unreasonable time
period due to market volatility and because small cities do not have
the capacity to become landlords or to repay HUD for HOME funds when a
property does not sell or convert to a rental unit. In addition, the
commenter recommended that HUD remove the requirement for renting all
together so that participating jurisdictions have time to sell the
home. Another commenter stated that the three additional months would
give potential homeowners more time to comply with requirements such as
homebuyer counseling and income qualifications. One commenter explained
that they support the change because, currently, it takes longer to
find income eligible buyers given higher sales prices and interest
rates. Some commenters said the extension would add flexibility to the
program and one commenter stated it would make it more attractive to
use HOME in such projects. One commenter stated that the added time may
incentivize some participating jurisdictions to add or expand
homeownership programs using HOME funds.
One commenter, in expressing support for the extension to a 12-
month deadline, stated that this change would especially benefit new
construction and enable the local governments who encounter hurdles or
delays to close the deal by providing an additional 3 months.
One commenter supported extending the deadline from 9 to 12 months
but warned that developers and non-profits building owner-occupied
housing lack rental property management experience and warned of the
risks and deterrent effects of this misalignment. The commenter
suggested requiring homebuyer projects to convert to a lease-to-
purchase model instead of rental.
One commenter noted that having an additional three months to sell
HOME-assisted homeownership units may increase the use of HOME funds
for homeownership programs for some participating jurisdictions, but
high interest rates likely have more of an impact on the success of the
program in most markets.
HUD Response: HUD thanks the commenters and agrees that adding an
additional three months to the homebuyer deadline will benefit local
communities by alleviating potential noncompliance. The Department is
moving forward with the proposed change by extending the homebuyer
sales deadline from 9 to 12 months.
B. Comments in Support of a Sales Deadline of More Than 12 Months
One commenter stated that because of the current economy the time
to sell a home should be extended to 15 to 20 months.
One commenter stated the requirement should be at least 12 months
because of volatility in the housing market. The commenter suggested
that a participating jurisdiction and owner can provide a mutually
agreeable plan to obtain occupancy no later than an additional 6 months
(total of 18 months) from the completion of construction if there is no
sale at 12 months.
One commenter stated they support increasing the number of months
before converting a homeowner unit that hasn't sold to rental housing
from 9 months to 12 months but would prefer that HUD eliminate the
provision altogether.
HUD Response: HUD acknowledges the volatility of the housing market
but has determined that 12 months is an appropriate homebuyer sales
deadline. A deadline of 15 months or greater is too long for HOME
homeownership housing to remain on the housing market. If an owner is
not able to sell the unit to an eligible homebuyer within 12 months,
then the unit must be converted into rental housing and run in
accordance with Sec. 92.252, or the participating jurisdiction must
repay the investment.
C. Current Requirement of Nine Months Is Not Hard To Meet
One commenter said that they do not have challenges closing on
homebuyer units within the existing timeline but understand that other
markets may not be similarly situated and that the shrinking pool of
available Federal funding utilized as mortgages is leading to extremely
long waiting periods for homebuyers. The commenter doubted whether
extending the deadline would meaningfully impact the proportion of HOME
funding used to support homeownership programs because the sales
deadline is only one very small part of the barriers in the HOME
regulations and laws. Rather, the commenter cites the primary reason
for the decline in uses of HOME for homeownership is decision-making at
the participating jurisdiction level that prioritizes rental uses for
HOME funds over homeownership uses as well as shrinking appropriations
and a national proportion of HOME set aside for CHDOs that has not
exceeded 20 percent since 2015. The commenter recommended that HUD use
its authority to ease barriers in HUD regulations, such as raising the
Homeownership Value Limits and to work with homeownership advocates to
identify ways to incentivize the use of the HOME program for
homeownership activities.
HUD Response: HUD thanks the commenters for their response and
acknowledges that multiple factors impact the proportion of HOME funds
that are used for homebuyer housing. In 2024, HUD made changes to the
methodology used to calculate the homeownership value limits and will
continue to explore how it can address other barriers facing HOME
funded homeownership.
D. Clarify Rule on When Housing Is Not Sold by the Deadline
One commenter stated that the extension of the proposed sales
deadline to 12 months is appreciated, but the requirements for
homeownership housing using HOME funds do not specify how a home that
has been leased under the provision can subsequently be sold to an
eligible homebuyer. The commenter stated that this has led to
participating jurisdictions concluding that selling the home as
originally intended is not allowed or that it can only be sold via the
lease-purchase provisions of the regulations. The commenter recommended
that HUD clarify how a home leased under Sec. 92.254(a)(3) can be sold
to an eligible buyer within 12 months of a tenant voluntarily moving
out of the rented home or after being legally evicted for cause. The
commenter also recommended that HUD issue clear guidance on this matter
for participating jurisdictions.
HUD Response: HUD would like to clarify that a HOME-assisted
homebuyer unit that fails to sell to an eligible homebuyer by the 12-
month deadline, must be converted to a rental project in accordance
with Sec. 92.252. Once the unit is designated as a rental unit in
accordance with Sec. 92.252, a participating jurisdiction cannot
execute a lease purchase agreement with a potential homebuyer because
the unit has become a rental unit and lease
[[Page 852]]
purchase is only permitted under Sec. 92.254(a)(7). In accordance with
Sec. 92.255, a participating jurisdiction may permit the owner of a
HOME-assisted rental unit to convert the unit to homeownership unit if
the existing tenant is willing and eligible to buy the unit. The
conversion of a HOME-assisted homebuyer unit into a rental unit after a
12-month vacancy is not intended to serve as a temporary solution for
periods of weak market demand. Participating jurisdictions that are
unable to sell a homebuyer unit after a 12-month period should consider
evaluating local market demand for low-income homebuyer projects. If
the owner refuses to convert the unit into a rental housing unit under
these provisions, then the participating jurisdiction must repay the
investment of HOME funds for the development of that housing unit, as
it failed to meet the requirements of Sec. 92.254 and Sec. 92.252.
E. Other Comments Received in the Solicitation
One commenter said that HOME funds are currently unable to assist
in areas of homeownership opportunities because of increasing home
prices and recommended HUD allow higher per-unit subsidies and after
rehabilitation values and sales prices to increase such opportunities.
The commenter also supported a rehabilitation per unit subsidy limit
that incorporates new construction and requested HUD provide an example
of a proposed resale formula in its final rule.
HUD Response: HUD acknowledges that increasing home prices pose a
significant challenge to homebuyer programs. The final rule is
proposing to make several revisions to the HOME program's maximum per-
unit subsidy limits at Sec. 92.250 and a revised methodology that
allows HUD an improved ability to review ongoing construction cost
changes will be published in a future Federal Register publication. HUD
has also taken recent steps to update the methodology used to calculate
the HOME homeownership value limits and will continue to evaluate how
those numbers are calculated.
HUD has published examples of each of the four resales models on
HUD.gov, and will provide training, technical assistance, and publish
updated guidance to support the implementation of the new resale
models.
Sec. 92.255--Purchase of HOME Units By In-Place Tenants
Commenters stated that HUD should make an exception to the current
requirement that a tenant must qualify as low-income at the time of
purchase of a HOME unit. One commenter encouraged HUD to consider
regulatory changes that would provide more flexibility in income
determination in the event of a purchase by an in-place tenants. Other
commenters stated that if HOME units were originally developed using
LIHTCs, then in-place LIHTC tenants that originally income qualified
for both HOME and LIHTC should be able to purchase the units as in-
place tenants without need for income recertification. In many cases,
the commenters specifically cited to lease-purchase programs but the
lease-purchase arrangements they were describing were not lease-
purchases as defined under the HOME program but actually purchase of
rental housing units by in-place tenants.
Another commenter stated that homeownership is inadvertently
disincentivized due to these existing regulations, and urged HUD to
consider regulatory changes that would provide more flexibility in
income determination in the event of a lease purchase agreement. The
commenter noted that in Sec. 92.254(a)(7), current regulations state
that ``HOME funds may be used to assist homebuyers through lease-
purchase programs for existing housing and for housing to be
constructed.'' The commenter explained that during the rental period,
the HOME rules defer to the LIHTC qualification standards for whether a
renter is eligible to rent a HOME-assisted unit. The commenter further
explained that LIHTC qualification standards require an initial
qualification of the tenant at the time of lease, but if the tenant
household income increases over the LIHTC and/or HOME maximum, the
tenant is still qualified to live in the unit and is not displaced.
However, the commenter pointed out that since HUD's adoption of the
2013 HOME final rule, many participating jurisdictions are requiring a
tenant to re-qualify under the homeownership rules at the time of the
sales transaction once they are eligible to purchase their single
family home at the end of the LIHTC compliance period. The commenter
stated that if the tenant exceeds 80 percent of area median income at
the time of requalifying, they are disqualified from purchasing the
HOME-assisted unit.
HUD Response: The Department considered its flexibility under 42
U.S.C. 12745(a)(1)(E) to reduce or eliminate the remaining period of
affordability on the rental unit to allow the in-place over-income
tenant to purchase the property and determined that this was within the
Secretary's discretion as it is consistent with the purposes of the
Act, which emphasized moving families from poverty to stable
homeownership. The Department has added language to Sec. Sec.
92.254(a)(3), 92.255(b), and 92.255(c) to enable the purchase of units
by in-place over-income HOME tenants. As a condition of allowing the
in-place over-income tenant to purchase the property, the tenant must
agree to the participating jurisdiction's resale restrictions for the
remaining period of affordability, similar to other income eligible in-
place tenants that purchase their units (see Sec. 92.255(b)). Since an
over-income tenant purchasing their HOME unit is no longer income
eligible, the tenant may not receive additional HOME funds to assist
them in the purchase of their unit.
The Department understands that there is a lot of confusion about
what rules control when HOME units are designated in a LIHTC project.
The Department is correcting the commenter because HOME rules do not
``defer'' to the LIHTC qualification standards. HOME tenants must be
income eligible under the HOME program at initial occupancy. The
commenter is correct that an owner may not refuse to renew a tenant's
lease because the tenant has become over-income, as this is not good
cause under the Act.\69\ However, the commenter is also incorrect that
the 2013 HOME Rule revised the regulations to prohibit in-place over-
income tenants from purchasing their HOME rental housing units. Until
this final rule, this has never been permitted in the HOME program.
---------------------------------------------------------------------------
\69\ See 42 U.S.C. 12755 for good cause and 42 U.S.C.
12745(a)(3), which contemplates over-income tenants and explains
what rent they must be charged.
---------------------------------------------------------------------------
Sec. 92.300--Set-Aside for Community Housing Development Organizations
(CHDOs)
A. Applicability of Proposed Changes
A commenter requested additional clarity as to whether the
proposals relating to CHDOs only applied to CHDOs in rural areas or if
they are applicable to all CHDOs.
HUD Response: The Department proposed several changes to the
definition of community housing development organization at Sec. 92.2
and the CHDO set-aside requirements at Sec. 92.300, many with the
intent of improving CHDO availability and capacity in rural areas.
However, the changes made are not specifically applicable to CHDOs in
rural areas but any organization receiving CHDO set-aside funds through
the HOME program.
[[Page 853]]
B. Changes to Role of CHDO in Sec. 92.300(a)--Support
Commenters supported these changes. One commenter stated that the
proposed revisions to the required role of the CHDO as owner,
developer, or sponsor of housing at Sec. 92.300, when combined with
the proposed changes to the CHDO definition at Sec. 92.2, would enable
more community-based housing organizations to qualify as CHDOs and
access the CHDO set-side.
A commenter stated that they support the proposed change that
allows CHDOs serving as rental housing sponsors to convey a project to
a non-profit organization at a predetermined time after completion of
the project.
Several commenters supported the proposed change to sponsorship in
Sec. 92.300(a)(4) that would allow a CHDO (or its subsidiary)
sponsoring a project to be the ``managing general partner'' rather than
the ``sole general partner,'' or the ``managing member'' rather than
the ``sole managing member'' of a limited partnership.
HUD Response: HUD thanks the commenters for their support. However,
HUD notes that the provision at Sec. 92.300(a)(5) that permits CHDOs
serving as rental housing sponsors to convey a project to a non-profit
organization at a predetermined time after project completion is not
new and is not being substantively changed by this rulemaking.
C. Changes to Role of CHDO in Sec. 92.300(a)--Opposition
One commenter opposed the proposed changes regarding all three CHDO
roles and stated they will have the unintended consequence of reducing
CHDO requirements and allowing non-CHDOs to fully benefit from a CHDO
designation while not being held accountable to CHDO standards. The
commenter stated that for the CHDO owner, developer, and sponsor
projects, many non-CHDO for-profit and non-profit developers document
their relationships with CHDOs in a way that gives them an appearance
of decision-making authority they do not actually have. For sponsorship
projects, the commenter recommended that the regulations permit two
CHDOs with service areas covering the same geography be permitted to be
owners of the general partner entity.
HUD Response: HUD shares the commenter's concern about entities
other than the CHDO controlling the development process in
contravention of the regulations and the statutory intent of the CHDO
set-aside requirement, which is the reason why it strengthened and
clarified the CHDO regulations in the 2013 final rule. However, the
Department believes that the possibility that a non-CHDO entity will
attempt to use this flexibility to access CHDO set-aside funds for a
project it controls, is not a sufficient justification to deny many
neighborhood-based nonprofit organizations the opportunity to
participate in the CHDO set-aside. This is particularly significant
because participating jurisdictions have the ability through recent
appropriation provisions to use uncommitted CHDO set-aside funds for
other HOME activities after two years. Participating jurisdictions and
CHDOs must themselves be alert to efforts to evade the regulatory
requirements applicable to CHDO set-aside funds.
HUD also notes that under the sponsorship provisions of the current
HOME regulations, two CHDOs that work in the same area are permitted to
be the partners of the ownership entity, as long as one of the CHDOs is
in charge of the project.
D. Request for Greater Flexibility Under Sec. 92.300(a) To Allow for
Grant-to-Loan or Other Pass-Through Lending Structures To Facilitate
Tax Credit Transactions
Commenters asked HUD to consider permitting alternative funding
structures with HOME funds for LIHTC projects, for example, allowing
the participating jurisdiction to lend or grant the HOME funds to a
CHDO which in turn would have an agreement to loan or contribute the
HOME funds to the project.
HUD Response: A participating jurisdiction may not grant or provide
HOME funds to an entity that then lends the HOME funds to the owner of
an affordable rental project because HOME statutory and regulatory
requirements require the participating jurisdiction to ensure
compliance with HOME requirements through binding contractual
agreements with the project owner. A participating jurisdiction may
only provide HOME funds to an entity to lend to the owner of an
affordable rental project if the entity is a subrecipient to the
participating jurisdiction. See HOMEfires, Vol. 16 No. 1, September
2021, (HUD discusses the statutory and regulatory provisions governing
how HOME project owners are assisted).
E. Ownership by a CHDO Throughout the Period of Affordability and
Transfers of Ownership in Sec. 92.300(a)
Commenters stated that they support the proposed change to
eliminate the requirement that HOME-assisted rental projects must be
owned by the CHDO during the period of affordability. Commenters stated
that allowing conveyance of the CHDO-developed or -sponsored project to
eligible private nonprofits would create an additional opportunity for
long-term preservation and ongoing operation of existing properties.
Some commenters stated that permitting a transfer of ownership to a
non-CHDO when necessary to maintain compliance with HOME program
requirements will help preserve HOME-assisted stock of affordable
housing and preserve HOME affordability requirements.
Commenters questioned why the same ability was not extended to
projects under the CHDO ownership role and advocated that HUD make that
change in the final rule. One commenter said that the same difficulties
HUD cites with respect to housing that is ``developed'' and
``sponsored'' by CHDOs, also applies to housing owned by CHDOs and
urged HUD to consider eliminating the requirement that the project be
owned by a CHDO throughout the period of affordability at Sec.
92.300(a)(2) in addition to paragraphs (a)(3) and (a)(4).
Commenters stated that they support the proposal to eliminate the
requirement that HOME-assisted rental projects must be owned by the
CHDO during the period of affordability. Several commenters requested
that HUD issue sub-regulatory guidance on how to affect such a
transfer. Another commenter recommended that the final rule explicitly
state that ownership transfers are permitted when necessary to sustain
a CHDO project and maintain compliance with HOME affordability
requirements and requested HUD issue sub-regulatory guidance to
facilitate such transfers.
One commenter stated that when such transfers occur, the regulation
should permit the participating jurisdiction to impose alternative
affordability restrictions at the time of transfer, if the transfer is
for the purpose of refinancing the property under the LIHTC program.
Two commenters opposed the proposed changes that would permit
transfer of CHDO set-aside projects to entities that are not CHDOs. One
commenter recommended that HUD grant hardship exceptions rather than
changing the regulations, stating that the change would allow for a
CHDO-
[[Page 854]]
developed project to be transferred to a for-profit organization that
has no connection to the community to benefit from the asset in the
long-term. Another commenter stated that they prefer that CHDOs
maintain ownership and asked for additional clarity on how the HOME
Program proposed rule incentivizes CHDOs to maintain ownership rather
than sell ownership.
A commenter requested additional clarity on whether CHDOs are
required to maintain ownership of rental housing for the full term of
affordability.
HUD Response: HUD appreciates the comments. In response to
commenters recommending that HUD extend the flexibility provided to
projects developed by a CHDO under paragraph (a)(3) and sponsored by a
CHDO under (a)(4) to projects owned by the CHDO under Sec.
92.300(a)(2), HUD believes that projects that were funded under the
CHDO ownership model should continue to be owned by a CHDO throughout
the period of affordability. HUD appreciates the suggestion that it
provide hardship exceptions rather than revising the rule. However, HUD
has been involved in situations in which a transfer had to occur on a
timeframe inconsistent with a case-by-case waiver or exception process.
HUD agrees with the commenter that recommended that the final rule
explicitly state that ownership transfers are permitted when necessary
to sustain a CHDO project and maintain compliance with HOME
affordability requirements. As described in the preamble to the
proposed rule, HUD intended to apply this flexibility to instances
involving a CHDO's bankruptcy, decrease in capacity, or other business
necessity that requires sale or other transfer of the housing to
preserve the viability or affordability of the project. However, the
proposed rule language was more permissive than intended. Consequently,
while HUD is adopting the flexibility, it also is revising the final
rule to make clear that a participating jurisdiction may permit a CHDO
to sell or otherwise convey housing to a nonprofit organization that is
not a CHDO only if determines and documents that the CHDO no longer has
the capacity to own and manage the housing for the full period of
affordability and there are no CHDOs with capacity to own and manage
the project for the full period of affordability. This provision would
prohibit transfer of a CHDO project to an entity that does not qualify
for a CHDO for routine reasons such as refinancing of a project at the
end of a LIHTC period.
F. Clarify CHDO Ownership Role
A commenter asked for additional clarity regarding whether a CHDO
is always required to be the sole owner or if it is permitted for CHDOs
to have partners that are co-owners.
HUD Response: The Department thanks the commenter for reviewing the
proposed rule. A CHDO is not always required to be the sole owner of a
rental housing project. Specifically, rental project partnerships are
permitted under the CHDO ``sponsor'' definition if the CHDO, or its
wholly owned subsidiary, is the managing general partner of a limited
partnership or the managing member of a limited liability company.
G. Clarify How a CHDO May Share Responsibilities as a Developer Under
Sec. 92.300(a)
Commenters supported HUD's proposed changes to Sec. 92.300(a)(3)
to permit the CHDO to share responsibilities in the development
process, provided that the CHDO remains in charge of these
responsibilities. Several commenters recommended that HUD better
describe the sharing of responsibilities when the CHDO acts as
developers in Sec. 92.300(a)(2), by stating that it means
``partnering, contracting, or procuring services from other entities.''
These commenters requested that HUD include ``project management'' in
the list of responsibilities that may be shared or contracted.
HUD Response: HUD thanks commenters for their support of this
provision. HUD declines to add project management to the list of
responsibilities that may be shared as the term is vague and open to
interpretation, whereas the list of responsibilities included in the
proposed rule are discrete and easily understood. HUD is adopting the
proposed rule language and, in response to comments, is adding language
describing the mechanisms through which responsibilities can be shared
and decision-making retained.
H. Removal of CHDO in Sponsored Limited Partnerships ``for cause'' in
Sec. 92.300(a)
A commenter supported the proposed change to sponsorship of rental
housing in Sec. 92.300(a)(4)(i) that would allow a sponsored CHDO's
limited partnership or limited liability company to be removed ``for
cause'' as the managing general partner or managing member, provided
that the CHDO must be replaced by another CHDO. The commenter
recommended HUD issue sub-regulatory guidance to facilitate transfers
necessary to sustain CHDO projects.
HUD Response: HUD thanks the commenter and notes that this is not a
change from the existing rule.
I. Opposition to the 10 Percent Limitation on Homeownership Assistance
to Homebuyer in CHDO Homeownership Projects in Sec. 92.300(a)
One commenter noted that only 10 percent of the funds awarded to a
CHDO for development of housing may be used for downpayment assistance,
which is in high demand. The commenter urged HUD to increase the 10
percent threshold and coordinate with Congressional partners, where
appropriate, to allow greater flexibility in the 10 percent ceiling.
HUD Response: HUD is declining to make a change at this time. The
downpayment assistance provided as part of a HOME homeownership project
developed by a CHDO is only intended to be a small part of the overall
homeownership program. HUD had proposed 10 percent as part of a
previous rulemaking and this provision was not being revised as part of
this rulemaking (see 78 FR 44628 for the final rule, 76 FR 78344 at
78359 for proposed rule).
J. Encourage Participating Jurisdictions To Allow CHDOs To Retain
Project Proceeds
One commenter recommended that HUD encourage participating
jurisdictions to allow CHDOs to retain proceeds from the sale of
housing developed, owned, or sponsored by the CHDO, as permitted under
Sec. 92.300(a)(6)(ii).
HUD Response: Because HOME is a block grant program, each
participating jurisdiction has the discretion to determine whether to
allow an organization to retain proceeds from the sale of housing in
accordance with Sec. 92.300(a)(6)(ii). This determination can be fact-
sensitive and organization- or deal-specific. It is best made by the
participating jurisdiction in consideration of local housing needs.
K. Provide Easier Format for Designating a CHDO
One commenter urged HUD to issue clarification on the registration
requirements for CHDOs in a format that can be shared with
organizations because many nonprofits struggle to understand and meet
the requirements. The commenter pointed to the CHDO toolkit checklist
as an example of clear guidance and urged HUD to align HUD guidance
with the checklist.
[[Page 855]]
HUD Response: There is no set format or ``registration
requirements'' for an organization to be determined to be a CHDO under
the regulations. In accordance with Sec. 92.300(a), ``[t]he
participating jurisdiction must certify the organization as meeting the
definition of ``community housing development organization'' and must
document that the organization has capacity to own, develop, or sponsor
housing each time it commits funds to the organization.'' The
definition of CHDO is found in Sec. 92.2. The Department intends on
providing further implementation guidance on qualifying an organization
as a ``community housing development organization'' under the revised
definition in Sec. 92.2. The Department will ensure that its guidance
is aligned with the requirements and will consider other guidance
materials that are currently available.
L. Frequency of CHDO Designation in Sec. 92.300(a)
Commenters stated that HUD should remove the current requirement
that ties CHDO certification to a HOME-funded project and make
certification independent of project-based funding as well as allow
certification to be valid for three years. The commenters stated that
participating jurisdictions could certify a CHDO for three years and
then use a simpler ``desktop certification'' process to confirm the
organization is still eligible whenever funding is requested. A
commenter expressed disappointment that the proposed rule does not
address the administrative burden of CHDO certification and stated that
CHDOs should be certified periodically instead of on a project-by-
project basis.
HUD Response: The Department is declining to change the frequency
with which a participating jurisdiction must certify that a CHDO meets
the definition in Sec. 92.2 and demonstrates capacity to develop a
HOME project. Tying this requirement to the date of commitment is the
most consistent approach to implementing the set-aside provisions
contained in 42 U.S.C. 12771, which does not contemplate an extended
qualification process or a continuous designation for CHDOs. Further,
the Consolidated Appropriations Act of 2012 (P. Law 112-55) and
Consolidated Appropriations Act of 2013 (P. Law 113-6) stated that a
participating jurisdiction may not reserve funds to a CHDO unless it
has determined that the CHDO has paid staff with demonstrated
development experience, thereby further reinforcing that Congress
intended for the CHDO certification process to be a determination made
each time a new CHDO project is assisted with set-aside funds.
The requirement that qualification as a CHDO be examined each time
a CHDO is funded was included in the Consolidated Appropriation Acts
and the 2013 HOME final rule to address the prevalence of participating
jurisdictions providing CHDO set-aside funds to organizations that
lacked adequate development capacity to successfully complete projects.
This lack of due diligence by participating jurisdictions resulted in
significant numbers of incomplete and failed projects, which took
several years to resolve through repayments by participating
jurisdictions to their HOME accounts. In addition to questions of
capacity, examining a CHDO's qualifications before committing CHDO set-
aside funds ensures that a CHDO meets requirements related to the
governing board and other provisions, which will also prevent
noncompliance. HUD is unable to make this change based on the
provisions of the Act but also believes that the regulation is critical
to ensuring HOME compliance and successful completion of projects.
M. HUD Should Allow Wholly Owned For-Profit Subsidiaries in Sec.
92.300(a)(4)
One commenter believed that HUD should not revise paragraph (a)(4)
to require that wholly owned subsidiaries of CHDOs be nonprofit
organizations.
HUD Response: HUD thanks the commenter for reviewing the proposed
rule. HUD agrees that a subsidiary of a CHDO may be either a for profit
or non-profit entity and is making the change.
N. HUD Should Add Additional Oversight Requirements to Sec. 92.300(a)
One commenter recommended that HUD add a subparagraph (a)(8) to
implement explicit oversight requirements allowing participating
jurisdictions to evaluate the CHDO's ongoing participation in the
project as required under (2)-(6).
HUD Response: The Department thanks the commenter for reviewing the
proposed rule. This is already a requirement for participating
jurisdictions, which under Sec. 92.504(a) includes ``ensuring that
HOME funds are used in accordance with all program requirements and
written agreements, and taking appropriate action when performance
problems arise.'' Additionally, Sec. 92.504(a) also requires that the
``participating jurisdiction must have and follow written policies,
procedures, and systems, including a system for assessing risk of
activities and projects and a system for monitoring entities consistent
with this section, to ensure that the requirements of this part are
met.'' Participating jurisdictions have the flexibility to determine
how best to engage in ongoing oversight of the project owners and
projects that it funds, consistent with Sec. 92.504 and the
requirements of part 92. Consequently, additional regulatory language
is not required to require or permit such oversight, and the Department
is declining to make the change.
O. HUD Should Clarify the Effect of the Revisions to Sec. 92.300(b)
A commenter requested clarification on the provision allowing up to
20 percent of the minimum CHDO set-aside to be committed to
organizations that meet all but the capacity requirement.
HUD Response: The Department is revising Sec. 92.300(b) to allow
for new participating jurisdictions that do not have existing CHDOs
with capacity to award up to 20 percent of the new participating
jurisdiction's set-aside funds in each of the participating
jurisdiction's first two years to organizations that meet all but the
capacity requirements contained in paragraph (9) of the CHDO definition
in Sec. 92.2. This will enable the 12 new participating jurisdictions
receiving their first HOME grants in Fiscal Year 2024 to use their CHDO
set-aside funds effectively as they begin to establish their HOME
programs.
P. HUD Should Explain the Conditions for Using Set-Aside Funds for non-
CHDO Projects
Commenters stated that before redesignating uncommitted CHDO funds
as non-CHDO funds, HUD should require a participating jurisdiction to
demonstrate that it took all available actions to use the funds for
CHDO-eligible projects. One commenter recommended that HUD require
participating jurisdictions to document that it completed a specific
set of actions, including: (1) provide the full five percent of CHDO
operating funds under Sec. 92.208; (2) provide the full amount of
capacity building funding under Sec. 92.300(b); and (3) implement
``revolving CHDO fund'' policies, sometimes known as ``CHDO proceeds''
policies, to make their CHDO program as attractive and additive to
capacity building growth, as possible.
HUD Response: Congress via HUD Appropriations Acts annually
provides relief to participating jurisdictions by enabling them without
limitation to redesignate any CHDO set-aside funds that have not been
committed to a project within 24 months for use in non-CHDO projects.
As explained in the
[[Page 856]]
following paragraphs, HUD is declining to add additional limitations
beyond those contained in NAHA and HUD Appropriations Acts.
The requirement in 42 U.S.C. 12771(b) states that if any CHDO funds
``remain uninvested for a period of 24 months, then the Secretary shall
deduct such funds from the line of credit in the participating
jurisdiction's HOME Investment Trust Fund and make such funds available
by direct reallocation . . . .'' By statute, HUD is required to
recapture and reallocate any funds that are not committed to projects
developed, sponsored, or owned by CHDOs within 24 months.
The requirement in 42 U.S.C. 12742 was suspended by section 233 of
Division G of the Consolidated Appropriations Act, 2019 (Pub. L. 116-
6). Specifically, section 233 of Public Law 116-6 stated, ``[s]ection
231(b) of such Act shall not apply to any uninvested funds that
otherwise were deducted or would be deducted from the line of credit in
the participating jurisdiction's HOME Investment Trust Fund in 2018,
2019, 2020, or 2021 under that section.'' The 2020, 2021, 2022, 2023,
and 2024 appropriations acts added 2022, 2023, 2024, 2025, and 2026
respectively, to the years covered by the suspension.\70\
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\70\ Title II, Division H, Pub. L. 116-94 (133 Stat. 2989);
Title II, Division L, Pub. L. 116-260, (134 Stat. 1881); Title II,
Division L, Pub. L. 117-103 (136 Stat. 742); Title II, Division L,
Pub. L. 117-328 (136 Stat. 5156); Title II, Division F, Pub. L. 118-
42 (138 Stat. 361).
---------------------------------------------------------------------------
Additionally, section 242 of Division K of the Consolidated
Appropriations Act, 2017 (Pub. L. 115-31) suspended the 24-month
commitment deadline requirement set forth in Section 218(g) of NAHA (42
U.S.C. 12748(g)). Section 242 of Public Law 115-31 stated that
``Section 218(g) of the Cranston-Gonzalez National Affordable Housing
Act (42 U.S.C. 12748(g)) shall not apply with respect to the right of a
jurisdiction to draw funds from its HOME Investment Trust Fund that
otherwise expired or would expire in 2016, 2017, 2018, or 2019 under
that section.'' The 2018, 2019, 2020, 2021, 2022, 2023, and 2024
appropriations acts added 2020, 2021, 2022, 2023, 2024, 2025, and 2026
respectively, to the years covered by the suspension.\71\
---------------------------------------------------------------------------
\71\ Section 235, Title II, Division L, Pub. L. 115-141; Section
233, Title II, Division K, Pub. L. 116-6; Title II, Division H, Pub.
L. 116-94 (133 Stat. 2988); Title II, Division L, Pub. L. 116-260,
(134 Stat. 1881); Title II, Division L, Pub. L. 117-103 (136 Stat.
742); Title II, Division L, Pub. L. 117-328 (136 Stat. 5156); Title
II, Division F, Pub. L. 118-42 (138 Stat. 361).
---------------------------------------------------------------------------
The combined effect of the suspension of the 2-year commitment
deadline at Section 218(g) of NAHA and the suspension of the 24-month
CHDO reservation requirement at Section 231(b) of NAHA means that HUD
will no longer deobligate a participating jurisdiction's CHDO set-aside
funds that remain uncommitted to CHDO projects after 24 months of HUD
obligating the participating jurisdiction's grant, or HOME funds that
become uncommitted from a CHDO project after the 24-month deadline.
Instead, a participating jurisdiction may continue to accumulate those
funds for CHDO set-aside projects or may request HUD allow the funds to
be used for non-CHDO projects consistent with its guidance.\72\ HUD
does not believe this is an area that it could or should further
regulate, given the ongoing Congressional action taken in this area of
the HOME requirements.
---------------------------------------------------------------------------
\72\ https://www.hud.gov/sites/dfiles/CPD/documents/HOMEfires-Vol-18-No1-CHDO-Setasidefunds.pdf.
---------------------------------------------------------------------------
Q. HUD Should Create a Public-Facing List of CHDOs
One commenter recommended that HUD create and maintain a publicly
available annual list of organizations certified as CHDOs with the
information already submitted to participating jurisdictions. The
commenter noted that it is currently challenging for researchers,
intermediaries, capacity building organizations, and others to research
trends among CHDOs, target non-governmental capacity building resources
to CHDOs, and evaluate the extent to which the CHDO Program is meeting
its goals. A commenter stated that HUD should create, maintain, and
make publicly available on its website the organizations certified as
CHDOs based on already available information.
HUD Response: The Department does not have access to a list of
designated and currently active CHDOs, as each participating
jurisdiction is required to determine an organization's status on a
project-by-project basis at the time of commitment (see Sec. 92.2 and
earlier responses to comment on this issue). Moreover, the Department
is unsure of the merit of obtaining information relative to the burden
of continuously obtaining and updating this information. There is no
guarantee that an organization that has met the qualifications of a
CHDO in a given year for a specific project will continue to meet those
criteria continuously. As the HOME requirements are based on a single
point in time, at project commitment, and do not convey a CHDO's status
for a specific period of time, whatever information is reflected on a
list may not prove to be accurate at the time the participating
jurisdiction wishes to commit funds to the organization. The Department
will continue to consider how to better facilitate the participation of
CHDOs in the HOME program. However, this rulemaking is not the
appropriate method to convey this information.
R. CHDO Oversight
A commenter requested additional clarity regarding how
participating jurisdictions can use granted funds for the CHDO and how
oversight will be conducted regarding this issue.
HUD Response: In accordance with Sec. 92.300, a participating
jurisdiction may use up to 15 percent of its HOME allocation for CHDO
set-aside activities including housing that is owned, developed or
sponsored by the CHDO. The HOME regulations at Sec. 92.504 require a
participating jurisdiction to ensure that HOME funds are used in
accordance with all program requirements and written agreements and
take appropriate action when performance problems arise. In addition,
the participating jurisdiction must have and follow written policies,
procedures, and systems, including a system for assessing risk of
activities and projects and a system for monitoring program partners,
including CHDOs, to ensure all HOME requirements are met.
S. Changes to the CHDO Set-Aside
Two commenters recommended that HUD expand the range of activities
eligible for the CHDO set-aside (i.e., housing owned, developed, or
sponsored by a CHDO). One commenter stated that HUD should allow CHDO
operating funds to be used in conjunction with TBRA to encourage more
utilization of this activity in the HOME program.
Another commenter suggested that HUD permit participating
jurisdictions to use CHDO set-aside funds to rehabilitate homes for
existing low-income owner-occupants. The commenter explained that in
areas without CHDOs, owner-occupied repair would be a low-barrier entry
point for local nonprofit organizations to become CHDOs. The commenter
stated that the ability of these nonprofits to move to administratively
more difficult and costlier work, like new construction, is limited by
their ability to grow their capacity.
A commenter stated that HUD should eliminate the CHDO set-aside
requirement and permit participating jurisdictions, whether in rural or
urban areas, to exercise discretion in the amount of HOME funds they
will award
[[Page 857]]
to a CHDO. The commenter stated that HUD's CHDO set-aside requirement
hinders communities who have unqualified and inexperienced CHDOs or no
eligible CHDO and affect the timeliness of meeting the encumbrance and
expenditure deadline. Another also recommended that HUD eliminate the
CHDO set-aside, stating that many community development entities do not
want to change their board composition and can still access the non-
CHDO portion of their participating jurisdiction's HOME funds. This
commenter opined that the 15 percent CHDO set-aside is too small to be
useful.
One commenter supported an increase in CHDO set asides for
homeownership, not just rentals, as the current 10 percent leaves
participating jurisdictions unable to assist CHDOs.
HUD Response: The CHDO set-aside is statutory. 42 U.S.C. 12771(a)
states that ``[f]or a period of 24 months after funds . . . are made
available to a jurisdiction, the jurisdiction shall reserve not less
than 15 percent of such funds for investment only in housing to be
developed, sponsored, or owned by CHDOs . . .''
The Department does not have the discretion to consider tenant-
based rental assistance or homeowner rehabilitation activities to be
eligible for the CHDO set-aside, even if they are administered by a
CHDO. The participating jurisdiction must enter into a subrecipient
agreement with the CHDO to perform those projects. The Department
cannot eliminate or reduce the percentage of HOME funds that are set-
aside nor require that an additional amount be set-aside beyond that
which is required in the Act.
Sec. 92.352--Environmental Review
One commenter requested HUD permit reliance on a single part 58
Environmental Review by multiple participating jurisdictions funding a
project. For example, if a city and county are both providing HOME
funds to a project and one of the jurisdictions completes a part 58
Environmental Review, HUD should allow the other jurisdiction to rely
on this review for its determination and notification.
One commenter recommended that HUD add language to Sec. 92.352
that would expressly permit upcoming guidance from HUD's Office of
Environment and Energy regarding the Fiscal Responsibility Act of 2023
to be followed. The commenter recommended adding a paragraph (b)(4)
that would read, ``(4) HUD or the jurisdiction may utilize a
Categorical Exclusion and environmental review from other Federal
agencies under the Fiscal Responsibility Act of 2023 and implementing
regulations adopted by The Council on Environmental Quality (CEQ) and
guidance from HUD's Office of Environment and Energy, when issued.''
HUD Response: The environmental review requirements contained in 24
CFR part 58 are outside the scope of this rulemaking. However, HUD
notes that 24 CFR 58.14 allows cooperating responsible entities to
prepare a single review for activities that require an Environmental
Assessment or Environmental Impact Statement, if the coordinated and
overall review responsibilities are established through a written
agreement and the lead agency is responsible for preparing the review,
coordinating consultation (including designating a lead agency for
compliance with Section 106 of the National Historic Preservation Act
pursuant to 36 CFR 800.2(a)(2)), and approving the review.
Sec. 92.356--Conflict of Interest
A commenter stated that they support the proposed change to the
conflict of interest requirements.
HUD Response: The Department appreciates the commenter's review of
the rule. The Department is making one minor revision for clarity to
the conflict of interest requirements to state that of the publication
methods, ``a combination of at least two of'' the list provided will be
sufficient. The Department believes this will be clearer in what the
Department means by ``combination.''
Sec. 92.502--Program Disbursement and Information System
A commenter stated that they support the proposed removal of the
requirement that participating jurisdictions enter HOME project
completion within 120 days of the final project draw because the four-
year project completion is already in place to ensure compliance.
HUD Response: HUD thanks the commenter for reviewing the rule and
is moving forward with this change.
Sec. 92.503--Program Income, Repayments, and Recaptured Funds
A. Program Income Streamlining
One commenter stated that HUD should create a narrow exception to
the standard full review process for any use of program income.
Specifically, the commenter proposed HUD streamline review for
instances where there is no construction of a new unit and the
participating jurisdiction, State, or local recipient is in good
standing. This streamlining would allow HOME funds to recycle more
rapidly and therefore support more low-income families.
HUD Response: HUD permits participating jurisdictions to allow
Subrecipients and State Recipients to retain program income through the
written agreement provisions of Sec. 92.504. HUD believes this is the
only time that a participating jurisdiction should be allowed to permit
a streamlined process, as the State Recipient or Subrecipient already
has an ongoing relationship under a written agreement with the
participating jurisdiction. HUD also notes that the current HOME rule
at Sec. 92.503(d) permits participating jurisdictions to retain
program income received during its program year, include program income
on-hand in its next annual action plan, and commit the program income
to specific projects.
B. Recaptured Funds for CHDO Projects
One commenter stated that Sec. 92.503(c) refers to a participating
jurisdiction allowing a CHDO to retain recaptured funds, which
contradicts provisions in Sec. 92.504(c)(3)(ii)(B) that require CHDOs
to return recaptured funds. The commenter noted that this issue could
be fixed by replacing ``. . .unless the participating jurisdiction
permits the State recipient, subrecipient, or CHDO to retain . . .''
with ``. . .unless the participating jurisdiction permits the State
recipient or subrecipient to retain . . .''
HUD Response: The commenter is mistaken. The current rule and this
final rule permit CHDOs to retain funds recaptured when a HOME-assisted
homebuyer sells their home during the period of affordability and use
those funds for additional HOME projects pursuant to the written
agreement required by Sec. 92.504. There is no contradiction in the
current regulations. Paragraph Sec. 92.504(c)(3)(x), the current
regulation addressing CHDO projects, states that ``[r]ecaptured funds
are subject to the requirements of Sec. 92.503.'' Paragraph Sec.
92.503(c) of the current rule, as the commenter points out, states that
CHDO may retain recaptured funds as follows: ``Recaptured funds must be
deposited in the participating jurisdiction's HOME Investment Trust
Fund local account unless the participating jurisdiction permits the
State recipient, subrecipient, or community housing development
organization to retain the recaptured funds for additional HOME
projects pursuant to the written agreement required by Sec. 92.504.''
[[Page 858]]
Sec. 92.504--Participating Jurisdiction Responsibilities; Written
Agreements
One commenter cited to the written agreement provisions in Sec.
92.504 and stated that participating jurisdictions should be permitted
to require subrecipients, include members of a consortium to establish
and comply with their own requirements, including income
determinations, underwriting and subsidy layering, rehabilitation
standards, refinancing guidelines, homebuyer program policies, and
affordability requirements. The commenter stated that this change is
important because the subrecipient or consortium member may be serving
a different area or population where the participating jurisdiction's
requirements may not be appropriate.
HUD Response: HUD has established minimum requirements that
participating jurisdictions must place into their written agreements
with subrecipients in Sec. 92.504(c)(2). In many of these cases, HUD
permits participating jurisdictions to create policies and procedures
and implement their own standards so long as those standards meet or
exceed HUD's minimum requirements. This allows participating
jurisdictions the discretion to create jurisdiction-specific
requirements such as underwriting standards, income verification
methods, rehabilitation standards, etc. This type of discretion is due
to HOME's nature as a block grant program. This type of discretion is
warranted under statute and regulations because HUD's relationship is
with the participating jurisdiction, and the participating jurisdiction
has both certified to comply with program requirements and executed a
grant agreement with HUD that makes them ultimately responsible in the
event of program violations. Subrecipients do not have a direct
contractual relationship with HUD and so certain requirements must be
created and enforced by the participating jurisdiction and cannot be
delegated to a Subrecipient. HUD did not propose revisions to this
portion of Sec. 92.504(c)(2) and is declining to make this change to
allow Subrecipients to create their own requirements. HUD notes that
consortium members are not subrecipients to the consortium, as they are
part of the participating jurisdiction (i.e., the consortium) itself.
However, the lead entity of the consortium must enter into written
agreements that meet the requirements of Sec. 92.504(c)(2) with
consortium members to which it is distributing funds.
Sec. 92.551--Corrective and Remedial Actions
A commenter stated that they support the proposed change that would
allow participating jurisdictions to correct a deficiency in a HUD
finding by taking a reduction in a HOME grant equal to the amount of
HOME expenditures that were not in compliance with HOME requirements.
Another commenter stated support for HUD's clarification on sanctions,
in which HUD may permit a voluntary grant reduction in a participating
jurisdiction's HOME grants, as long as the participating jurisdiction
chooses which grant to reduce.
HUD Response: HUD appreciates the comments and is adopting the
proposed rule language without change.
Specific solicitation of comment #1: The Department specifically
solicits public comment about any additional changes it should
consider, within statutory constraints, that will improve CHDO
availability and capacity in rural areas.
A. Eligibility for Participants in USDA Mutual Help Housing and
Homeownership Programs
Commenters stated that CHDO rules should allow mutual self-help
housing to be CHDO-eligible under the definition of owner, sponsor, or
developer. The commenters stated that the proposed rule is not clear on
whether a nonprofit can operate a USDA Rural Development Section 523
mutual self-help housing program as a CHDO, but the rule should allow
this as CHDO eligible. Commenters recommended providing targeted
technical assistance to CHDOs in rural areas hoping to access HOME CHDO
set-aside funds.
One commenter further suggested that HUD should explicitly allow
families to qualify for HOME funding based on the low-income limits of
the USDA's Section 502 Homeownership Direct Loan Program, when the HOME
project is either constructed via Section 523 Mutual Self-Help Housing
or sold via the USDA Section 502 Loan Program.
HUD Response: HUD recognizes that nonprofits operating Section 523
mutual self-help housing programs successfully assist very low- and
low-income households to build homes in rural areas. However, the
Section 523 model does not qualify as homeownership housing developed
by a CHDO under Sec. 92.300(a)(6). As commenters noted, these
nonprofit organizations do not maintain fee simple ownership of the
land and housing throughout the construction period, as required by
Sec. 92.300(a)(6). Further, the Section 523 grantee's role managing
homebuyers' mutual self-help activities is distinct from that of a
housing developer with control of project financing and construction.
HUD therefore declines to make a change to HOME CHDO regulations. HUD
also notes that the income-banding approach used in USDA programs is
not permissible under the HOME program statute. Consequently, HUD is
not making changes to the final rule based on these comments.
B. Technical Assistance on HOME Requirements May Assist Rural CHDOs and
Participating Jurisdictions
One commenter stated that rural CHDOs often require targeted and
specific technical assistance to succeed in competitive funding cycles
and can benefit from local partnerships and business relationships and
urged HUD to consider what existing regulations may limit those
partnerships and rectify the barriers. One commenter recommended
provision of targeted technical assistance around HOME underwriting
requirements such as pro-forma development to support rural CHDOs
applying for competitively awarded State HOME funds. A commenter also
suggested that HUD provide participating jurisdictions with training on
how to proactively award CHDO capacity building funds, such as when
they see multiple unawarded funding applications from a rural CHDO.
HUD Response: One commenter recommended providing technical
assistance on HOME underwriting requirements, such as pro forma
development for rural CHDOs. The HOME statute states that if a
participating jurisdiction is unable to identify a sufficient number of
capable community housing development organizations within the first 24
months of their participation in the HOME program, the participating
jurisdictions may allocate up to 20 percent of its funds--up to a
maximum of $150,000--to activities that develop the capacity of CHDOs.
In response, while training participating jurisdictions on how to award
capacity-building funds to develop rural CHDOs is commendable, it will
not assist many CHDOs since most participating jurisdictions have been
in the program for more than 24 months. However, HUD has developed a
CHDO training program that participating jurisdictions can use to train
on CHDO requirements. Participating jurisdictions may also request
direct technical assistance to build CHDO capacity, especially in rural
areas where multiple applications go
[[Page 859]]
unfunded due to organizational capacity limitations.
HUD also appreciates the suggestion to expand eligible activities
for rural CHDOs to include the rehabilitation of owner-occupied homes
and USDA Section 523 mutual self-help housing. While these activities
support rural housing initiatives, the entities involved do not
develop, own, or sponsor housing investments, which does not align with
the statutory intent for a CHDO under HOME. The statute requires CHDOs
to develop, sponsor, or own housing as a core requirement for
participating in the HOME program.
C. Change How a Person Is Determined as Low-Income for Purposes of Low-
Income Board Representation Requirements in Paragraph (5) of the
Definition of Community Housing Development Organization in Sec. 92.2
One commenter recommended that HUD factor in a county's median
income rather than median incomes of counties State-wide and that the
county's median income be considered in CHDO board representation
requirements of low-income residents or organizations.
HUD Response: HUD thanks the commenter for reviewing the proposed
rule. However, Title I of NAHA defines low-income families as
``families whose incomes do not exceed 80 percent of the median income
for the area, as determined by the Secretary with adjustments for
smaller and larger families, except that the Secretary may establish
income ceilings higher or lower than 80 percent of the median for the
area on the basis of the Secretary's findings that such variations are
necessary because of prevailing levels of construction costs or fair
market rents, or unusually high or low family incomes.''
HUD is declining to make this change because the current regulation
faithfully implements the statute and introducing different standards
for what constitutes low-income into the program will create confusion
and potential noncompliance.
D. HUD Should Examine and Remove Barriers for Nonprofits in Rural
Communities
One commenter wants participating jurisdictions to make concerted
efforts to remove barriers for nonprofit organizations in rural
communities and encouraged HUD to examine barriers that maybe
inadvertently be caused by participating jurisdiction policy and
determine whether the barriers are disproportionately impacting rural
areas.
HUD Response: HUD thanks the commenter for reviewing the proposed
rule. HUD agrees that participating jurisdictions should take steps to
remove unnecessary barriers to rural nonprofit organizations to become
CHDOs. HOME is a block grant program, and participating jurisdictions
are free to establish policies and procedures for their programs. HUD
believes that a more appropriate role is for HUD to offer technical
assistance to participating jurisdictions interested in facilitating
the entry of CHDOs to their programs.
Sec. 570.200--General Policies--Reimbursement for Pre-Award Costs
A commenter stated that they do not support changing the effective
date of the grant agreement to the date HUD executes the grant
agreement. The commenter noted that this change would require them to
front costs because HUD has timely executed grant agreements on only
two occasions in the last twelve funding cycles.
HUD Response: HUD appreciates the commenter's concern, especially
since it originates from a grantee with a program year start date of
July 1 or later, which accounts for more than 81 percent of Community
Development Block Grant (CDBG) entitlement grantees. HUD's proposed
change to the introductory text of 24 CFR 570.200(h), in conjunction
with the proposed addition to Sec. 92.212(b) for the HOME program, was
designed to eliminate the need for the Department to issue annual
waivers to assist the approximately 19 percent of grantees particularly
hampered in recent years by late Congressional appropriations. However,
HUD's proposed change to Sec. 570.200(h) decoupled the effective date
of a grant agreement from a grantee's program year start date and, as
the commenter noted, would have subjected it and hundreds of other
grantees with similar program year start dates to incurring pre-award
costs on an annual basis. HUD sees the need to maintain the connection
between the grant agreement effective date and program year start dates
to reserve pre-award costs to those incurred before a program year
start date. Therefore, HUD will retain the existing introductory text
to Sec. 570.200(h) and instead add a new Sec. 570.200(h)(3) that
makes the effective date of the grant agreement, in a year when an
annual appropriation occurs less than 90 days before a grant
recipient's program year start date, the earlier of either the program
year start date or the date that the consolidated plan is received by
HUD. This change addresses the commenter's concern, aligns CDBG better
with the new HOME program regulation at Sec. 91.212(b)(2), and
continues practices implemented through annual waivers.
Outside the Scope of the HOME Rulemaking
A. HUD Should Commission a Study of CHDOs
Commenters stated HUD should commission a study every three to five
years on the universe of nonprofit organizations that could potentially
become CHDOs, and the research could evaluate trends in CHDO
certification, financial health, production, and organizational needs.
HUD Response: The Department thanks the commenters for reviewing
but believes that the study that the commenters are requesting is
beyond the scope of this rulemaking. The Department will consider this
area as a research area in the future.
B. HUD Should Consider Metrics To Evaluate Needs of Rural Communities
and Tribes
One commenter encouraged HUD to consider metrics to measure the
needs of rural and Tribal communities, and to encourage States to use
HOME funds for projects that meet those identified needs.
HUD Response: The Department is declining to develop metrics and
measures on rural or Tribal needs as part of this rulemaking.
Participating jurisdictions are required to engage in the consolidated
planning process in 24 CFR part 91. This evaluation includes the
consideration of the needs of rural communities within a participating
jurisdiction, including rural homelessness. Separately, Tribes assisted
under the Indian Housing Block Grant program engage in the preparation
of an Indian Housing Plan in accordance with 24 CFR part 1000, subpart
C. This includes an evaluation of housing needs for each assisted
Tribe. Each of these planning processes enables HUD grantees to
identify housing needs using their own data and metrics, as well as
HUD-provided data, and determine how to best address the challenges
within their jurisdictions. Additionally, these plans are public
facing, thereby allowing the public to review the data as it sees fit.
C. HUD Should Increase Section 8 Assistance
A commenter stated that HUD should increase funding allocations to
HAP budgets to cover increased rents because of the expected increase
of rent charged to PBVs and HCVs. The commenter
[[Page 860]]
noted that this change is necessary so as not to reduce the number of
vouchers available. Another commenter requested an increase in the HAP
budget for Section 8 programs to account for the additional rent costs
that will result from applying the HOME rent limit only to the tenant
contribution to rent. Another commenter urged HUD to consider the
impact of participating jurisdiction to regulate the HOME rent limits
on units assisted by PBV that this issue will have on a PHA's overall
per unit cost and the long-term consequences for PHA budgets.
HUD Response: While HUD is revising the rent reasonableness
regulations for the Section 8 program, Section 8 funding is beyond the
scope of this rulemaking.
D. Lead-Based Paint Regulations in 24 CFR Part 35 Should Be Updated
One commenter stated that HUD's current lead paint regulations are
out-of-date given higher construction costs and extended requirements.
The commenter recommended that the ranges that determine intervention
level be updated to the following: (1) Lead-safe work practices less
than $20,000; (2) interim controls between $20,001 and $50,000; and (3)
abatement for more than $50,000.
HUD Response: Lead-based paint requirements are outside the scope
of this rulemaking. HUD did not propose any revisions to 24 CFR part 35
or to how HUD applies lead-based paint requirements to the HOME
program. Further, the dollar thresholds in the part 35 regulations are
established in Section 1012 of Title X of the Housing and Community
Development Act of 1992 and are statutory for the HOME program.\73\
---------------------------------------------------------------------------
\73\ See 42 U.S.C. 12742(a)(5) and 42 U.S.C. 4822 for the lead-
based paint requirements for HOME.
---------------------------------------------------------------------------
E. Provide Build America, Buy America Guidance
Commenters expressed frustration over the limited Buy America,
Build America (BABA) waiver availability and increased cost incurred
due to sourcing domestic materials. Commenters stated that the lack of
guidance from HUD on BABA compliance has further compounded challenges
for developers and contractors, hindering their ability to provide
feedback and navigate problems. A commenter stated that HUD should
clarify the impact of BABA on the green building standards because the
impact is unclear at this time.
HUD Response: BABA is beyond the scope of this rulemaking. The
Department is developing guidance on how to implement BABA for HUD
programs. Until this guidance is developed, HUD cannot determine the
effect of BABA compliance on the green building incentive or overall
compliance with the HOME final rule.
F. Create a Risk-Lowering Pilot Program
One commenter recommended that HUD should consider creating a
``risk-lowering pilot program for nonprofit affordable housing
developers.'' The commenter suggested that the pilot program it
suggests might offer a preapproval for nonprofits that enables those
organization to bid for HOME funding with no or low environmental
review process-based risk. The commenter stated that in the program it
suggests that a limited number of nonprofits could enter an agreement
with HUD that guarantees HUD reimbursed costs for environmental reviews
for unsuccessful applicants. The commenter noted that the pilot program
could be designed in a way that it would not cover overhead costs of
the nonprofit but only cover the hard costs of specialists. The
commenter stated that this design would lower the risk of high pre-
development costs being lost. The commenter suggested that this pilot
program could be targeted at CHDOs already partnering with HUD or else
be based on nonprofit operating budgets, geographic targeting, or other
community characteristics, such as persistent poverty counties.
HUD Response: Establishing a pilot program of the nature
contemplated by the commenter is beyond the scope of this rulemaking.
The Department recognizes that environmental requirements can pose a
challenge to many aspiring developers and owners. In recognition of
those challenges, HUD revised the regulations in Sec. 92.206(d) to
allow HUD environmental review or other environmental studies or
assessments to be reimbursable expenses if the participating
jurisdiction agrees to pay for those costs in the written agreement.
G. Issue Waivers To Better Enable HOME Homeownership Activities
One commenter asked HUD to provide waivers to Habitat for Humanity
chapters so that participating jurisdictions can assist more with
following HOME guidelines.
HUD Response: HUD appreciates the comment but is uncertain what
types of waivers the commenter is recommending. Outside of
Presidentially-declared disasters or national emergencies, the
Department is declining to announce the availability of waivers for the
HOME program. The Department will still consider waiver requests on a
case-by-case basis and determine whether the waiver states good cause
upon which relief can be granted in accordance with 24 CFR 5.110 and
applicable law.
H. Increase Opportunities for Persons With Disabilities
Another commenter stated that opportunities for HUD loans for
people with disabilities and those who may have medical needs should be
explored in every State and territory and that HUD must support those
who wish to rehabilitate homes in regard to accessibility. The
commenter emphasized the need for access to universally designed
housing for people with disabilities.
HUD Response: HUD thanks the commenter for reviewing the proposed
rule. The recommendation that HUD explore opportunities for HUD loans
for people with disabilities or medical needs is outside the scope of
this rulemaking. Other aspects of this rule are intended to provide
clarity and enhance affordable housing opportunities for eligible
beneficiaries, including individuals with disabilities. In addition,
accessibility requirements for programs and activities apply to HUD
recipients under HUD's existing Section 504 requirements, and housing
may be subject to additional accessibility requirements under the Fair
Housing Act and the Americans with Disabilities Act, as applicable.
I. HUD Should Perform Additional Rulemaking on the Consolidated
Planning Regulations at 24 CFR Part 91
One commenter recommended that HUD issue a separate advance notice
of proposed rulemaking (ANPR) regarding how the Consolidated Plan could
be improved and simplified. The commenter stated that the ANPR should
consider improvements to the Annual Action Plan (AAP) and Consolidated
Annual Performance and Evaluation Report (CAPER) with a special focus
on reducing redundancies across planning documents. The commenter also
urged HUD to facilitate greater consistency among local HUD offices in
how Consolidated Plans and related planning regulations and guidance
are interpreted.
HUD Response: HUD thanks the commenter. However, as the commenter
notes, the suggestion would require a separate rulemaking process and
is outside the scope of this rulemaking.
[[Page 861]]
J. Incentivizing Use of Section 8 Housing Choice Vouchers in LIHTC
Projects
A commenter said HUD should help communities develop non-
discriminatory language and potential administrative rules so that many
in the LIHTC system can access HCVs and adopt inclusive low-income
energy assistance standards. Generally, the commenter said HUD should
incentivize renting through HCVs and assisting communities by
incorporating sources of income discrimination.
HUD Response: By statute, owners of HOME-assisted rental housing
may not discriminate against persons with Section 8 voucher assistance
(42 U.S.C. 12745(a)(1)(D)). HUD is expanding this protection to include
a source of income protection for all forms of Federal tenant-based
rental assistance provided to an applicant of HOME-assisted rental
housing through this final rule. Incentivizing HCV utilization in LIHTC
projects or in housing that is not HOME-assisted is beyond the scope of
rulemaking.
K. Provide Guidance on Participating Jurisdiction-Imposed Unit Caps in
HOME Rental Housing Programs
One commenter suggested that HUD should provide guidance to
participating jurisdictions on maximum unit counts. For example, the
commenter stated in one State, there is a 56-unit maximum rule for HOME
funds, and that maximum makes HOME projects ineligible for utilizing
four percent tax credits. Additionally, the commenter explained that
anything less than a 100-unit maximum creates additional barriers to
building integrated, inclusive housing communities for people with and
without disabilities (i.e., HUD Section 811 PRA).
HUD Response: The commenter's request for guidance is outside the
scope of this rulemaking and HUD declines to make a change. The HOME
regulations require that the HOME funds be cost-allocated in multi-unit
properties to ensure that, at a minimum, an appropriate number of units
are designated as HOME-assisted units; however, they do not cap the
number of HOME-assisted units in a project. A participating
jurisdiction imposed this cap as a matter of policy and any appeal
should be handled at that level.
L. Healthy Homes Requirements Should Be Integrated Into Environmental
Review Requirements for HUD Programs
One commenter stated HUD should integrate healthy home inspection
requirements into environmental assessments as well as cover them under
the eligible cost framework. The commenter recommended that HUD use the
healthy homes standard under 42 U.S.C. 711, the Maternal, Infant, and
Early Childhood Home Visit Program. The commenter stated this standard
is useful because it focuses on those most at risk from poor indoor air
quality and would capture the health effects on a significant number of
residents in public housing.
HUD Response: HUD appreciates the comment. However, the required
elements of environmental reviews conducted under 24 CFR part 58 are
outside the scope of this rulemaking, and HUD declines to make any
change.
M. Rents Under Tenant-Based Rental Assistance
One commenter asked if HUD has considered changing the requirement
from the fair market rent to rent reasonableness.
HUD Response: HUD thanks the commenter. While HUD is revising the
rent reasonableness regulations for the Section 8 program, HUD is not
revising the rent reasonable requirement used in HOME tenant-based
rental assistance programs. This is beyond the scope of this
rulemaking.
V. Severability
Consistent with the requirements of the Administrative Procedure
Act, HUD has carefully responded to all public comments received in
response to its notice of proposed rulemaking and acted within its
statutorily delegated authority in the promulgation of regulations that
are consistent with the Act. Nonetheless, if any provision of this
final rule, or any provision of 24 CFR part 92, is held to be invalid
or unenforceable as applied to any action, that provision should be
construed so as to continue to give the maximum effect to the provision
permitted by law. If such holding is that the provision of this part is
invalid and unenforceable in all circumstances, then HUD views each
provision as severable from the remainder of this part and a finding
that a provision is invalid should not affect the remaining provisions.
Additionally, if a provision should be held to be invalid or
unenforceable, HUD would have its predecessor provision, the equivalent
provision in effect prior to this rulemaking, come back into effect. As
this rulemaking is comprehensive and concerns all aspects of the HOME
program, the Department recognizes the need to maintain the regulations
to the maximum effect, if permissible, and to sever them as necessary
if a court challenge prevails. This provides stability for
participating jurisdictions, which must rely upon regulations for all
activities, regardless of litigation or court orders affecting certain
provisions or for certain activities.
VI. Findings and Certifications
Regulatory Review--Executive Orders 12866, 13563, and 14094
Under Executive Order 12866 (Regulatory Planning and Review), a
determination must be made regarding whether a regulatory action is
significant and, therefore, subject to review by the Office of
Management and Budget 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.'' Executive Order 13563 also directs that, where relevant,
feasible, and consistent with regulatory objectives, and to the extent
permitted by law, agencies identify and consider regulatory approaches
that reduce burdens and maintain flexibility and freedom of choice for
the public. Executive Order 14094 (Modernizing Regulatory Review)
amends section 3(f) of Executive Order 12866, among other things.
Updating the HOME program regulation is consistent with the objectives
of Executive Order 13563 to reduce burden, as well as the goal of
modifying and streamlining regulations that are outmoded and
ineffective.
This final rule revises the HOME program regulations, which were
first promulgated in 1991, and have not been significantly updated
since 2013. This final rule: revises CHDO qualification requirements
for community-based non-profit housing organizations to access CHDO
set-aside funds to own, develop, and sponsor affordable housing;
revises HOME rent requirements to implement statutory changes made to
the U.S. Housing Act of 1937 by section 2835(a)(2) of HERA; facilitates
the use of HOME funds for small one-to-four-unit rental projects;
incentivizes inclusion of ambitious Green Building standards in new
construction, reconstruction, and rehabilitation projects; and expands
flexibilities for community land trusts to participate in the HOME
program. The final rule also provides enhanced flexibility in TBRA
programs; strengthens and expands tenant protections; and clarifies the
resale requirements for homeownership housing. The final rule also
includes
[[Page 862]]
technical amendments or simplifications to certain changes made in the
2013 HOME Final Rule, the HOTMA Final Rule, and the NSPIRE Final Rule.
This final rule was determined to be a significant regulatory action
under section 3(f) of Executive Order 12866, as amended by Executive
Order 14094, but was not deemed to be significant under section
3(f)(1).
Regulatory Impact Analysis
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 https://www.regulations.gov.
As described in the RIA, HUD anticipates that the economic impact
of the final rule will be almost entirely within the HOME program. In
other words, the changes to the HOME program will affect what
participating jurisdictions do with the HOME funds they receive from
HUD and how projects that accept this funding source operate. Many of
the policy adjustments will only have a practical impact if
participating jurisdictions choose to respond to the policy adjustments
by altering how they use HOME funds. HUD strongly encourages the public
to view the docket file.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.)
generally requires an agency to conduct a regulatory flexibility
analysis of any rule subject to notice and comment rulemaking
requirements unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
This rule aims to improve the HOME program by making several changes to
the program's regulations through increasing flexibility for grantees
in using their HOME grants, streamlining administrative requirements,
implementing statutory changes regarding rent restrictions in HOME
rental projects, and enhancing tenant protections for HOME-assisted
rental households. As described in the RIA, HUD anticipates that the
economic impacts of this rule will be almost entirely within the HOME
program. In other words, the changes to the HOME program will affect
what participating jurisdictions do with the HOME funds they receive
from HUD and how projects that accept this funding source operate. Many
of the policy adjustments will only have a practical impact if
participating jurisdictions choose to respond to them by altering how
they use HOME funds. For the reasons presented, the undersigned
certifies that this rule will not have a significant economic impact on
a substantial number of small entities.
Environmental Impact
A Finding of No Significant Impact (FONSI) with respect to the
environment was made, at the proposed rule stage, in accordance with
HUD regulations in 24 CFR part 50 that implement section 102(2)(C) of
the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)).
The FONSI remains applicable to this final rule and is available
through the docket file at https://www.regulations.gov. The FONSI is
also available for public inspection during regular business hours in
the Regulations Division, Office of General Counsel, Room 10276,
Department of Housing and Urban Development, 451 Seventh Street SW,
Washington, DC 20410-0500. Due to security measures at the HUD
Headquarters building, you must schedule an appointment in advance to
review the FONSI by calling the Regulations Division at 202-708-3055
(this is not a toll-free number). 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.
Federalism--Executive Order 13132
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has Federalism implications if the rule
either: (i) imposes substantial direct compliance costs on State and
local governments and is not required by statute, or (ii) preempts
State law, unless the agency meets the consultation and funding
requirements of section 6 of the Executive Order. This final rule does
not have Federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive Order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) (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 final rule does not
impose any Federal mandates on any State, local, or Tribal governments,
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 OMB in accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned the OMB
control number 2506-0171. In accordance with the Paperwork Reduction
Act, an agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information, unless the collection
displays a currently valid OMB control number.
The final rule would change the annual income determination
requirement for households assisted with HOME TBRA from annual to when
a new rental assistance contract must be executed, which can be as long
as 2 years, which reduces the burden hours. The final rule includes a
new provision in 24 CFR 92.250 to increase the maximum subsidy limit
allowed for HOME projects based on whether the project shall meet a
more comprehensive property standard that includes Green Building
criteria, which would lead to a slight increase in burden for
participating jurisdictions with qualified projects. The final rule
would amend 24 CFR 92.252 to eliminate the requirement that a
participating jurisdiction must submit to HUD a marketing plan for any
HOME-assisted rental units that have not achieved initial occupancy
within six months of project completion in IDIS, which would reduce the
reporting burden on participating jurisdictions with unoccupied HOME-
assisted rental units. The final rule adds paragraph (g)(1) to 24 CFR
92.252 to permit an owner of small-scale housing to re-examine annual
income every three years, rather than annually, therefore reducing
burden for income determination. The tenancy lease addendum, described
in 24 CFR 92.253, replaces multiple, separate functions, and results in
a decrease in paperwork burden. The changes in 24 CFR 92.300 to define
the qualifications for a CHDO result in increased applications and
certification, which may lead to an increase of paperwork burden.
Overall, the final rule results in a net decrease of burden by 28,852
total estimated annual burden hours.
The burden of the information collections in this final rule is
estimated as follows:
[[Page 863]]
Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
Estimated
Number of average time Total
24 CFR section reference Number of Frequency of responses per for estimated
parties responses party requirements annual burden
(hours) (hours)
----------------------------------------------------------------------------------------------------------------
Sec. 92.252(g)(1) Small 2,000 Annual.............. 1 2 4,000
scale housing income
determination.
Sec. 92.209(c)(1) Annual 72,000 Annual.............. 1 0.75 54,000
income determination for
TBRA.
Sec. 92.250 Increase 188 Annual.............. 1 2 376
maximum subsidy limits for
ambitious green building.
Sec. 92.253 Tenant 6,667 Annual.............. 1 3 20,001
protections (including lease
addendum requirement).
Sec. 92.300 Designation of 600 Annual.............. 1 1.5 900
CHDOs.
Sec. 92.251 Property 6,000 Annual.............. 1 3 18,000
standards and inspection
requirements.
Sec. 92.252 6-month 60 Annual.............. 1 1 60
marketing plan for
unoccupied rental units.
Sec. 92.507 Grant closeout 652 Annual.............. 1 1 652
procedures.
----------------------------------------------------------------------------------------------------------------
List of Subjects
24 CFR Part 91
Aged, Grant programs--housing and community development, Homeless,
Individuals with disabilities, Low and moderate income housing,
Reporting and recordkeeping requirements.
24 CFR Part 92
Administrative practice and procedure; 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 982
Grant programs--housing and community development; Grant programs--
Indians; Indians; Public housing; Rent subsidies; Reporting and
recordkeeping requirements.
For the reasons stated in the preamble, HUD amends 24 CFR parts 91,
92, 570, and 982 as follows:
PART 91--CONSOLIDATED SUBMISSIONS FOR COMMUNITY PLANNING AND
DEVELOPMENT PROGRAMS
0
1. The authority citation for part 91 continues to read as follows:
Authority: 42 U.S.C. 3535(d), 3601-3619, 5301-5315, 11331-11388,
12701-12711, 12741-12756, and 12901-12912.
Sec. 91.220 [Amended]
0
2. Amend Sec. 91.220 by:
0
a. Removing the words ``affordability period'' and adding in their
place the words ``period of affordability'' in paragraph (l)(2)(iv)(B);
0
b. Removing ``92.254(a)(2)(iii)'' and adding in its place
``92.254(a)(2)(iv)'' in paragraph (l)(2)(v);
0
c. Removing ``92.253(d)'' and adding in its place ``92.253(e)'' in
paragraph (l)(2)(vii)(D);
0
d. Removing paragraph (l)(2)(viii).
Sec. 91.320 [Amended]
0
3. Amend Sec. 91.320 by:
0
a. Removing the words ``affordability period'' and adding in their
place the words ``period of affordability'' in paragraph (k)(2)(iv)(B);
0
b. Removing ``92.254(a)(2)(iii)'' and adding in its place
``92.254(a)(2)(iv)'' in paragraph (k)(2)(v);
0
c. Removing ``92.253(d)'' and adding in its place ``92.253(e)'' in
paragraph (k)(2)(vii)(D);
0
d. Removing paragraph (k)(2)(viii).
PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM
0
4. The authority citation for part 92 continues to read as follows:
Authority: 42 U.S.C. 3535(d) and 12701-12839; 12 U.S.C. 1701x.
0
5. Amend Sec. 92.2 by:
0
a. Removing the definition of ``ADDI funds'';
0
b. In the definition of ``Commitment'' by removing the word
``official'' in paragraph (1) introductory text and adding in its place
the word ``officials'', by removing the word ``downpayment'' in
paragraph (1)(i) and adding in its place the word ``homeownership'', by
removing the words ``or subrecipient'' wherever it appears in paragraph
(2)(ii)(A), by removing the words ``owner or the tenant'' in paragraph
(2)(iii) and adding in their place the words ``owner and tenant'', and
by adding paragraph (2)(ii)(C);
0
c. Revising paragraphs (4), (5), (8)(i), and (9) in the definition of
``Community housing development organization'';
0
d. Adding a definition for ``Community land trust'' in alphabetical
order;
0
e. Removing the definitions of ``Displaced homemaker'' and ``First-time
homebuyer'';
0
f. In the definition of ``Homeownership'' by revising the introductory
text and paragraph (1) and by removing the words ``Low Income Housing
Tax Credits'' in paragraph (4) and adding in their place the words
``Low-Income Housing Credits (26 U.S.C. 42)'';
0
g. In the definition of ``Housing'' by removing the words ``single-
family dwellings'' and adding in their place the words ``single family
housing units'';
0
h. Adding a definition for ``Period of affordability'' in alphabetical
order;
0
i. Revising the introductory text and paragraphs (2) and (3) in the
definition of ``Program income'';
0
j. Revising the last sentence in the definition of ``Reconstruction'';
0
k. Removing the words ``one-to four-family'' and adding in their place
the words ``one-to four-unit'' in the definition of ``Single family
housing'';
0
l. Removing the definition of ``Single parent'';
0
m. Removing the word ``dwelling'' and adding in its place the word
``housing'' the definition of ``Single room occupancy (SRO) housing'';
0
n. Adding a definition for ``Small-scale housing'' in alphabetical
order;
0
o. Removing the semicolon after ``this part'' and the words ``however,
for purposes of the American Dream Downpayment Initiative (ADDI)
described in subpart M of this part, the term ``state'' does not
include the Commonwealth of Puerto Rico (except for FY2003 ADDI
funds)'' in the definition of ``State'';
[[Page 864]]
0
p. Revising the definition of ``State recipient'';
0
q. In the definition of ``Subrecipient'' by removing the words ``public
agency'' wherever they appear and adding in their place the words
``governmental entity'', by removing the word ``downpayment'' and
adding in its place the word ``homeownership'', and by removing the
word ``solely''; and
0
r. Removing the word ``dwelling'' wherever it appears and adding in its
place the word ``housing'' in the definition of ``Tenant-based rental
assistance''.
The additions and revisions read as follows:
Sec. 92.2 Definitions.
* * * * *
Commitment: * * *
(2) * * *
(ii) * * *
(C) If the participating jurisdiction (or State recipient or
subrecipient) is providing HOME funds to a family to acquire single
family housing for homeownership that does not meet the participating
jurisdiction's property standards, as described in Sec. 92.251(c)(3),
then the commitment must meet the requirements of this paragraph
(2)(ii)(C). The participating jurisdiction (or State recipient or
subrecipient) and the family must have executed a written agreement
under which HOME assistance will be provided for the purchase of the
single family housing. The written agreement will require the property
to meet the standards in accordance with Sec. 92.251(c)(3) and will
require the property title to be transferred to the family within six
months of the agreement date.
* * * * *
Community housing development organization * * *
(4) Is tax exempt as follows:
(i) The private nonprofit organization has a tax exemption ruling
from the Internal Revenue Service under section 501(c)(3) or (4) of the
Internal Revenue Code of 1986 (26 CFR 1.501(c)(3)-1 or 1.501(c)(4)-1));
(ii) The private nonprofit organization is a subordinate
organization that has been included in its 501(c)(3) or (4) central
organization's group exemption letter by the Internal Revenue Service;
or
(iii) The private nonprofit organization is wholly owned by the
community housing development organization, as defined in this part,
and is disregarded as an entity separate from its owner organization
for Federal tax purposes.
(5) Is not a governmental entity (including the participating
jurisdiction, other jurisdiction, Indian Tribe, public housing
authority, Indian housing authority, housing finance agency, or
redevelopment authority) and is not controlled by a governmental
entity. An organization that is created by a governmental entity may
qualify as a community housing development organization; however, no
more than one-third of the board members of the organization may be
officials or employees of the participating jurisdiction or
governmental entity that created the community housing development
organization. Further, no governmental entity may have the right to
appoint more than one-third of the organization's board members. The
board members appointed by a governmental entity and the board members
that are officials or employees of the participating jurisdiction or
governmental entity that created the organization may not appoint any
of the remaining two-thirds of the board members. The officers or
employees of a governmental entity may not be officers or employees of
a community housing development organization;
* * * * *
(8) * * *
(i) Maintaining at least one-third of its governing board's
membership for residents of low-income neighborhoods, low-income
beneficiaries of HUD programs, other low-income community residents,
designees of low-income neighborhood organizations, or designees of
nonprofit organizations in the community that address the housing or
supportive service needs of low-income residents or residents of low-
income neighborhoods, including homeless providers, Fair Housing
Initiatives Program providers, Legal Aid, disability rights
organizations, and victim service providers. For urban areas,
``community'' may be a neighborhood or neighborhoods, city, county, or
metropolitan area; for rural areas, it may be a neighborhood or
neighborhoods, town, village, county, or multi-county area (but not the
entire State); and
* * * * *
(9) Has a demonstrated capacity for carrying out housing projects
assisted with Federal funds, Low-Income Housing Credits (26 U.S.C. 42),
Federal Home Loan Bank Affordable Housing Program (12 U.S.C. 1430)
funds, or local and State affordable housing funds.
(i) To satisfy this requirement and demonstrate capacity as a
developer of a HOME-assisted project, the nonprofit organization must
have paid employees with housing development experience who will work
directly on the HOME-assisted project. Where the paid employees of the
organization do not demonstrate capacity to develop a HOME-assisted
project alone, the experience of paid employees may be supplemented by
board members or officers of the organization that are volunteers. If a
nonprofit organization is demonstrating capacity using a volunteer
board member's or officer's experience, the volunteer may not be
compensated by or have their services donated by another organization.
For its first year of funding as a community housing development
organization, an organization may satisfy this requirement through a
contract with a consultant who has housing development experience to
train appropriate key, paid staff of the organization;
(ii) An organization that will own housing must demonstrate
capacity to act as owner of a project and meet the requirements of
Sec. 92.300(a)(2);
(iii) An organization that will sponsor housing must demonstrate
capacity as a developer or capacity to act as owner, as described in
paragraphs (9)(i) and (ii) of this definition; and
* * * * *
Community land trust means a nonprofit organization that:
(1) Has as its primary purposes acquiring, developing, or holding
land to provide housing that is permanently affordable to low-income
persons;
(2) Is not sponsored or controlled by a for-profit organization;
(3) Uses a lease, covenant, agreement, or other enforceable
mechanisms to require housing and related improvements on land held by
the community land trust to be affordable to low-income persons for at
least 30 years; and
(4) Retains a right of first refusal or preemptive right to
purchase the housing and related improvements on land held by the
community land trust to maintain long-term affordability.
* * * * *
Homeownership means ownership in fee simple title in single family
housing or an equivalent form of ownership approved by HUD.
(1) The land upon which the housing is located may be owned in fee
simple or the homeowner may have a ground lease for the lowest of the
following time periods, as applicable:
(i) For housing, the ground lease must be for 99 years or more;
(ii) For housing located in an insular area, the ground lease must
be 40 years or more;
(iii) For housing located on Indian trust or restricted Indian
lands or a
[[Page 865]]
Community Land Trust, the ground lease must be 50 years or more; or
(iv) For manufactured housing, the ground lease must be for a
period at least equal to the applicable period of affordability in
Sec. 92.254.
* * * * *
Period of affordability means the period of time, as specified in
Sec. Sec. 92.252 and 92.254, that requirements under this part apply
to HOME-assisted housing.
* * * * *
Program income means gross income received by the participating
jurisdiction, State recipient, or a subrecipient at any time, generated
from the use of HOME funds or matching contributions. When program
income is generated by housing that is only partially assisted with
HOME funds or matching funds, the program income shall be the amount
prorated to reflect the percentage of HOME funds invested in the
project. Program income includes, but is not limited to, the following:
* * * * *
(2) Gross income from the use or rental of real property, owned by
the participating jurisdiction or State recipient that was acquired,
rehabilitated, or constructed, with HOME funds or matching
contributions, less costs incidental to generation of the income.
Program income does not include gross income from the use, rental, or
sale of real property received by the project owner or developer,
unless all or a portion of the income must be paid to the participating
jurisdiction, subrecipient, or State recipient, in which case, the
amount that must be paid to the participating jurisdiction,
subrecipient, or State recipient is program income;
(3) Payments and repayments on grants, loans (i.e., principal and
interest), or investments made using HOME funds or matching
contributions, including such payments and repayments made after the
period of affordability;
* * * * *
Reconstruction * * * Reconstruction is rehabilitation for purposes
of this part, except that the property standards for new construction
in Sec. 92.251(a) apply to all reconstruction projects.
* * * * *
Small-scale housing means a rental housing project of no more than
four units or a homeownership project with no more than three rental
units on the same site.
* * * * *
State recipient means a unit of general local government designated
by a State participating jurisdiction to receive HOME funds to
administer all or some of the State participating jurisdiction's HOME
programs, own or develop affordable housing, provide homeownership
assistance, or provide tenant-based rental assistance.
* * * * *
0
6. Revise Sec. 92.3 to read as follows:
Sec. 92.3 Applicability of 2025 regulatory changes.
This part applies to projects based on when an income determination
is made or when the HOME funds for the project were committed, as
applicable. Projects where the HOME funds were committed before a
certain date may be subject to previous versions of this part. This
section provides instruction regarding which version of this part
applies.
(a) Effective date of this part as it exists on February 5, 2025.
Except as described in this section, this part, as it exists on
February 5, 2025 is applicable to projects for which HOME funds are
committed on or after February 5, 2025. A participating jurisdiction
must perform income determinations in accordance with Sec. 92.203
after February 5, 2025.
(b) One year compliance period. Participating jurisdictions are
permitted to choose to continue to comply with the requirements of this
part as they existed on February 4, 2025 for commitments made on or
before February 5, 2026.
(c) Delayed compliance date for income determinations.
Participating jurisdictions are permitted to continue to comply with
the income determination requirements in accordance with Sec. 92.203
that the participating jurisdiction was implementing on February 4,
2025 until February 5, 2026, or longer as determined by HUD.
(d) Applicability of this part as it exists on February 5, 2025 to
prior agreements. A participating jurisdiction may choose to amend its
written agreements for funds committed prior to February 5, 2025 to
conform to the requirements of this part, except that:
(1) Certain costs allowed to be reimbursable under Sec.
92.206(d)(1) and (2), as effective February 5, 2025 may only be
included in written agreements for projects if the participating
jurisdiction committed the HOME funds for the project on or after
February 5, 2025.
(2) Requesting an increase in maximum per-unit subsidy in
accordance with Sec. 92.250(c) is only permitted for projects if the
participating jurisdiction committed the HOME funds for the project on
or after February 5, 2025.
(3) Use of the revised dollar thresholds for the periods of
affordability in Sec. Sec. 92.252 and 92.254 is only permitted for
projects if the participating jurisdiction committed the HOME funds for
the project on or after February 5, 2025.
(4) Tenant protections provided in Sec. 92.253, including the
tenancy addenda requirements in Sec. 92.253(b) through (d), apply for
rental housing projects if the participating jurisdiction committed the
HOME funds for the project, entered into the rental assistance
contract, or entered into an agreement to provide security deposit
assistance on or after February 5, 2025.
(5) The revisions to the roles of community housing development
organizations in owning, developing, and sponsoring affordable housing
in Sec. 92.300 only apply if the participating jurisdiction committed
the community housing development organization set-aside funds for the
project on or after February 5, 2025.
(e) The following table summarizes the information provided in this
section:
Table 1 to Paragraph (e)--Summary of Effective Dates and Compliance
Deadlines
------------------------------------------------------------------------
2025 Rule effective date February 5, 2025
------------------------------------------------------------------------
Applicability.......................... Rule applies to projects for
which HOME funds are committed
on or after February 5, 2025.
Compliance Date........................ Participating jurisdictions
must set compliance date: as
early as February 5, 2025, and
no later than February 5,
2026.
Exceptions for Income Determinations... Participating jurisdictions
must set compliance date: as
early as February 5, 2025, and
no later than February 5,
2026.
[[Page 866]]
Participating jurisdictions may
continue to calculate income
in accordance with the
provisions that were being
implemented by the
participating jurisdiction on
February 4, 2025 until
compliance date set by the
participating jurisdiction, or
longer as determined by HUD.
Applicability Limitations.............. Listed provisions are not
applicable to commitments made
to projects prior to February
5, 2025. Participating
jurisdictions may not amend
written agreements of projects
with commitments existing
prior to February 5, 2025 to
incorporate any of the
following provisions:
Sec. 92.206(d)(1) and (2).
Sec. 92.250(c).
Sec. Sec. 92.252 and
92.254.
Sec. 92.253.
Sec. 92.300.
------------------------------------------------------------------------
Sec. 92.50 [Amended]
0
7. Amend Sec. 92.50 in paragraph (c)(3) by removing the words ``poor
households'' and adding in their place the words ``households below the
poverty line''.
0
8. Amend Sec. 92.101 by revising paragraphs (a) introductory text and
(d) and adding paragraph (g) to read as follows:
Sec. 92.101 Consortia.
(a) A consortium of geographically contiguous units of general
local government is a unit of general local government for purposes of
this part if the requirements of this section are met. A unit of
general local government separated by a body of water that is only
accessible by the public through a permanent means other than a
connecting road, bridge, railway, or highway may be considered
geographically contiguous if the consortium demonstrates that the unit
of general local government separated by the body of water is part of
the same housing market and local commuting area as one or more members
of the consortium. A local commuting area is the geographic area that
encompasses neighborhoods where people live and are reasonably expected
to routinely travel back and forth to a common employment hub,
population center, or worksite.
* * * * *
(d) If the representative unit of general local government
distributes HOME funds to member units of general local government, the
representative unit is responsible for applying to the member units of
general local government the same requirements as are applicable to
subrecipients, including the written agreement requirements in Sec.
92.504(c)(2).
* * * * *
(g) If a consortium changes its representative unit of general
local government but retains the same membership, the consortium shall
still be considered the same unit of general local government for
purposes of this part. If the representative unit of general local
government changes and the composition of the consortium changes,
either by adding or removing individual members, then the consortium
shall be a new unit of general local government for purposes of this
part and shall be required to comply with all applicable consolidated
plan requirements in 24 CFR part 91.
0
9. Amend Sec. 92.201 by:
0
a. Adding a sentence to the end of paragraph (a)(2);
0
b. Removing the last sentence of paragraph (b)(2); and
0
c. Removing the word ``ensure'' and adding in its place the word
``require'' in paragraph (b)(3)(i).
The addition reads as follows:
Sec. 92.201 Distribution of assistance.
(a) * * *
(2) * * * A participating jurisdiction may not commit HOME funds to
a project outside its jurisdiction and within the boundaries of a
contiguous local jurisdiction until it has secured the financial
contribution of the jurisdiction in which the project is located.
* * * * *
0
10. Amend Sec. 92.203 by:
0
a. Revising the section heading and paragraph (a) introductory text;
0
b. Removing the words ``must accept'' and adding in their place the
words ``may accept'' in paragraph (a)(1);
0
c. Redesignating paragraph (a)(3) as paragraph (a)(4);
0
d. Adding a new paragraph (a)(3);
0
e. Revising the paragraph (b) heading;
0
f. Removing the word ``any'', adding the word ``two'' after the phrase
``one of the following'', and removing ``Sec. 92.252(h)'' and adding
in its place ``Sec. 92.252(g)'' in paragraph (b)(1) introductory text;
0
g. Revising paragraph (b)(1)(ii);
0
h Removing paragraph (b)(1)(iii);
0
i. Revising paragraph (b)(2);
0
j. Adding paragraph (b)(3);
0
k. Revising the paragraph (c) heading;
0
l. Removing ``Sec. Sec. 5.609(a) and (b) of this title'' and adding in
its place ``24 CFR 5.609(a) and (b)'' in paragraph (c)(1);
0
m. Revising paragraph (d);
0
n. In paragraph (e)(1), removing ``Sec. 5.618 of this title'' wherever
it appears and adding in its place ``24 CFR 5.618'' and removing
``Sec. 5.609(a)(2) of this title'' and adding in its place ``24 CFR
5.609(a)(2)'';
0
o. Revising paragraph (e)(2);
0
p. Removing ``Sec. 5.617 of this title'' and adding in its place ``24
CFR 5.617'' in paragraph (e)(3);
0
q. In paragraph (f)(1)(i), removing ``Sec. 5.611(a) of this title''
and adding in its place ``24 CFR 5.611(a)'' and removing ``Sec. Sec.
5.611(c) through (e) of this title'' and adding in its place ``24 CFR
5.611(c) through (e)'';
0
r. In paragraph (f)(1)(ii), removing ``Sec. 92.252(b)(2)(i)'' wherever
it appears and adding in its place ``Sec. 92.252(a)(2)(ii)'', removing
``Sec. 5.611(a) of this title'' and adding in its place ``24 CFR
5.611(a)'', and removing ``Sec. Sec. 5.611(c) through (e) of this
title'' and adding in its place ``24 CFR 5.611(c) through (e)'';
0
s. In paragraph (f)(1)(iii), removing ``Sec. 92.252(i)(2)'' and adding
in its place ``Sec. 92.252(h)(2)'' and removing ``Sec. 5.611(a) of
this title'' and adding in its place ``24 CFR 5.611(a)''; and
0
t. Revising paragraph (f)(2).
The revisions and additions read as follows:
Sec. 92.203 Income determinations.
(a) Income eligibility. To determine a family is income eligible,
the participating jurisdiction must determine the family's income as
follows:
* * * * *
[[Page 867]]
(3) If a family is applying, renewing, or entering into a new
rental assistance contract for tenant-based rental assistance pursuant
to Sec. 92.209, or applying for or living in a HOME-assisted rental
unit in accordance with Sec. 92.252, and the family is assisted by a
form of Federal, State, or local public assistance (e.g., TANF,
Medicaid, LIHTC, local rental subsidy programs, etc.) which examines
the annual income of the family each year, then a participating
jurisdiction may accept a written statement from a Federal or non-
Federal entity administering the assistance. The statement must
indicate the tenant's family size and state the amount of the family's
annual income. When accepting the statement from a government
administrator, the participating jurisdiction must still adjust income
in accordance with paragraph (f) of this section. The statement must be
for an income determination made within the previous 12-month period.
* * * * *
(b) Determining and documenting annual income.
(1) * * *
(ii) Obtain from the family a written statement or, where needed
due to disability, a statement in another format, 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. If there is
evidence that a tenant's statement and certification provided in
accordance with this paragraph (b)(1)(ii) failed to completely and
accurately state information about the family's size or income, a
tenant's income must be re-examined in accordance with paragraph
(b)(1)(i) of this section.
(2) For families applying for HOME homeownership activities (i.e.,
homeowners receiving rehabilitation assistance, homebuyers), 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.
(3) For families applying for or receiving tenant-based rental
assistance, the participating jurisdiction may determine annual income
for the family in accordance with either paragraph (a)(3) or (b)(1)(i)
of this section, as applicable. Income must be calculated at the times
described in Sec. 92.209(e)(3).
(c) Definitions of ``annual income.'' * * *
* * * * *
(d) Use of income definitions. A participating jurisdiction may use
either of the definitions of ``annual income'' in paragraph (c) of this
section, however, the participating jurisdiction may use only one
definition of ``annual income'' for each HOME-assisted program (e.g.,
homeownership assistance program) that it administers and only one
definition for each rental housing project. For rental housing projects
containing units assisted by a Federal or State project-based rental
subsidy program or tenants receiving Federal tenant-based rental
assistance, where a participating jurisdiction is accepting a public
housing agency, owner, or rental assistance provider's determination of
annual and adjusted income, the participating jurisdiction must
calculate annual income in accordance with paragraph (c)(1) of this
section so that only one definition of annual income is used in the
rental housing project.
(e) * * *
(2) The participating jurisdiction is not required to redetermine
the family's income eligibility at the time the HOME assistance (i.e.,
homeownership assistance and tenant-based rental assistance) is
provided, unless more than six months has elapsed since the
participating jurisdiction determined that the family is income
eligible.
* * * * *
(f) * * *
(2) If a unit is assisted by a Federal or State project-based
rental subsidy program, then a participating jurisdiction may accept
the public housing agency, owner, or rental subsidy provider's
determination of the family's adjusted income under that program's
rules.
0
11. Amend Sec. 92.205 by:
0
a. Revising paragraph (a)(2);
0
b. Removing the last sentence of paragraph (b)(1);
0
c. Adding paragraph (b)(3); and
0
d. Revising the first sentence of paragraph (e)(2).
The revisions and addition read as follows:
Sec. 92.205 Eligible activities: General.
(a) * * *
(2) Acquisition of vacant land or demolition may only be undertaken
for a project that will provide affordable housing and meets the
requirements for a specific local project in paragraph (2)(i) of the
definition of ``commitment'' in Sec. 92.2.
* * * * *
(b) * * *
(3) The participating jurisdiction must establish the terms of
assistance, subject to the requirements of this part.
* * * * *
(e) * * *
(2) If project completion, as defined in Sec. 92.2, does not occur
within 4 years of the date of commitment of funds for a specific local
project, the project is considered to be terminated, and the
participating jurisdiction must repay all funds invested in the project
to the participating jurisdiction's HOME Investment Trust Fund in
accordance with Sec. 92.503(b). * * *
0
12. Amend Sec. 92.206 by:
0
a. Removing ``Sec. 92.251'' and adding in its place ``Sec.
92.251(a)'' in paragraph (a)(1);
0
b. Removing ``Sec. 92.251'' and adding in its place ``Sec.
92.251(b)'' in paragraph (a)(2);
0
c. Removing the word ``single-family'' and adding in its place the
words ``single family'' in paragraph (b)(1);
0
d. Removing the words ``affordability period'' and adding in their
place the words ``period of affordability'' in paragraph (b)(2)
introductory text;
0
e. Revising paragraphs (b)(2)(ii), (c), and (d)(1), (2), and (8).
The revisions read as follows:
Sec. 92.206 Eligible project costs.
* * * * *
(b) * * *
(2) * * *
(ii) Require a review of management practices to demonstrate that
disinvestment in the property has not occurred, that the long-term
needs of the project can be met, and that the feasibility of serving
the targeted population over the minimum period of affordability of 15
years can be demonstrated;
* * * * *
(c) Acquisition costs. Costs of acquiring improved or unimproved
real property and costs for a long-term ground lease, including costs
of acquisition by homebuyers.
(d) * * *
(1) Architectural, engineering, or related professional services
required to prepare plans, drawings, specifications, work write-ups;
for HUD environmental reviews or other environmental studies,
assessments, or fees; and for certain costs to process and settle the
financing for a project, such as private lender origination fees,
credit reports, fees for title evidence, legal fees, accounting fees,
filing fees for zoning or planning review and approval, private
appraisal fees, fees for independent cost estimates, and other lender
required third-party reporting fees. The costs may
[[Page 868]]
be paid if they were incurred not more than 24 months before the date
that HOME funds are committed to the project and the participating
jurisdiction expressly permits HOME funds to be used to pay the costs
in the written agreement committing the funds.
(2) Fees for recordation and filing of legal documents, building
permits, and builders or developers fees.
* * * * *
(8) Cost of property insurance during development.
* * * * *
Sec. 92.207 [Amended]
0
13. Amend Sec. 92.207 in paragraph (e) by removing the words ``under a
cost allocation plan prepared''.
0
14. Amend Sec. 92.208 by adding paragraph (c) to read as follows:
Sec. 92.208 Eligible community housing development organization
(CHDO) operating expense and capacity building costs.
* * * * *
(c) An organization that meets the definition of ``community
housing development organization'' in Sec. 92.2, except for the
requirements in paragraph (9) of the definition, may receive HOME funds
for operating expenses in accordance with paragraph (a) of this section
in order to develop demonstrated capacity and qualify as a community
housing development organization.
0
15. Amend Sec. 92.209 by:
0
a. Removing the last sentence of paragraph (c)(1);
0
b. Revising paragraphs (c)(2)(iv), (c)(3), (e), (g), (h)(2),
(h)(3)(ii), and (i);
0
c. Removing the word ``dwelling'' and adding, in its place, the word
``housing'' in paragraph (j)(1);
0
d. Revising paragraph (j)(5);
0
e. Adding paragraph (j)(6);
0
f. Revising paragraph (k); and
0
g. Removing paragraph (l).
The revisions and addition read as follows:
Sec. 92.209 Tenant-based rental assistance: Eligible costs and
requirements.
* * * * *
(c) * * *
(2) * * *
(iv) Homebuyer program. HOME tenant-based rental assistance may
assist a tenant who has been identified as a potential low-income
homebuyer through a lease-purchase agreement, with monthly rental
assistance payments for a period up to 36 months (i.e., 24 months, with
a 12-month renewal in accordance with paragraph (e) of this section).
The HOME tenant-based rental assistance payment may not be used to
accumulate a downpayment or closing costs for the purchase; however,
all or a portion of the homebuyer-tenant's monthly contribution toward
rent may be set aside for this purpose, in accordance with the lease-
purchase agreement. If a participating jurisdiction determines that the
tenant has met the lease-purchase criteria and is ready to assume
ownership, HOME funds may be provided for homeownership assistance in
accordance with the requirements of this part.
* * * * *
(3) Existing tenants in projects that will receive HOME assistance.
A participating jurisdiction may select low-income families currently
residing in housing units that will be rehabilitated or acquired with
HOME funds under the participating jurisdiction's HOME program.
Participating jurisdictions using HOME funds for tenant-based rental
assistance programs may establish local preferences for the provision
of this assistance. Families so selected may use the tenant-based
rental assistance in the rehabilitated or acquired housing unit or in
other qualified housing.
* * * * *
(e) Rental assistance contract--(1) Parties to the rental
assistance contract. A participating jurisdiction must enter into a
rental assistance contract with the owner and the family. A
participating jurisdiction may have one agreement with the owner and a
separate agreement with the family, or one tri-party agreement with the
participating jurisdiction, the owner, and the family.
(2) Term of the rental assistance contract. The term of the rental
assistance contract providing assistance with HOME funds may not exceed
24 months, but the rental assistance contract may be amended or
renewed, subject to the availability of HOME funds. The term of the
rental assistance contract must begin on the first day of the term of
the lease or the beginning of the first month in which tenant-based
rental assistance is provided.
(3) Amending or renewing a rental assistance contract. (i) A rental
assistance contract within its term may only be amended through the
consent of all parties. A rental assistance contract may be amended:
(A) Because the lease between the family and owner has been amended
or renewed, if the lease term or amount charged under the lease are the
only terms of the contract being changed.
(B) To extend its term up to 24 months from the original date of
execution.
(C) When a tenant changes units within the same building or
development if the parties to the lease, the family size, and the
number of bedrooms in the housing remain the same.
(ii) Subject to the availability of HOME funds, a rental assistance
contract may be renewed after the expiration of its initial term.
(iii) In all other instances, the participating jurisdiction must
enter into a new rental assistance contract with the family and the
owner in accordance with this paragraph (e).
(4) Initial and subsequent income determinations. (i) Before the
participating jurisdiction enters into an initial or new rental
assistance contract with the family, the participating jurisdiction
must determine that the family is income eligible in accordance with
Sec. 92.203.
(ii) When a rental assistance contract is amended, the
participating jurisdiction will not be required to perform a new income
examination in accordance with Sec. 92.203.
(iii) Before a rental assistance contract is renewed, the
participating jurisdiction must determine that the family is income
eligible in accordance with Sec. 92.203.
(iv) If a family is participating in a HOME lease-purchase program
and receiving tenant-based rental assistance, then the participating
jurisdiction is only required to determine the family's income at the
time that the family enters into the lease-purchase agreement and does
not need to engage in further income examination during the term of the
lease-purchase agreement.
* * * * *
(g) Tenant protections. The tenant must have a lease that complies
with the requirements in Sec. 92.253. Upon termination of the rental
assistance contract, the HOME tenant-based rental assistance tenancy
addendum shall automatically terminate.
(h) * * *
(2) The participating jurisdiction must establish a minimum tenant
contribution to rent, except that the participating jurisdiction may
establish conditions in its written policies under which a tenant would
be relieved of all or a portion of the minimum contribution due to
financial hardship.
(3) * * *
(ii) The Section 8 Housing Choice Voucher Program payment standard
as determined in accordance with 24 CFR 982.503(a) through (c).
(i) Housing standards. The participating jurisdiction must require
the housing occupied by a family
[[Page 869]]
receiving tenant-based rental assistance under this section to meet the
participating jurisdiction's property standards under Sec. 92.251.
Initially and annually thereafter, the participating jurisdiction must
determine the housing complies with its property standards and is
decent, safe, sanitary, and in good repair in accordance with Sec.
92.251(f).
(j) * * *
(5) Paragraphs (b), (c), (d), (f), (g), and (i) of this section are
applicable when HOME funds are provided for security deposit
assistance, except that income determinations pursuant to paragraph
(c)(1) of this section and inspections pursuant to paragraph (i) of
this section are required only at the time the security deposit
assistance is provided.
(6) Surety bonds, security deposit insurance, or instruments
similar to surety bonds or security deposit insurance may not be used
in lieu of or in addition to a security deposit in units occupied by
tenants receiving tenant-based rental assistance.
(k) Program operation. A tenant-based rental assistance program
must be operated consistent with the requirements of this section. The
participating jurisdiction may operate the program itself or may
contract with a PHA or other entity with the capacity to operate a
rental assistance program. The tenant-based rental assistance may be
provided through a rental assistance contract in accordance with
paragraph (e) of this section. The participating jurisdiction (or
entity operating the program) must approve the lease.
0
16. Revise Sec. 92.210 to read as follows:
Sec. 92.210 Troubled HOME-assisted rental housing projects.
(a) The provisions of this section apply only to an existing HOME-
assisted rental project that, within the HOME period of affordability,
is no longer financially viable or its physical viability has
substantively deteriorated due to unforeseen circumstances.
(1) For purposes of this section, a HOME-assisted rental project is
no longer financially viable through the period of affordability if:
(i) The project's operating costs exceed its operating revenue,
considering project reserves;
(ii) The owner is unable to pay for necessary capital repair costs
or ongoing expenses for the project; or
(iii) The project reserves are insufficient to be able to operate
the project.
(2) For purposes of this section, physical viability means a
project's current or future ability to maintain affordability based on
the physical characteristics and factors of the project's site and
improvements.
(3) HUD may approve the actions described in paragraphs (b) and (c)
of this section to strategically preserve the affordability of a rental
project after consideration of market needs, available resources, and
the likelihood of the long-term physical and financial viability of the
project.
(b) Notwithstanding Sec. 92.214, a participating jurisdiction may
request and HUD may permit, pursuant to a written memorandum of
agreement, a participating jurisdiction to invest additional HOME funds
in the existing HOME-assisted rental project. The total HOME funding
for the project (original investment plus additional investment) must
be necessary to improve the physical and financial viability of the
project and may not exceed the per-unit subsidy limit in Sec.
92.250(a) in effect at the time of the additional investment. The use
of HOME funds may include, but is not limited to, rehabilitation of the
HOME units and recapitalization of project reserves for the HOME units
(to fund capital costs). If additional HOME funds are invested, HUD may
impose additional conditions, including requiring the participating
jurisdiction to extend the period of affordability, increase the number
of HOME-assisted units, and change the number or designation of Low
HOME rent and High HOME rent units.
(c) HUD may, through written approval, permit the participating
jurisdiction to reduce the total number of HOME-assisted units or
change the designation of units from Low HOME rent units to High HOME
rent units where there are more than the minimum number of Low HOME
rent units in the project. In determining whether to permit a reduction
in the number of HOME-assisted units, HUD will take into account the
required period of affordability and the amount of HOME assistance
provided to the project.
0
17. Amend Sec. 92.212 by:
0
a. Removing ``may incur costs'' and adding in its place ``may incur
costs described in this section'' in paragraph (a); and
0
b. Revising paragraph (b).
The revision reads as follows:
Sec. 92.212 Pre-award costs.
* * * * *
(b) Administrative and planning costs. (1) Eligible administrative
and planning costs may be incurred as of the beginning of the
participating jurisdiction's consolidated program year (see 24 CFR
91.10) or the date HUD receives the consolidated plan describing the
HOME allocation to which the costs will be charged, whichever is later.
(2) In any year in which an appropriation has not been enacted 90
days before a participating jurisdiction's program year start date, a
participating jurisdiction may incur eligible administrative and
planning costs as of the beginning of its program year or the date that
HUD receives its consolidated plan describing the HOME allocation to
which the costs will be charged, whichever is earlier.
* * * * *
0
18. Amend Sec. 92.214 by revising paragraphs (a)(6) through (9),
adding paragraph (a)(10), revising paragraph (b)(3), and adding
paragraph (b)(4) to read as follows.
Sec. 92.214 Prohibited activities and fees.
(a) * * *
(6) Provide assistance (other than tenant-based rental assistance,
assistance to a homebuyer to acquire housing previously assisted with
HOME funds, assistance permitted under Sec. 92.210, or assistance to
preserve affordability of homeownership housing in accordance with
Sec. 92.254(b)) to a project previously assisted with HOME funds
during the period of affordability. However, additional HOME funds may
be committed to a project for up to one year after project completion
(see Sec. 92.502), but the amount of HOME funds in the project may not
exceed the maximum per-unit subsidy amount established under Sec.
92.250 at the time of underwriting;
(7) Pay for the acquisition of property owned by the participating
jurisdiction, unless such property is acquired by the participating
jurisdiction in anticipation of carrying out a HOME project;
(8) Pay delinquent taxes, fees, or charges on properties to be
assisted with HOME funds;
(9) Pay for any cost that is not eligible under Sec. Sec. 92.206
through 92.209; or
(10) Pay for surety bonds, security deposit insurance, or
instruments similar to surety bonds or security deposit insurance, in
lieu of or in addition to a security deposit in units occupied by
tenants receiving tenant-based rental assistance (including assistance
in paying security deposits).
(b) * * *
(3) The participating jurisdiction must prohibit project owners
from charging for:
(i) Surety bonds, security deposit insurance, or instruments
similar to surety bonds or security deposit insurance, in lieu of or in
addition to a security deposit in units;
[[Page 870]]
(ii) Fees that are not customarily charged in rental housing (e.g.,
laundry room access fees); and
(iii) Fees to inspect units or correct deficiencies in the property
condition of units or common areas of the project that were not caused
by the tenant or are only due to normal wear and tear.
(4) Rental project owners may charge:
(i) Reasonable application fees to prospective tenants;
(ii) Parking fees to tenants only if such fees are customary for
rental housing projects in the neighborhood; and
(iii) Fees for services such as bus transportation or meals, as
long as the services are voluntary and fees are charged for services
provided.
Sec. 92.216 [Amended]
0
19. Amend Sec. 92.216 in paragraphs (a)(2) and (b)(2) by removing the
word ``dwelling'' and adding in its place the word ``housing''.
Sec. 92.217 [Amended]
0
20. Amend Sec. 92.217 by removing the word ``dwelling'' and adding in
its place the word ``housing''.
0
21. Amend Sec. 92.219 by:
0
a. Removing the word ``dwelling'' and adding in its place the word
``housing'' in paragraph (a)(4);
0
b. Revising the first sentences of paragraphs (b)(2)(ii) and (iii);
The revisions read as follows:
Sec. 92.219 Recognition of matching contribution.
* * * * *
(b) * * *
(2) * * *
(ii) The participating jurisdiction must execute, with the owner of
the housing (or, if the participating jurisdiction is the owner, with
the manager or developer), a written agreement that imposes and
enumerates all of the requirements applicable to the project, including
affordability requirements in Sec. 92.252 or Sec. 92.254; tenant
protection requirements in Sec. 92.253; property standards
requirements in Sec. 92.251; and income determination requirements in
Sec. 92.203. * * *
(iii) A participating jurisdiction must establish a procedure to
monitor HOME match-eligible housing to ensure continued compliance with
the requirements of Sec. 92.203 (Income determinations), Sec. 92.252
(Qualification as affordable housing: Rental housing), Sec. 92.253
(Tenant protections), and Sec. 92.254 (Qualification as affordable
housing: Homeownership). * * *
* * * * *
Sec. 92.220 [Amended]
0
22. Amend Sec. 92.220 by removing the words ``single-family'' and
adding in their place ``single family'' in paragraph (a)(5)(ii).
0
23. Amend Sec. 92.221 by adding paragraphs (b)(1) and (2) to read as
follows:
Sec. 92.221 Match credit.
* * * * *
(b) * * *
(1) To apply an excess matching contribution to a future fiscal
year's match liability, the participating jurisdiction must have
documentation, at the time of application, demonstrating the matching
contribution complied with the matching requirements at Sec. Sec.
92.218 through 92.221 at the time it was made. Documentation must
include project records of the type and amount of the matching
contribution.
(2) A participating jurisdiction must maintain the records in
paragraph (b)(1) of this section for five years from the date of
application of the excess matching contribution to the liability.
* * * * *
0
24. Amend Sec. 92.250 by:
0
a. Revising paragraphs (a) and (b)(3)(i);
0
b. Removing the words ``downpayment assistance'' and in their place
adding in their place the words ``homeownership assistance'' in
paragraph (b)(4); and
0
c. Adding paragraph (c).
The revisions and addition read as follows:
Sec. 92.250 Maximum per-unit subsidy amount, underwriting, and
subsidy layering.
(a) Maximum per-unit subsidy amount. The total amount of HOME funds
that a participating jurisdiction may invest on a per-unit basis in
affordable housing may not exceed the per-unit dollar limits
established by HUD in accordance with section 212(e) of the Act. HUD
will publish the per-unit dollar limits for the area in which the
housing is located annually. HUD will publish its methodology for
determining maximum per-unit dollar limits through a publication in the
Federal Register with the opportunity for comment.
(b) * * *
(3) * * *
(i) An underwriting analysis of the homeowner's ability to repay
the HOME-funded rehabilitation loan is required only if the loan is an
amortizing loan; and
* * * * *
(c) A participating jurisdiction may exceed the per-unit dollar
limits described in paragraph (a) of this section by up to 10 percent
if the project meets one of the green building standards identified by
HUD and published in the Federal Register.
0
25. Amend Sec. 92.251 by:
0
a. Revising the section heading and paragraph (a)(2);
0
b. Adding paragraph (a)(3);
0
c. Revising paragraph (b)(1)(vi);
0
d. Adding paragraphs (b)(1)(viii)(A) and (B);
0
e. Adding paragraphs (b)(1)(xi) and (xii);
0
f. Removing the words ``must ensure'' and adding in their place the
words ``must require'' and by removing the words ``The construction
documents'' and adding in their place the words ``The construction
contract and documents'' in paragraph (b)(2);
0
g. Revising paragraph (b)(3), the first sentence of paragraph (c)(1),
and paragraph (c)(3);
0
h. Adding paragraph (d);
0
i. Revising the paragraph (f) heading;
0
j. Removing the words ``affordability period'' and adding in their
place the words ``period of affordability'' and by removing the words
``each of the following'' and adding in their place the words ``all of
the following'' in paragraph (f)(1) introductory text;
0
k. Revising paragraph (f)(1)(i);
0
l. Adding paragraph (f)(1)(iv);
0
m. Revising paragraphs (f)(3) through (5); and
0
n. Adding paragraph (g).
The revisions and additions read as follows:
Sec. 92.251 Property standards and inspections.
(a) * * *
(2) Construction progress and final inspections. The participating
jurisdiction must conduct on-site progress and final inspections of
construction to ensure that work is done in accordance with the
applicable codes, the construction contract, and construction
documents. Before completing the project in the disbursement and
information system established by HUD, the participating jurisdiction
must perform an on-site inspection of the project to determine that all
contracted work has been completed and that the project complies with
the property standards and requirements in this paragraph (a). All
inspections performed by the participating jurisdiction must be
conducted in accordance with the participating jurisdiction's
inspection procedures.
(3) HUD requirements. All new construction projects must also meet
the following requirements upon project
[[Page 871]]
completion, unless an earlier deadline is otherwise required by the
applicable statute, regulation, or standard:
(i) Accessibility. The housing must meet the accessibility
requirements of 24 CFR part 8, which implements section 504 of the
Rehabilitation Act of 1973 (29 U.S.C. 794), and Titles II and III of
the Americans with Disabilities Act (42 U.S.C. 12131-12189) implemented
at 28 CFR parts 35 and 36, as applicable. Covered multifamily
dwellings, as defined at 24 CFR 100.201, must also meet the design and
construction requirements at 24 CFR 100.205, which implements the Fair
Housing Act (42 U.S.C. 3601-3619).
(ii) Energy efficiency standards. Newly constructed housing shall
qualify as affordable housing under this part only if it meets the
energy efficiency standards promulgated by the Secretary in accordance
with section 109 of the Cranston-Gonzalez National Affordable Housing
Act (42 U.S.C. 12709).
(iii) Disaster mitigation. Where relevant, the housing must be
constructed to mitigate the impact of future disasters (e.g.,
earthquakes, hurricanes, flooding, and wildfires) in accordance with
State and local codes, ordinances, and requirements, and such other
requirements that HUD may establish.
(iv) Written cost estimates, construction contracts, and
construction documents. The participating jurisdiction must require the
construction contract(s) and construction documents to describe the
work to be undertaken in adequate detail so that inspections can be
conducted. The participating jurisdiction must review and approve
written cost estimates for construction and determine that costs are
reasonable.
(v) Broadband infrastructure. For new commitments made after
January 19, 2017, for a new construction housing project of a building
with more than 4 rental units, the construction must include
installation of broadband infrastructure, as this term is defined in 24
CFR 5.100, except where the participating jurisdiction determines and,
in accordance with Sec. 92.508(a)(3)(iv), documents the determination
that:
(A) The location of the new construction makes installation of
broadband infrastructure infeasible; or
(B) The cost of installing the infrastructure would result in a
fundamental alteration in the nature of its program or activity or in
an undue financial burden.
(vi) Carbon monoxide and smoke detection--(A) Carbon monoxide
detection. A carbon monoxide alarm must be installed in the housing
unit in a manner that meets or exceeds the carbon monoxide detection
standards set by HUD through Federal Register publication.
(B) Smoke detection. (1) A hardwired smoke alarm must be installed:
(i) On each level of each housing unit;
(ii) In or near each sleeping area in each housing unit;
(iii) In the basement of each housing unit and in each common area
of a project. A hardwired smoke alarm is not required in crawl spaces
or unfinished attics of housing units;
(iv) Within 21 feet of any door to a sleeping area measured along a
path of travel; and
(v) Where a smoke alarm installed outside a sleeping area is
separated from an adjacent living area by a door, a smoke alarm must
also be installed on the living area side of the door.
(2) Each hardwired smoke alarm must have an alarm system designed
for hearing-impaired persons.
(3) The Secretary may establish additional standards through
Federal Register publication.
(4) Following the relevant specifications of the International Code
Council (ICC) or the National Fire Protection Association Standard
(NFPA) 72 satisfies the requirements of this paragraph (a)(3)(vi)(B).
(vii) Green building standards. If a participating jurisdiction
exceeds the maximum per-unit subsidy limit pursuant to Sec. 92.250(c),
then upon completion, the housing must meet one of the green building
standards established by HUD through Federal Register publication.
(b) * * *
(1) * * *
(vi) Disaster mitigation. Where relevant, the participating
jurisdiction's standards must require the housing to be improved to
mitigate the impact of future disasters (e.g., earthquake, hurricanes,
flooding, and wildfires) in accordance with State and local codes,
ordinances, and requirements, and such other requirements that HUD may
establish.
* * * * *
(viii) * * *
(A) The participating jurisdiction may accept a determination in
satisfaction of another funding source's requirements that, upon the
completion of the rehabilitation, the HOME-assisted project and units
are decent, safe, sanitary, and in good repair in an inspection
conducted under the National Standards for the Condition of HUD housing
(24 CFR part 5, subpart G) or an alternative inspection standard, which
HUD may establish through Federal Register publication.
(B) If a participating jurisdiction is accepting a determination
pursuant to paragraph (b)(1)(viii)(A) of this section, then the
participating jurisdiction must document the determination in
accordance with Sec. 92.508(a)(3)(iv) and is not required to perform a
HOME inspection of the project and units for compliance with 24 CFR
5.703.
* * * * *
(xi) Carbon monoxide and smoke detection--(A) Carbon monoxide
detection. A carbon monoxide alarm must be installed in the housing
unit in a manner that meets or exceeds the carbon monoxide detection
standards set by HUD through Federal Register publication.
(B) Smoke detection. (1) A hardwired smoke alarm must be installed:
(i) On each level of each housing unit;
(ii) In or near each sleeping area in each housing unit;
(iii) In the basement of each housing unit, and in each common area
of a project. A hardwired smoke alarm is not required in crawl spaces
or unfinished attics of housing units;
(iv) Within 21 feet of any door to a sleeping area measured along a
path of travel; and
(v) Where a smoke alarm installed outside a sleeping area is
separated from an adjacent living area by a door, a smoke alarm must
also be installed on the living area side of the door.
(2) Each hardwired smoke alarm must have an alarm system designed
for hearing-impaired persons.
(3) The Secretary may establish additional standards through
Federal Register publication.
(4) Where the use of hardwired smoke detectors places an undue
financial burden on the owner or is infeasible, a participating
jurisdiction may provide a written exception to allow the owner to
install a smoke detector that uses 10-year non rechargeable,
nonreplaceable primary batteries. The smoke detector must be sealed,
tamper-resistant, contain a means to silence the alarm, and otherwise
comply with the requirements of this section.
(5) Following the relevant specification of the International Code
Council (ICC) or the National Fire Protection Association Standard
(NFPA) 72 satisfies the requirements of this paragraph (b)(1)(xi)(B).
(xii) Green building standards. If a participating jurisdiction
exceeds the maximum per-unit subsidy limit pursuant to Sec. 92.250(c),
then upon completion of the rehabilitation the housing must meet one of
the green
[[Page 872]]
building standards established by HUD through Federal Register
publication.
* * * * *
(3) Frequency of inspections. The participating jurisdiction must
conduct an initial property inspection to identify the deficiencies
that must be addressed and must conduct on-site progress and final
inspections to determine that work was done in accordance with the
construction contract and construction documents. Before completing the
project in the disbursement and information system established by HUD,
the participating jurisdiction must perform an on-site inspection of
the project to determine that all contracted work has been completed
and that the project complies with the property standards and
requirements in this paragraph (b). All inspections performed by the
participating jurisdiction must be conducted in accordance with the
participating jurisdiction's inspection procedures.
(c) * * *
(1) Existing housing that is acquired with HOME assistance for
rental housing, and that was newly constructed or rehabilitated less
than 12 months before the date of commitment of HOME funds, must meet
the property standards for new construction in paragraph (a) or
rehabilitation in paragraph (b) of this section, as applicable. * * *
* * * * *
(3) Existing housing that is acquired for homeownership using
homeownership assistance must be decent, safe, sanitary, and in good
repair. The participating jurisdiction must establish standards to
determine that the housing is decent, safe, sanitary, and in good
repair. At minimum, the standards must provide that the housing meets
all applicable State and local housing quality standards and code
requirements, and the housing does not contain the specific
deficiencies established by HUD based on the applicable standards in 24
CFR 5.703 and published in the Federal Register for HOME-assisted
projects and units. The housing must also meet or exceed the carbon
monoxide and smoke detection standards contained in the participating
jurisdiction's rehabilitation standards pursuant to paragraph (b) of
this section. If the use of hardwired smoke detectors places an undue
financial burden on the homebuyer or is infeasible, a participating
jurisdiction may provide a written exception to the homebuyer
consistent with the requirements contained in paragraph (b) of this
section.
(i) The participating jurisdiction must inspect the housing and
document compliance with this paragraph (c)(3) based upon an inspection
that is conducted no earlier than 90 days before the commitment of HOME
assistance. If the housing does not meet these standards, the housing
must be rehabilitated to meet the standards of this paragraph (c)(3)
before the acquisition, except as provided in paragraph (c)(3)(ii) of
this section.
(ii) If the housing is not rehabilitated to meet the standards in
this paragraph (c)(3) before acquisition, then the housing may still be
acquired if all of the following conditions are satisfied:
(A) The written agreement between the participating jurisdiction
and the homebuyer requires the property to meet the standards within 6
months of acquisition with HOME assistance;
(B) Funding is secured to complete the rehabilitation necessary to
comply with the standards; and
(C) Unless an extension is provided pursuant to paragraph
(c)(3)(ii)(D) of this section, the participating jurisdiction conducts
a final inspection within six months after acquisition and determines
that the property meets the standards.
(D) The participating jurisdiction may provide the homebuyer with
an extension of up to 12 months from acquisition to meet the standards.
If the participating jurisdiction provides an extension, the
participating jurisdiction must amend the written agreement to reflect
the extension and conduct a final inspection within 12 months of
acquisition and determine that the property meets the standards.
(iii) All inspections performed by the participating jurisdiction
must be conducted in accordance with the participating jurisdiction's
inspection procedures.
(d) Projects involving a combination of rehabilitation and either
new construction or reconstruction. If a project includes both
rehabilitation of housing units and either new construction or
reconstruction of housing units, then the participating jurisdiction
must apply the rehabilitation standards to the housing units that are
rehabilitated and the new construction requirements to housing that is
either newly constructed or reconstructed.
* * * * *
(f) Ongoing property condition standards and inspections: Rental
housing and housing occupied by tenants receiving HOME tenant-based
rental assistance. * * *
(1) * * *
(i) Compliance with State and local codes, ordinances, and
requirements. The participating jurisdiction's standards must require
the housing to meet all applicable State and local code requirements
and ordinances. In the absence of existing applicable State or local
code requirements and ordinances, at a minimum, the participating
jurisdiction's ongoing property standards must provide that the
property does not contain the specific deficiencies established by HUD
based on the applicable standards in 24 CFR 5.703 and published in the
Federal Register for HOME rental housing (including manufactured
housing) and housing occupied by tenants receiving HOME tenant-based
rental assistance, except that the carbon monoxide detection
requirements at 24 CFR 5.703(b)(2) and (d)(6) shall not apply. The
participating jurisdiction's property standards are not required to
comply with 24 CFR 5.705 through 5.713.
* * * * *
(iv) Carbon monoxide and smoke detection--(A) Carbon monoxide
detection. A carbon monoxide alarm must be installed in the housing
unit in a manner that meets or exceeds the carbon monoxide detection
standards set by HUD through Federal Register publication.
(B) Smoke detection. The participating jurisdiction's standards
must require housing to contain smoke detectors in accordance with the
requirements contained in 24 CFR 5.703(b) and (d).
* * * * *
(3) Ongoing inspections of HOME-assisted rental housing. During the
period of affordability, the participating jurisdiction must perform
on-site inspections of HOME-assisted rental housing to determine
compliance with the property standards in paragraph (f)(1) of this
section and to verify the information submitted by owners in accordance
with the requirements of Sec. 92.252. The participating jurisdiction
must perform inspections in accordance with its established inspection
procedures. These procedures, at minimum, must include the following
requirements:
(i) Frequency of inspections. The participating jurisdiction must
perform an on-site inspection within 12 months after project completion
and complete one of the following every 3 years during the period of
affordability:
(A) Perform an on-site inspection in accordance with the
participating jurisdiction's inspection procedures to determine
compliance with the property standards; or
[[Page 873]]
(B) Accept a determination made within the past 12 months in
satisfaction of another funding source's requirements, that the HOME-
assisted project and units are decent, safe, sanitary, and in good
repair in an inspection conducted under the National Standards for the
Condition of HUD housing (24 CFR part 5, subpart G) or an alternative
inspection standard, which HUD may establish through Federal Register
publication. If a participating jurisdiction is accepting a
determination, then the participating jurisdiction must document the
determination in accordance with Sec. 92.508(a)(3)(iv) and is not
required to perform an on-site HOME inspection of the project and the
units for compliance with 24 CFR 5.703.
(ii) Annual certification. The owner must annually certify to the
participating jurisdiction that each building and all HOME-assisted
units in the project are suitable for occupancy, taking into account
State and local health, safety, and other applicable codes, ordinances,
and requirements, and the ongoing property standards established by the
participating jurisdiction.
(iii) Units inspected. Inspections must be based on a random sample
of the HOME-assisted units in the project with a mix of unit sizes
(e.g., a mix of one-bedroom, two-bedroom, and three-bedroom units) in
accordance with the chart contained in this paragraph. All inspections
must include the inspectable areas for each building containing HOME-
assisted units. For projects with one-to-four HOME-assisted units, the
participating jurisdiction must inspect 100 percent of the HOME-
assisted units and the inspectable areas for each building with HOME-
assisted units.
Table 1 to Paragraph (f)(3)(iii)--Minimum Inspection Sample Size for
HOME Rental Housing Projects
------------------------------------------------------------------------
Number of
units that
must be
selected in
Number of HOME-assisted units in the HOME project the random
sample (i.e.,
minimum unit
sample size)
------------------------------------------------------------------------
1-20.................................................... 4
21-25................................................... 5
26-30................................................... 6
31-35................................................... 7
36-40................................................... 8
41-45................................................... 9
46-50................................................... 10
51-55................................................... 11
56-60................................................... 12
61-65................................................... 13
66-70................................................... 14
71-75................................................... 15
76-80................................................... 16
81-85................................................... 17
86-90................................................... 18
91-95................................................... 19
96-100.................................................. 20
101-105................................................. 21
106-110................................................. 22
111-115................................................. 23
116-120................................................. 24
121-125................................................. 25
126-130................................................. 26
131-166................................................. 27
167-214................................................. 28
215-295................................................. 29
296-455................................................. 30
456-920................................................. 31
921+.................................................... 32
------------------------------------------------------------------------
(iv) Financial oversight. During the period of affordability, the
participating jurisdiction must at least annually examine the financial
condition of projects with 10 or more HOME-assisted units to determine
the continued financial viability of the housing and must take actions
to correct problems, to the extent feasible.
(4) Annual inspections for housing with tenants receiving HOME
tenant-based rental assistance. All housing occupied by tenants
receiving HOME tenant-based rental assistance must meet the property
standards of paragraph (f)(1) of this section. The participating
jurisdiction must annually determine that the housing is decent, safe,
sanitary, and in good repair through one of the following methods:
(i) An annual on-site inspection in accordance with its inspection
procedures for annual inspections to determine the housing meets the
property standards in paragraph (f)(1) of this section; or
(ii) An inspection conducted within the past 3 months in
satisfaction of another funding source's requirements under the
National Standards for the Condition of HUD housing (24 CFR part 5,
subpart G) or an alternative inspection standard, which HUD may
establish through Federal Register publication. A participating
jurisdiction may move its inspection cycle to align with an inspection
covered by this paragraph. If a participating jurisdiction is accepting
an inspection pursuant to this paragraph, then the participating
jurisdiction must document the inspection's determination that the
housing is decent, safe, sanitary, and in good repair in accordance
with Sec. 92.508(a)(3)(iv) and is not required to perform a HOME
inspection of the project and units for compliance with 24 CFR 5.703.
(5) Corrective and remedial actions. The participating jurisdiction
must have procedures for requiring that timely corrective and remedial
actions are taken by the owner to address identified deficiencies.
(i) Health and safety deficiencies. Health and safety deficiencies
must be corrected immediately. Except for small-scale housing, the
participating jurisdiction must adopt a more frequent inspection
schedule for properties that have been found to have health and safety
deficiencies. For small-scale housing, the participating jurisdiction
may adopt a more frequent inspection schedule if the small-scale
housing is found to have health and safety deficiencies, as described
in its inspection procedures.
(ii) Other deficiencies. If there are observed deficiencies for any
of the inspectable areas in the property standards established by the
participating jurisdiction, in accordance with the inspection
procedures, a follow-up on-site inspection to verify that deficiencies
are corrected must occur within 12 months. The participating
jurisdiction may establish a list of non-hazardous deficiencies for
which correction can be verified by third party documentation (e.g.,
paid invoice for work order) rather than re-inspection.
(g) Inspection procedures. The participating jurisdiction must
establish written inspection procedures. The procedures must include
detailed inspection checklists, a description of how and by whom
inspections will be carried out, and procedures for training and
certifying qualified inspectors. For ongoing property inspections, the
procedures must also describe how frequently the property will be
inspected, consistent with this section and Sec. 92.209.
0
26. Revise Sec. 92.252 to read as follows:
Sec. 92.252 Qualification as affordable housing: Rental housing.
The HOME-assisted units in a rental housing project must be
occupied by households that are eligible as low-income families and
must meet the requirements of this section to qualify as affordable
housing. If the housing is not occupied by eligible tenants within six
months following the date of project
[[Page 874]]
completion, the participating jurisdiction must revise its marketing
plan to enable the project to reach required occupancy. The
participating jurisdiction must repay HOME funds invested in any
housing unit that has not been rented to eligible tenants within 18
months after the date of project completion. The affordability
requirements in this section also apply to the HOME-assisted non-owner-
occupied units in single family housing purchased with HOME funds in
accordance with Sec. 92.254. A tenant must have a written lease that
complies with Sec. 92.253.
(a) HOME rent limits. The rent for a HOME-assisted unit must not
exceed the rent limits in this section. HUD will publish the HOME rent
limits on an annual basis, with adjustments for number of bedrooms in
the unit. The rent limits do not apply to any rental assistance or
subsidy payment provided under a Federal, State, or local rental
assistance or subsidy program. Regardless of changes in fair market
rents and in median income over time, the rents for a project are not
required to be lower than the HOME rent limits for the project in
effect at the time of project commitment. The participating
jurisdiction may designate (in its written agreement with the owner)
more than the minimum HOME units in a rental housing project,
regardless of project size. The rent limits apply to the rent plus the
utilities or utility allowance.
(1) High HOME rent limits. If a low-income family is participating
in a program where the family pays as a contribution toward rent no
more than 30 percent of the family's monthly adjusted income or 10
percent of the family's monthly income, then the maximum rent due from
the family is the family's contribution. For all other cases, the rent
does not exceed the lesser of:
(i) The fair market rent for existing housing for comparable units
in the area as established by HUD under 24 CFR 888.111; or
(ii) 30 percent of the adjusted income of a family whose annual
income equals 65 percent of the median income for the area, as
determined by HUD.
(2) Low HOME rent limits. In rental projects with five or more
HOME-assisted rental units, at least 20 percent of the HOME-assisted
units must be occupied by very low-income families. If a very low-
income family is participating in a program where the family pays as a
contribution toward rent no more than 30 percent of the family's
monthly adjusted income or 10 percent of the family's monthly income,
then the maximum rent due from the family is the family's contribution.
All other Low HOME Rent units must have rent that meet one of the
following requirements:
(i) The rent does not exceed 30 percent of the annual income of a
family whose income equals 50 percent of the median income for the
area, as determined by HUD. If the rent determined under this paragraph
is higher than the fair market rent under paragraph (a)(1)(i) of this
section, then the maximum rent for units under this paragraph is the
fair market rent under paragraph (a)(1)(i);
(ii) The rent contribution of the family is not more than 30
percent of the family's adjusted income; or
(iii) The unit is a LIHTC unit and has rents not greater than the
gross rent for rent-restricted residential units as determined under 26
U.S.C. 42(g)(2).
(3) HOME rent limits for SRO projects. (i) For SRO units that have
both sanitary and food preparation facilities, the rent limit is the
zero-bedroom fair market rent as established by HUD under 24 CFR part
888. The project must meet the requirements of paragraphs (a)(1) and
(2) of this section.
(ii) For SRO units that have no sanitary or food preparation
facilities or only one of the two, the rent limit is 75 percent of the
zero-bedroom fair market rent as established by HUD under 24 CFR part
888. The project must be occupied by very low-income tenants.
(b) Utility allowances. The participating jurisdiction must
establish maximum monthly allowances for utilities and services
(excluding telephone, cable, and broadband) and update the allowances
annually. The participating jurisdiction may determine the utility
allowance for the project based on the type of utilities and services
paid by the tenant, including any energy efficiency measures. The
participating jurisdiction may use any of the following for its maximum
monthly allowances: the HUD Utility Schedule Model, the utility
allowance established by the applicable local public housing authority,
or another method approved by HUD.
(c) Review and approval of rents. The participating jurisdiction
must review and approve rents proposed by the owner for units, subject
to the rent limits in paragraph (a) of this section. For all units
subject to the rent limits in paragraph (a) for which the tenant is
paying utilities and services, the participating jurisdiction must
require that the rents do not exceed the rent limits in paragraph (a)
minus the monthly allowances for utilities and services in paragraph
(b) of this section.
(d) Period of affordability. The HOME-assisted units must meet
requirements under this part for the applicable period specified in the
table in this paragraph (d), beginning from project completion.
(1) The affordability requirements, including the applicable rent
limits, period of affordability, and income requirements:
(i) Apply without regard to the term of any loan or mortgage,
repayment of the HOME investment, or the transfer of ownership;
(ii) Must be imposed by a deed or use restriction, lien on real
property, a covenant running with the land, a recorded agreement
restricting the use of the property, or other mechanisms approved by
HUD in writing, under which the participating jurisdiction has the
right to require specific performance (except that the participating
jurisdiction may provide that the affordability requirements may
terminate upon foreclosure or transfer in lieu of foreclosure); and
(iii) Must be recorded in accordance with State recordation laws.
(2) The participating jurisdiction may use purchase options, rights
of first refusal, or other preemptive rights to purchase the housing
before foreclosure or deed in lieu of foreclosure in order to preserve
affordability.
(3) The affordability restrictions shall be revived according to
the original terms if, during the original period of affordability, the
owner of record before the foreclosure, or deed in lieu of foreclosure,
or any entity that includes the former owner or those with whom the
former owner has or had family or business ties, obtains an ownership
interest in the project or property.
(4) The termination of the affordability requirements on the
project does not terminate the participating jurisdiction's repayment
obligation under Sec. 92.503(b).
Table 1 to Paragraph (d)(4)--Minimum Period of Affordability for Rental
Housing
------------------------------------------------------------------------
Minimum
period of
Rental housing activity affordability
in years
------------------------------------------------------------------------
Rehabilitation or acquisition of existing housing per- 5
unit amount of HOME funds: Under $25,000...............
$25,000 to $50,000.................................... 10
Over $50,000 or rehabilitation involving refinancing.. 15
[[Page 875]]
New construction or acquisition of newly constructed 20
housing..............................................
------------------------------------------------------------------------
(e) Subsequent rents during the period of affordability. (1) The
HOME rent limits are recalculated on a periodic basis after HUD
determines fair market rents and median incomes. HUD then publishes the
updated HOME rent limits.
(2) The participating jurisdiction must provide project owners with
information on updated HOME rent limits so that rents may be adjusted
(not to exceed the rent limits in paragraph (a) of this section) in
accordance with the written agreement between the participating
jurisdiction and the owner. Owners must annually provide the
participating jurisdiction with information on rents and occupancy of
HOME-assisted units to demonstrate compliance with this section. The
participating jurisdiction must review rents for compliance and approve
or disapprove them every year.
(3) Any increase in rents for HOME-assisted units is subject to the
provisions of outstanding leases, and in any event, the owner must
provide tenants of those units not less than 60 days prior written
notice before implementing any increase in rents.
(f) Adjustment of HOME rent limits for an existing project. (1)
Changes in fair market rents and in median income over time should be
sufficient to maintain the financial viability of a project within the
HOME rent limits in this section.
(2) HUD may adjust the HOME rent limits for a project, only if HUD
finds that an adjustment is necessary to support the continued
financial viability of the project and only by an amount that HUD
determines is necessary to maintain continued financial viability of
the project. HUD expects that this authority will be used sparingly.
(g) Tenant Income. The income of each tenant must be determined
initially in accordance with Sec. 92.203(b)(1)(i) unless the
participating jurisdiction accepts an annual income determination
pursuant to Sec. 92.203(a)(1), (2), or (3) or determines income in
accordance with Sec. 92.203(b)(3). In addition, each year during the
period of affordability, the participating jurisdiction must require
the project owner to re-examine each tenant's annual income in
accordance with the option in Sec. 92.203(b)(1) selected by the
participating jurisdiction and included in the written agreement,
except as follows:
(1) A participating jurisdiction may permit an owner of small-scale
housing to re-examine each tenant's annual income in accordance with
the chart in this paragraph (g)(1), instead of annually, during the
period of affordability.
Table 2 to Paragraph (g)(1)--Alternative Income Examination Cycle for
Small-Scale Rental Housing Projects
------------------------------------------------------------------------
------------------------------------------------------------------------
Initial Examination.......... The income of each tenant must be
(All Projects)............... determined initially in accordance with
Sec. 92.203(b)(1)(i) unless the
participating jurisdiction accepts an
annual income determination pursuant to
Sec. 92.203(a)(1), Sec.
92.203(a)(2), or Sec. 92.203(a)(3), or
determines income in accordance with
Sec. 92.203(b)(3).
Year 3....................... The income of each tenant must be
examined in accordance with the option
selected by the participating
jurisdiction in Sec. 92.203(b)(1) and
included in the written agreement
between the owner and the participating
jurisdiction pursuant to Sec.
92.504(c)(3).
Year 6....................... The income of each tenant must be
(Projects with a period of examined in accordance with Sec.
affordability of greater 92.203(b)(1)(i).
than 5 years).
Year 9....................... The income of each tenant must be
(Projects with a period of examined in accordance with the option
affordability of greater selected by the participating
than 5 years). jurisdiction in Sec. 92.203(b)(1) and
included in the written agreement
between the owner and the participating
jurisdiction pursuant to Sec.
92.504(c)(3).
Year 12...................... The income of each tenant must be
(Projects with a period of examined in accordance with Sec.
affordability of greater 92.203(b)(1)(i).
than 10 years).
Year 15...................... The income of each tenant must be
(Projects with a period of examined in accordance with the option
affordability of 20 years). selected by the participating
jurisdiction in Sec. 92.203(b)(1) and
included in the written agreement
between the owner and the participating
jurisdiction pursuant to Sec.
92.504(c)(3).
Year 18...................... The income of each tenant must be
(Projects with a period of examined in accordance with Sec.
affordability of 20 years). 92.203(b)(1)(i).
------------------------------------------------------------------------
(2) A participating jurisdiction that permits an owner of a rental
project (including small-scale housing projects) with a period of
affordability of ten years or more to re-examine a tenant's annual
income through a statement and certification in accordance with Sec.
92.203(b)(1)(ii), must require the owner to re-examine the income of
each tenant, in accordance with Sec. 92.203(b)(1)(i), at minimum,
every sixth year during the period of affordability; and,
(3) If the participating jurisdiction accepts an annual income
determination pursuant to Sec. 92.203(a)(1), (2), or (3), an owner is
not required to re-examine a tenant's annual income in accordance with
Sec. 92.203(b) for HOME.
(h) Over-income tenants. (1) HOME-assisted units continue to
qualify as affordable housing despite a temporary noncompliance caused
by increases in the incomes of existing tenants if actions satisfactory
to HUD are being taken to ensure that all vacancies are filled in
accordance with this section until the noncompliance is corrected.
(2) A tenant who no longer qualifies as low-income must pay a rent
amount equal to the lesser of the amount payable by the tenant under
State or local law or 30 percent of the family's adjusted income,
except that:
(i) A tenant of a HOME-assisted unit subject to rent restrictions
under section 42 of the Internal Revenue Code of 1986 (26 U.S.C. 42)
must pay a rent amount that complies with that section;
(ii) A tenant in a HOME-assisted unit designated as floating
pursuant to paragraph (j) of this section shall pay a rent amount no
greater than the fair market rent for comparable, unassisted units in
the neighborhood; and
[[Page 876]]
(iii) The rent limits do not apply to any rental assistance or
subsidy payment provided under a Federal, State, or local rental
assistance or subsidy program.
(i) Surety bonds. Surety bonds, security deposit insurance, or
instruments similar to surety bonds and security deposit insurance may
not be used in lieu of or in addition to a security deposit in HOME-
assisted units.
(j) Fixed and floating HOME units. In a project containing HOME-
assisted and other units, the participating jurisdiction may designate
fixed or floating HOME units. This designation must be made at the time
of project commitment in the written agreement between the
participating jurisdiction and the owner, and the HOME units must be
identified not later than the time of initial unit occupancy. Fixed
units remain the same throughout the period of affordability. Floating
units are changed to maintain conformity with the requirements of this
section during the period of affordability so that the total number of
housing units meeting the requirements of this section remains the
same, and each substituted unit is comparable in terms of size,
features, and number of bedrooms to the originally designated HOME-
assisted unit.
(k) Tenant selection. The tenants must be selected in accordance
with Sec. 92.253(e).
(l) Ongoing responsibilities. The participating jurisdiction's
responsibilities for on-site inspections and financial oversight of
rental projects are set forth in Sec. 92.251(f).
0
27. Revise Sec. 92.253 to read as follows:
Sec. 92.253 Tenant protections and selection.
(a) Lease contents. (1) For rental housing assisted with HOME funds
and tenant-based rental assistance, there must be a written lease
between the tenant and the owner that is for a period of not less than
1 year, unless by mutual agreement between the tenant and the owner, a
shorter period is specified. Any changes to the lease must be in
writing. The owner must provide the participating jurisdiction with a
written lease or a revision to a written lease before it is executed.
The lease shall contain:
(i) More than one convenient and accessible method to communicate
directly with the owner or the property management staff, including in
person, by telephone, email, or through a web portal;
(ii) The participating jurisdiction's contact information for the
HOME program;
(iii) The VAWA lease term/addendum required under Sec. 92.359(e),
except as otherwise provided by Sec. 92.359(b); and
(iv)(A) For rental housing, the HOME rental housing tenancy
addendum described in paragraph (b) of this section;
(B) For tenant-based rental assistance, the HOME tenant-based
rental assistance tenancy addendum described in paragraph (c) of this
section.
(2) For tenants receiving security deposit assistance only, there
must be a written lease between the tenant and the owner that is for a
period of not less than 1 year, unless by mutual agreement between the
tenant and the owner, a shorter period is specified. The owner must
provide the participating jurisdiction with a copy of the written lease
before security deposit assistance is provided. The lease shall contain
the HOME security deposit assistance tenancy addendum in paragraph (d)
of this section.
(b) HOME rental housing tenancy addendum. The terms of the HOME
rental housing tenancy addendum shall prevail over any conflicting
provisions of the lease. The terms and conditions of the written lease,
the HOME rental housing tenancy addendum, the VAWA addendum listed in
paragraph (a) of this section, and any addendum required by another
Federal, State, or local affordable housing program shall constitute
and contain the sole and entire agreement between the owner and the
tenant and no prior or contemporaneous oral or written representation
or agreement between the owner or tenant shall have legal effect. The
HOME rental housing tenancy addendum shall contain the following
minimum requirements:
(1) Physical condition of unit and project. (i) The owner shall
maintain the physical condition of the unit and project so that it
meets the participating jurisdiction's property standards and State and
local code requirements in accordance with Sec. 92.251(f);
(ii) With respect to maintenance and repairs to a housing unit, the
owner shall:
(A) Provide tenants with written expected time frames for
maintaining or repairing units as soon as practicable;
(B) Professionally maintain and repair units and the common areas
of the project in accordance with the participating jurisdiction's
property standards as soon as practicable; and
(C) Not charge a tenant for normal wear and tear or damage to the
unit or common areas of a project unless due to negligence,
recklessness, or intentional acts by the tenant.
(iii) If the owner is required to repair a life-threatening
deficiency impacting the tenant, and the repairs cannot be completed on
the day the life-threatening deficiency is identified, the tenant shall
promptly be relocated into housing that is decent, safe, sanitary, and
in good repair and that provides the same or a greater level of
accessibility, or other physically suitable lodging, at no additional
cost to the tenant, until the repairs are completed and where it may be
necessary, reasonable accommodations must continue to be provided
during the relocation;
(iv) The owner shall provide tenants with continued, uninterrupted
utility service in projects with owner-controlled utility services
unless the interruption is not within the control of the owner (e.g., a
general power outage).
(2) Use and occupancy of the unit and project. (i) Subject to
applicable occupancy requirements under Federal, State or local law, a
family may reside in the unit with a foster child, foster adult, and/or
live-in aide;
(ii) Except for shared housing, the tenant's household shall have
the right to exclusive use and occupancy of the leased unit;
(iii) The owner may only enter the housing unit:
(A) When the owner provides reasonable advance notification to the
tenant and enters during reasonable hours for the purpose of performing
routine inspections and maintenance, for making improvement or repairs,
or to show the housing unit for re-leasing. A written statement
specifying the purpose of the owner's entry delivered to the housing
unit at least 2 days before such entry is reasonable advance
notification;
(B) At any time without advance notification when there is
reasonable cause to believe that an emergency requiring entry to the
unit exists; and
(C) The owner shall provide the tenant a written statement
specifying the date, time, and purpose of entry if the tenant and all
adult members of the household are absent from the housing unit at the
time of entry or if the owner is entering the housing unit pursuant to
paragraph (b)(2)(iii)(B) of this section.
(iv) The tenant's household shall have reasonable access to and use
of the common areas of the project;
(v) Tenants shall be able to organize, create tenant associations,
convene meetings, distribute literature, and post information; and
(vi) A tenant may not be required to accept supportive services
that are offered unless the tenant is living in transitional housing
and such supportive services are required in
[[Page 877]]
connection with the transitional housing.
(3) Notice. (i) Before an owner may take an adverse action against
a tenant, the tenant must be notified in writing, or where necessary to
accommodate an individual with a disability or language access needs,
must be provided a statement that is accessible and understandable to
the tenant, of the specific grounds for any proposed adverse action by
the owner. Such notice should be provided in a translated format when
needed to ensure meaningful access for limited English proficient (LEP)
persons. Such adverse action includes, but is not limited to,
imposition of charges for damages that require maintenance and repair;
(ii) An owner must notify tenants about changes affecting property
ownership and management as follows:
(A) 30 calendar days before a sale or foreclosure, tenants must be
notified of the impending sale or foreclosure of the property;
(B) Within 5 business days of any changes of ownership, tenants
must be notified of the change in ownership;
(C) Within 5 business days of any change in the property management
company managing the property, tenants must be notified of the change
in management company; and
(iii) The owner may not institute a lawsuit against the tenant
without providing notice to the tenant.
(4) A tenant's rights to available legal proceedings and remedies.
(i) The tenant shall not be required by the owner to agree to be sued,
to admit guilt, or agree to a judgment in favor of the owner in a
lawsuit brought in connection with the lease;
(ii) The owner may not take, hold, or sell personal property of a
household member without notice to the tenant and a court decision on
the rights of the parties. This prohibition, however, does not apply to
an agreement by the tenant concerning disposition of personal property
remaining in the housing unit after the tenant has moved out of the
unit. The owner may dispose of this personal property in accordance
with State law;
(iii) The tenant may hold the owner or the owner's agents legally
responsible for any action or failure to act, whether intentional or
negligent;
(iv) In any legal proceedings involving tenant and owner, the owner
and tenant agree that the tenant shall be able to exercise the tenant's
right to:
(A) Obtain independent legal representation in any legal
proceedings in connection with the lease, including in any non-binding
arbitration or alternative dispute resolution process;
(B) Have a trial by jury where such right is available to a tenant
under Federal, State, or local law; and
(C) Appeal, or to otherwise challenge in court, a court decision in
connection with the lease where such right is available to the tenant
under Federal, State, or local law;
(v) The tenant may only be required to pay the owner's attorney's
fees or other legal costs if the tenant loses in a court proceeding
between the owner and the tenant and the court so orders.
(5) Protection against unreasonable interference or retaliation.
(i) An owner may not unreasonably interfere with the tenant's safety or
peaceful enjoyment of a rental housing unit or the common areas of the
rental housing project.
(ii) An owner may not retaliate against a tenant for taking any
action allowable under the lease and applicable law.
(iii) Actions that evidence unreasonable interference or
retaliation against a tenant include actions taken for the purpose of
causing the housing to become vacant or otherwise, including but not
limited to:
(A) Recovery of, or attempt to recover, possession of the housing
unit in a manner that is not in accordance with paragraph (b)(10) of
this section;
(B) Decreasing services to the housing unit (e.g., trash removal,
maintenance) or increasing the obligations of a tenant (e.g., new or
increased monetary obligations, etc.) in a manner that is not in
accordance with the requirements of this part;
(C) Interfering with a tenant's right to privacy under applicable
State or local law;
(D) Harassing a household or their lawful guests; and
(E) Refusing to honor the terms of the lease.
(iv) If an owner unreasonably interferes or retaliates against a
tenant, then this shall constitute a material breach under the lease, a
violation of HOME program requirements, and a breach of the written
agreement between the owner and the participating jurisdiction. A
tenant may use evidence of such unreasonable interference or
retaliation in a court of law, and the participating jurisdiction must
take reasonable actions to address any violation in accordance with the
participating jurisdiction's responsibilities under Sec. 92.504(a) and
(c).
(6) Exercise of rights under tenancy. A tenant may exercise any
right of tenancy and assert any protection under their lease and any
applicable Federal, State, local tenant protections including but not
limited to:
(i) Reporting inadequate housing conditions of the housing unit or
project to the owner, the participating jurisdiction, code enforcement
officials, or HUD;
(ii) Reporting lease violations and requesting enforcement of the
written lease or any protections guaranteed under this part; and
(iii) Requesting or obtaining enforcement of any applicable
protections under Federal, State, or local law.
(7) Confidentiality. An owner will keep all records containing
personally identifying information of any individual or family who
applies for or lives in a HOME-assisted rental unit secure and
confidential.
(8) Prohibition on discrimination. The owner shall operate housing
assisted under this part in accordance with all applicable
nondiscrimination and equal opportunity requirements pursuant to Sec.
92.350 and the Violence Against Women Act (VAWA) requirements at Sec.
92.359;
(9) Security deposits. Security deposits must be refundable and no
greater than two months' rent. Surety bonds, security deposit
insurance, and instruments similar to surety bonds and security deposit
insurance may not be used in lieu of or in addition to a security
deposit. Upon termination of tenancy by the owner or tenant, if the
owner charges any amount against a tenant's security deposit, the owner
must give the tenant a list of all items charged against the security
deposit and the amount of each item. After deducting the amount, if
any, used to reimburse the owner, the owner must promptly refund the
full amount of the unused balance to the tenant.
(10) Termination of tenancy. (i) An owner may not terminate the
tenancy of any tenant or household member or refuse to renew the lease
of a tenant of rental housing assisted with HOME funds, except for
serious or repeated violation of the material terms and conditions of
the lease; for violation of applicable Federal, State, or local law;
for completion of the tenancy period for transitional housing or
failure to follow any required transitional housing supportive services
plan; or for other good cause. The owner is permitted to terminate the
tenancy of any tenant or household member or refuse to renew the lease
of a tenant of rental housing assisted with HOME funds if the owner is
permitted to do so pursuant to the provisions contained in 24 CFR part
5, subpart I; 24 CFR 882.511; or 24 CFR 982.310.
[[Page 878]]
(A) Other good cause does not include a change in the tenant's
income or assets or the amount or type of income or assets the tenant
possesses. Good cause does not include refusal of the tenant to
purchase the housing unless the tenant is refusing to purchase the
housing pursuant to their lease-purchase agreement.
(B) Other good cause includes:
(1) When a tenant or household member is a direct threat to the
safety of the tenants or employees of the housing or an imminent and
serious threat to the property;
(2) When a tenant unreasonably refuses to provide the owner access
to the unit to allow the owner to repair the unit;
(3) When an owner must terminate a tenancy to comply with an order
issued by a governmental entity or court that requires the tenant
vacate the project or unit;
(4) When an owner must terminate a tenancy to comply with a local
ordinance that necessitates vacating the project or unit; or
(5) When a tenant fails to purchase a housing unit within the
timeframes listed within the tenant's lease-purchase agreement.
(C) An owner may establish good cause for a violation of an
applicable Federal, State, or local law through a record of conviction
of a crime that directly threatens the health, safety, or right to
peaceful enjoyment of the premises by other tenants in the project. The
owner shall not use a record of arrest, parole or probation, or current
indictment to establish such a violation.
(ii) To terminate or refuse to renew tenancy, the owner must serve
written notice upon the tenant specifying the grounds for the action at
least 30 days before the termination of tenancy and provide a copy of
the notice to vacate to the participating jurisdiction within 5
business days of issuing notice to the tenant. The minimum 30-day
period is not required if the termination of tenancy or refusal to
renew is due to a direct threat to the safety of the tenants or
employees of the housing or an imminent and serious threat to the
property and the termination of tenancy or refusal to renew is in
accordance with the requirements of Sec. 92.253(b)(10)(iii).
(iii) The termination of tenancy or refusal to renew must be in
accordance with Federal, State, local law, and the requirements of this
part, including but not limited to requirements regarding fair housing,
nondiscrimination, and VAWA;
(iv) An owner may not terminate the tenancy or evict the tenant or
household members without instituting a civil court proceeding in which
the tenant or household member has the opportunity to present a
defense, or before a court decision on the rights of the parties; and
(v) An owner may not perform a constructive eviction such as
locking a tenant out of their unit or stopping service on utilities
servicing the tenant's unit. An owner may not create a hostile living
environment or refuse to provide a reasonable accommodation in order to
cause a tenant to terminate their tenancy in a HOME-assisted unit.
(c) HOME tenant-based rental assistance tenancy addendum. The terms
of the HOME tenant-based rental assistance tenancy addendum shall
prevail over any conflicting provisions of the lease. The terms and
conditions of the written lease, the HOME tenant-based rental
assistance tenancy addendum, the VAWA addendum listed in paragraph (a)
of this section, and any addendum required by another Federal, State,
or local affordable housing program shall constitute and contain the
sole and entire agreement between the owner and the tenant and no prior
or contemporaneous oral or written representation or agreement between
the owner or tenant shall have legal effect. The terms of the HOME
tenant-based rental assistance tenancy addendum shall terminate upon
termination of the rental assistance contract. The HOME tenant-based
rental assistance tenancy addendum shall contain the following minimum
requirements:
(1) Physical condition of unit and project. (i) The owner shall
maintain the physical condition of the unit and property so that it
meets the participating jurisdiction's property standards and State and
local code requirements in accordance with Sec. 92.251(f);
(ii) With respect to maintenance and repairs to a housing unit, the
owner shall:
(A) Provide the tenant with written expected time frames for
maintaining or repairing units as soon as practicable;
(B) Professionally maintain and repair units in accordance with the
participating jurisdiction's property standards as soon as practicable;
and
(C) Not charge the tenant for normal wear and tear or damage to the
unit or common areas of the property unless due to negligence,
recklessness, or intentional acts by the tenant.
(iii) The owner shall provide the tenant with continued,
uninterrupted utility service in a property with owner-controlled
utility services unless the interruption is not within the control of
the owner (e.g., a general power outage).
(2) Use and occupancy of the unit and property. (i) Subject to
applicable occupancy requirements under Federal, State or local law, a
family may reside in the unit with a foster child, foster adult, and/or
live-in aide;
(ii) Except for shared housing, the tenant's household shall have
the right to exclusive use and occupancy of the leased unit;
(iii) The owner may only enter the housing unit:
(A) When the owner provides reasonable advance notification to the
tenant and enters during reasonable hours for the purpose of performing
routine inspections and maintenance, for making improvement or repairs,
or to show the housing unit for re-leasing. A written statement
specifying the purpose of the owner's entry delivered to the housing
unit at least 2 days before such entry is reasonable advance
notification;
(B) At any time without advance notification when there is
reasonable cause to believe that an emergency requiring entry to the
unit exists; and
(C) The owner shall provide the tenant a written statement
specifying the date, time, and purpose of entry if the tenant and all
adult members of the household are absent from the housing unit at the
time of entry or if the owner is entering the housing unit pursuant to
paragraph (c)(2)(iii)(B) of this section;
(iv) The tenant's household shall have reasonable access to and use
of the common areas of the property; and
(v) A tenant may not be required to accept supportive services that
are offered unless the tenant is living in transitional housing and
such supportive services are required in connection with the
transitional housing.
(3) Notice. (i) Before an owner may take an adverse action against
the tenant, the tenant must be notified in writing, or where necessary
to accommodate an individual with a disability or language access
needs, must be provided a statement that is accessible and
understandable to the tenant, of the specific grounds for any proposed
adverse action by the owner. Such notice should be provided in a
translated format when needed to ensure meaningful access for limited
English proficient (LEP) persons. Such adverse action includes, but is
not limited to, imposition of charges for damages that require
maintenance and repair;
(ii) An owner must notify the tenant about changes affecting
property ownership and management as follows:
(A) Thirty (30) calendar days before a sale or foreclosure, tenants
must be
[[Page 879]]
notified of the impending sale or foreclosure of the property;
(B) Within 5 business days of any changes of ownership, tenants
must be notified of the change in ownership;
(C) Within 5 business days of any change in the property management
company managing the property, tenants must be notified of the change
in management company; and
(iii) The owner may not institute a lawsuit against the tenant
without providing notice to the tenant.
(4) A Tenant's rights to available legal proceedings and remedies.
(i) The tenant shall not be required by the owner to agree to be sued,
to admit guilt, or agree to a judgment in favor of the owner in a
lawsuit brought in connection with the lease;
(ii) The owner may not take, hold, or sell personal property of a
household member without notice to the tenant and a court decision on
the rights of the parties. This prohibition, however, does not apply to
an agreement by the tenant concerning disposition of personal property
remaining in the housing unit after the tenant has moved out of the
unit. The owner may dispose of this personal property in accordance
with State law;
(iii) The tenant may hold the owner or the owner's agents legally
responsible for any action or failure to act, whether intentional or
negligent;
(iv) In any legal proceedings involving tenant and owner, the owner
and tenant agree that the tenant shall be able to exercise the tenant's
right to:
(A) Obtain independent legal representation in any legal
proceedings in connection with the lease, including in any non-binding
arbitration or alternative dispute resolution process;
(B) Have a trial by jury where such right is available to a tenant
under Federal, State, or local law; and
(C) Appeal, or to otherwise challenge in court, a court decision in
connection with the lease where such right is available to the tenant
under Federal, State, or local law;
(v) The tenant may only be required to pay the owner's attorney's
fees or other legal costs if the tenant loses in a court proceeding
between the owner and the tenant and the court so orders.
(5) Protection against unreasonable interference or retaliation.
(i) An owner may not unreasonably interfere with the tenant's safety or
peaceful enjoyment of a rental unit or the common areas of the
property.
(ii) An owner may not retaliate against a tenant for taking any
action allowable under the lease and applicable law.
(iii) Actions that evidence unreasonable interference or
retaliation against a tenant include actions taken for the purpose of
causing the housing to become vacant or otherwise, including but not
limited to:
(A) Recovery of, or attempt to recover, possession of the housing
unit in a manner that is not in accordance with paragraph (c)(10) of
this section;
(B) Decreasing services to the housing unit (e.g., trash removal,
maintenance) or increasing the obligations of a tenant (e.g., new or
increased monetary obligations, etc.) in a manner that is not in
accordance with the requirements of this part;
(C) Interfering with a tenant's right to privacy under applicable
State or local law;
(D) Harassing a household or their lawful guests; and
(E) Refusing to honor the terms of the lease.
(iv) If an owner unreasonably interferes or retaliates against a
tenant, then this shall constitute a material breach under the lease, a
violation of HOME program requirements, and a breach of the written
agreement between the owner and the participating jurisdiction. A
tenant may use evidence of such unreasonable interference or
retaliation in a court of law, and the participating jurisdiction must
take reasonable actions to address any violation in accordance with the
participating jurisdiction's responsibilities under Sec. 92.504(a) and
(c).
(6) Exercise of rights under tenancy. A tenant may exercise any
right of tenancy and assert any protection under their lease and any
applicable Federal, State, or local tenant protections including but
not limited to:
(i) Reporting inadequate housing conditions of the housing unit or
property to the owner, the participating jurisdiction, code enforcement
officials, or HUD;
(ii) Reporting lease violations and requesting enforcement of the
written lease or any protections guaranteed under this part; and
(iii) Requesting or obtaining enforcement of any applicable
protections under Federal, State, or local law.
(7) Confidentiality. An owner will keep all records containing
personally identifying information of any family who is assisted with
tenant-based rental assistance secure and confidential.
(8) Prohibition on discrimination. The owner shall operate housing
assisted under this part in accordance with all applicable
nondiscrimination and equal opportunity requirements pursuant to Sec.
92.350 and the VAWA requirements at Sec. 92.359;
(9) Security deposits. (i) Security deposits must be refundable and
no greater than two months' rent. Surety bonds, security deposit
insurance, and instruments similar to surety bonds or security deposit
insurance may not be used in lieu of or in addition to a security
deposit. Upon termination of tenancy by the owner or tenant, if the
owner charges any amount against a tenant's security deposit, the owner
must give the tenant a list of all items charged against the security
deposit and the amount of each item. After deducting the amount, if
any, used to reimburse the owner, the owner must promptly refund the
full amount of the unused balance to the tenant.
(ii) For tenants that are already under a lease and have already
fulfilled the security deposit requirements under the lease before
entering into a rental assistance contract to receive tenant-based
rental assistance, the provisions of paragraph (c)(9)(i) of this
section do not apply.
(10) Termination of tenancy. (i) An owner may not terminate the
tenancy of any tenant or household member or refuse to renew the lease
of a tenant with tenant-based rental assistance, except for serious or
repeated violation of the material terms and conditions of the lease;
for violation of applicable Federal, State, or local law; for
completion of the tenancy period for transitional housing or failure to
follow any required transitional housing supportive services plan; or
for other good cause.
(A) Other good cause does not include a change in the tenant's
income or assets or the amount or type of income or assets the tenant
possesses. Good cause does not include refusal of the tenant to
purchase the housing unless the tenant is refusing to purchase the
housing pursuant to their lease-purchase agreement.
(B) Good cause includes:
(1) When a tenant or household member is a direct threat to the
safety of the tenants or employees of the housing or an imminent and
serious threat to the property;
(2) Serious or repeated violation of the terms and conditions of
the lease;
(3) Violation of applicable Federal, State, or local law through a
tenant's record of conviction of a crime that directly threatens the
health, safety, or right to peaceful enjoyment of the premises by other
tenants in the property. The owner shall not use a record of arrest,
parole or probation, or current indictment to establish such a
violation;
(4) When a tenant unreasonably refuses to provide the owner access
to
[[Page 880]]
the unit to allow the owner to repair the unit;
(5) When an owner intends to withdraw the unit from the rental
market to occupy the unit; allow an owner's family member to occupy the
unit; or demolish or substantially rehabilitate the unit;
(6) When an owner must terminate a tenancy to comply with an order
issued by a governmental entity or court that requires the tenant
vacate the project or unit;
(7) When an owner must terminate a tenancy to comply with a local
ordinance that necessitates vacating the residential real property; or
(8) When a tenant fails to purchase a housing unit within the
timeframes listed within the tenant's lease-purchase agreement.
(ii) To terminate or refuse to renew tenancy, the owner must serve
a written notice to vacate upon the tenant specifying the grounds for
the action at least 30 days before the termination of tenancy and
provide a copy of the notice to vacate to the participating
jurisdiction in accordance with the rental assistance contract or the
participating jurisdiction's policies and procedures. The minimum 30-
day period is not required if the termination of tenancy or refusal to
renew is due to a direct threat to the safety of the tenants or
employees of the housing or an imminent and serious threat to the
property and the termination of tenancy or refusal to renew is in
accordance with the requirements of Sec. 92.253(c)(10)(iii).
(iii) The termination of tenancy or refusal to renew must be in
accordance with Federal, State, local law, and the requirements of this
part, including but not limited to requirements regarding fair housing,
nondiscrimination, and VAWA.
(iv) An owner may not perform a constructive eviction such as
locking a tenant out of their unit or stopping service on utilities
servicing the tenant's unit. An owner may not create a hostile living
environment or refuse to provide a reasonable accommodation in order to
cause a tenant to terminate their tenancy in a HOME-assisted unit.
(d) HOME security deposit assistance tenancy addendum. The terms of
the HOME security deposit assistance tenancy addendum shall prevail
over any conflicting provisions of the lease. The terms and conditions
of the written lease, the HOME security deposit assistance tenancy
addendum, and any addendum required by another Federal, State, or local
affordable housing program shall constitute and contain the sole and
entire agreement between the owner and the tenant and no prior or
contemporaneous oral or written representation or agreement between the
owner or tenant shall have legal effect. The lease for a tenant
receiving security deposit assistance shall contain a security deposit
tenancy addendum that prohibits the following terms from being present
in the lease:
(1) Agreement to be sued. Agreement by the tenant to be sued, to
admit guilt, or to a judgment in favor of the owner in a lawsuit
brought in connection with the lease;
(2) Treatment of property. Agreement by the tenant that the owner
may take, hold, or sell personal property of household members without
notice to the tenant and a court decision on the rights of the parties.
This prohibition, however, does not apply to an agreement by the tenant
concerning disposition of personal property remaining in the housing
unit after the tenant has moved out of the unit. The owner may dispose
of this personal property in accordance with State law;
(3) Excusing owner from responsibility. Agreement by the tenant not
to hold the owner or the owner's agents legally responsible for any
action or failure to act, whether intentional or negligent;
(4) Waiver of notice. Agreement of the tenant that the owner may
institute a lawsuit without notice to the tenant;
(5) Waiver of legal proceedings. Agreement by the tenant that the
owner may evict the tenant or household members without instituting a
civil court proceeding in which the tenant has the opportunity to
present a defense, or before a court decision on the rights of the
parties;
(6) Waiver of a jury trial. Agreement by the tenant to waive any
right to a trial by jury;
(7) Waiver of right to appeal court decision. Agreement by the
tenant to waive the tenant's right to appeal, or to otherwise challenge
in court, a court decision in connection with the lease;
(8) Tenant chargeable with cost of legal actions regardless of
outcome. Agreement by the tenant to pay attorney's fees or other legal
costs even if the tenant wins in a court proceeding by the owner
against the tenant. The tenant, however, may be obligated to pay costs
if the tenant loses and the court so orders; and
(9) Mandatory supportive services. Agreement by the tenant (other
than a tenant in transitional housing) to accept supportive services
that are offered.
(e) Tenant selection. An owner of rental housing assisted with HOME
funds must comply with the affirmative marketing requirements
established by the participating jurisdiction pursuant to Sec.
92.351(a). The owner must adopt and follow written tenant selection
policies and criteria that:
(1) Limit the housing to very low-income and low-income families;
(2) Are reasonably related to the applicants' ability to perform
the obligations of the lease (i.e., to pay the rent, not to damage the
housing; not to interfere with the rights and quiet enjoyment of other
tenants);
(3) Limit eligibility or give a preference to a particular segment
of the population if permitted in its written agreement with the
participating jurisdiction (and only if the limitation or preference is
described in the participating jurisdiction's consolidated plan).
(i) Any limitation or preference must not violate nondiscrimination
requirements in Sec. 92.350. A limitation or preference does not
violate nondiscrimination requirements if the housing also receives
funding from a Federal program that limits eligibility to a particular
segment of the population (e.g., the Housing Opportunity for Persons
with AIDS program under 24 CFR part 574, the Shelter Plus Care program
under 24 CFR part 582, the Supportive Housing program under 24 CFR part
583, supportive housing for the elderly or persons with disabilities
under 24 CFR part 891), and the limit or preference is tailored to
serve that segment of the population.
(ii) If a project does not receive funding from a Federal program
that limits eligibility to a particular segment of the population, the
project may have a limitation or preference for persons with
disabilities who need services offered at a project only if:
(A) The limitation or preference is limited to the population of
families (including individuals) with disabilities that significantly
interfere with their ability to obtain and maintain housing;
(B) Such families will not be able to obtain or maintain themselves
in housing without appropriate supportive services; and
(C) The families must not be required to accept the services
offered at the project. The owner may advertise the project as offering
various supportive services, including a description of the specific
supportive services available. The project must be open to all eligible
persons with disabilities.
(4) Do not exclude an applicant with Federal, State, or local
tenant-based rental assistance, such as an applicant with a voucher
under the Housing Choice Voucher Program (24 CFR part 982) or an
applicant participating in a HOME tenant-based rental assistance
[[Page 881]]
program, because of the status of applicant as a holder of such type of
assistance;
(5) Except for small-scale housing, provide for the selection of
tenants from a written waiting list in the chronological order of their
application, insofar as is practicable. The participating jurisdiction
may establish alternative procedures to a written waiting list for the
selection of tenants in small-scale housing;
(6) Give prompt written notification to any rejected applicant of
the grounds for any rejection;
(7) Comply with the VAWA requirements prescribed in Sec. 92.359;
and
(8) Comply with the nondiscrimination requirements prescribed in
Sec. 92.350.
(f) Health and safety. In addition to the requirements in Sec.
92.355, if a participating jurisdiction has actual knowledge of an
environmental, health, or safety hazard affecting a project, unit, or
HOME tenants, the participating jurisdiction must contact the affected
owner and tenants in writing and provide them with a summary of the
nature, date, and scope of such hazards. If an owner has actual
knowledge of an environmental, health, or safety hazard affecting their
project, units within their project, or tenants residing within their
projects, the owner must inform the participating jurisdiction and
HOME-assisted tenants in writing and provide them with a summary of the
nature, date, and scope of such hazards. This notification requirement
only applies to environmental, health, and safety hazards that are
discovered after an environmental review performed pursuant to Sec.
92.352 has already taken place. When either the participating
jurisdiction or the owner notifies the tenants of the housing, this
satisfies the requirement for the other party.
0
28. Amend Sec. 92.254 by:
0
a. Revising paragraph (a)(2)(iii);
0
b. Adding paragraph (a)(2)(iv);
0
c. Revising paragraphs (a)(3) and (4), (a)(5)(i) and (ii), and (a)(6)
through (8);
0
d. Redesignating paragraphs (b) through (f) as paragraphs (c) through
(g) and redesignating paragraph (a)(9) as paragraph (b);
0
e. Revising newly redesignated paragraph (b); and
0
f. Revising newly redesignated paragraphs (f) introductory text and
(g)(1) and (3),
The revisions and additions read as follows:
Sec. 92.254 Qualification as affordable housing: Homeownership.
(a) * * *
(2) * * *
(iii) If a participating jurisdiction intends to use HOME funds for
homebuyer assistance or for the rehabilitation of owner-occupied single
family properties, the participating jurisdiction must use the HOME
affordable homeownership limits provided by HUD for newly constructed
housing and for existing housing.
(A) HUD will provide limits for affordable newly constructed
housing based on 95 percent of the median purchase price for the area
using Federal Housing Administration (FHA) single family mortgage
program data for newly constructed housing, with a minimum limit based
on 95 percent of the U.S. median purchase price for new construction
for nonmetropolitan areas.
(B) HUD will provide limits for affordable existing housing based
on 95 percent of the median area purchase price for the area using FHA
single family mortgage program data for existing housing and other
appropriate data that are available Nation-wide for purchase of
existing housing, with a minimum limit based on 95 percent of the
State-wide nonmetropolitan area median area purchase price using this
data.
(iv) In lieu of the limits provided by HUD, the participating
jurisdiction may determine 95 percent of the median area purchase price
for single family housing in the jurisdiction annually, as follows:
(A) The participating jurisdiction must set forth the limits for
single family housing of one, two, three, and four units, for the
jurisdiction. The participating jurisdiction may determine separate
limits for existing housing and newly constructed housing.
(B) For the limits on housing located outside of metropolitan
areas, a State may aggregate sales data from more than one county if
the counties are contiguous and similarly situated.
(C) The participating jurisdiction must include the following
information in the annual action plan of the Consolidated Plan
submitted to HUD for review and must update the information in each
action plan.
(1) The 95 percent of median area purchase price must be
established in accordance with a market analysis that ensured that a
sufficient number of recent housing sales are included in the survey;
(2) Sales must cover the requisite number of months based on
volume: For 500 or more sales per month, a 1-month reporting period;
for 250 through 499 sales per month, a 2-month reporting period; for
less than 250 sales per month, at least a 3-month reporting period. The
data must be listed in ascending order of purchase price;
(3) The address of the listed properties must include the location
within the participating jurisdiction. Lot, square, and subdivision
data may be substituted for the street address;
(4) The housing sales data must reflect all, or nearly all, of the
single family housing sales in the entire participating jurisdiction;
and.
(5) To determine the median area purchase price, a participating
jurisdiction must take the middle sale on the list if an odd number of
sales, and if an even number, take the higher of the middle numbers and
consider it the median. After identifying the median area purchase
price, the amount should be multiplied by 0.95 to determine the 95
percent of the median area purchase price.
(3) The housing must be acquired by a homebuyer whose family
qualifies as a low-income family, and the housing must be the principal
residence of the family throughout the period described in paragraph
(a)(4) of this section. If there is no ratified sales contract with an
eligible homebuyer for the housing within 12 months of the date of
completion of construction or rehabilitation, the housing must be
rented to an eligible tenant as affordable rental housing and must
comply with the requirements in Sec. 92.252, including the period of
affordability in Sec. 92.252(d). In determining the income eligibility
of the family, the participating jurisdiction must include the income
of all persons living in the housing. The homebuyer must receive
housing counseling. If housing is being purchased by an in-place tenant
pursuant to Sec. 92.255, then the housing may be acquired if the
homebuyer's family was low-income at the time the homebuyer's family
began occupying the HOME rental housing unit. If the housing does not
meet the participating jurisdiction's property standards in Sec.
92.251 at the time of acquisition, then the housing may still be
acquired if the written agreement between the participating
jurisdiction and the homebuyer requires the property to meet the
standards within the period specified in Sec. 92.251(c)(3)(ii) and
funding is secured to complete the rehabilitation necessary to comply
with the standards.
(4) Periods of affordability. The HOME-assisted housing must meet
the affordability requirements for not less than the applicable period
specified in the following table, beginning after execution of the
instrument that requires the recapture of the HOME investment or
recordation of the resale restrictions for sale to the next
[[Page 882]]
homebuyer. Execution of the instrument that requires the recapture of
the HOME investment or recordation of the resale restrictions for sale
to the next homebuyer may only occur after the housing meets the
participating jurisdiction's property standards in accordance with
Sec. 92.251(c)(3) and the property title is transferred to the
homebuyer. The per unit amount of HOME funds and the period of
affordability that they trigger are described more fully in paragraphs
(a)(5)(i) (resale) and (ii) (recapture) of this section. The period of
affordability is based on the total amount of HOME funds invested in
the housing.
Table 1 to Paragraph (a)(4)
------------------------------------------------------------------------
Minimum
period of
Homeownership assistance HOME amount per-unit affordability
in years
------------------------------------------------------------------------
Under $25,000........................................... 5
$25,000 to $50,000...................................... 10
Over $50,000............................................ 15
------------------------------------------------------------------------
(5) * * *
(i) Resale. Resale requirements must ensure, if the housing does
not continue to be the principal residence of the family for the
duration of the period of affordability, that the housing is made
available for subsequent purchase only to a buyer whose family
qualifies as a low-income family and will use the property as the
family's principal residence. The resale requirement must also ensure
that the price at resale provides the HOME-assisted homeowner a fair
return on investment (including the homeowner's investment and any
improvements) and ensure the housing will remain affordable to a
reasonable range of low-income homebuyers. The resale price is the fair
return on investment added to the original sales price of the property,
subject to market conditions. The participating jurisdiction must
specifically define ``fair return on investment'' and ``affordability
to a reasonable range of low-income homebuyers,'' and specifically
address how it will make the housing affordable to a low-income
homebuyer in the event that the resale price necessary to provide a
fair return is not affordable to the subsequent homebuyer. The period
of affordability is based on the total amount of HOME funds invested in
the housing.
(A) Permissible methods of determining fair return and the resale
price include but are not limited to the following:
(1) Itemized formula. To determine fair return on investment and
resale price, the participating jurisdiction may use an itemized
formula to add or subtract common, clearly defined factors that
increase or decrease the value of a homeowner's investment in the
property over the term of ownership. This formula must include the
value of capital improvements and the sum of the downpayment and all
principal payments by the homeowner on the loan secured by the
property. The formula may depreciate the value of the capital
improvements and may take into consideration any reduction in value due
to property damage or delayed or deferred maintenance of the property
condition. The fair return on a homeowner's investment under this
formula is calculated by taking the sum of the defined factors for the
homeowner's investment in the property over the term of ownership and
multiplying this amount by a clearly defined, publicly accessible index
or standard.
Formula 1 to Paragraph (a)(5)(i)(A)(1)
[GRAPHIC] [TIFF OMITTED] TR06JA25.000
(2) Appraisal formula. The participating jurisdiction may use an
appraisal formula to determine fair return on investment and resale
price based on the amount of market appreciation, if any, over the term
of ownership. Under this method, the appraisals must be conducted by a
State licensed or certified third-party appraiser. The amount of market
appreciation over the term of ownership is determined by subtracting
the appraised value at the time of initial purchase from the appraised
value of the property at the time of resale. The fair return on a
homeowner's investment under this formula is calculated by multiplying
a clearly defined, publicly accessible standard or index by the amount
of market appreciation over the term of homeownership.
Formula 2 to Paragraph (a)(5)(i)(A)(2)
[GRAPHIC] [TIFF OMITTED] TR06JA25.001
(3) Index formula. The participating jurisdiction may use an index
formula to determine fair return on investment and resale price based
on the change in value of a homeowner's investment over the term of
ownership. Index formulas adjust the value of the homeowner's
investment in proportion to changes in an index, such as the change in
median household income. To determine the homeowner's fair return using
this model, the sum of the property's original purchase price and the
value of any capital improvements to the property is multiplied by the
change in the specified index during the term of ownership. The formula
may also depreciate the value of the capital improvements and may take
into consideration any reduction in value due to property damage or
delayed or
[[Page 883]]
deferred maintenance of the property condition.
Formula 3 to Paragraph (a)(5)(i)(A)(3)
[GRAPHIC] [TIFF OMITTED] TR06JA25.002
(4) Fixed-rate formula. The participating jurisdiction may use a
fixed-rate formula to determine the homeowner's fair return on
investment. Fixed-rate formulas adjust the value of the homeowner's
investment by a fixed percentage (rate) per year (e.g., 3.5 percent).
To determine the fair return on investment using this model, the fixed
rate is multiplied by the number of years the homeowner owned and
occupied the home (e.g., 3.5 percent x 10 years = 35%). The resulting
rate is then multiplied by the sum of the original purchase price of
the home and the value of any capital improvements to the property to
calculate the fair return to the homeowner. The formula may also
depreciate the value of the capital improvements and may take into
consideration any reduction in value due to property damage or delayed
or deferred maintenance of the property condition.
Formula 4 to Paragraph (a)(5)(i)(A)(4)
[GRAPHIC] [TIFF OMITTED] TR06JA25.003
(B) Except as provided in paragraph (a)(5)(i)(C) of this section,
deed or use restrictions, a recorded agreement restricting the use of
the property, liens on real property, covenants running with the land,
or other similar mechanisms approved by HUD in writing must be used to
impose the resale requirements.
(C) The affordability restrictions may terminate upon occurrence of
any of the following termination events: foreclosure, transfer in lieu
of foreclosure, or assignment of an FHA-insured mortgage to HUD. If the
owner of record before the termination event obtains an ownership
interest in the property after the termination event, then the
affordability restrictions shall be revived under the same terms prior
to the termination event, including a minimum period of affordability
equal to the terminated period of affordability.
(D) Certain housing may be presumed to meet the resale restrictions
(i.e., the housing will be available and affordable to a reasonable
range of low-income homebuyers; a low-income homebuyer will occupy the
housing as the family's principal residence; and the original owner
will be afforded a fair return on investment) during the period of
affordability without the imposition of enforcement mechanisms by the
participating jurisdiction. The presumption must be based upon a market
analysis of the neighborhood in which the housing is located. The
market analysis must include an evaluation of the location and
characteristics of the housing and residents in the neighborhood (e.g.,
sale prices, age and amenities of the housing stock, incomes of
residents, percentage of owner-occupants) in relation to housing and
incomes in the housing market area. An analysis of the current and
projected incomes of neighborhood residents for an average period of
affordability for homebuyers in the neighborhood must support the
conclusion that a reasonable range of low-income families will continue
to qualify for mortgage financing. For example, an analysis shows that
the housing is modestly priced within the housing market area and that
families with incomes of 65 percent to 80 percent of the area median
income can afford monthly payments under average FHA terms without
other government assistance and housing will remain affordable at least
during the next five to seven years compared to other housing in the
market area; the size and amenities of the housing are modest and
substantial rehabilitation will not significantly increase the market
value; the neighborhood has housing that is not currently owned by the
occupants, but the participating jurisdiction is encouraging
homeownership in the neighborhood by providing homeownership assistance
and by making improvements to the streets, sidewalks, and other public
facilities and services. If a participating jurisdiction in preparing a
neighborhood revitalization strategy under Sec. 91.215(e)(2) of its
Consolidated Plan has incorporated the type of market data described
above, that submission may serve as the required analysis under this
section. If the participating jurisdiction continues to provide
homeownership assistance for housing in the neighborhood, it must
[[Page 884]]
periodically update the market analysis to verify the original
presumption of continued affordability.
(ii) Recapture. (A) Recapture provisions must require that the
participating jurisdiction recoups all or a portion of the HOME
assistance provided to the homebuyers if the housing does not continue
to be the principal residence of the family for the duration of the
period of affordability. The participating jurisdiction may structure
its recapture provisions based on its program design and market
conditions. The period of affordability is based upon the amount of
HOME funds that directly assisted the homebuyer to buy the housing
unit. This amount includes any HOME assistance that assisted the
homebuyer to purchase the housing or reduced the purchase price paid by
the homebuyer from fair market value to an affordable price but
excludes the amount of HOME assistance provided to develop the unit
that does not assist the homebuyer or reduce the purchase price paid by
the homebuyer. Recapture provisions may permit the subsequent homebuyer
to assume the HOME assistance (subject to the HOME requirements for the
remainder of the period of affordability) if the subsequent homebuyer
is low-income and no additional HOME assistance is provided.
(B) The following options for recapture requirements are acceptable
to HUD. The participating jurisdiction may adopt, modify, or develop
its own recapture requirements for HUD approval. In establishing its
recapture requirements, the participating jurisdiction is subject to
the limitation that when the recapture requirement is triggered by a
sale (voluntary or involuntary) of the housing unit, the amount
recaptured cannot exceed the net proceeds, if any. The net proceeds are
the sales price minus superior loan repayment (other than HOME funds)
and any closing costs.
(1) Recapture entire amount. The participating jurisdiction may
recapture the entire amount of the HOME investment from the homeowner.
(2) Reduction during period of affordability. The participating
jurisdiction may reduce the HOME investment amount to be recaptured on
a pro rata basis for the time the homeowner has owned and occupied the
housing measured against the required period of affordability.
(3) Shared net proceeds. If the net proceeds are not sufficient to
recapture the full HOME investment (or a reduced amount as provided for
in paragraph (a)(5)(ii)(A)(2) of this section) plus enable the
homeowner to recover the amount of the homeowner's downpayment and any
capital improvement investment made by the owner since purchase, the
participating jurisdiction may share the net proceeds. The net proceeds
are the sales price minus loan repayment (other than HOME funds) and
closing costs. The net proceeds may be divided proportionally as set
forth in the following mathematical formulas:
Formula 5 to Paragraph (a)(5)(ii)(A)(2)
[GRAPHIC] [TIFF OMITTED] TR06JA25.004
(4) Owner investment returned first. The participating jurisdiction
may permit the homebuyer to recover the homebuyer's entire investment
(downpayment and capital improvements made by the owner since purchase)
before recapturing the HOME investment.
(5) Amount subject to recapture. The HOME investment subject to
recapture is the amount of HOME funds that directly assisted the
homebuyer to buy the housing. This includes the amount that assisted
the homebuyer to purchase the housing or reduced the purchase price
paid by the homebuyer from fair market value to an affordable price but
excludes the amount of HOME assistance provided to develop the unit
that did not assist the homebuyer or reduce the purchase price paid by
the homebuyer. The recaptured funds must be used to carry out HOME-
eligible activities in accordance with the requirements of this part.
If the HOME assistance is only used for the development subsidy and
therefore not subject to recapture, the resale option must be used.
(6) Special considerations for single family properties with more
than one unit. If the HOME funds are only used to assist a low-income
homebuyer to acquire one unit in single family housing containing more
than one unit and the assisted unit will be the principal residence of
the homebuyer, the affordability requirements of this section apply
only to the assisted unit. If HOME funds are also used to assist the
low-income homebuyer to acquire one or more rental units in the single-
family housing, the affordability requirements of Sec. 92.252 apply to
the assisted rental units, except that the participating jurisdiction
may impose resale or recapture restrictions on all assisted units
(owner-occupied and rental units) in the single-family housing. If
resale restrictions are used, the affordability requirements on all
assisted units continue for the period of affordability. If recapture
restrictions are used, the affordability requirements on the assisted
rental units may be terminated, at the discretion of the participating
jurisdiction, upon recapture of the HOME investment. If HOME funds are
used to assist only the rental units in a single-family property, then
the requirements of Sec. 92.252 would apply and the owner-occupied
unit would not be subject to the income targeting or affordability
provisions of Sec. 92.254.
(7) Lease-purchases in the HOME program. A homeownership project
may consist of acquisition, rehabilitation, or new construction of
housing to be sold to an eligible low-income homebuyer through a lease-
purchase program.
(i) The homebuyer must qualify as a low-income family at the time
of signing the lease-purchase agreement. In determining the income
eligibility of the family, the participating jurisdiction must include
the income of all persons living in the housing. If a family is also
receiving HOME tenant-based rental assistance, the participating
jurisdiction is not required to reexamine the family's income during
the term of the lease-purchase agreement.
(ii) The owner and homebuyer must execute a lease-purchase
agreement under an existing lease-purchase program prior to occupancy
of the unit. The lease-purchase agreement must require the purchase of
the housing within 36 months of execution. Owners and homebuyers that
have entered into a lease-purchase agreement pursuant to the
requirements in this paragraph are
[[Page 885]]
subject to the affordability requirements in this section unless the
housing is not purchased within the required timeframes in this
paragraph in accordance with the lease-purchase agreement.
(iii) If the first homebuyer does not acquire the housing in
accordance with the lease-purchase agreement, the owner must sell the
housing to another eligible low-income homebuyer within 48 months from
the execution of the original lease-purchase agreement. The next
homebuyer is eligible for homeownership assistance from the
participating jurisdiction. The owner is not permitted to sell the unit
through another lease-purchase agreement. When the next homebuyer
purchases the housing, the homebuyer shall be subject to the
affordability requirements in this section.
(iv) If the owner is unable to sell the unit within 48 months from
the execution of the lease-purchase agreement, the housing is subject
to the requirements for affordable rental housing in Sec. 92.252.
(8) Contract to purchase. If HOME funds are used to assist a
homebuyer who has entered into a contract to purchase housing to be
constructed, the homebuyer must qualify as a low-income family at the
time the contract is signed.
(b) Preserving affordability of housing assisted with HOME funds.
When there is a termination event for affordability restrictions, a
participating jurisdiction may take the following actions to preserve
the affordability of the property:
(1) The participating jurisdiction may exercise purchase options,
rights of first refusal, or other preemptive rights to obtain ownership
of the housing before foreclosure to preserve affordability, subject to
the following requirements:
(i) The housing must be sold to an eligible homebuyer in accordance
with paragraph (a)(3) of this section within 12 months of the date the
participating jurisdiction obtains ownership;
(ii) The period of affordability for the eligible homebuyer must be
equal to the remaining period of affordability of the former homeowner
unless additional HOME funds are used to directly assist the eligible
homebuyer (i.e., homeownership assistance);
(iii) If the participating jurisdiction directly assists the
eligible homebuyer with additional HOME funds, then the period of
affordability must be recalculated in accordance with the table in
Sec. 92.254(a)(4) based on the total amount of additional HOME funds
invested. The additional investment must be treated as a new project;
and
(iv) The total HOME funds for a project (original investment plus
additional investment) must not exceed the per-unit subsidy limit in
Sec. 92.250(a) in effect at the time of the additional investment,
subject to HUD approval.
(2) The participating jurisdiction may use additional HOME funds
for the following costs:
(i) The cost for the participating jurisdiction to obtain ownership
of the HOME-assisted housing through a purchase option, right of first
refusal, or other preemptive right before foreclosure or at the
foreclosure sale. This cost must be treated as an amendment to the
original project. The foreclosure costs to acquire housing with a HOME
loan in default is an eligible cost; however, HOME funds may not be
used to repay a loan made with HOME funds.
(ii) The cost of the participating jurisdiction to undertake any
necessary rehabilitation for the housing acquired. This includes the
rehabilitation required for the housing to meet applicable property
standards in Sec. 92.251. This cost must be treated as an amendment to
the original project.
(iii) The cost to the participating jurisdiction of owning the
housing pending resale to another homebuyer. This cost must be treated
as an amendment to the original project.
(iv) The cost to assist an eligible homebuyer in purchasing the
housing. This cost must be treated as a cost for a new project and not
as an amendment to the original project.
(v) As an alternative to charging costs to the HOME program under
Sec. 92.206, the participating jurisdiction may charge the costs to
the HOME program under Sec. 92.207 as a reasonable administrative cost
of its HOME program. To the extent administrative funds are used, they
may be reimbursed, in whole or in part, when the housing is sold to a
new eligible homebuyer. If the housing is sold for more than the amount
of administrative funds that the participating jurisdiction expended to
preserve the affordability, then the excess sale proceeds shall be
program income.
(3) The participating jurisdiction may permit the Community Land
Trust, as defined in Sec. 92.2, that originally developed the HOME-
assisted housing, to exercise a purchase option, right of first
refusal, or other preemptive right to obtain ownership of the housing
to preserve affordability, including but not limited to the right to
purchase the housing in lieu of foreclosure, under the following
conditions:
(i) The Community Land Trust obtains ownership of the housing,
subject to existing HOME affordability restrictions;
(ii) The housing must be resold to an eligible homebuyer in
accordance with paragraph (a)(3) of this section within 12 months;
(iii) The period of affordability for the eligible homebuyer is
equal to the remaining period of affordability of the former homeowner,
unless the participating jurisdiction provides additional HOME funds to
directly assist the eligible homebuyer in accordance with subparagraph
(b)(3)(iv) below (i.e., homeownership assistance); and,
(iv) The participating jurisdiction may not provide additional HOME
funds to the Community Land Trust to obtain ownership, rehabilitate the
housing, own/hold the housing pending resale to the next homebuyer, or
provide homeownership assistance to the next eligible homebuyer. The
participating jurisdiction may provide homeownership assistance to the
next eligible homebuyer and the period of affordability shall be based
upon the homeownership assistance provided to the homebuyer, in
accordance with subparagraphs (b)(1)(iii) and (b)(1)(iv) of this
section.
* * * * *
(f) Providing homeownership assistance through lenders. Subject to
the requirements of paragraph (f) of this section, the participating
jurisdiction may provide homeownership assistance through a lending
institution that is a contractor or nonprofit lending institution that
is a subrecipient that also provides the first mortgage loan to a low-
income family.
* * * * *
(g) * * *
(1) Underwriting standards for homeownership assistance to
determine the amount of assistance necessary to achieve sustainable
homeownership. These standards must evaluate the projected overall debt
of the family after the purchase of the housing, the maximum amount
that a participating jurisdiction may provide a family, the
appropriateness of the amount of assistance, assets available to a
family to acquire the housing, and financial resources to sustain
homeownership. A participating jurisdiction may not provide a single,
fixed amount of assistance to each homebuyer that participates in the
participating jurisdiction's homebuyer program;
* * * * *
(3) Refinancing loans to which HOME loans are subordinated to
require that the terms of the new loan are reasonable.
[[Page 886]]
0
29. Revise Sec. 92.255 to read as follows:
Sec. 92.255 Purchase of HOME units by in-place tenants.
(a) During a HOME-assisted rental unit's period of affordability,
the participating jurisdiction may permit an owner to sell or otherwise
convey a HOME-assisted rental unit to an existing tenant in accordance
with the requirements of Sec. 92.254. However, refusal by the tenant
to purchase the housing does not constitute good cause for termination
of tenancy or failure to renew the lease. The participating
jurisdiction may not permit the use of a lease-purchase program under
this section.
(b) If no additional HOME funds are used to enable the tenants to
become homeowners, the homeownership units are subject to a period of
affordability equal to the remaining period of affordability if the
units continued as rental units. The participating jurisdiction must
impose resale requirements that comply with Sec. 92.254(a) for the
required period of affordability. The period of affordability and
resale restrictions must be applied to the property regardless of the
income of the family at purchase. If the tenant's family is no longer
low-income at the time of the purchase, then the family must occupy the
housing as a principal residence in accordance with Sec. 92.254(a)(3)
and must agree to the imposition of resale restrictions on the housing,
in accordance with Sec. 92.254(a)(5), for the period of affordability
specified in this paragraph (b).
(c) If additional HOME funds are used to directly assist the
tenants to become homeowners, the period of affordability is the
remaining period of affordability if the unit had remained a rental
unit or the required period under Sec. 92.254(a)(4) for the amount of
direct homeownership assistance provided, whichever is longer. No
additional HOME funds may be provided to an in-place tenant to become a
homebuyer if the tenant's family is no longer low-income at the time of
the purchase.
Sec. 92.258 [Amended]
0
30. Amend Sec. 92.258 by:
0
a. Removing the words ``single-family dwelling'' and adding in their
place the words ``single family housing units'' in paragraph (a);
0
b. Removing the word ``single-family'' and adding in their place the
words ``single family'' paragraph (b)(1); and
0
c. Removing the words ``affordability period'' and adding in their
place the words ``period of affordability'' paragraphs (c) and (d)(3)
introductory text; and
0
d. Removing ``Sec. 92.252(e)'' and adding in its place ``Sec.
92.252(d)'' in paragraph (d)(3) introductory text.
0
31. Amend Sec. 92.300 by:
0
a. Removing the words ``developed or sponsored'' and adding in their
place the words ``developed, or sponsored'' in the first sentence of
paragraph (a) introductory text;
0
b. Revise paragraphs (a)(2) through (4) and (a)(5) introductory text;
0
c. Removing the word ``nonprofit'' and adding in its place the words
``private nonprofit'' in paragraph (a)(5)(iii) introductory text;
0
d. Removing ``community development housing organization'' and adding
in its place ``community housing development organization'' and by
removing the word ``new'' in paragraph (a)(6) introductory text;
0
e. Revising paragraphs (a)(6)(i), (a)(6)(ii)(A), and (a)(7) and the
last sentence of paragraph (b);
0
f. Removing the words ``developed or sponsored'' and adding in their
place the words ``developed, or sponsored'' and by removing the words
``and specifies'' and adding in their place the words ``and must
specify'' in paragraph (e); and
0
g. Revising the first sentence of paragraph (f).
The revisions read as follows:
Sec. 92.300 Set-aside for community housing development organizations
(CHDOs).
(a) * * *
(2) Rental housing is ``owned'' by the community housing
development organization if the community housing development
organization is the owner in fee simple absolute of rental housing (or
has a long term ground lease running for the full period of
affordability in Sec. 92.252) leased to low-income families in
accordance with Sec. 92.252. If the housing is to be rehabilitated or
constructed, the community housing development organization hires and
oversees the developer that rehabilitates or constructs the housing.
The community housing development organization must oversee or hire and
contract with an experienced project manager to oversee all aspects of
the development, including obtaining zoning, securing non-HOME
financing, selecting a developer or general contractor, overseeing the
progress of the work, and determining the reasonableness of costs. The
community housing development organization must own the rental housing
during development and for a period at least equal to the period of
affordability in Sec. 92.252. If the CHDO acquires housing that meets
the property standards in Sec. 92.251, the CHDO must own the rental
housing for a period at least equal to the period of affordability in
Sec. 92.252.
(3) Rental housing is ``developed'' by the community housing
development organization if the community housing development
organization is the owner in fee simple absolute (or has a long term
ground lease running for the full period of affordability in Sec.
92.252) and the developer of new housing that will be constructed or
existing substandard housing that will be rehabilitated for rent to
low-income families in accordance with Sec. 92.252. To be the
``developer,'' the community housing development organization may share
developer responsibilities with another entity but must be in charge of
all aspects of the development process, including selecting the site,
obtaining permit approvals and all project financing, selecting
architects, engineers, and general contractors, overseeing project
progress, and determining the reasonableness of costs. The requirement
that a community housing development organization is in charge of all
aspects of the development process must be enforceable through a
written agreement (e.g., a joint venture agreement or master
development agreement). At a minimum, the community housing development
organization must own the housing during development and for a period
at least equal to the period of affordability in Sec. 92.252. The
participating jurisdiction may permit the community housing development
organization to sell or otherwise convey the housing to a nonprofit
organization other than a community housing development organization,
subject to all applicable requirements of this part, if the
participating jurisdiction determines and documents that the community
housing development organization no longer has the capacity to own and
manage the housing for the full period of affordability and there are
no other community housing development organizations within the
jurisdiction with capacity to own and manage the project for the full
period of affordability.
(4) Rental housing is ``sponsored'' by the community housing
development organization if it is rental housing ``owned'' or
``developed'' in accordance with paragraph (a)(2) or (3) of this
section, as applicable, by a subsidiary of a community housing
development organization, a limited partnership of which the community
housing development organization or its subsidiary is the managing
general partner, or a limited liability company
[[Page 887]]
of which the community housing development organization or its
subsidiary is the managing member.
(i) The subsidiary of the community housing development
organization may be a for-profit or nonprofit organization and must be
wholly owned by the community housing development organization. If the
limited partnership or limited liability company agreement permits the
community housing development organization or its subsidiary to be
removed as the managing general partner or managing member, the
agreement must provide that the removal must be for cause and that the
community housing development organization must be replaced with
another community housing development organization.
(ii) The HOME funds must be provided by the participating
jurisdiction directly to the entity that owns the project.
(5) HOME-assisted rental housing is also ``sponsored'' by a
community housing development organization if the community housing
development organization ``developed'' the rental housing project in
accordance with paragraph (a)(3) of this section and agrees to convey
the project to an identified private nonprofit organization at a
predetermined time after completion of the project. Sponsored rental
housing, as provided in this paragraph (a)(5), is subject to the
following requirements:
* * * * *
(6) * * *
(i) To be the ``developer,'' the community housing development
organization may share the developer role with another entity but must
be in charge of all aspects of the development process, including
selecting the site, obtaining permit approvals and all project
financing, selecting architects, engineers, and general contractors,
overseeing project progress, determining the reasonableness of costs,
identifying eligible homebuyers, and overseeing the sale of
homeownership units. The community housing development organization may
provide direct homeownership assistance (e.g., assistance with a
downpayment, payment of closing costs, mortgage rate buy-downs, etc.)
when it sells the housing to low-income families and the community
housing development organization will not be considered a subrecipient.
The HOME funds for homeownership assistance shall not be greater than
10 percent of the amount of HOME funds for development of the housing.
(ii) * * *
(A) While proceeds retained by the community housing development
organization are not subject to the requirements of this part, the
participating jurisdiction must specify in the written agreement with
the community housing development organization whether the proceeds are
to be used for HOME-eligible activities or other housing activities to
benefit low-income families.
* * * * *
(7) The participating jurisdiction must determine the form of
assistance (e.g., grant or loan) in accordance with Sec. 92.205(b)
that it will provide to the community housing development organization
for a rental housing project under paragraph (a)(4) of this section and
must provide the assistance directly to the entity that owns the
project.
(b) * * * If during the first 24 months of its participation in the
HOME Program a participating jurisdiction cannot identify a sufficient
number of capable community housing development organizations, up to 20
percent of the minimum community housing development organization set
aside specified in paragraph (a) of this section (but not more than
$150,000 during the 24 month period) may be committed to an
organization that meets the definition of ``community housing
development organization'' in Sec. 92.2, except for the requirements
in paragraph (9) of the definition, in order to develop demonstrated
capacity and qualify as a community housing development organization in
the jurisdiction.
* * * * *
(f) The participating jurisdiction must ensure that a community
housing development organization does not receive HOME funding for any
fiscal year in an amount that provides more than $50,000 or 50 percent
of the community housing development organization's total operating
expenses in that fiscal year, whichever is greater. * * *
0
32. Revise Sec. 92.302 to read as follows:
Sec. 92.302 Housing education and organizational support.
HUD is authorized to provide education and organizational support
assistance, in conjunction with HOME funds made available to community
housing development organizations in accordance with section 233 of the
Act.
(a) HUD will issue a publication in the Federal Register announcing
the availability of funding under this section, as appropriate. The
publication need not include funding for each of the eligible
activities but may target funding from among the eligible activities.
(b) Notwithstanding the definition of ``community land trust'' in
Sec. 92.2, HUD may provide housing education and organizational
support assistance under this section to a community land trust only if
the following requirements are met:
(1) The community land trust meets the definition of a ``community
housing development organization'' at Sec. 92.2, except for the
requirements in paragraphs (9) and (10) of the definition.
(2) The community land trust is established to complete the
activities in paragraph (b)(3) of this section.
(3) The community land trust:
(i) Acquires land to hold in perpetuity and primarily for
conveyance under long-term ground leases;
(ii) Transfers ownership of any structural improvements located on
such leased land to the lessees; and
(iii) Retains a preemptive option to purchase any such structural
improvement at a price determined by formula that is designed to ensure
that the improvement remains affordable to low- and moderate-income
families in perpetuity;
(4) The community land trust's corporate membership is open to
residents of a particular geographic area, as specified in the
organization's bylaws; and
(5) The board of directors:
(i) Includes a majority of members who are elected by the corporate
membership; and
(ii) Is composed of equal numbers of lessees pursuant to paragraph
(b)(2)(ii), members who are not lessees, and any other category of
persons described in the organization's bylaws.
Sec. 92.351 [Amended]
0
33. Amend Sec. 92.351 by removing the words ``downpayment assistance''
and adding in their place the words ``homeownership assistance'' and
removing the words ``If participating'' and adding in their place the
words ``If the participating'', and by removing the citation ``Sec.
92.253(d)(3)'' and adding in its place the citation ``Sec.
92.253(e)(3)'' in in paragraph (a)(1).
Sec. 92.352 [Amended]
0
34. Amend Sec. 92.352 by:
0
a. Removing the words ``the cost'' and adding in their place the word
``cost'' in paragraph (a); and
0
b. Removing the word ``decisionmaking'' and adding in its place the
words ``decision making'' in paragraph (b)(1).
0
35. Amend Sec. 92.353 by:
0
a. Removing the words ``preceded by at least 30 days advance written
notice
[[Page 888]]
to the tenant specifying the grounds for the action'' and adding in
their place the words ``in accordance with Sec. 92.253'' in paragraph
(c)(2)(ii)(A); and
0
b. Revising paragraph (c)(2)(ii)(C).
The revision reads as follows:
Sec. 92.353 Displacement, relocation, and acquisition.
* * * * *
(c) * * *
(2) * * *
(ii) * * *
(C) For purposes of the URA, the person meets the definition of
``persons not displaced'' as defined in 49 CFR 24.2; or
* * * * *
Sec. 92.354 [Amended]
0
36. Amend Sec. 92.354 in paragraph (a)(2) by removing the word
``single-family'' and adding in its place the words ``single family''.
0
37. Amend Sec. 92.356 by:
0
a. Revising paragraph (d)(1);
0
b. Redesignating paragraphs (e)(2) through (6) as paragraphs (e)(3)
through (7), respectively;
0
c. Adding new paragraph (e)(2); and
0
d. Removing the citation ``Sec. 92.252(e)'' and adding in its place
the citation ``Sec. 92.252(d)'' in paragraph (f)(1).
The revisions and additions read as follows:
Sec. 92.356 Conflict of interest.
* * * * *
(d) * * *
(1) A disclosure of the nature of the conflict, accompanied by an
assurance that there has been public disclosure of the conflict (public
disclosure is considered a combination of at least two of the
following: publication on the recipient's website, including social
media; electronic mailings; media advertisements; public service
announcements; and display in public areas such as libraries, grocery
store bulletin boards, and neighborhood centers), evidence of the
public disclosure, and a description of how the public disclosure was
made; and
* * * * *
(e) * * *
(2) Whether an opportunity was provided for open competitive
bidding or negotiation;
* * * * *
Sec. 92.359 [Amended]
0
38. Amend Sec. 92.359 in paragraph (f) by removing the words
``affordability period'' and adding in their place the words ``period
of affordability''.
0
39. Amend Sec. 92.454 by:
0
a. Removing the word ``and'' in paragraph (a)(3);
0
b. Removing the text ``participating jurisdiction.'' and adding in its
place the text ``participating jurisdiction; and'' in paragraph (a)(4);
0
c. Adding paragraph (a)(5); and
0
d. Removing the words ``participating jurisdictions that'' and adding
in their place the words ``participating jurisdictions whose funds were
reduced under Sec. 92.551 or that'' in paragraph (b).
The addition reads as follows:
Sec. 92.454 Reallocations by formula.
(a) * * *
(5) Any HOME funds available for reallocation as a result of any
reductions under 24 CFR 92.551 or 92.552.
* * * * *
0
40. Amend Sec. 92.500 by revising paragraph (c)(2)(ii) to read as
follows:
Sec. 92.500 The HOME Investment Trust Fund.
* * * * *
(c) * * *
(2) * * *
(ii) The statute or local ordinance requires repayments from its
own affordable housing trust fund to be made to the local account;
* * * * *
0
41. Amend Sec. 92.502 by:
0
a. Revising paragraph (b);
0
b. Removing the words ``set-up'' in paragraph (c)(1); and
0
c. Revising paragraphs (d)(1) and (2).
The revisions read as follows:
Sec. 92.502 Program disbursement and information system.
* * * * *
(b) Project funding. After the participating jurisdiction executes
the HOME Investment Partnership Agreement, submits the applicable
banking and security documents, complies with the environmental
requirements under 24 CFR part 58 for release of funds, and commits
funds to a specific local project, the participating jurisdiction may
provide funding to an activity by identifying specific investments in
the disbursement and information system. The participating jurisdiction
is required to enter complete project set-up information before
providing funding to the project.
* * * * *
(d) * * *
(1) Complete project completion information must be entered into
the disbursement and information system, or otherwise provided to HUD.
(2) Additional HOME funds may be committed to a project up to one
year after project completion, but the amount of HOME funds in the
project may not exceed the maximum per-unit subsidy amount established
under Sec. 92.250 at the time of underwriting.
* * * * *
0
42. Amend Sec. 92.504 by:
0
a. Revising the section heading and paragraph (b) and revising and
republishing paragraph (c); and
0
b. Removing paragraph (d).
The revisions and republication read as follows:
Sec. 92.504 Participating jurisdiction responsibilities; written
agreements.
* * * * *
(b) Executing a written agreement. Before disbursing any HOME funds
to any entity, the participating jurisdiction must enter into a legally
binding written agreement with that entity. Before disbursing any HOME
funds to any entity, a State recipient, subrecipient, or contractor
that is administering all or a part of the HOME program on behalf of
the participating jurisdiction, must also enter into a legally binding
written agreement with that entity. The written agreement must ensure
compliance with the requirements of this part and be a separate
agreement from project financing documents (e.g., mortgage or deed of
trust, regulatory agreement, or promissory note).
(c) Provisions in written agreements. The contents of the agreement
may vary depending upon the role the entity is asked to assume or the
type of project undertaken. This section details basic requirements and
the minimum provisions by role and type of entity that must be included
in a written agreement.
(1) State recipient. The provisions in the written agreement
between the State and a State recipient will depend on the program
functions that the State specifies the State recipient will carry out
in accordance with Sec. 92.201(b). In accordance with Sec. 92.201,
the written agreement must either require the State recipient to comply
with the requirements established by the State or require the State
recipient to establish its own requirements to comply with this part,
including requirements for income determinations and underwriting
subsidy layering guidelines, rehabilitation standards, refinancing
guidelines, homebuyer program policies, and affordability.
(i) Use of the HOME funds. The agreement must describe the amount
and use of the HOME funds to administer one or more programs to produce
affordable housing, provide homeownership assistance, or provide
tenant-based rental assistance, including the anticipated type and
number of housing projects to be funded (e.g., the number of single
family homeowner
[[Page 889]]
loans to be made or number of homebuyers to receive homeownership
assistance), tasks to be performed, a schedule for completing the tasks
(including a schedule for committing funds to projects that meet the
deadlines established by this part), a budget for each program, and any
requirement for matching contributions. These items must be in
sufficient detail to provide a sound basis for the State to effectively
monitor performance under the agreement.
(ii) Affordability. The agreement must require housing assisted
with HOME funds to meet the affordability requirements of Sec. 92.252
or Sec. 92.254, as applicable, and must require repayment of the funds
if the housing does not meet the affordability requirements for the
period of affordability. The agreement must require a means of
enforcement of the affordability requirements by the State
participating jurisdiction or, if the State recipient will be the owner
at project completion of the affordable housing, the intended
beneficiaries. The means of enforcement may include liens on real
property, deed or use restrictions, a recorded agreement restricting
the use of the property, covenants running with the land, or other
mechanisms approved by HUD in writing, under which the participating
jurisdiction has the right to require specific performance. The
agreement must establish whether repayment of HOME funds must be
remitted to the State or retained by the State recipient for additional
eligible activities.
(iii) Program income. The agreement must state whether program
income is to be remitted to the State or retained by the State
recipient for additional eligible activities.
(iv) Uniform administrative requirements. The agreement must
require the State recipient to comply with applicable uniform
administrative requirements, as described in Sec. 92.505.
(v) Project requirements. The agreement must require compliance
with project requirements in subpart F of this part, as applicable in
accordance with the type of project assisted. For any projects
involving HOME rental housing, tenant-based rental assistance, or
security deposit assistance, the agreement must require that the
applicable HOME tenancy addendum is used in accordance with Sec.
92.253 for all HOME-assisted units or tenants.
(vi) Other program requirements. The agreement must require the
State recipient to carry out each activity in compliance with all
Federal laws and regulations described in subpart H of this part,
except that the State recipient does not assume the State's
responsibilities for release of funds under Sec. 92.352 and the
intergovernmental review process in Sec. 92.357 does not apply to the
State recipient. If HOME funds are provided for development of rental
housing or provision of tenant-based rental assistance, the agreement
must set forth all obligations the State imposes on the State recipient
in order to meet the Violence Against Women Act (VAWA) requirements
under Sec. 92.359, including notice obligations and any obligations
with respect to the emergency transfer plan (including whether the
State recipient must develop its own plan or follow the State's plan).
(vii) Affirmative marketing. The agreement must specify the State
recipient's affirmative marketing responsibilities in accordance with
Sec. 92.351.
(viii) Requests for disbursement of funds. The agreement must
specify that the State recipient may not request disbursement of HOME
funds under this agreement until the funds are needed for payment of
eligible costs. The amount of each request must be limited to the
amount needed. Program income must be disbursed before the State
recipient requests funds from the State.
(ix) Records and reports. The agreement must specify the particular
records that must be maintained and the information or reports that
must be submitted in order to assist the State in meeting its
recordkeeping and reporting requirements.
(x) Enforcement of the written agreement. The agreement must
specify remedies for breach of the provisions of the written agreement.
The agreement must specify that, in accordance with 2 CFR 200.339,
suspension or termination may occur if the State recipient materially
fails to comply with any term of the agreement. The State may permit
the agreement to be terminated in whole or in part in accordance with 2
CFR 200.340.
(xi) Written agreement. Before providing HOME funds to any owner,
community housing development organization, subrecipient, homeowner,
homebuyer, tenant (or landlord) receiving tenant-based rental
assistance, or contractor providing services to or on behalf of the
State recipient, the State recipient must have a fully executed written
agreement with such person or entity that meets the requirements of
this section. For affordable housing assisted with HOME funds, the
State recipient must provide HOME funds directly to the owner under the
terms and conditions of the written agreement. The agreement must
establish that any repayment on any form of assistance of HOME funds
must be remitted to the State or, if permitted by the State, retained
by the State recipient for additional eligible activities.
(xii) Duration of the agreement. The duration of the agreement will
depend on which functions the State recipient performs (e.g., whether
the State recipient or the State has responsibility for monitoring
rental projects for the period of affordability) and which activities
are funded under the agreement.
(xiii) Fees. The agreement must prohibit the State recipient and
its subrecipients and community housing development organizations from
charging for any of the prohibited costs listed in Sec. 92.214,
including but not limited to servicing, origination, processing,
inspection, or other fees for the costs of administering a HOME
program.
(2) Subrecipient. The agreement must set forth and require the
subrecipient to follow the participating jurisdiction's requirements,
including requirements for income determinations, underwriting and
subsidy layering guidelines, rehabilitation standards, refinancing
guidelines, homebuyer program policies, and affordability requirements.
The agreement between the participating jurisdiction and the
subrecipient must include the following:
(i) Use of the HOME funds. The agreement must describe the amount
and use of the HOME funds for one or more programs, including the
anticipated type and number of housing projects to be funded (e.g., the
number of single family homeowner loans to be made or the number of
homebuyers to receive homeownership assistance), tasks to be performed,
a schedule for completing the tasks (including a schedule for
committing funds to projects in accordance with deadlines established
by this part), a budget, any requirement for matching contributions,
and the period of the agreement. These items must be in sufficient
detail to provide a sound basis for the participating jurisdiction to
effectively monitor performance under the agreement.
(ii) Program income. The agreement must state if program income is
to be remitted to the participating jurisdiction or retained by the
subrecipient for additional eligible activities.
(iii) Uniform administrative requirements. The agreement must
require the subrecipient to comply with applicable uniform
administrative requirements, as described in Sec. 92.505.
(iv) Other program requirements. The agreement must require the
subrecipient
[[Page 890]]
to carry out each activity in compliance with all Federal laws and
regulations described in subpart H of this part, except that the
subrecipient does not assume the participating jurisdiction's
responsibilities for environmental review under Sec. 92.352 and the
intergovernmental review process in Sec. 92.357 does not apply. The
agreement must set forth the requirements the subrecipient must follow
to enable the participating jurisdiction to carry out environmental
review responsibilities before HOME funds are committed to a project.
If the subrecipient is administering a HOME rental housing program or
tenant-based rental assistance program on behalf of the participating
jurisdiction, the participating jurisdiction must set forth in the
written agreement all obligations of the subrecipient to meet the VAWA
requirements under Sec. 92.359, including notice obligations and
obligations under the emergency transfer plan.
(v) Affirmative marketing. The agreement must specify the
subrecipient's affirmative marketing responsibilities in accordance
with Sec. 92.351.
(vi) Requests for disbursement of funds. The agreement must specify
that the subrecipient may not request disbursement of funds under the
agreement until the funds are needed for payment of eligible costs. The
amount of each request must be limited to the amount needed. Program
income must be disbursed before the subrecipient requests funds from
the participating jurisdiction.
(vii) Reversion of assets. The agreement must specify that upon
expiration of the agreement, the subrecipient must transfer to the
participating jurisdiction any HOME funds on hand at the time of
expiration and any accounts receivable attributable to the use of HOME
funds.
(viii) Records and reports. The agreement must specify the
particular records that must be maintained and the information or
reports that must be submitted in order to assist the participating
jurisdiction in meeting its recordkeeping and reporting requirements.
(ix) Enforcement of the written agreement. The agreement must
specify remedies for breach of the provisions of the written agreement.
The agreement must specify that, in accordance with 2 CFR 200.339,
suspension or termination may occur if the subrecipient materially
fails to comply with any term of the agreement. The participating
jurisdiction may permit the agreement to be terminated in whole or in
part in accordance with 2 CFR 200.340.
(x) Written agreement. Before the subrecipient provides HOME funds
to any owner, community housing development organization, subrecipient,
homeowner, homebuyer, tenant (or landlord) receiving tenant-based
rental assistance, or contractor providing services to or on behalf of
the subrecipient, the subrecipient must have a fully executed written
agreement with such entity that meets the requirements of this section.
For housing projects assisted with HOME funds, the subrecipient must
provide HOME funds directly to the owner under the terms and conditions
of the written agreement. The agreement must establish whether
repayment of HOME funds must be remitted to the participating
jurisdiction or may be retained by the subrecipient for additional
eligible activities.
(xi) Fees. The agreement must prohibit the subrecipient from
charging for any of the prohibited costs listed in Sec. 92.214,
including but not limited to servicing, origination, or other fees for
the costs of administering the HOME program.
(xii) Project requirements. The agreement must require enforcement
of project requirements in subpart F of this part, as applicable in
accordance with the type of project assisted. For any projects
involving HOME rental housing, tenant-based rental assistance, or
security deposit assistance, the agreement must require that the
applicable HOME tenancy addendum is used in accordance with Sec.
92.253 for all HOME-assisted units or tenants.
(3) For-profit or nonprofit housing owner (other than a community
housing development organization or single family owner-occupant). The
participating jurisdiction may preliminarily award HOME funds for a
proposed project, contingent on conditions such as obtaining other
financing for the project. This preliminary award is not a commitment
to a project. The written agreement committing the HOME funds to the
project must meet the requirements of ``commit to a specific local
project'' in the definition of ``commitment'' in Sec. 92.2. The HOME
assistance must be provided directly to the owner under the terms and
conditions of a written agreement that complies with the requirements
of this part and contains the following:
(i) Use of the HOME funds. The agreement between the participating
jurisdiction and a for-profit or nonprofit housing owner must include
the address of the project or the legal description of the property if
a street address has not been assigned to the property, the specific
amount and use of the HOME funds and other funds for the project,
including the tasks to be performed for the project, a schedule for
completing the tasks and the project, and a complete budget. These
items must be in sufficient detail to provide a sound basis for the
participating jurisdiction to effectively monitor performance under the
agreement to achieve project completion and compliance with the HOME
requirements. If HOME funds are being used to reimburse costs incurred
not more than 24 months before the date that the HOME funds are
committed to the project, the written agreement must explicitly permit
the use of HOME funds for costs described in Sec. 92.206(d)(1). The
agreement must state that any and all repayments made by the owner on
HOME assistance (e.g., grants or loans) must be remitted to the
participating jurisdiction, unless the participating jurisdiction
permits a subrecipient or State recipient to retain the funds.
(ii) Affordability. The agreement must require housing assisted
with HOME funds to meet the affordability requirements of Sec. 92.252
or Sec. 92.254, as applicable, and must require repayment of the funds
if the housing does not meet the affordability requirements for the
specified period of affordability. The agreement must require a means
of enforcement of the affordability requirements by the participating
jurisdiction and the intended beneficiaries. The means of enforcement
may include liens on real property, deed or use restrictions, a
recorded agreement restricting the use of the property, covenants
running with the land, or other mechanisms approved by HUD in writing,
under which the participating jurisdiction has the right to require
specific performance.
(A) If an owner is undertaking a rental project, the agreement must
establish the initial rents, the procedures for rent increases pursuant
to Sec. 92.252(e)(2), the number of HOME units, the size of the HOME
units, the designation of the HOME units as fixed or floating, and
include the requirement that the owner provide the address (e.g.,
street address and apartment number) of each HOME unit no later than
the time of initial occupancy. In accordance with Sec. 92.252(g), the
written agreement must specify the option in Sec. 92.203(b)(1) that
the participating jurisdiction selected for calculating annual income.
(B) If the owner is undertaking a homeownership project for sale to
homebuyers in accordance with Sec. 92.254(a), the agreement must set
forth the resale or recapture requirements that must be imposed on the
housing, the
[[Page 891]]
sales price or the basis upon which the sales price will be determined,
and the disposition of the sales proceeds. Recaptured funds must be
returned to the participating jurisdiction. If the owner is a Community
Land Trust, as defined in Sec. 92.2, the Community Land Trust may
preserve affordability in accordance with Sec. 92.254.
(iii) Project requirements. As applicable and in accordance with
the type of project assisted, the agreement must require compliance
with the project requirements in subpart F of this part, including
compliance with tenant protections in 24 CFR 92.253. The agreement may
permit the owner to limit eligibility or give a preference to a
particular segment of the population in accordance with Sec.
92.253(e).
(iv) Property standards. The agreement must require the housing to
meet the property requirements as specified in Sec. 92.251. The
agreement must also require owners of rental housing assisted with HOME
funds to maintain the housing in compliance with Sec. 92.251 for the
duration of the period of affordability.
(v) Other program requirements. The agreement must require the
owner to carry out each project in compliance with the following
requirements of subpart H of this part:
(A) The agreement must specify the owner's affirmative marketing
responsibilities as enumerated by the participating jurisdiction in
accordance with Sec. 92.351.
(B) The Federal and nondiscrimination requirements in Sec. 92.350.
(C) Any displacement, relocation, and acquisition requirements
imposed by the participating jurisdiction consistent with Sec. 92.353.
(D) The labor requirements in Sec. 92.354.
(E) The conflict of interest provisions prescribed in Sec.
92.356(f).
(F) If HOME funds are being provided to develop rental housing, the
agreement must set forth all obligations the participating jurisdiction
imposes on the owner in order to meet the VAWA requirements under Sec.
92.359, including the owner's notice obligations and owner obligations
under the emergency transfer plan.
(vi) Records and reports. The agreement must specify the particular
records that must be maintained and the information or reports that
must be submitted in order to assist the participating jurisdiction in
meeting its recordkeeping and reporting requirements. The written
agreement must require the owner of rental housing to annually provide
the participating jurisdiction with information on rents (including
rental amounts charged to the tenant), and occupancy of HOME-assisted
units to demonstrate compliance with Sec. 92.252. If the rental
housing project has floating HOME units, the written agreement must
require that the owner provide the participating jurisdiction with
information regarding unit substitution and filling vacancies so that
the project remains in compliance with Sec. 92.252. The agreement must
specify the reporting requirements (including copies of financial
statements) to enable the participating jurisdiction to determine the
financial condition (and continued financial viability) of the rental
project.
(vii) Enforcement of the written agreement. The agreement must
specify remedies for breach of the provisions of the written agreement.
The agreement must require a means of enforcement of the affordability
requirements by the participating jurisdiction and the intended
beneficiaries. The means of enforcement may include liens on real
property, deed or use restrictions, a recorded agreement restricting
the use of the property, covenants running with the land, or other
mechanisms approved by HUD in writing, under which the participating
jurisdiction has the right to require specific performance.
(viii) Requests for disbursement of funds. The agreement must
specify that the owner may not request disbursement of funds under the
agreement until the funds are needed for payment of eligible costs. The
amount of each request must be limited to the amount needed.
(ix) Duration of the agreement. The agreement must specify the
duration of the agreement. If the housing assisted under this agreement
is rental housing, the agreement must be in effect through the period
of affordability required by the participating jurisdiction under Sec.
92.252. If the housing assisted under this agreement is homeownership
housing, the agreement must be in effect at least until completion of
the project and ownership by the low-income family.
(x) Fees. The agreement must state the fees that may be charged by
the owner in accordance with Sec. 92.214(b)(4) and prohibit owners
from charging tenants for any of the prohibited charges listed in Sec.
92.214(b), including but not limited to fees that are not customarily
charged in rental housing, such as laundry room access fees. The
agreement must also prohibit the owner undertaking a homeownership
project from charging servicing, origination, processing, inspection,
or other fees for the costs of providing homeownership assistance.
(4) Contractor. The participating jurisdiction selects a contractor
through applicable procurement procedures and requirements. The
contractor provides goods or services in accordance with a written
agreement (the contract). For contractors who are administering any of
the participating jurisdiction's HOME programs or specific services for
one or more programs, the contract must include at a minimum the
following provisions:
(i) Use of the HOME funds. The agreement must describe the use of
the HOME funds, including the tasks to be performed, a schedule for
completing the tasks, and budget.
(ii) Program requirements. The agreement must provide that the
contractor is subject to the requirements in this part that are
applicable to the participating jurisdiction, except for Sec. Sec.
92.505 and 92.506, and the contractor cannot assume the participating
jurisdiction responsibilities for environmental review, decision
making, and action under Sec. 92.352. The agreement must provide that
the requirements at 2 CFR part 200 applicable to a contractor apply.
The agreement must list the requirements applicable to the activities
the contractor is administering. If applicable to the work under the
contract, the agreement must set forth all obligations the
participating jurisdiction imposes on the contractor in order to meet
the VAWA requirements under Sec. 92.359, including any notice
obligations and any obligations under the emergency transfer plan.
(iii) Duration of agreement. The agreement must specify the
duration of the contract.
(5) Homebuyer, homeowner, tenant, or owner receiving tenant-based
rental or security deposit assistance. When a participating
jurisdiction provides assistance to a homebuyer, homeowner, tenant, or
owner for tenant-based rental assistance, the written agreement may
take many forms depending upon the nature of assistance. At minimum, it
must include the following:
(i) For homebuyers, the agreement must contain the requirements in
Sec. 92.254(a), the value of the property, principal residence, lease-
purchase, if applicable, and the resale or recapture provisions.
(A) The agreement must specify the amount of HOME funds, the form
of assistance, (e.g., grant, amortizing loan, deferred payment loan),
the use of the funds (e.g., downpayment, closing costs,
rehabilitation), and the time by which the housing must be acquired.
[[Page 892]]
(B) For existing housing that is acquired for homeownership, the
agreement must require the participating jurisdiction to inspect the
housing to determine that the project meets the property standards in
Sec. 92.251 and require compliance with the requirements in Sec.
92.251(c)(3).
(ii) For homeowners, the agreement must contain the requirements in
Sec. 92.254(b) and specify the amount and form of HOME assistance,
rehabilitation work to be undertaken, date for completion, and property
standards to be met.
(iii) For tenants or owners receiving payments under a HOME tenant-
based rental assistance program, the rental assistance contract or the
security deposit assistance contract must meet the requirements in
Sec. 92.209 and applicable requirements in Sec. 92.253.
(6) Community housing development organization. When HOME funds are
provided to a community housing development organization, the
requirements in the written agreement depend upon the type of HOME
assistance. At minimum, the agreement must comply with the following
requirements for the type of HOME assistance:
(i) Using set-aside funds under Sec. 92.300 for affordable
housing. The written agreement must contain the requirements described
in paragraph (c)(3) of this section and the following additional
requirements:
(A) Role of community housing development organization. The
agreement must state whether the community housing development
organization will own, develop, or sponsor rental housing, as described
in Sec. 92.300(a)(2) through (5), and require the community housing
development organization to comply with the applicable requirements in
Sec. 92.300(a), based on its role.
(B) Developer of homeownership housing--(1) Retaining proceeds and
recaptured funds. If the community development organization is a
``developer'' of homeownership housing, as defined in Sec.
92.300(a)(6), the agreement must specify whether the organization may
retain proceeds from the sale of the housing and whether the proceeds
are to be used for HOME-eligible or other housing activities to benefit
low-income families. A participating jurisdiction may permit a
community housing development organization to retain recaptured funds
for additional HOME projects pursuant to the written agreement required
under this paragraph.
(2) Providing homeownership assistance. If a community housing
development organization is providing homeownership assistance, then
the agreement between the participating jurisdiction and the community
housing development organization must describe the amount and use of
the HOME funds for homeownership assistance, the number of homebuyers
to receive homeownership assistance, any requirement for matching
contributions, and the period of the agreement. The HOME funds for
homeownership assistance shall not be greater than 10 percent of the
amount of HOME funds for development of the housing. The community
housing development organization must enter into agreements with
homebuyers that meet the requirements in paragraph (c)(5)(i) of this
section.
(C) Sharing of developer responsibilities. If the community housing
development organization will share developer responsibilities with
another entity pursuant to Sec. 92.300(a)(3) or (6), the participating
jurisdiction must enter into a written agreement only with the
community housing development organization. The written agreement must
require the community housing development organization to enter into a
separate agreement with the co-developer. At minimum, the agreement
between the community housing development organization and its co-
developer must contain the following:
(1) The responsibilities of the community housing development
organization and co-developer with descriptions of the responsibilities
in sufficient detail to demonstrate compliance with Sec. 92.300(a)(3)
or (a)(6), as applicable;
(2) A description of the amount of developer fee and other
compensation, if any, to be paid to the co-developer;
(3) A description of any ownership interest in the community
housing development organization and, if applicable, any membership or
partnership interest in the owner held by the co-developer; and
(4) A provision that the agreement's terms and conditions are
subject to review by the participating jurisdiction and if such terms
and conditions affect a project's compliance with HOME requirements,
the terms and conditions are subject to approval by the participating
jurisdiction.
(ii) Receiving assistance for operating expenses. The agreement
must describe the use of HOME funds for operating expenses (e.g.,
salaries, wages, and other employee compensation and benefits);
employee education, training, and travel; rent; utilities;
communication costs; taxes; insurance; equipment; and materials and
supplies. If the community housing development organization is not also
receiving funds for a housing project to be developed, sponsored, or
owned by the community housing development organization, the agreement
must provide that the community housing development organization is
expected to receive funds for a project within 24 months of the date of
receiving the funds for operating expenses, and must specify the terms
and conditions upon which this expectation is based and the
consequences of failure to receive funding for a project. If the
community housing development organization is also receiving funds for
a project, there must be a separate written agreement that complies
with this section for the use of HOME funds for the project and the
agreement must contain the applicable requirements in paragraph
(c)(6)(i) of this section.
(iii) Receiving assistance for project-specific technical
assistance and site control loans or project-specific seed money loans.
The agreement must identify the specific site or sites and describe the
amount and use of the HOME funds (in accordance with Sec. 92.301),
including a budget for work, a period of performance, and a schedule
for completion. The agreement must also set forth the basis upon which
the participating jurisdiction may waive repayment of the loans,
consistent with Sec. 92.301, if applicable.
(7) Technical assistance provider to develop the capacity of
community housing development organizations in the jurisdiction. The
agreement must identify the specific nonprofit organization(s) to
receive capacity building assistance. The agreement must describe the
amount and use (scope of work) of the HOME funds, including a budget, a
period of performance, and a schedule for completion.
0
43. Amend Sec. 92.505 by revising the first sentence to read as
follows:
Sec. 92.505 Applicability of uniform administrative requirements.
The requirements of 2 CFR part 200 apply to participating
jurisdictions, State recipients, and subrecipients receiving HOME
funds, except for the following provisions: Sec. Sec. 200.306,
200.307, 200.308 (not applicable to participating jurisdictions),
200.311 (except as provided in Sec. 92.257), 200.312, 200.328,
200.330, 200.334, 200.335, and 200.344 (except as provided in Sec.
92.507). * * *
0
44. Revise Sec. 92.507 to read as follows:
[[Page 893]]
Sec. 92.507 Closeout.
This section specifies the procedure and actions that must be
completed by a participating jurisdiction and HUD to closeout a grant.
The requirements of 2 CFR 200.344 apply to closeouts, except to the
extent that such requirements conflict with the following:
(a) Closeout process. (1) HUD will close out a grant after the
period of performance has ended. A participating jurisdiction must
complete all required activities and closeout actions for the grant, as
required by HUD. If the participating jurisdiction fails to complete
the requirements in accordance with this section, HUD may close out the
Federal award with the information available. HUD may close out
individual grants or multiple grants simultaneously.
(2) To prepare for closeout, before the end of the budget period of
the grant, the participating jurisdiction shall. review all eligible
activities under the grant and reconcile its accounts as follows:
(i) For any eligible costs incurred under the grant and not yet
drawn down from the U.S. Treasury account, the grantee must draw down
those funds in a timely manner.
(ii) The participating jurisdiction must promptly refund to the
proper accounts any previously disbursed balances of unobligated cash
paid in advance. All such refunds must be completed prior to submission
of the information and reports required in paragraph (b) of this
section.
(3) At the end of the grant budget period, no additional eligible
activities may be undertaken by the participating jurisdiction using
the grant funds and no additional eligible costs incurred after the
budget period may be submitted by the participating jurisdiction.
Unused funds remaining on the grant will be returned to the U.S.
Treasury by HUD. The participating jurisdiction must promptly refund
any unused grant funds not authorized to be retained, consistent with
HUD's instructions.
(4) HUD will initiate closeout actions in the computerized
disbursement and information system when the participating jurisdiction
has met the requirements established in paragraph (b) of this section.
(i) If the participating jurisdiction does not submit and enter all
required data, information, and reports or complete the actions
described in paragraph (b) of this section, HUD will proceed to close
out the grant with the information available within one year of the
period of performance end date.
(ii) HUD may report the participating jurisdiction's material
failure to comply with the terms and conditions of the award or
requirements or the requirements of this section in SAM.gov. HUD may
also pursue other enforcement actions in 2 CFR 200.339.
(5) A participating jurisdiction may request, and HUD may provide
an extension of the period of performance or closeout deadlines
provided good cause is demonstrated.
(b) Actions required for closeout. A participating jurisdiction
must complete the following actions for closeout of the grant:
(1) Submit a complete and final Federal Financial Report for the
grant to HUD within 120 days of the end date of the period of
performance, as indicated in the grant agreement;
(2) Demonstrate that it has fulfilled all programmatic and
administrative requirements for the project (i.e., property
inspections, obtaining certificates of occupancy, etc.) within the
period of performance in accordance with 2 CFR 200.344(a);
(3) Enter all data for activities in the computerized disbursement
and information system established by HUD, within one year from the end
of the period of performance, as required by the grant agreement;
(4) Demonstrate that all HOME-assisted units are occupied by
eligible occupants by entering accurate beneficiary data in the
computerized disbursement and information system established by HUD,
within one year from the end of the period of performance, as required
by the grant agreement;
(5) Comply with the requirements in 2 CFR 200.313(e) for the
disposition of any equipment acquired under one or more HOME grants,
that is no longer needed for the HOME program, or for other activities
previously supported by a Federal agency;
(6) Resolve and close all HOME monitoring findings for the grant
(if applicable);
(7) Resolve and close all OIG audit findings for the grant (if
applicable);
(8) Resolve and close all Single Audit findings for the grant (if
applicable);
(9) Carry out all other responsibilities under the grant agreement
and applicable laws and regulations satisfactorily; and
(10) Complete a closeout certification prepared by HUD. The
certification shall identify the grant being closed out and include
provisions with respect to the following:
(i) Identification of any unused grant funds that were returned to
the U.S. Treasury by HUD;
(ii) Compliance with the recordkeeping requirements in Sec.
92.508, including maintaining program, project, financial, program
administration, community housing development organization records,
records concerning other Federal requirements, and such other records
as necessary to carry out responsibilities for the grant by the
participating jurisdiction, its State recipients, and subrecipients;
(iii) Monitoring and enforcement of the requirements for all HOME-
assisted units set forth in this part for the period specified in the
HOME written agreement with the property owner;
(iv) Compliance with use of program income, recaptured funds, and
repayments in accordance with Sec. 92.503. If the jurisdiction is not
a participating jurisdiction (as a State, metropolitan city, urban
county, consortium, or consortium member) when it receives funds, the
funds are not subject to the requirements of this part;
(v) All actions required in 2 CFR 200.344 applicable to the grant
have been taken by the participating jurisdiction;
(vi) All actions required in 2 CFR 200.344 applicable to the
participating jurisdiction's subrecipients have been taken;
(vii) Other provisions appropriate to any special circumstances of
the grant closeout, in modification of or in addition to the
obligations in paragraphs (c)(1) and (2) of this section;
(viii) Acknowledge future monitoring by HUD, including that
findings of noncompliance may be taken into account by HUD as
unsatisfactory performance of the participating jurisdiction and in any
risk-based assessment of a future grant award under this part; and
(ix) Unless otherwise provided in a closeout certification, the
Consolidated Plan will remain in effect after closeout until the
expiration of the program year covered by the most recent Consolidated
Plan.
(c) Post closeout adjustments and continuing responsibilities. The
closeout of a grant does not affect any of the obligations required
under this part and under 2 CFR 200.345, including:
(1) The right of HUD to disallow costs and recover funds on the
basis of a later audit or other review. HUD must make any cost
disallowance determination and notify the participating jurisdiction
within the record retention period;
(2) Compliance with the requirements in Sec. 92.508;
(3) Compliance with the requirements in Sec. 92.509;
[[Page 894]]
(4) Records retention as required in 2 CFR 200.345, as applicable;
(5) Monitoring and enforcement of the requirements for all HOME-
assisted units set forth in this part for the period of affordability
specified in the HOME written agreement with the property owner;
(6) Compliance with use of program income, recaptured funds, and
repayments in accordance with Sec. 92.503. If the jurisdiction is not
a participating jurisdiction (as a metropolitan city, urban county,
State, consortium, or consortium member) when it receives funds, the
funds are not subject to the requirements of this part;
(7) Compliance with the requirement in 2 CFR 200.345(a)(2) that the
participating jurisdiction return any funds due as a result of a later
refund, corrections, or other transactions including final indirect
cost rate adjustments; and
(8) Compliance with the audit requirements at 2 CFR part 200,
subpart F).
0
45. Amend Sec. 92.508 by:
0
a. Adding a sentence to the end of paragraph (a)(2)(ix);
0
b. Revising paragraph (a)(3)(iii);
0
c. Removing the citation ``Sec. 92.504(d)'' and adding in its place
the citation ``Sec. 92.251(f)'' in paragraph (a)(3)(iv);
0
d. Revising paragraph (a)(3)(vi);
0
e. Revising the first sentence of paragraph (a)(3)(vii);
0
f. Revising paragraph (a)(3)(ix);
0
g. Removing the citation to ``2 CFR 200.302'' and adding in its place a
citation to ``2 CFR 200.302 and 200.303'' in paragraph (a)(5)(iv); and
0
h. Removing the words ``affordability period'' and adding in their
place the words ``period of affordability'' in paragraphs (c)(1) and
(2).
The revisions and additions read as follows:
Sec. 92.508 Recordkeeping.
(a) * * *
(2) * * *
(ix) * * * If the participating jurisdiction will apply excess
matching contribution to a future fiscal year's liability, records
demonstrating compliance with the matching requirements of Sec. Sec.
92.218 through 92.221 for the excess amount applied, as described in
Sec. 92.221(b)(1), must be provided at the time of application and
maintained for five years from the date of application.
* * * * *
(3) * * *
(iii) Records demonstrating that each rental housing or
homeownership project meets the minimum per-unit subsidy amount of
Sec. 92.205(c), the maximum per-unit subsidy amount in accordance with
the requirement in Sec. 92.250(a), the subsidy layering and
underwriting evaluation adopted in accordance with Sec. 92.250(b),
and, if applicable, compliance with a green building standard
established by HUD in accordance with the requirements in Sec.
92.250(c).
* * * * *
(vi) Records demonstrating that each tenant-based rental assistance
project meets the written tenant selection policies and criteria of
Sec. 92.209(c), including any targeting requirements, the rent
reasonableness requirements of Sec. 92.209(f), the maximum subsidy
provisions of Sec. 92.209(h), housing standards of Sec. 92.209(i)
(including property inspection reports), security deposit requirements
of Sec. 92.209(j), and calculation of the HOME subsidy.
(vii) Records demonstrating that each rental housing project met
the affordability and income targeting requirements of Sec. 92.252 for
the required period or met the requirements in Sec. 92.255 for
conversion to homeownership for in-place tenants. * * *
* * * * *
(ix) Records demonstrating that each lease for a tenant receiving
tenant-based rental assistance, security deposit assistance, and for an
assisted rental housing unit complies with the applicable tenant and
participant protections of Sec. 92.253. Records must be kept for each
family.
* * * * *
0
46. Amend Sec. 92.551 by adding paragraph (c)(3) to read as follows:
Sec. 92.551 Corrective and remedial actions.
* * * * *
(c) * * *
(3) A participating jurisdiction may request HUD reduce grant
payments by an amount equal to the amount of expenditures that did not
comply with the requirements of this part. The amount of a reduction
may be for the entire grant amount.
0
47. Amend Sec. 92.552 by removing the period at the end of paragraph
(a)(2)(iv) and adding in its place a semicolon and adding paragraphs
(a)(2)(v) through (vii) to read as follows:
Sec. 92.552 Notice and opportunity for hearing; sanctions.
(a) * * *
(2) * * *
(v) Reduce grant amounts paid to the participating jurisdiction by
an amount equal to the amount of any expenditures that did not comply
with the requirements of this part. The amount of a reduction may be
for the entire grant amount;
(vi) Revoke a jurisdiction's designation as a participating
jurisdiction; and
(vii) Terminate the assistance in whole or in part in accordance
with 2 CFR 200.340.
* * * * *
Subpart M [Removed]
0
48. Remove subpart M, consisting of Sec. Sec. 92.600 through 92.618.
PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS
0
49. The authority citation for part 570 continues to read as follows:
Authority: 12 U.S.C. 1701x, 1701 x-1; 42 U.S.C. 3535(d) and
5301-5320.
0
50. Amend Sec. 570.200 by adding paragraph (h)(3) to read as follows:
Sec. 570.200 General policies.
* * * * *
(h) * * *
(3) In a Federal fiscal year when an annual appropriation is signed
into law less than 90 days before a grant recipient's program year
start date, the effective date of the grant agreement will be the
earlier of the recipient's program year start date or the date that the
Consolidated Plan incorporating the recipient's allocation amount for
the Federal fiscal year is received by HUD.
* * * * *
PART 982--SECTION 8 TENANT-BASED ASSISTANCE: HOUSING CHOICE VOUCHER
PROGRAM
0
51. The authority citation for part 982 continues to read as follows:
Authority: 42 U.S.C. 1437f and 3535(d).
0
52. Amend Sec. 982.507 by revising paragraphs (c)(2) and (3) to read
as follows:
Sec. 982.507 Rent to owner: Reasonable rent.
* * * * *
(c) * * *
(2) LIHTC. If the rent requested by the owner exceeds the LIHTC
rents for non-voucher families, the PHA must determine the rent to
owner is a reasonable rent in accordance with paragraph (b) of this
section and the rent shall not exceed the lesser of the:
(i) Reasonable rent; and
(ii) The payment standard established by the PHA for the unit size
involved.
[[Page 895]]
(3) HOME program. If the rent requested by the owner exceeds the
HOME rents for non-voucher families, the PHA must determine the rent to
owner is a reasonable rent in accordance with paragraph (b) of this
section and the rent shall not exceed the lesser of the:
(i) Reasonable rent; and
(ii) The payment standard established by the PHA for the unit size
involved.
* * * * *
Adrianne R. Todman,
Deputy Secretary Performing the Duties of the Secretary of HUD.
[FR Doc. 2024-29824 Filed 1-3-25; 8:45 am]
BILLING CODE 4210-67-P