[Link to GHM-0045 (Index
3.600)](http://www.hud.gov/offices/adm/hudclips/lops/GHM-0045LOPS.doc)

[Link to GHM-0049 (Index
3.600)](http://www.hud.gov/offices/adm/hudclips/lops/GHM-0049LOPS.doc)

HOPE 2\--Revision of Implementation Grant Procedures

Legal Opinion: GHM-0051

Index: 3.300, 3.600

Subject: HOPE 2\--Revision of Implementation Grant Procedures

December 3, 1992

MEMORANDUM FOR: Margaret Milner, Director

Office of Resident Initiatives, HMR

THROUGH: John J. Daly, Associate General Counsel

Insured Housing and Finance, GH

FROM: David R. Cooper, Assistant General Counsel

Multifamily Mortgage Division, GHM

SUBJECT: Proposed Revision to Implementation Grant Procedures

We have reviewed your proposal for revisions to the HOPE 2

Implementation Grant application procedures. While the summary

of proposed changes is very general and brief and does not

provide enough information on which we can comment in detail, we

are making the following comments and anticipate making

additional comments once we receive a more detailed description

of the changes.

1\. A major change envisioned for the program is to make the

application process a two-step process whereby certain

requirements would be addressed at the first stage, after which

the application would be funded. The second stage would involve

working out the specifics of the homeownership program, such as

the exact amount of the grant. We have learned from Linda

Flister of your staff that the first stage would be considered a

\"pre-application\" stage and the second stage would be the

\"application\" stage.

Section 423(d)(1) of the HOPE statute provides for the

submission of \"an application,\" which suggests that funding

decisions are to be made on the basis of the submission of one

application containing all information necessary to select the

highest scoring applicants. Also, considering the fact that many

of the statutory requirements for the selection of grantees are

based upon the review of an \"application,\" we do not believe it

was Congress\' intent to have the Department make funding

decisions on the basis of a process which is not the formal

application process. Further, the legislative history of the

Reform Act indicates that Congress warned against making funding

decisions in the dark and states that the reform bill was crafted

to ensure that all forms of assistance are taken into

consideration before any awards are made. Therefore, it is our

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opinion that there must be one formal \"application\" stage at

which applicants must submit all of the information necessary for

HUD to score and select applicants and determine the appropriate

grant amount.

As a means of hastening the selection process, it still may

be possible to have a two-step process as long as the first step

is the point at which the applicant submits a formal application

containing all information necessary upon which to rate and rank

the applicants and base an award, and the second step merely

supplements the information presented in the first step.

Information necessary to rate and rank should satisfy all

statutory requirements of Sections 423(d)(2), 424(e) and (f) of

the statute, and any other information required by the statute to

be submitted as part of the application. Additionally, the

information submitted during the first stage must meet the

threshold requirements established by the guidelines published on

January 14, 1992. The exhibits you have proposed to be submitted

for the first stage do not appear to be sufficient to meet that

threshold level. To demonstrate, Section 420(a) of the

guidelines states that HUD must determine, as a threshold

criterion, that the statute\'s affordability standards can be met.

According to page 2-9 of HUD Notice H 92-32, Processing

Instructions for HOPE 2, reviewers must look at application

exhibits 19, 21, 26 and 28 to make such a determination.

However, these exhibits do not appear on your list. Another

example is that Section 425(b)(7), which rates the feasibility

and efficiency of the program, requires a review of exhibit 14

(see page 2-12). However, your listing also does not include

this exhibit. Other exhibits that the statute would require

include the following:

Exhibit 4 - Description of Activities (see Section 423(d)(2)(D))

Exhibit 18 - Management Entity (see Section 423(d)(2)(K))

Exhibit 25 - Financing of Eligible Property (see

Sections 423(d)(2)(G) and 424(e))

Exhibit 30 - Section 8 Assistance (see Sections 423(d)(2)(B) and

424(f))

Therefore, your office must reconsider the exhibits which must be

reviewed for the first of a two-stage review process to ensure

that HUD is collecting information sufficient to satisfy both

statutory and guideline requirements for selecting applicants.

2\. Another major change you propose is that the Resident

Initiatives Specialist (RIS) \"have greater involvement in

developing the homeownership program \-- also have more

flexibility to \`negotiate\' various aspects\" of the program. It

is our understanding that the RIS would have this greater

flexibility after the first stage of the two-stage process (you

have proposed).

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With regard to whether the RIS could have this greater

flexibility, it should be noted that Part 4 of the Department\'s

regulations implementing Section 103 of the Reform Act was

amended recently to provide that the prohibitions of Part 4 will

not apply to an assistance program once HUD has determined that a

particular level of funding is non-competitive, i.e., all

eligible applicants could be funded without competition. Part 4

also allows HUD staff to provide technical assistance or disclose

certain information to applicants during a competitive selection

process. Section 4.105(a)(1) states that -

T he term \"technical assistance\" includes such activities

as explaining and responding to questions about program

regulations, defining terms in an application package, and

providing other forms of technical guidance that may be

described in a NOFA. Before the deadline for the submission

of applications, the term \"technical assistance\" may include

identification of those parts of an application that need

substantive improvement, but this term does not include

advising the applicant how to make those improvements.

Therefore, prior to the application deadline for a funding round,

any conversations HUD staff may have with others are limited to

the permissible disclosures in Section 4.105. If the funds

available for the funding round could not fund all applications

submitted, these limitations would continue to apply for the

balance of the selection process. However, if HUD has determined

that all applications submitted for a particular funding round

could be funded, staff may discuss \-- on a uniform basis with all

applicants \-- program requirements and unpublished policy

statements and may provide technical assistance concerning

program requirements.

Please note that these conclusions are based on the theory

that there is a one-stage application process. While we have

stated in item 1 above that it may be possible to have a two-

stage process featuring the submission of some application

exhibits (containing information not required by statute) at a

later time, such a process raises the issue of whether HUD may

freely discuss information with applicants when parts of the

application are still outstanding. We are seeking advice from

the Personnel and Ethics Law Division and expect to provide you

with that advice in the near future.

You also have stated that the ability of the RIS to have

more of a role is similar to the property disposition process.

It is true that the property disposition program provides for

more flexibility. However, the difference between HOPE 2 and the

property disposition program is that, regarding the latter

program, the Secretary\'s authority to shape the terms of sale is

pursuant to statute (specifically, section 203(e)(3) of the

Housing and Community Development Amendments of 1978), which is

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very specific as to the conditions under which the Secretary may

negotiate. There is no corresponding statutory flexibility built

into the HOPE 2 statute.

3\. The proposal states that the application must include

matching funds which amount to \$2,000 per unit and the \"applicant

would have until preparation of the grant agreement to deliver

the balance of the required match based on actual figures.\"

Section 423(c) of the HOPE statute requires that matching

funds equal to not less than 33 percent of the grant amount be

provided. However, Section 423(d)(2)(E) states that as a minimum

requirement, the application must contain \"a description of and

commitment for the resources that are expected to be made

available to provide the matching funding required under

subsection (c) \....\" Thus, it is our opinion that these

provisions require the applicant to identify on the application

the total matching funds expected to be contributed and to

provide commitments for this amount. (See also,

Section 415(b)(9) of the guidelines). Since the funds could be

delivered at a later date, we recommend that you be more specific

as to the time the funds must be provided, e.g., 60 days after

execution of the grant agreement. That way, all parties would be

on notice as to exactly when funds must be provided.

4\. You have also proposed that the funds reservation for each

grant would be based on a per unit amount, i.e. the

Section 223(f) limits plus a specified percentage for other

activities. The initial grant amount would be increased or

decreased based upon subsequent processing of the application

exhibits.

We do not find any statutory prohibition to establishing

grant limitations in accordance with the limits under Section 207

pursuant to Section 223(f). However, we are concerned about

having the application propose an estimated grant amount, which

is subject to subsequent adjustments, when the statute requires

that certain amounts, such as the match and administrative funds,

be based on a percentage of the total grant amount. If the total

grant amount is not realistically estimated at the time of the

application, it would seem to be difficult for the application to

stipulate a fixed amount for the match and administrative funds,

particularly since we believe the application must identify the

source of all the matching funds. Thus, it may be more prudent

to require the applicant to request the amount of funds it

believes is necessary to carry out its homeownership program so

that correlated amounts may also be determined.

5\. Assuming that the proposed program changes did not have any

legal problems, the development of details during the second

stage could result in the reduction or the increase of the grant

amount. If there were an increase in grant amounts for a number

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of grants, we believe that there is a danger that the amount of

available funds could be exceeded. Also, could such subsequent

manipulations of the grant amounts interfere with the award of

grants in a subsequent round when funds for subsequent rounds are

limited?

If you have any questions, please call Monica Jordan on

708-4107