March 23, 2004

Index Number: 3.100 (Insurance Eligibility by Multifamily Programs)
CIM-0131

Subject: OMHAR/MAHRA Sunset

MEMORANDUM FOR: Charles H. Williams, Director, Office of Multifamily
Housing

Assistance Restructuring, HY

FROM: John J. Daly, Associate General Counsel for Insured Housing, CI

SUBJECT: OMHAR/MAHRA Sunset

You have asked for legal advice about the termination of the Office of
Multifamily Housing Assistance Restructuring (OMHAR), effective October
1, 2004, and the termination of restructuring authority under the
Multifamily Assisted Housing Reform and Affordability Act of 1997
(MAHRA), effective October 1, 2006. MAHRA contains the basic statutory
authority for administration of the Mark-to-Market program. Presented
below are the three questions you asked and our reply to each of them.

Q. Must the Department of Housing and Urban Development use
Participating Administrative Entities (PAEs) to perform restructurings
after OMHAR's sunset on September 30, 2004?

A. Yes, the Department must use PAEs to perform restructurings after
OMHAR's sunset on September 30, 2004, subject to certain statutory
exceptions.

MAHRA Section 513(a)(1) states, in part: "\[s\]ubject to subsection
(b)(3), the Secretary *shall* enter into portfolio restructuring
agreements with participating administrative entities for the
implementation of mortgage restructuring and rental assistance
sufficiency plans . . . ." (emphasis added). Subsection (b)(3)
encourages PAEs to develop partnerships with nonprofits if such
partnerships enhance the PAE's ability to meet the objectives of MAHRA.
Subsection (b)(4) provides that the Department or other qualified entity
may perform the functions of a PAE with respect to individual
multifamily housing projects if a PAE is unavailable or if a PAE cannot
meet the selection criteria in (b)(1). In the absence of either of these
exceptions, the Office of Housing does not have the option to undertake
debt restructurings without the involvement of a PAE that otherwise
satisfies the criteria in subsection (b)(1).

Q. What action constitutes a binding commitment under which the
Department would be required to complete the Mark-to-Market (M2M)
restructuring post-September 30, 2006?

A. MAHRA Section 579 states, in part:

\(a\) REPEALS.---

> \(1\) Mark-to-Market Program. Subtitle A . . . is repealed effective
> October 1, 2006.
>
> \(2\) OMHAR. Subtitle D . . . is repealed effective October 1, 2004.
>
> \(b\) EXCEPTION.---Notwithstanding the repeal under subsection (a),
> the provisions of
>
> subtitle A (as in effect immediately before such repeal) shall apply
> with respect to projects and programs for which binding commitments
> have been entered into under this Act before October 1, 2006.

MAHRA has no definition for the term "binding commitments," but the
Department has determined that the execution of a project-based Section
8 Housing Assistance Payment (HAP) renewal contract containing the
following provision would constitute a binding commitment which, if
executed before October 1, 2006, would obligate the Department to
complete a M2M debt restructuring plan for an otherwise eligible project
even if the completion date were to be after September 30, 2006. That
provision states:

> The Renewal Contract constitutes a binding commitment for purposes of
>
> section 579(b) of MAHRA.

This provision had been drafted for use when the effective date for
MAHRA repeal initially was to be October 1, 2001. Use of this provision
in the HAP contract would confirm establishment of a "binding
commitment" under Section 579(b) as early as possible in the M2M debt
restructuring pipeline so that as many otherwise eligible projects as
possible could be processed under the authority in MAHRA. This position
would be consistent with the "Findings" and the "Purposes" set forth in
MAHRA Section 511. HUD's interpretation of the term "binding
commitments" also would be entitled to respect to the extent that its
interpretation is persuasive. In [Christensen v. Harris
County]{.underline}, 529 U.S. 576 (2000), the U.S. Supreme Court held
that the statutory interpretations of agencies found in opinion letters,
policy statements, and other administrative guidelines, while not
entitled to the same amount of deference as interpretations issued
through notice and comment rulemaking, are entitled to respect. We think
the reasoning behind the Department's interpretation of "binding
commitments" would be sufficiently persuasive to withstand challenge.

Q. What is the appropriate process/contractual agreement to extend PAE's
Portfolio Restructuring Agreements (PRA) beyond September 30, 2006, to
allow them to complete the assets in their pipeline?

A. An appropriate manner to extend a PAE's PRA would be for both HUD and
the PAE to execute an extension of the PRA for a term of one year.

The regulation at 24 C.F.R. 401.309(a) states, in part: "\[t\]he PRA
will have a term of 1 year, to be renewed for successive terms of 1 year
with the mutual agreement of both parties." A letter agreement signed by
both parties would satisfy this rule. Note that, pursuant to MAHRA

Section 579, the PRA could be renewed only for work on eligible
multifamily housing projects for which a binding commitment under MAHRA
had been entered into before October 1, 2006.

Please contact Millicent Potts at 708-4090, ext. 5255, if you have any
questions or desire further assistance.