Department of Housing and Urban Development

H O U S I N G

Special Attention of:

Notice H 95-69 (HUD)

State and Area Coordinators

Directors of Housing Issued: August 4, 1995

Directors of Administration Expires: August 31, 1996

Multifamily Housing Directors

Field Accounting Directors Cross References:

Asset Management Branch Chiefs Notice H-95-7 (01/18/95)

Office of Finance and Accounting Notice H-94-95 (12/07/94)

Subject:Processing Instructions for the Recording of Recaptures

of Financing Adjustment Factor (FAF) Funds/McKinney Act

Funds in the Program Accounting System (PAS) when the

Housing Assistance Payments Contract/Annual

Contributions Contract (HAPC/ACC) Amendment Method of

Savings Sharing is Used

1\. PURPOSE.

This Notice sets forth procedures for the use of Project

Accounting Data (PAD) Forms by Field Office staff to

properly record, in the Department\'s Program Accounting

System, the recapture and reuse of FAF/McKinney funds from

assisted housing projects.

2\. BACKGROUND.

During the early 1980\'s, because of prevailing high interest

rates, many New Construction and Substantially Rehabilitated

Section 8 assisted projects financed in 1982 and early 1983

received a Financing Adjustment Factor (FAF) cost amendment.

Project owners who benefitted from FAF funds, which added

Section 8 Budget Authority (BA) to a project, agreed that

if future economic conditions permitted, HUD could require

refunding of project bonds in order to lower debt service

payments and, therefore, the Section 8 subsidy. Owners are

obligated by the FAF regulations to reduce rents commensu-

rate with the reduced debt service payments.

Section 1012 of the Stewart B. McKinney Homeless

Assistance Amendments Act of 1988 (Public Law 100-628;

102 Stat. 3268) provides that for State Agency financed

projects, HUD is required to share with the State

: Distribution:

2

Agency 50 percent of any amount recaptured from a refunding.

The Act was amended in 1992 to broaden this 50 percent

sharing requirement to include local agencies which initiate

refundings and extend sharing to all Section 8 projects

(except Mod Rehab) for which Housing Assistance Payments

(HAP) contracts were executed in the period January 1, 1979,

through December 31, 1984. State and local agencies may use

the refundings for Housing programs that do not involve the

project(s) generating the refunds, as long as the use

benefits very low income persons and households.

\[See also NOTICE H-95-7 (Issued 01/18/95), SUBJECT: Summary

of HUD Policies on Multifamily Housing Bond Refunding

Transactions and Announcement of Certain Changes and Modi-

fications and NOTICE H-94-95 (Issued 12/07/94), SUBJECT:

Refunding of Bonds Issued to Finance Section 8 Financing

Adjustment Factor Projects.\]

3\. PROCEDURE.

Upon approval of a FAF/McKinney Refunding Agreement, the

\"Refunding Agreement\" (RA) between HUD and an Agency,

certain subsidized projects become subject to the FAF/

McKinney recapture process. The Office of Housing\'s

Financial Services Division will advise the respective field

office of the amounts of total contract and budget authority

savings adjustments required as a result of a FAF/McKinney

bond refunding. The Financial Services Division will also

include the 50 percent recapture levels for each project via

a PAD Summary Schedule (see attached sample). Field Office

staff will prepare a Project Accounting Data (PAD) Form

(Modified Form HUD-52540 (11/85)) for each project to

recapture 50 percent of the total contract and budget

authority savings (the net FAF/McKinney recapture). The

remaining 50 percent of the total FAF/McKinney savings

remains with the Agency; it is neither recaptured by HUD nor

does it have to be re-reserved.

Before the FAF/McKinney recapture PADs can be processed by

the Field Accounting Division (FAD), field office staff

should ensure that the HAP contract/Annual Contributions

Contract (ACC) for each project is amended to show both the

100 percent FAF/McKinney savings (the gross recapture) as

well as the 50 percent net recapture FAF/McKinney savings

available for reuse by the Agency. The HAP/ACC amendment

amounts should be in accordance with the approved

FAF/McKinney Refunding Agreement between HUD and the

Agency.

3

4\. PAD PREPARATION.

The one-time 50 percent net FAF/McKinney recapture for each

project in question will be recorded in the Program

Accounting System (PAS). The PAD, Modified Form HUD-52540,

will be prepared in the same way as a regular recapture

action, with the 50 percent net FAF/McKinney contract and

budget authority recapture amounts shown in brackets in

Blocks 12e and 12f.

The 50 percent net recapture contract and budget authority

amounts, as well as the remaining budget authority term (for

Block 11 of the PAD) will be provided by the Financial

Services Division in an Attachment entitled \"PAD Summary

Schedule\" (see attached sample). A sample FAF/McKinney

recapture PAD is also attached. Field staff should forward

the FAF/McKinney Recapture PAD(s), containing the \"Note to

FAD\", shown below, to the FAD, along with a copy(ies) of the

respective amended HAPC/ACC(s).

To identify the recaptured funds on the PAD specifically as

FAF/McKinney recaptures, rather than regular recaptures, the

following statement must be written across the top of each

FAF/McKinney recapture PAD:

\"NOTE TO: FAD

This is a FAF/McKinney Recapture. Please enter

\"FAFRC\" as the document \# when entering this

transaction into PAS.\"

5\. PROGRAM ACCOUNTING SYSTEM CODES FOR AFFECTED PROJECTS.

All projects for which FAF/McKinney recaptures are

anticipated should be resident in the Department\'s Program

Accounting System (PAS). The correct PAS Program Code for

the project must be used on the FAF/McKinney Recapture PAD

to ensure that the proper program area funds are being

recaptured. The following is a list of applicable PAS

Codes for both State Housing Finance and Development

Agencies (HFDA) and local housing agencies subject to

FAF/McKinney recaptures. Along with each PAS Code is the

corresponding PAS Program Name and Source Year (SY) for

either New Construction (NC) or Substantial Rehabilitation

(SR) projects:

4

PAS Code Program Name / Source Year

H01 NC HFDA SY 74

H02 NC HFDA SY RR-93

H03 NC NSA HFDA SY 74

H04 NC NSA HFDA SY RR-93

H21 SR HFDA SY 74

H22 SR HFDA SY RR-93

H23 SR NSA HFDA SY 74

H24 SR NSA HFDA SY RR-93

H05 NC NSA SY RR-93

H06 NC OTHER SY 74

H07 NC OTHER SY RR-93

H08 NC PHA-OWNED SY 74

H09 NC PHA-OWNED SY RR-93

H10 NC SEC 23 CONV SY 74

H11 NC SEC 23 CONV SY RR-93

H12 NC SEC 8/515 SY 74

H13 NC SEC 8/515 SY RR-93

H25 SR NSA SY 74

H26 SR NSA SY RR-93

H27 SR OTHER SY 74

H28 SR OTHER SY RR-93

H29 SR PHA-OWNED SY 74

H30 SR PHA-OWNED SY RR-93

H31 SR SEC 23 CONV SY 74

H32 SR SEC 23 CONV SY RR-93

H33 SR SEC 8/515 SY RR-93

Some FAF/McKinney recapture projects may be resident in PAS

under PAS Codes for both SY 74 and SY RR-93 program funds.

For those FAF/McKinney Recapture projects having funds

reserved under two PAS Codes, field office staff may

require assistance from the FAD to determine under which

code the project has sufficient contract and budget

authority to accomplish the 50 percent net FAF/McKinney

Recapture.

6\. WAIVER INFORMATION.

All affected projects for which FAF/McKinney recaptures are

anticipated should be resident in the PAS. If a project is

incorrectly recorded in the PAS, a Correction PAD should

be processed before the FAF/McKinney Recapture PAD. Cor-

rections to prior fiscal year PAS transactions that normally

require Headquarters approval include Project Number and

5

PHA/Private Owner Name. This Notice constitutes authori-

zation for field staff to process Correction PADs for the

above-mentioned data elements, without prior Headquarters

approval, for affected projects for which FAF/McKinney

recaptures are pending.

7\. FOR FURTHER INFORMATION:

a\. Programmatic, financial and legal questions related to

FAF/McKinney Recaptures should be directed to Monika

Martin of the Financial Services Division, Office of

Evaluation, on 202-755-7450, ext. 128.

b\. Questions related to FAF/McKinney recapture amounts and

PAD preparation should be directed to Richard Schachter

of the Funding Control Division, Office of Budget and

Field Resources, on 202-708-2750.

c\. Assistance in determining the PAS code(s) for projects

subject to FAF/McKinney recaptures should be requested

of the respective FAD.

Assistant Secretary for Housing-

Federal Housing Commissioner

PAS Code Program Name / Source Year

H01 NC HFDA SY 74

H02 NC HFDA SY RR-93

H03 NC NSA HFDA SY 74

H04 NC NSA HFDA SY RR-93

H21 SR HFDA SY 74

H22 SR HFDA SY RR-93

H23 SR NSA HFDA SY 74

H24 SR NSA HFDA SY RR-93

H05 NC NSA SY RR-93

H06 NC OTHER SY 74

H07 NC OTHER SY RR-93

H08 NC PHA-OWNED SY 74

H09 NC PHA-OWNED SY RR-93

H10 NC SEC 23 CONV SY 74

H11 NC SEC 23 CONV SY RR-93

H12 NC SEC 8/515 SY 74

H13 NC SEC 8/515 SY RR-93

H25 SR NSA SY 74

H26 SR NSA SY RR-93

H27 SR OTHER SY 74

H28 SR OTHER SY RR-93

H29 SR PHA-OWNED SY 74

H30 SR PHA-OWNED SY RR-93

H31 SR SEC 23 CONV SY 74

H32 SR SEC 23 CONV SY RR-93

H33 SR SEC 8/515 SY RR-93