U.S. Department of Housing and Urban Development

H O U S I N G

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Special Attention of: State and Area Notice H 95-2 (HUD)

Coordinators; Directors of

Housing; Multifamily Housing

Directors; Directors, Economic Issued: January 30, 1995

and Market Analysis; Labor

Relations Specialists; Directors Expires: January 31, 1996

of Fair Housing and Equal
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Opportunity; Directors, Regional Cross References:

Accounting Divisions; Field Assistant

General Counsels; Directors, Office Notice H 94-19 (HUD)

of Community Planning and Development

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Subject:Implementation of Section 6 of the HUD Demonstration

Act of 1993: Section 8 Community Investment

Demonstration Program \-- Fiscal Year 1995

1-1.PURPOSE. Notice 94-19, dated March, 1994, provided guidance for

program applicants, participants and Department of Housing and Urban

Development (HUD) staff for implementing the Section 8 Community

Investment Demonstration Program for Fiscal Year 1994. This Notice

modifies Notice 94-19 and provides guidance for implementing this

Demonstration in Fiscal Year 1995.

1-2.BACKGROUND

Section 6 of the HUD Demonstration Act of 1993 authorized the

Section 8 Community Investment Demonstration Program. Its purpose

is to demonstrate how the availability and leveraging of limited HUD

resources can encourage Pension Funds to invest in the production or

preservation of affordable housing for low-income families.

An appropriation of \$100 million in Section 8 project-based rental

assistance was authorized and provided to carry out this

demonstration in FY 1994. On April 26, 1994, HUD published a NOFA

announcing the availability of this \$100 million through a national

competition. Six pension funds were selected by Headquarters to

participate in this demonstration.

Additional budget authority has been authorized and provided for FY

1995\. A NOFA announcing the availability of 75 percent of this

budget authority was published in the Federal Register on January

30, 1995. A copy of this NOFA is attached as Exhibit I. A separate

NOFA, announcing the availability of the remaining budget authority,

will be published in the Federal Register at a later date.

Under this demonstration, participating Pension Funds will make or

purchase loans to finance the construction or

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HMIP: Distribution: W-3-1,W-2(H)(FHEO)(ZAS)(OGC)(PD&R),W-4(H),R-1,R-2,

R-3-1(H)(RC),R-3-2,R-3-3,R-6,R-6-2,R-7,R-7-2,R-8

Previous Editions Are Obsolete HUD 21B (3-80)

GPO 871 902

rehabilitation of affordable multifamily rental housing for

low-income families. Each participating Fund will receive a

set-aside of Section 8 budget authority which will be used for

rental assistance payments. These rental assistance payments will

help support the rents for the units occupied by low-income

families. The Section 8 authority, thus, eliminates much of the

risk traditionally associated with financing this kind of housing

and should encourage greater Pension Fund investment.

Various types of multifamily projects, both new construction and

substantial rehabilitation, may be developed under this

demonstration. However, the following restrictions apply:

\--not less than 50 percent of the Section 8 funds appropriated

for this demonstration may be used for properties owned by HUD

or for properties with mortgages held by HUD;

\--no more than 50 percent of the units in any project (except

HUD-owned properties or properties with mortgages held by HUD)

may be assisted (unless HUD grants an exception for special

circumstances);

\--HUD\'s single and multifamily mortgage insurance programs, the

Risk-Sharing programs under Section 542 of the Housing and

Community Development Act of 1992, and Veterans Administration

and Farmers Home Administration loan and loan guarantee

programs, may not be used for housing developed or assisted

under this demonstration;

\--a Pension Fund may not have an ownership interest in a project

for which a project-specific proposal is submitted to HUD or

for which assistance is provided under this demonstration; and

\--no single Pension Fund may be awarded more than 50 percent of

the total Section 8 authority.

1-3.APPLICABILITY OF SECTION 8 STATUTE AND REGULATIONS

The use of Section 8 assistance under this demonstration is subject

to the statutory provisions of Section 8 of the United States

Housing Act of 1937, as amended, and to the regulatory requirements

of 24 CFR 886, Subpart C, except as modified by this Notice.

A.Section 886.302: Definitions

1.The following definitions are modified by this Notice:

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a.Decent, safe and sanitary. Construction or

substantial rehabilitation of housing to the

standards of paragraph 1-23 and maintenance of the

housing in substantially the same condition.

b.Eligible project or projects. See paragraph 1-11C.

c.Fair Market Rent. See paragraph 1-16.

d.Owner. An entity, including a cooperative, having

the legal right to lease or sublease newly

constructed or substantially rehabilitated rental

housing.

2.The following definitions do not apply:

a.Minimum Design Standards for Rehabilitation for

Residential Properties.

b.Moderate rehabilitation.

B.The following Sections do not apply:

886.301Purpose

886.303Allocation and reservation of Section 8 contract and

budget authority

886.304Project eligibility criteria

886.306Notices

886.307 Housing quality standards

886.310 Initial contract rents

886.311 Term of Contract

886.312 Rent Adjustments

886.314 Financial Default

886.319 Responsibility for contract administration

886.330 Work write-ups and cost estimates

886.331Agreement to Enter Into Housing Assistance Payments

Contract

886.332 Rehabilitation Period

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886.333 Completion of rehabilitation

886.334Execution of Housing Assistance Payments Contract

C.The following Sections apply in their entirety:

886.305Disclosure and verification of Social Security and

Employer Identification Numbers by Owners

886.311a Notice upon contract expiration

886.315 Security and utility deposits

886.320 Default under the contract

886.323 Maintenance, operation and inspections

886.324Reexamination of family income and composition

886.325 Overcrowded and underoccupied units

886.326 Adjustments of utility allowances

886.327 Lease requirements

886.328 Termination of tenancy

886.329 Leasing to eligible families

886.335HUD review of agreement and contract compliance

886.336 Audit

886.337 Federal selection preferences

D.The following Sections apply except as provided below:

886.308Maximum total annual contract commitment, Subpart (a)

does not apply

886.309Housing assistance payment to owners - See paragraph

1-15

886.313 Other Federal requirements - See 1-17

886.318Responsibilities of the owner, Except (11) - See

paragraph 2-2

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886.321Marketing, except first sentence in (b)(1) and

reference in second sentence to \"tenancy after sale\"

\- See paragraph 2-3

1-4. HOW IT WILL WORK

Headquarters will select Pension Funds and award Section 8 set-aside

through a competitive process. Pension Funds will be selected in

accordance with stated criteria and a specific amount of Section 8

budget authority will be set aside for each of the Funds selected.

Selected Funds will fall into one of two categories:

Category A: A Category A Pension Fund is a Pension Fund that

identifies and documents in its application the presence of a

pipeline of projects for which project-specific proposals

sufficient to use the total amount of the set-aside requested

by the Fund can be submitted to HUD within time frames

specified in paragraph 1-7A1 of this Notice.

At least 50 percent of any set-aside awarded to a Category A

Pension Fund must be used for HUD-owned multifamily properties

being sold out of the HUD-owned inventory or multifamily

properties with HUD-held mortgages which must be fully paid

off.

Category B: A Category B Pension Fund is a Pension Fund that

does not demonstrate the presence of the type of pipeline

described above. However, a Category B Fund must be able to

submit project-specific proposals within the time frames

specified in paragraph 1-7A2 of this Notice.

A Category B Pension Fund may use the entire amount of its

set-aside for properties outside of the HUD inventory (although

HUD-owned multifamily properties and multifamily properties

with mortgages held by HUD are eligible).

This demonstration will be Headquarters-based. However,

Headquarters will ask HUD State and Area Offices with jurisdiction

to perform certain required reviews of proposed projects, including

site and neighborhood, environmental, Equal Opportunity, market

impact and relocation.

In addition, Headquarters will perform certain other retained

reviews, including previous participation, subsidy layering (unless

performed by a Housing Credit Agency through such delegation as may

be in effect by regulation), verification of compliance with maximum

rent limitations and

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obtaining and issuing appropriate Davis Bacon wage rate

determinations and construction labor standards provisions.

If all reviews result in an approvable proposal, HUD will execute an

Agreement to Enter into Housing Assistance Payments Contract

(Agreement) with the owner.

After the Agreement is executed and final architectural plans and

specifications are prepared, construction or rehabilitation may

begin. Upon satisfactory completion of construction or

rehabilitation of the project, HUD will execute a Housing Assistance

Payments Contract (Contract) with the owner.

The Contract will be for not less than 5 years nor more than 15

years. Pursuant to the Contract, project owners will be responsible

for all management and maintenance activities, including selecting

and admitting eligible low-income families (and application of

Federal selection preferences) within guidelines established by this

Notice.

HUD is responsible for administration of the Housing Assistance

Payments Contract. However, Headquarters will contract with a State

or local housing finance agency or public housing agency to carry

out these functions on HUD\'s behalf. Consequently, references to

HUD in this Notice may include the agency administering the contract

on behalf of the Department.

1-5. PROGRAM WAIVERS

Authority for waiving provisions of this Notice rests with the

Assistant Secretary for Housing - Federal Housing Commissioner.

Upon a determination and finding of good cause, the Commissioner may

waive any provision of this Notice subject only to statutory

limitations. Each waiver request from a Pension Fund must be in

writing and be supported by documentation of the facts and reasons

that formed the basis for the request.

1-6. ELIGIBLE APPLICANTS

A.Applicants meeting one of the following criteria are eligible

to be considered for participation in the demonstration

program: The applicant must be:

1.A trust, fund, plan or other program established or

maintained by an employer or other person for the purpose

of providing income or benefits to employees after the

termination of employment or deferring income by employees

until the termination of employment; or

6

2.An entity that serves as an investment advisor to or

engages principally in investing funds of such a trust,

fund, plan, or other program; or

3.A partnership or organization established to invest

pension funds in affordable multifamily housing.

B.Each applicant must demonstrate, through certified financial

statements or similar documents that the trust, fund, plan or

other program which it administers, invests, or to which it

serves as an advisor is fully capitalized at the time the

application for participation in the demonstration is submitted

and that capitalization is not contingent upon or in any way

delayed pending approval of the application.

C.If the applicant administers, invests or serves as an advisor

to one or more trust, fund, plan or other program, each such

entity must be identified in the application and documentation

as to full capitalization provided for each.

D.Each applicant must demonstrate its ability and intent to

provide permanent financing - as distinguished from interim or

construction financing - in connection with projects to be

developed under this demonstration.

E.Each applicant must demonstrate the availability of adequate

staff capacity to perform the functions required under this

demonstration or its ability to contract or enter into a

partnership for such services. In either case, the applicant

is responsible for overall program administration and

decisions.

1-7. SECTION 8 SET-ASIDE AND TIMING OF PROPOSAL SUBMISSIONS

A.Funding Levels.

1.A Category A Pension Fund may receive a set-aside of not

more than the maximum amount provided for in the NOFA for

Category A applicants or the amount sufficient to fund the

pipeline identified and documented in its application,

whichever is less.

a.A Category A Pension Fund is an applicant that

identifies and documents in its application for

participation in the demonstration program the

presence of a pipeline of projects for which

project-specific proposals sufficient to use the

total amount of the set-aside requested by

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it can be submitted to HUD within the following time

frames set forth in paragraph b(1) below.

b.The application must substantiate the applicant\'s

ability to meet the requirement that at least 50

percent of any set aside awarded to it must be used

for HUD-owned properties or properties with mortgages

held by HUD.

(1)A Category A participant will have 120 days from

the date of its selection letter to submit

project-specific proposals sufficient to use at

least 75 percent of the total amount of the

Section 8 set-aside awarded to it. It will have

10 months from the date the selection letter to

commit (i.e., close on construction financing)

this portion of its set-aside to specific

projects.

(2)A Category A participant will have 180 days and

12 months, respectively, to submit Project

specific proposals and to close on construction

financing for the remaining 25 percent of any

set-aside awarded to it.

2.A Category B Pension Fund may receive a set-aside of not

more than the maximum amount provided for in the NOFA for

Category B applicants.

a.A Category B Pension Fund is any applicant that does

not demonstrate the presence of the type of pipeline

described above.

(1)A Category B Pension Fund must submit

project-specific proposals sufficient to use at

least 50 percent of its Section 8 set-aside

within 6 months from the date of its selection

letter. It will have 10 months from the date of

its selection letter to reach closing of

construction financing on this portion of its

set-aside.

(2)A Category B Pension Fund will have 12 months

and 16 months, respectively, from the date of

the selection letter, to submit project-specific

proposals and to close on construction financing

for the remaining 50 percent of its Section 8

set-aside.

8

3.No applicant may receive an initial set-aside of more than

50 percent of the Section 8 budget authority provided for

under the NOFA.

B.Uncommitted Set-asides. Any set-asides not committed to

specific projects by the end of the time periods indicated

above, or any extensions of these time frames granted in

writing by Headquarters, may be withdrawn and reallocated to

other Pension Funds based on the performance of the receiving

Fund in utilizing its previous allocations or to Funds not

previously selected due to the lack of available budget

authority.

C.Overall Limitations.

1.Except as provided in Section 6(d)(1) of the Act, no

Pension Fund may receive a set-aside totalling more than

50 percent of the Section 8 budget authority made

available in the NOFA for this demonstration.

2.Any request by a Pension Fund for an increase in its

initial (or subsequent) allocation of Section 8 authority

will be based on the performance of the Fund in utilizing

its previous allocation(s).

3.HUD may not enter into any new funding commitments under

this demonstration after September 30, 1998.

D.Use of Funding Authority.

1.A Category A participant must commit at least 50 percent

of its Section 8 set-aside to units in properties owned by

HUD or in properties with mortgages held by HUD unless HUD

determines that due to minor variations in specific

projects, the statutory requirement to this effect will

otherwise be met and provides an exception.

2.A Category B participant may, but is not required, to use

any of its set-aside for HUD-owned properties or

properties with mortgages held by HUD.

3.Except under special circumstances approved by HUD in

writing, such as assistance for the homeless, displaced or

disabled persons, no more than 50 percent of the units in

any one project may be assisted.

4.In the case of HUD-owned properties that are subject to 24

CFR part 290, the number of units

9

required to be assisted will be based on the final

disposition plan developed in accordance with 24 CFR Part

290\. For these projects, the Pension Fund must use its

set-aside to provide assistance for one-half of the number

of units required to be assisted; HUD will provide the

other one-half from its property disposition set-aside.

5.The number of units that can be assisted from any

set-aside will depend upon the level of gross rents (i.e.,

contract rents plus allowance for utilities and other

services, see paragraph 1-16), the term (number of years)

of the Housing Assistance Payments Contract (see paragraph

l-30.B), and the amount of the contract administration fee

(see paragraph 1-24). Consequently, the higher the gross

rents, and/or the longer the contract term, the fewer the

number of units that can be assisted.

1-8. NOTICE OF FUNDING AVAILABILITY

A.Any applicant meeting the criteria of paragraph 1-6 of this

Notice may be considered for a set-aside of Section 8

project-based budget authority by submitting an application in

accordance with the requirements of the Notice of Funding

Availability (NOFA) published in the Federal Register on

January 30, 1995, and this Notice.

B.Only those applicants able to provide the pipeline information

required in Criterion 8 below (i.e., Category A applicants)

will be eligible for an initial set-aside of up to the maximum

provided for in the NOFA. Any applicant not able to provide

the pipeline information will be considered a Category B

applicant and eligible for a set-aside provided in the NOFA for

such applicants.

1-9. PENSION FUND APPLICATIONS

A.Pension Funds that submitted applications in response to the

April 26, 1994 NOFA, including those Pension Funds that were

selected, must submit applications in response to the January

30, 1995, NOFA if they wish to be eligible for a portion of the

FY 1995 budget authority.

B.Applications must be received no later than the time and date

specified in the NOFA. The application deadline is firm as to

date, hour and place, unless HUD extends the deadline by

appropriate notice in the

10

Federal Register. Any application received after the deadline

will not be eligible for consideration.

C.Applications should be submitted in an original and 2 copies.

Each should be bound in a standard size 3-hole loose-leaf

binder and divided according to paragraphs D and E below.

D.All applications for participation in this demonstration must

contain the following information:

1.Name of applicant, address of applicant, name of principal

contact, address and phone number;

2.Name of the trust, fund, plan or other program the

applicant represents; evidence of capitalization of each

and of their ability to provide permanent financing;

3.Number of projects and units (assisted and unassisted)

expected to be permanently financed;

4.Localities in which the applicant expects projects are

likely to be located;

5.Anticipated sources of financing from other than the

Pension Fund itself, e.g., loans or grants from other

public or private sources, participations, etc.;

6.Number of units and percent of set-aside (not less than 50

percent for Category A applicants) that will be used for

HUD-owned properties or properties with mortgages held by

HUD;

7.Contract terms anticipated (not less than 5 years nor more

than 15 years);

8.Anticipated initial contract rents (see paragraph 1-16);

9.Total Section 8 contract and budget authority requested;

10.Number of units to be newly constructed and number to be

substantially rehabilitated; and

11.Types of families (e.g., elderly, large, or

families/individuals with special needs (disabled,

displaced or homeless) and the number of each expected to

be assisted.

11

E.All applications also must contain sufficient information, in

narrative or numerical form, as appropriate, for HUD to

evaluate the applicant on the basis of the following criteria:

1.Criterion 1: Past involvement in and capacity to

permanently finance multifamily housing.

Supporting Information:

a.Experience in financing multifamily housing including

the number of multifamily projects/units financed

over the past 10 years;

b.Location of projects identified by locality, number

of units in each project, production method (new

construction or substantial rehabilitation);

c.Types of loans in which the applicant has

participated (e.g., permanent first mortgage, second

mortgage, Construction); and

d.Makeup of current multifamily portfolio

(1)original mortgage amounts

(2)outstanding balances

(3)status of each (current, default, workout,

foreclosure).

2.Criterion 2: Capability to make overall program and

mortgage finance decisions.

Supporting Information:

a.Describe capacity of Fund to underwrite multifamily

projects and to make mortgage finance decisions.

b.If the Fund does not possess these capabilities,

address how it will meet program objectives and

assure that projects are feasible prior to

funding/purchasing the project loan.

3.Criterion 3: Use of Resources.

Supporting Information:

a.Describe how the Fund will maximize use of any

set-aside awarded to it, i.e., by limiting gross

rents to less than the Fair

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Market Limitations of paragraph 1-16 and Contract

terms to less than 15 years.

b.Describe the financial and other resources the

Pension Fund will dedicate to this demonstration.

c.Describe the Fund\'s relationship to, and its efforts

to secure other State and local, public and private

financing resources.

d.Describe how the Fund intends to accomplish the goal

of providing affordable housing for large, low income

families while developing and maintaining feasible

projects with less than 50 percent Section 8

assistance.

(1)Describe how the Fund will ensure rentability of

units not receiving Section 8 assistance

including methods for attracting unassisted

families.

(2)Describe how the Fund will ensure that the

project developer/owner provides outreach to and

serves people with special needs such as

displaced, disabled and homeless.

4.Criterion 4: Use of HUD-owned properties or properties

with mortgages held by HUD in a variety of geographic

locations (required of Category A applicants only).

Supporting Information:

a.Indicate the number of units and percent of the

set-aside requested that will be used for HUD-owned

properties or properties with mortgages held by HUD

(not less than 50 percent).

b.Describe how the Fund will select and secure

HUD-owned properties and properties with mortgages

held by HUD and indicate the location of the projects

and the type of families to be served.

c.Describe how the Fund will ensure that at least 50

percent of its set-aside will be used for assistance

to HUD-owned properties or properties with mortgages

held by HUD.

5.Criterion 5: Efforts to promote economic or neighborhood

development and/or employment

13

opportunities for project area residents, while achieving

ethnic, cultural and gender diversity;

Supporting Information:

a.Describe efforts of the Fund to encourage fulfillment

of proposed plans to accomplish economic or

neighborhood development and/or employment

opportunities for project area residents.

b.Describe the efforts of the Fund and any outside

sources to foster economic and social integration and

diversity in areas where the Fund intends to operate.

6.Criterion 6: Efforts to ensure compliance with the

requirements of Section 3 and the implementing regulations

at 24 CFR part 135 by project owners, contractors and

subcontractors;

Supporting Information:

a.Identification of the types of individuals and

businesses intended to benefit from the economic

opportunities generated by the demonstration.

b.Establishment of a priority order in which these

individuals and businesses will be recruited and

solicited.

7.Criterion 7: Consideration of housing needs created by

dislocation of major employment sources.

Supporting Information:

a.Identification of such areas to be served by the

applicant.

b.Description of efforts to attract individuals and

families affected by such dislocation and any

preferences to be provided.

8.Criterion 8: If a Pension Fund wants to be considered as

a Category A applicant, it must provide information on its

ability to move product to construction/rehab start in

short time frames.

Supporting Information:

14

a.Identify and document specific projects currently in

the Fund\'s pipeline that can move to project-specific

proposals within the time frames specified in

paragraph 1-7 of this Notice.

b.Describe how each of the projects identified comply

with the proposal selection criteria in paragraph

1-11 below.

1-10. HUD SELECTION OF PENSION FUNDS.

A.Acceptable applications received by the deadline date and time

specified in the NOFA will be evaluated against each other.

Category A applications will be evaluated separately from

Category B applications.

B.HUD will determine whether the application was submitted by an

eligible applicant, whether it is a complete application, and

the degree to which the application meets the criteria of

paragraph 1-9.

C.Applications will be selected on the basis of numerical ratings

assigned to the criteria identified in paragraph 1-9 and in

accordance with the following:

1.Each acceptable application will be assigned a numerical

rating on the basis of its merits relative to the merits

of other applications received prior to the deadline.

a.Numerical ratings will be assigned to each of the 8

criterion identified in paragraph 1-9. The numerical

ratings to be assigned are:

Excellent = 5

Good = 3

Fair = 1

Poor = 0

b.In assigning a numerical rating for criterion 8,

\"ability to move product to construction/rehab start

in short time frames,\" HUD will assign the highest

rating on this criterion to applications that best

identify and document the presence of a pipeline per

paragraph 1-7A.1. Applications not able to identify

and document such a pipeline will receive a lower

numerical rating on this criterion.

c.In assigning a numerical rating for

15

Criterion 3, HUD will assign the highest rating on

this criterion to applications that best describe how

the Fund will maximize the use of any set-aside

awarded to it.

2.After numerical ratings are assigned, adjustments will be

made to reflect the relative degree of importance of each

of the 8 criteria. This will be done by assigning

specific weight factors to each criterion in accordance

with the following:

Criterion 1: Past involvement in and capability to

finance multifamily housing - Weight Factor = 3

Criterion 2: Capability to make overall program and

mortgage finance decisions - Weight Factor = 3

Criterion 3: Use of resources - Weight Factor = 3

Criterion 4: Use of HUD-owned properties or

properties with mortgages held by HUD - Weight Factor

= 1

Criterion 5: Efforts to promote economic or

neighborhood development, etc. - Weight Factor = 1

Criterion 6: Compliance with Section 3 Weight Factor

= 2

Criterion 7: Housing needs resulting from employment

dislocation - Weight Factor = 1

Criterion 8: Ability to move product to

construction/rehab start in short time frames -

Weight Factor = 2

3.HUD may, at its discretion, select the application(s)

which received the highest total score or select

applications with lower total scores, in order of ranking,

in order to meet the provisions of paragraph 1-10D and to

ensure the most effective use and distribution of

available budget authority.

D.If an application is selected, HUD will determine the amount of

the Section 8 set-aside to be awarded. The award will be based

on the number of units to be

16

assisted, levels of contract rents, terms of the Contract, and

contract administration fee. The amount of the set-aside may

be adjusted in order to comply with the requirements that:

1.At least 50 percent of the funds available for the

demonstration be used for properties owned by HUD or for

properties with mortgages held by HUD, and

2.No more than 50 percent of the funds available go to one

Pension Fund (except as provided in paragraph 1-7C above).

E.HUD will notify each applicant of its selection or rejection

and, if appropriate, the amount of Section 8 authority set

aside for use by the Pension Fund. The Selection Letter will

authorize the applicant to submit project-specific proposals to

Headquarters.

1.A Category A participant will have 120 days from the date

of its selection letter to submit project-specific

proposals using 75 percent of the total amount of the

Section 8 set-aside awarded to it. It will have 10 months

from the date of the selection letter to commit this

portion of its set-aside to specific projects, i.e.,

closing of construction financing (\"closing\").

2.A Category B participant must submit project-specific

proposals sufficient to use 50 percent of the Section 8

set-aside awarded to it within 6 months from the date of

its selection letter. It will have 10 months from the

date of the selection letter to reach closing on this

portion of its set-aside.

3.Each Pension Fund selected must submit a report every 30

days to Headquarters, Office of Insured Multifamily

Housing Development, as to the number of projects and

units in processing, the amount of Section 8 budget

authority expected to be required for those projects, and

estimated dates for submission of project-specific

proposals and for closing of construction financing.

4.If it appears that, based on reports submitted and HUD\'s

analysis of those reports, project-specific proposals will

not be submitted or budget authority will not be

committed, or if it is not committed, to specific projects

by the end of the periods indicated in paragraphs E1 and

E2 above, it may be withdrawn by HUD and reallocated to

another

17

Fund(s). HUD, at its discretion, may extend these time

limits.

5.If the Pension Fund and HUD mutually agree that the Fund

will not use all of the Section 8 authority in the Fund\'s

set-aside, the unused portion will be returned to HUD for

reallocation.

6.Any reallocation will be based upon the performance of the

receiving Fund in utilizing its previous allocation(s) or

to a Fund not previously selected by HUD due to the lack

of available set-aside authority.

1-11. SELECTION OF PROJECT SPECIFIC PROPOSALS

A.Pension Funds may establish their own criteria for selecting

projects for use in the demonstration. These criteria must

reflect the public purposes cited in paragraph B below. These

criteria must be in writing and be available for distribution

to HUD and any other interested parties, including project

owners, upon request.

B.The criteria used by the Fund must, at a minimum, include site,

design, feasibility (including marketability) and reflect the

following public purposes:

1.Achieving economic mix;

2.Increasing housing choices and fostering neighborhood

diversity;

3.Providing affordable housing for large, low-income

families and providing access to necessary supportive

facilities and services;

4.Involving other State, local, public and private resources

to achieve these objectives and to limit Section 8

assistance to no more than 50 percent of the units in any

project (except in HUD-owned properties or properties with

mortgages held by HUD and under limited special

circumstances, i.e., homeless, displaced or disabled

persons, approved by HUD);

5.Achieving maximum use of available Section 8 budget

authority by limiting gross rents to less than the Fair

Market Rent limitations and Contract terms to less than 15

years;

18

6.Facilitating geographic/locality diversity of project

sites and complying with any applicable court orders;

7.For Category A participants, using HUD-owned properties

and properties with mortgages held by HUD in a variety of

geographic locations and giving preference to projects in

Empowerment Zones;

8.Meeting special needs of homeless, displaced or disabled

persons; and

9.Complying with Section 3 responsibilities, as set forth in

24 CFR part 135.

C.Eligible Projects.

1.New Construction projects are eligible projects under this

demonstration. In addition, the following types of

multifamily projects are eligible for substantial

rehabilitation:

a.Projects owned by HUD or subject to a mortgage held

by HUD (see, however, paragraph D below for

limitations on properties with prepayment

restrictions);

b.Projects eligible for assistance as troubled projects

under Section 201 of the Housing and Community

Development Amendments of 1978;

c.Projects located in an empowerment zone or enterprise

community designated by Federal law; or

d.Any other multifamily project, including projects to

be occupied by homeless persons or homeless families

as defined in Section 103 of the McKinney Act.

D.Ineligible Projects.

1.Certain projects are not eligible for use in this

demonstration. These include:

a.High-rise elevator projects for families with

children unless HUD determines there is no practical

alternative;

b.Projects subject to mortgage prepayment restrictions,

including projects meeting the definition of

\"eligible low income housing\"

19

under the Low Income Housing Preservation and

Resident Homeownership Act of 1990 (LIHPRHA); and

c.Projects subject to Section 250(a) of the National

Housing Act.

D.HUD-owned properties or properties with mortgages held by HUD.

1.Each Category A Pension Fund must use at least 50 percent

of its set-aside to provide assistance to units in

HUD-owned properties or properties with mortgages held by

HUD.

2.In the case of HUD-owned properties, the number of units

required to be assisted will be based on the disposition

plan developed in accordance with 24 CFR 290. The Pension

Fund must provide assistance from its set-aside for

one-half of the units required to be assisted under the

disposition plan; HUD will provide the remaining one-half

of the units from its property disposition set-aside.

E.HUD-owned properties. In selecting HUD-owned properties,

Pension Funds should focus on properties with the following

characteristics:

1.Projects which were formerly subsidized under Sections

236, 221(d)(3)BMIR or 312;

2.Projects where nonprofit purchasers, or limited

partnerships controlled by nonprofit general partners,

will be formed to take advantage of tax credit

opportunities; and

3.Projects for which targeted negotiated sales are in

process, or opportunities for negotiated sales are

identified in the disposition plan and have passed the

first right of refusal stage.

F.Properties with mortgages held by HUD. In selecting properties

with mortgages held by HUD, Pension Funds should focus on

properties with the following characteristics:

1.Projects with mortgages that are delinquent, under a

workout agreement, or being foreclosed;

2.Projects subject to a plan for lead-based paint abatement

that complies with Federal, State and local regulations;

and

20

3.Projects with units that are vacant or occupied by very

low income families that need assistance to refinance and

operate on a sound financial basis.

NOTE: The financing and subsidy package must pay off the

HUD-held loan under terms acceptable to HUD, provide for

needed repairs, and establish necessary reserves to keep

property sound.

G.Property Listings.

1.A list of HUD-owned properties is available from HUD

Headquarters, Office of Preservation and Property

Disposition, phone (202) 708-3343.

2.Information on properties with mortgages held by HUD is

available from HUD Headquarters, Office of Multifamily

Housing Management, phone (202) 708-3730.

3.Prospective purchasers of properties that are HUD-owned,

or have mortgages held by HUD, may be referred by HUD to

the Pension Fund to see if their properties meet the

Fund\'s proposal selection criteria. These purchasers can

be existing entities with currently pending purchases or

new purchasing entities with strong ownership potential.

1-12. PROJECT-SPECIFIC PROPOSALS

A.An original and one copy of the project-specific proposal must

be submitted in all instances. If the proposal involves a

HUD-owned property or a property with a mortgage held by HUD,

an original and two copies must be submitted. In all

instances, the original copy must include the original and

attachments to Form HUD-2530, Previous Participation

Certificate (dated 9/94).

1.The original and required copies of the application should

by bound in a standard size 3 hole loose leaf binder and

organized according to paragraphs B and C below.

2.Applications should be submitted to the address indicated

in the selection letter.

B.All project-specific proposals submitted for HUD review by a

Pension Fund must include a Form HUD-92013, Application for

Multifamily Housing Project, completed as follows:

21

1.Section A, number 1 and, if applicable number 2;

2.Section C, in its entirety;

3.Section E, numbers 1-4; also indicate in \"Unit Type\"

whether the units are for families, large families,

homeless, disabled or displaced;

4.Sections F and Fl, in their entirety;

5.Section G, line 47;

6.Section K, in its entirety;

7.Section N, numbers 7, 9 and 12.

C.The following information must also be submitted:

1.Estimated dates for commencement of construction/

rehabilitation and for completion of the improvements

after the Agreement is signed (by stage if improvements

are to be completed in stages);

2.Total Section 8 requested and proposed Contract term.

3.Name of the State or local Housing Finance Agency (HFA) or

Public Housing Agency (PHA) with jurisdiction, an

expression of interest from that agency of its willingness

to contract with HUD to perform contract administration

services under the Agreement and Contract with the private

owner, and the proposed fee for these services;

4.Disclosure of other Federal, State or local government

financial assistance such as tax abatement, tax credits,

HOME, CDBG, tax exempt bonds, or other local sources;

5.A statement as to whether any CDBG or HOME funding is

involved and, if such funding is involved, whether the

grant recipient (i.e., the eligible unit of State or local

government) has been requested to conduct environmental

reviews pursuant to 24 CFR, Part 58 (if the review has

been completed, include a copy in the application; if not

completed, include estimated completion date); and

6.A description of the proposed financing method, including

the terms and conditions thereof.

22

7.If displacement of site occupants is anticipated, a

relocation plan consistent with the requirements of HUD

Handbook 1378, \"Tenant Assistance, Relocation and Real

property Acquisition,\" and changes thereto.

1-13. MARKET REVIEWS

A.Field Office Review.

The Pension Fund is responsible for determining that a market

exists for the project. As part of this determination, it must

consider the impact, if any, of the proposed project on other

Federally assisted or insured projects in the area.

Consequently, before a Pension Fund completes its processing of

an owner\'s application, it must request, and the HUD office

with jurisdiction will provide, comments as to the impact of

the project on any existing or proposed Federally-insured or

assisted projects in the area. The request must be made in

sufficient time to permit the HUD office to make its

determination and respond to the Pension Fund before the

Pension Fund submits the project-specific proposal to HUD.

B.Field Office Response.

The Field Office will respond directly to the Pension Fund with

a copy to Headquarters, Office of Insured Multifamily

Development.

1-14. MAXIMUM TOTAL ANNUAL CONTRACT COMMITMENT

A.Maximum assistance.

The maximum total annual housing assistance payments that may

be committed under the Contract will be the total of the gross

rents for all contract units in the project (see 24 CFR

886.308(b)).

B.Changes in Contract Amounts.

In order to assure that housing assistance payments will be

increased in a timely manner to cover increases in contract

rents, changes in family composition, or decreases in family

incomes, the provisions of 24 CFR 886.308(c)(1) and (2) will

apply.

1-15. HOUSING ASSISTANCE PAYMENTS TO OWNERS.

See 24 CFR 886.309 for guidance. References in that Section to

substantial rehabilitation should be considered

23

as references to new construction as well. References to \"PHA\"

should be considered as references to HUD, the HFA or the PHA

administering the contract on behalf of HUD (see paragraph 1-24).

The reference to Section 244 of the National Housing Act is not

applicable.

1-16. FAIR MARKET RENTS AND INITIAL CONTRACT RENTS

A.The Fair Market Rent Schedule for this demonstration is 120

percent of the Existing Housing Fair Market Rent Schedule most

recently published in the Federal Register.

1.Initial gross rents (contract rents plus any allowance for

utilities and other services) for any new construction

project, and any substantial rehabilitation project with

per unit rehabilitation costs of \$5000 or more, may not

exceed the rents in the Fair Market Rent Schedule

applicable to this demonstration.

2.Initial gross rents for any substantial rehabilitation

project with per unit rehabilitation costs of less than

\$5000 may not exceed 100 percent of the published Existing

Housing Fair Market Rent Schedule.

B.Contract rents must be reasonable on the basis of comparison

with rents for unsubsidized units of similar age, design and

location which include comparable amenities and services and

may exceed such comparable rents by no more than 20 percent.

C.In older, declining urban areas where there is an overriding

need for new or substantially rehabilitated housing, but where

sufficient data on market rents is not obtainable due to the

overall physical and economic condition of the neighborhood,

the Pension Fund may base its estimate of rental values on

comparables from the nearest neighborhood or neighborhoods,

where private industry has provided recently constructed or

substantially rehabilitated rental housing of modest,

non-luxury design without adjustment for the differences

between the physical and economic conditions of the subject and

comparable neighborhoods except for differences attributable to

tax and utility rates.

D.Contract rents must also be supported by the owner\'s cost

certification as provided in paragraph 1-28.

24

1-17. OTHER FEDERAL REQUIREMENTS

A.Participation in this Demonstration requires compliance with

the Fair Housing Act, Title VI of the Civil Rights Act of 1964;

Title VIII of the Civil Rights Act of 1968; Executive Orders

11063 and 11246; Section 504 of the Rehabilitation Act of 1973;

the Age Discrimination Act of 1975; Section 3 of the HUD Act of

1968; the Americans with Disabilities Act of 1990; and all

regulations issued pursuant to these authorities.

B.In addition, in selecting project-specific proposals, the

Pension Fund must take into consideration compliance with the

following:

1.Environmental regulations in 24 CFR Parts 50 and 51;

2.Clean Air and Federal Water Pollution Control Act;

3.Flood Disaster Protection Act of 1973;

4.Federal labor standards provisions including payment of

prevailing wages as determined by the Secretary of Labor

in accordance with the Davis-Bacon Act (for projects of 9

or more units); and

5.The Uniform Relocation Assistance and Real Property

Acquisition Policies Act of 1970, as amended, implementing

regulations and Handbook requirements, to persons

displaced from the project site.

C.The Agreement and Contract, as appropriate, will contain

certifications as to compliance with these requirements.

1-18. SITE AND NEIGHBORHOOD ACCEPTABILITY CRITERIA

A.Prior Review.

The Pension Fund may ask Headquarters to request the Field

Office to review the project site for compliance with site and

neighborhood acceptability criteria before the Fund completes

processing of the owner\'s application. Observations as to any

environmental problems noted during the course of this review

will be included in the report to Headquarters.

B.Proposed sites for new construction projects must meet the

following acceptability criteria standards:

25

1.The site must be adequate in size, exposure and contour to

accommodate the number and type of units proposed and

adequate utilities (water, sewer, gas and electricity) and

streets must be available to service the site.

2.The site and neighborhood are suitable from the standpoint

of facilitating and furthering full compliance with the

applicable provisions of Title VI of the Civil Rights Act

of 1964, Fair Housing Act, Executive Order 11063, and

implementing HUD regulations.

3.The neighborhood must not be one which is seriously

detrimental to family life or in which substandard

dwellings or other undesirable conditions predominate,

unless there is actively in progress a concerted program

to remedy the undesirable conditions.

4.The housing must be accessible to social, recreational,

educational, commercial and health facilities and services

and other municipal facilities and services that are at

least equivalent to those typically found in neighborhoods

consisting largely of unassisted, standard housing with

similar market rents.

5.The housing must be so located that travel time and cost

via public transportation or private automobile, from the

neighborhood to places providing a range of jobs for

lower-income workers, is not excessive. (This standard

need not be rigidly adhered to for housing for the

elderly.)

6.Minority Concentration.

a.The site must not be located in an area of minority

concentration except as permitted under paragraph b,

and must not be located in a racially mixed area if

the project will cause a significant increase in the

proportion of minority to non-minority residents in

the area.

b.A project may be located in an area of minority

concentration only if:

(1)Sufficient, comparable opportunities exist for

housing for minority families in the same income

range to be served by the proposed project,

outside areas of minority

26

concentration (see paragraph 7 for further

guidance), or

(2)the project is necessary to meet overriding

housing needs that cannot be met in that housing

market (see paragraph 8 for further guidance).

7.Sufficient Comparable Opportunities

a.\"Sufficient\" does not require that in every locality

there be an equal number of assisted units within and

outside of areas of minority concentration. Rather,

application of this standard should contribute to a

reasonable distribution of assisted units each year

which, over a period of several years, will approach

an appropriate balance of housing choices within and

outside areas of minority concentration. An

appropriate balance in any jurisdiction must be

determined in light of local conditions affecting the

range of housing choices available for lower income

minority families and in relation to the racial mix

of the locality\'s population.

b.Units may be considered \"comparable opportunities\" if

they have the same household type (elderly, disabled,

family, large family) and tenure type (owner/renter);

require approximately the same tenant contribution

towards rent; serve the same income group; are

located in the same housing market; and are in

standard condition.

c.Application of this \"sufficient comparable

opportunities\" standard involves assessing the

overall impact of HUD-assisted housing on the

availability of housing choices for lower income

minority families in and outside areas of minority

concentration, and must take into account the extent

to which the following factors are present, along

with other factors relevant to housing choices:

(1)A significant number of assisted housing units

are available outside areas of minority

Concentration.

(2)There is significant integration of assisted

housing projects constructed or rehabilitated in

the past 10 years,

27

relative to the racial mix of the eligible

population.

(3)There are racially integrated neighborhoods in

the locality.

(4)Programs are operated by the locality to assist

minority families that wish to find housing

choices outside areas of minority concentration.

(5)Minority families have benefited from local

activities (e.g., acquisition and write-down of

sites, tax relief programs for homeowners,

acquisition of units for use as assisted housing

units) undertaken to expand choices for minority

families outside areas of minority

concentration.

(6)A significant proportion of minority households

have been successful in finding units in

non-minority areas under the Section 8

Certificate and Housing Voucher programs.

(7)Comparable housing opportunities have been made

available outside areas of minority

concentration through other programs.

8.Overriding Housing Needs

a.Application of the \"overriding housing needs\"

criterion permits approval of sites that are an

integral part of an overall local strategy for the

preservation or restoration of the immediate

neighborhood and of sites in a neighborhood

experiencing significant private investment that is

demonstrably changing the economic character of the

area (a \"revitalizing area\").

b.An \"overriding housing need,\" however, may not serve

as the basis for determining that a site is

acceptable if the only reason the need cannot

otherwise be feasibly met is that discrimination on

the basis of race, color, creed, sex, or national

origin renders sites outside areas of minority

concentration unavailable or if the use of this

standard in recent years has had the effect of

circumventing the obligation to provide housing

choice.

28

C.Sites for proposed substantial rehabilitation projects (for

other than HUD-held and HUD-owned) must meet the following

acceptability criteria:

1.The site must be adequate in size, exposure and contour to

accommodate the number and type of units proposed and

adequate utilities (water, sewer, gas and electricity) and

streets must be available to service the site.

2.The site must be suitable from the standpoint of

facilitating and furthering full compliance with the

applicable provisions of Title VI of the Civil Rights Act

of 1964, Title VIII of the Civil Rights Act of 1968,

Executive Order 11063, and implementing HUD regulations.

3.The housing must be accessible to social, recreational,

educational, commercial and health facilities and services

and other municipal facilities and services that are at

least equivalent to those typically found in neighborhoods

consisting largely of unassisted, standard housing with

similar market rents.

4.The housing must be so located that travel time and cost

via public transportation or private automobile, from the

neighborhood to places of employment providing a range of

jobs for lower-income workers, is not excessive. (This

standard need not be rigidly adhered to for housing for

the elderly.)

5.The site and neighborhood must be reasonably free from

disturbing noises and reverberations and other hazards to

the health, safety and general welfare of the occupants.

6.The site and neighborhood are not subject to serious

adverse environmental conditions, natural or manmade, such

as dangerous walks, steps, instability, flooding, poor

drainage, septic tank back-ups, sewage hazards or mud

slides; abnormal air pollution, smoke or dust; excessive

noise, vibration or vehicular traffic; excess accumulation

of trash; vermin or rodent infestation; or fire hazards.

D.The site and neighborhood in which properties that are

HUD-owned or have mortgages held by HUD are located must:

29

1.Be reasonably free from disturbing noises and

reverberations and other hazards to the health, safety and

general welfare of the occupants.

2.Not be subject to serious adverse environmental

conditions, natural or manmade, such as dangerous walks,

steps, instability, flooding, poor drainage, septic tank

back-ups, sewage hazards or mud slides; abnormal air

pollution, smoke or dust; excessive noise, vibration or

vehicular traffic; excess accumulation of trash; vermin or

rodent infestation; or fire hazards.

1-19.PENSION FUND SUBMISSION OF PROJECT-SPECIFIC PROPOSALS TO HUD.

A.The Pension Fund must determine that the proposed project is an

eligible project as defined in paragraph 1-11C and that it

meets the aggregate intent of the public purposes identified in

paragraph 1-11B of this Notice. A Category A participant must

also determine that the project, along with other projects the

Fund will consider, will result in at least 50 percent of the

Pension Fund\'s Section 8 set-aside being used for HUD-owned

properties or properties with mortgages held by HUD.

B.The Pension Fund\'s submission to HUD must include the

information required in paragraph 1-12 along with

certifications from the Pension Fund that:

1.It will make a loan or purchase the loan to finance the

project;

2.It has or will have no ownership interest of any kind in

the project;

3.Based on an analysis and report by a review appraiser

employed or engaged by the Pension Fund, that contract

rents (see paragraph 1-16 for guidance):

a.compare reasonably to or are less than the rents for

unassisted units of similar age, design and location

which provide comparable amenities or services; or

b.that exceed those determined to compare reasonably do

so by no more than 20 percent and are warranted by

cost and expense estimates acceptable to the Pension

Fund. (Note that these rents must be supported by

cost

30

certification at project completion - see paragraph

1-28.)

4.It consulted with the HUD Office with jurisdiction

relative to the impact of the proposed project on any

existing or proposed Federally-assisted projects in the

area and that:

a.the HUD Comments were addressed in underwriting the

project, or

b.the HUD Office did not comment.

1-20. STATE/AREA OFFICE REVIEWS OF PROJECT SPECIFIC PROPOSALS

A.After receipt of a project-specific proposal, Headquarters will

assign a project number and request the HUD Office with

jurisdiction to perform reviews for compliance with site and

neighborhood acceptability criteria, environmental, relocation,

market impact and Equal Opportunity including Affirmative Fair

Housing Marketing requirements.

B.If the reviews for market impact and/or compliance with site

and neighborhood acceptability criteria were not performed by

HUD before the Pension Fund completes its processing of the

owner\'s application, they will be completed by HUD after

receipt of the project specific proposal from the Pension Fund.

C.Proposals will be reviewed for compliance with HUD\'s

environmental requirements for addressing the Environmental

Policy Act of 1969 (NEPA) and related laws and authorities.

HUD staff will conduct an environmental review for all

project-specific proposals except those involving HOME or CDBG

funding.

1.Proposals involving HOME or CDBG Funding.

HUD may accept and adopt the environmental assessment

performed by the grant recipient (i.e., the eligible unit

of State or local government) pursuant to 24 CFR Part 58

for those proposals that involve HOME or CDBG funding

activities.

2.HUD-Owned Properties and Properties with Mortgages Held by

HUD.

a.HUD will perform an environmental compliance review

(Form HUD-4128.1, Format for Categorically Excluded

Projects) as part of the property disposition

transaction.

31

b.If that review determines that the project is within

the 100 year floodplain, the transfer will require

that the owner take all feasible action to minimize

the impact of flooding on the mechanical systems

within the project.

c.The property must be covered by flood insurance. All

occupants of the project must be informed that it is

within a flood plain and that flood insurance is

available for personal possessions.

d.If the project is listed on the National Register for

Historic Places or in a district listed on the

National Register, there must be a deed restriction

that any alteration to the property must be submitted

to the State Historic Preservation Officer for review

and comment.

3.Other Projects

a.New Construction: All new construction projects

require preparation of an environmental assessment

pursuant to 24 CFR Part 50, using Form HUD-4128,

Format for Environmental Assessment for HUD Projects.

b.Existing, With or Without Substantial Rehabilitation:

(1)Existing projects are categorically excluded

from NEPA.

(2)An environmental assessment is not required for

existing projects when HUD completes Form HUD

4128.1 and determines that rehabilitation of the

project does not:

oincrease the number of dwelling units by

more than 20 percent; or

oresult in a change of land use from

nonresidential to residential; or

oinvolve rehabilitation costs above 75

percent of the post rehabilitation

replacement cost of the project; or

oinvolve demolition of one or more buildings

containing the primary use served by the

project.

32

(3)Projects not meeting the above criteria are

subject to a full environmental assessment using

Form HUD-4128.

(4)All projects must comply with other non-NEPA

environmental requirements (24 CFR 50.4) such as

floodplain management, noise, historic

preservation and hazards. This entails a

limited environmental compliance review by HUD

using Form HUD-4128.1.

4.Pension Funds are encouraged to include in each

project-specific application submitted to HUD copies of

environmental reports, audits, or assessments prepared by,

others that the Fund believes will assist HUD in

conducting its environmental review.

5.Details on environmental requirements are in Handbooks

1390.2 and 1390.4 and 24 CFR, Parts 50 and 51.

D.Equal Opportunity. The Field Office will review and approve

the Affirmative Fair Housing Marketing Plan following the

procedures and requirements of HUD Handbook 8025.1 REV-2,

Implementation of Affirmative Fair Housing Marketing

Requirements. It will also review for compliance of the

owner/sponsor with civil rights statutes, Executive Orders and

regulations, that the owner/sponsor has no outstanding civil

rights findings, and for compliance with the site and

neighborhood acceptability criteria of paragraph 1-18.

1-21. HEADQUARTERS EVALUATION OF PROJECT-SPECIFIC PROPOSALS.

Headquarters will perform the following additional functions:

A.Conduct previous participation (2530) reviews of project

principals and determine whether project participants are

debarred, suspended or ineligible to perform work on

Federally-assisted projects.

B.Obtain and issue the appropriate Davis-Bacon wage rate

determinations and construction contract labor standards

provisions.

C.Unless the Housing Credit Agency has agreed to perform subsidy

layering reviews for projects receiving Low Income Housing Tax

Credits, review projects receiving tax credits and/or other

governmental assistance for

33

any excess subsidy and reduce subsidy sources in accord with

outstanding subsidy layering guidelines.

D.Negotiate a contract with an HFA or PHA to perform contract

administration functions on behalf of HUD.

E.Verify that proposed contract rents are within the Fair Market

Rent Schedule for this demonstration (see paragraph 1-16A).

1-22. HUD APPROVAL OF PROJECT-SPECIFIC PROPOSALS

A.Section 6(b) of the authorizing legislation requires that not

less than 50 percent of the funds appropriated for the

demonstration be used for properties owned by HUD or for

properties with mortgages held by HUD. To ensure compliance

with this statutory requirement, each Category A Pension Fund

must use at least 50 percent of its Section 8 set-aside for

HUD-owned properties or for properties with mortgages held by

HUD unless HUD determines that the overall statutory

requirement will otherwise be met and provides an exception.

Consequently, for Category A participants:

1.Budget authority for the first project-specific proposal

submitted by the Pension Fund, if it is for a non-HUD

project, cannot exceed 50 percent of the Pension Fund\'s

total set-aside.

2.HUD will not accept for review any additional non-HUD

proposals from the Pension Fund until it submits proposals

for HUD-projects using an equal or greater amount of

budget authority.

3.A Pension Fund may substitute a non-HUD proposal for a HUD

proposal only with HUD approval, or only if the substitute

proposal will not result in a reduction in budget

authority for HUD-proposals below 50 percent of the total

budget authority for projects submitted by the Pension

Fund.

4.Should any approved proposal for a HUD-project fail to go

to closing and an acceptable substitution is not made by

the same or different Pension Fund, HUD will determine

whether any additional non-HUD proposals may be approved

and/or proceed to Agreement.

B.Category B Pension Funds are not subject to the requirements of

paragraphs A1 through A4 above. However, if any Category A or

B Fund fails to submit project-specific proposals, or fails to

proceed to

34

closing of approved proposals within the time frames specified

in paragraph 1-7, HUD may withdraw the Pension Fund\'s

uncommitted set-aside and reallocate it elsewhere.

D.Upon conclusion of Headquarters review, HUD will advise the

Pension Fund:

1.Whether the proposal is approved; approvable only if

specified changes are made and if Headquarters receives

those changes within the time limit specified; or not

approvable with an explanation as to why.

2.Of the number of assisted and unassisted units approved,

the amount of Section 8 budget authority allocated to the

project and the balance remaining in the Fund\'s set-aside.

If the proposal is for a HUD-owned project that is subject

to 24 CFR Part 290, the Pension Fund must provide

assistance from its set-aside for one-half of the units

required to be assisted; HUD will provide the other

one-half from its property disposition set-aside.

3.That HUD will enter into a Agreement to Enter into Housing

Assistance Payments Contract (Agreement) provided the

owner submits, through the Pension Fund a permanent

financing commitment for the project including a statement

of the source of the financing, terms, interest rate,

discounts, extension provisions, and any conditions that

are in, will be in, or will affect the permanent financing

arrangements.

4.That the Pension Fund must submit an acceptable

certification regarding the working drawings and

specifications by the date specified in the Approval

Letter (see paragraph 1-23).

5.That subsidy layering reviews must be completed before an

Agreement may be executed.

6.That if management documents required by HUD Handbook

4381.5, REV-2, \"Management Agent Handbook,\" were not

previously submitted, they must be submitted to and

reviewed and/or approved by HUD before the Agreement may

be executed.

7.Of the dates by which the Pension Fund is expected to

close on the construction financing and by which

construction/rehabilitation is expected to begin; and

35

8.That if any of these requirements is not met, HUD may

withdraw the Section 8 authority for the project and

reallocate it elsewhere.

1-23. CERTIFICATION OF WORKING DRAWINGS AND SPECIFICATIONS

A.Before HUD will execute an Agreement with the owner, the

Pension Fund must submit a certification to HUD, based on an

analysis and report by a review architect employed or engaged

by the Fund that:

1.the working drawings and specifications and work write-up

are in compliance with the following standards:

a.New Construction and Substantial Rehabilitation. The

following standards apply to both new construction

and substantial rehabilitation:

-State and local building codes, ordinances and

regulations.

-Handicapped Accessibility Guidelines, 24 CFR

890.210(c).

-Smoke Detector requirements of 24 CFR 882.109(r).

b.Substantial Rehabilitation. The following additional

standards apply to substantial rehabilitation

projects:

-Lead-Based Paint requirements of 24 CFR 882.109(i).

c.New Construction. The following additional standards

apply to new construction projects:

-Fair Housing Accessibility Guidelines - Federal

Register Volume 56, No. 44, March 6, 1991.

2.The proposed construction or rehabilitation is permissible

under the applicable zoning, building, housing and other

codes, ordinances or regulations as modified by any

waivers obtained from the appropriate officials.

B.The owner must retain one set of the working drawings and

specifications, or work write-up, for examination

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by HUD for so long as the HAP contract is in effect or such

shorter period as HUD may approve.

1-24. ADMINISTRATION CONTRACT

HUD will enter into an contract with a HFA or PHA (i.e., a Contract

Administrator) with jurisdiction over the area in which the project

is located to perform certain administration and ministerial

functions on behalf of HUD. Any fee for this service will not

exceed 5 percent of the published 2-bedroom Fair Market Rent for

Existing Housing for the area and will be payable out of the total

Section 8 authority reserved for the project. The contract will be

executed by HUD and the HFA or PHA and will become effective upon

execution of the HAP Agreement between HUD and the private owner.

1-25. EXECUTION OF HAP AGREEMENT.

After receipt of assurances of a permanent financing commitment and

acceptable certifications regarding working drawings and

specifications, HUD will enter into an Agreement with the owner,

which among other things, will contain the following:

A.A statement that the owner agrees to construct or rehabilitate

the project according to the standards identified in paragraph

1-23;

B.The date by which construction or rehabilitation will commence,

and the date by which construction or rehabilitation will be

completed and the project ready for occupancy;

C.Contract rents to be paid to the owner once the project is

completed and the Contract executed;

D.The date for final inspection of the completed project; and

E.The term of the Housing Assistance Payments Contract.

1-26. CONSTRUCTION/REHABILITATION PERIOD

A.Timely performance of work.

Once the Agreement is signed, the owner must promptly proceed

with construction or rehabilitation of the project as provided

in the Agreement. If the work is not commenced, diligently

continued and/or completed according to the Agreement, HUD may

rescind the Agreement or take other appropriate action.

Extensions

37

of time will be granted and contract rents will be increased

only for reasons specified in the Agreement.

B.Inspections During Construction.

The Pension Fund must ensure that construction inspections are

performed at least once per month. The purpose of these

inspections is to ensure that work is proceeding on schedule

and is being completed according to the Agreement. Inspections

must also ensure that the construction or repair work uses

materials specified in the work write-up or working drawings

and specifications and is being performed in a workman-like

manner.

C.Changes During Construction.

The owner must obtain prior approval of the Pension Fund and

HUD for any changes from the work specified in the Agreement

that would materially alter the design of the project, quality

of the construction or rehabilitation work. Approval of any

changes may condition upon a reduction in contract rents.

1-27. PROJECT COMPLETION

A.Evidence of Completion.

The Pension Fund will notify HUD of project completion by

submitting to HUD:

1.A certificate of occupancy and/or other local approvals

necessary for occupancy;

2.A certificate by the owner and inspecting architect that

there were no changes in the work that would result in a

reduction in contract rents;

3.A certification by the owner and inspecting architect that

the project was constructed or rehabilitated in compliance

with the standards set forth in paragraph 1-23 and with

the requirements of the Agreement;

4.A certification by the owner and inspecting architect that

there are no defects or deficiencies in the work except

for ordinary punch list items or items of delayed

completion which are minor in nature or which are

incomplete because of weather conditions and, in any case,

do not preclude or affect occupancy; and

38

5.An owner\'s certification as to compliance with Davis Bacon

and other Federal labor standards. If there are pending

claims relating to payment of prevailing wage rates, the

owner must place a sufficient amount in escrow to assure

such payments. The escrow may be disbursed only with HUD

approval.

B.Project Inspection.

Prior to submission of the evidence of completion required by

paragraph 1-27A the Pension Fund, or an architect employed or

engaged by the Pension Fund, must inspect the project for

acceptable completion. The inspection must be sufficient to

enable the inspector to report that he/she has inspected the

observable elements and features of the project (both assisted

and unassisted units) in accordance with professional standards

of care and judgment and that, on the basis of the inspection,

the project has been completed in accordance with the agreement

and that there are no observable conditions inconsistent with

the evidence of completion required in paragraph 1-27A. Such

report must be retained by the Pension Fund in the project file

and made available to HUD upon request.

HUD may perform an inspection of its own prior to accepting the

project.

C.Project Acceptance.

1.If it is determined by HUD that the project has been

completed according to the Agreement, HUD may accept the

project.

2.If there are minor punch list items or items of delayed

completion awaiting seasonal opportunity which do not

preclude or affect occupancy, and all other requirements

of the Agreement have been met, the project may be

accepted and the Contract executed. However, an escrow

will be required, along with a written agreement between

the owner and HUD specifying a schedule for completion.

If the owner fails to complete the items within the agreed

upon time, HUD may terminate the Contract and/or exercise

its other rights thereunder.

3.If other defects or deficiencies exist, HUD will determine

whether and to what extent the defects or deficiencies are

correctable, what corrective action are necessary to

permit acceptance of the project and whether and to what

extent contract

39

rents should be reduced as a condition of acceptance. If

the owner is unwilling to correct such defects or

deficiencies, HUD need not accept the project.

4.If HUD determines that the project cannot be accepted, the

Owner and Pension Fund will be notified of this decision,

and the reasons hereof.

1-28. COST CERTIFICATION

A.Prior to execution of the Housing Assistance Payments Contract,

the Pension Fund must review and submit to HUD an owner\'s

certification of actual costs and a certification that the

certified costs support the contract rents. A simplified form

of cost certification using Form HUD-2205A, Mortgagor\'s

Certificate of Actual Cost, may be used for this purpose.

B.In the event certified costs are less than the estimated

replacement cost (see paragraph 1-12A.5) and do not support the

contract rents, HUD may reduce the contract rents to an amount

determined by HUD to be supportable.

1-29. FINANCIAL INFORMATION

The Pension Fund must submit financial information, including

sources and uses of funds data, sufficient to document the leverage

affect of the Section 8 assistance, i.e., the direct and indirect

project costs and benefits. This information must be submitted

simultaneously with the cost certification required under paragraph

1-28 above.

1-30. HOUSING ASSISTANCE PAYMENTS CONTRACT

A.Required Form. The form of Contract will be in a form

prescribed by HUD.

B.Contract Term. The term of the Contract will be for a minimum

of 5 years and a maximum of 15 years.

C.Execution. Once the requirements of paragraphs 1-27, 1-28 and

1-29 have been satisfied, the Contract may be executed. No

assistance payments will be made until the contract is fully

signed and executed.

D.Unleased Units. At the time the Contract is executed, HUD will

determine whether the owner has met its obligations with

respect to any unleased units (see 24 CFR 886.309(c)) and for

which of those units vacancy

40

payments will be made by HUD. The owner must indicate, in

writing, its agreement or disagreement with the determination

while reserving all rights to claim vacancy payments for the

unleased units in accordance with the Contract, without

prejudice by reason of signing the Contact.

E.Contract Provisions. The Contract will contain certifications

as to compliance with the Federal Requirements of paragraph

1-17 of this Notice. It will also contain provisions relative

to:

1.Prohibition on use of Other Federal Programs.

HUD\'s single and multifamily mortgage insurance programs,

the Risk-Sharing programs under Section 542 of the Housing

and Community Development Act of 1992, and Veterans

Administration and Farmers Home Administration loan and

loan guarantee programs, may not be used for housing

developed or assisted under this demonstration so long as

a HAP Contract is in effect.

2.Limitation on Assistance.

HUD assistance for projects developed under this

demonstration is limited only to the housing assistance

payments available under the Contact and by paragraphs

1-14 and 2-1B of this Notice.

3.Reduction in Contract Rents at Refinancing.

The owner must notify HUD in the event the project is

refinanced to lower the interest rate and/or debt service

payments. HUD may reduce the contract rents to reflect

the lower debt service payments.

4.Limitation on Distributions. Projects assisted solely

under this demonstration are not limited as to

distributions. However, properties sold from the

HUD-owned inventory with property disposition Section 8

assistance may be subject to such limitations.

5.Termination for Cause.

If the owner fails to perform in accordance with the terms

and conditions of the Contract, including maintaining the

facilities in decent, safe and sanitary condition,

providing facilities and services required under the

Contract, and admitting and leasing to eligible families,

HUD will have the

41

right to terminate the Contract for cause. In the event

of termination, HUD will make every effort to provide

other forms of rental assistance, including Section 8

vouchers, to families eligible for such assistance at the

time of contract termination.

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SECTION II: PROJECT MANAGEMENT AND SERVICING

2-1.PROJECT MANAGEMENT AND SERVICING

A.Responsibility for Contract Administration. HUD is responsible

for contract administration. However, it will contract with a

State or local housing finance agency or local public housing

agency with jurisdiction over the geographic area in which the

project is located to carry out the contract administration

functions. The fee from this service will be derived from the

Section 8 contract authority reserved for the project and may

not exceed 5 percent of the published 2-bedroom Fair Market

Rent for Existing Housing for the area.

B.Rent Adjustments.

1.Housing assistance payments may be adjusted periodically

up to the maximum amount of payments specified in the

Contract (see paragraph 1-14) and according to the

provisions of the Contract.

2.Adjustments will be made on the basis of a formula

currently being developed by the Department which takes

into consideration increases in taxes and other operating

and maintenance expenses, exclusive of debt service. Once

that formula is developed, it will become effective for

all projects receiving assistance under this

demonstration.

3.Rents may be adjusted upward or downward, but the adjusted

rents will not be less than the contract rents in effect

at Contract execution, except in the event the project is

refinanced (see paragraph 1-30E3) and absent fraud or

misrepresentation in determining the initial rents.

4.Adjustments may not cause material differences between the

rents charged for assisted and comparable unassisted

units.

2-2.RESPONSIBILITIES OF THE OWNER

A.See 24 CFR 886.318.

B.The owner may contract with a private or public entity (other

than the agency responsible to HUD for contract administration

functions) to carry out any or all of these functions.

However, such an arrangement may not

43

relieve the owner of its responsibilities for these services

and functions.

C.The owner must permit HUD to review and audit the management

and maintenance operations of the project at any time.

2-3.MARKETING AND LEASING OF UNITS.

Marketing of units and selection of families by the owner must be in

accordance with the owner\'s approved Affirmative Fair Housing

Marketing Plan and other requirements of 24 CFR 886.321. (Note that

any references to sales closings or \"for tenancy after sale\" in that

section are inapplicable.)

2-4.MAINTENANCE, OPERATION AND INSPECTIONS.

See 24 CFR 886.323.

2-5.REEXAMINATION OF FAMILY INCOME.

See 24 CFR 886.324.

2-6.OVERCROWDED AND UNDEROCCUPIED UNITS.

See 24 CFR 886.326.

2-7.SECURITY AND UTILITY DEPOSITS.

See 24 CFR 886.315.

2-8.ADJUSTMENT OF UTILITY ALLOWANCES.

An owner\'s request for an adjustment in contract rents under 2-1B

must include an analysis of project utility allowances. Data on

changes in utility rates and other factors affecting utility

consumption should be provided as part of the analysis. When an

approved utility rate change would result in a cumulative increase

of 10 percent or more in the most recently approved utility

allowance, the owner should request a approval of new utility

allowances.

2-9.LEASE REQUIREMENTS.

The term of lease and required lease provisions must be consistent

with 24 CFR 886.327.

2-10. LEASING TO ELIGIBLE FAMILIES

The provisions of 24 CFR 886.329 apply to leasing of units to

eligible families.

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2-11. FEDERAL SELECTION PREFERENCES.

In selecting applicants for assistance under this Demonstration,

owners must comply with the Federal Selection Preferences at 24 CFR

886.337 as amended effective August 17, 1994. (See Federal Register

July 18, 1994, beginning at page 36616.)

2-12. TERMINATION OF TENANCY.

24 CFR 886.328 applies to the termination of tenancy and eviction of

a family assisted under this demonstration.

2-13.NOTICE OF CONTRACT EXPIRATION.

See 24 CFR 886.311a.

2-14.REVIEWS DURING MANAGEMENT PERIOD.

A.HUD, or the agency administering the Contract for HUD, will

inspect the project operations at such intervals as it deems

necessary to ensure that the owner is in full compliance with

the terms and conditions of the Contract. This shall include a

determination as to whether the assisted units are in decent,

safe and sanitary condition.

B.Equal opportunity reviews may be conducted with the above

review or at any time deemed appropriate by HUD.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Assistant Secretary for Housing-

Federal Housing Commissioner

45

EXHIBIT I

EXHIBIT I CONTAINS A FEDERAL REGISTER DOCUMENT. THIS DOCUMENT MAY BE
FOUND

IN THE FR DAS DATABASE.