Legal Opinion: CIM-0114

Index: 3.100

Subject: Section 220 Concentrated Development Areas

August 22, 1995

MEMORANDUM FOR: Linda D. Cheatham, Director, Office of Insured

Multifamily Housing Development, HMI

FROM: David R. Cooper, Assistant General Counsel,

Multifamily Mortgage Division, CIM

SUBJECT: Section 220 Concentrated Development Areas

You have requested our legal guidance on the following three

issues regarding the approval process for a geographical area

designated by HUD as a \"concentrated development area,\" and,

therefore, eligible to have projects located within its

boundaries that are to be insured under Section 220:

1\. How does the Department define the \"locally developed

strategy\" referenced in the statute and regulations?

2\. What if any local governmental approvals are legally

required of the strategy?

3\. Under what circumstances can Housing stop processing of

an application for mortgage insurance?

The geographical area that you have referred to in your

incoming memorandum as a \"concentrated development area\" is

described in Section 220(d)(1)(v) of the National Housing Act as:

\(v\) an area designated by the Secretary, where

concentrated housing, physical development, and public

service activities are being or will be carried out in

a coordinated manner, pursuant to a locally developed

strategy for neighborhood improvement, conservation or

preservation.

In question no. 1, you asked us to provide you with the

Department\'s definition of \"locally developed strategy\" as used

in the section 220 mortgage insurance program. We refer you to

24 CFR 220.502(e) which permits the provision of section 220

mortgage insurance for a multifamily project that is located in:

\(e\) An area in which concentrated housing, physical

development, and public service activities are being or

will be carried out in a coordinated manner, pursuant

to a locally developed strategy for neighborhood

improvement, conservation or preservation. The locally

developed strategy shall:

\(1\) Provide for a combination of physical

improvements, necessary public facilities and

services, housing programs, private investment and

citizen self-help activities appropriate to the

needs of the area;

\(2\) Coordinate public and private development

efforts;

\(3\) Provide sufficient resources to produce

substantial long-term improvements in the area

within a reasonable period of time, taking into

account the severity of the area\'s problems.

Any amplification of the statute and the regulations by the

Office of Housing is an administrative determination. In this

regard, in FHA\'s mortgage insurance programs, Housing generally

establishes its interpretation of statutes and regulations by

means of handbook issuances, Housing Notices, and mortgagee

letters. The section 220 mortgage insurance program is not newly

developed, and, therefore, any guidelines or procedures that the

Department has followed in the past for earlier \"concentrated

development area\" designations would, in our opinion, be

applicable in the subject case.

Question no. 2 asks us to provide you with a listing of any

local governmental approvals that are required to be included in

a locally developed strategy submitted to the Department as part

of a local government\'s request that the Secretary designate a

geographical area as a \"concentrated development area.\" We have

been unable to find a list of \"governmental approvals\" set out in

the statute or regulations that are a prerequisite to a decision

by the Secretary that a distinct geographical area is eligible to

have section 220 projects located therein. While we defer to

your expertise regarding the content of Housing Handbooks, we

have reviewed HUD Handbook 4455.1, entitled \"Rental Housing in

Urban Renewal Areas for Project Mortgage Insurance\" and found no

express listing of required governmental approvals.

However, the regulations cited above do require a locally

developed strategy which \"(1) Provide\[s\] for . . . necessary

public facilities and services . . . ; (2) Coordinate\[s\]

public . . . development; and (3) Provide\[s\] sufficient

resources to produce substantial long-term improvements in the

area . . . .\" In our view, it is an administrative

determination regarding the nature of any governmental approvals

that would be required to accomplish the quoted public

requirements. Consequently, I believe that any guidelines or

procedures that the Department has used in the past for

evaluating a \"locally developed strategy\" proposed for a

\"concentrated development area\" would serve as a precedent and

would be applicable to the subject case.

Question no. 3 asks us to advise you regarding those

circumstances under which Housing can stop the processing of an

application for project mortgage insurance. You have attached a

copy of an application for a Site Appraisal and Market Analysis

(SAMA) letter for FHA Project No. 012-32269 dated March 24, 1995,

which reflects that there was a check attached in the amount of

\$355,511.30 in payment of the required fee to accompany an

application for a SAMA letter, which fee is one dollar per

thousand dollars of the requested mortgage amount. It is our

understanding that neither a SAMA letter nor a commitment have

been issued by the New York office for this project. However,

in the event that a SAMA letter has been issued for Project

012-32269, 24 CFR 207.1(b)(1) clearly states: \"The SAMA letter

is not a commitment to insure a mortgage for the proposed project

and does not bind the Commissioner to issue a firm commitment to

insure.\" Housing can stop or suspend the processing of an

application for project mortgage insurance in any of the FHA

multifamily programs without liability as long as a contract has

not been entered into, such as a binding commitment. However, a

decision by Housing to suspend further processing cannot be made

in an arbitrary or capricious manner.

In addition, 24 CFR 207.1(i) sets forth certain examples of

when review of applications can be discontinued and fees

returned:

If an application is rejected before it is assigned for

processing, or in such other instances as the

Commissioner may determine, the entire application and

commitment fees or any portion thereof may be returned

to the applicant. Commitment, inspection and reopening

fees may be refunded, in whole or in part, if it is

determined by the Commissioner that there is a lack of

need for the housing or that the construction or

financing of the project has been prevented because of

condemnation proceedings or other legal action taken by

a governmental body or public, or in such other

instances as the Commissioner may determine.

See also paragraph 1-11.A in HUD Handbook 4410.1 REV-2,\" Project

Fiscal Procedures,\" which sets out twelve situations when Housing

permits a refund of at least a portion of the fees that have been

collected in connection with project mortgage applications. In

light of the discretion in the regulation quoted above, i.e.

\"such other instances as the Commissioner may determine,\" a

legitimate fiscal reason, or one related to credit subsidy may be

additional examples of defensible bases for the stopping of

processing and refunding of fees even if basic eligibility

criteria could be satisfied. However, where the reason for

refunding of fees is not covered by the itemized list in the

Handbook, or the amount of the fees to be returned is greater

than that provided for in the Handbook, such Handbook would need

to be waived.

If you have any questions concerning this memorandum, please

contact Edward Ferguson at 708-4107.