Federal Rental Alignment

Administrative Proposals

12/31/2011

Rental Policy Working Group

November 14, 2011 signing event launching 

the Minnesota Physical Inspections pilot
2

This document is part of an ongoing effort to better align the operation of Federal rental policy 

across the Administration and is sponsored by the Rental Policy Working Group. The Rental Policy 

Working Group is composed of the White House Domestic Policy Council (DPC), National Economic 

Council (NEC), Office of Management and Budget (OMB), and the U.S. Departments of Housing and 

Urban Development (HUD), Agriculture (USDA), and the Treasury. 

The specific areas of concern identified herein emerged from July 2010 and July 2011 stakeholder 

gatherings at the White House on inconsistent implementation of Federal rental policy. 

During the preparation of this document, the Rental Policy Working Group Agency Alignment Leads

were: Larry Anderson, Director of Multi-Family Housing Preservation and Direct Loans at USDARural Development; Ben Metcalf, Senior Advisor at HUD’s Office of Multifamily Housing Programs; 

and Michael Novey, Associate Tax Legislative Counsel in Treasury’s Office of Tax Policy. With any 

questions, please contact Mike Steininger, Director of Multi-Family Housing Preservation and Direct 

Loans at USDA-Rural Development; Ben Metcalf, Senior Advisor at HUD’s Office of Multifamily 

Housing Programs; or Michael Novey, Associate Tax Legislative Counsel in Treasury’s Office of Tax 

Policy.
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Contents

Physical Inspections 4

Income Reporting and Definitions 13

Financial Reporting 17

Common Energy Efficiency Requirements 23

Appraisal Primer 33

Market Study Standards 37

Subsidy Layering Review 42

Capital Needs Assessment 46

Improve Data Sharing of Owner Defaults 55

Fair Housing Compliance Enforcement 57
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Physical Inspections

Lead Office: USDA-RD

Participating Offices: USDA-RD, HUD-MF, HUD-PIH, HUD-CPD, HUD-OGC, Treasury-IRS 

Prepared by: Stephanie White, USDA

Issue Statement:

Today, a property that has multiple Federal funding sources may be subject to multiple physical 

inspections using multiple physical inspection standards. This proposal recommends that various Federal 

funding sources could reduce the frequency and number of inspections to no more than one Federallysponsored visit to each property per year. A property that has multiple Federal funding sources is the 

target of this initiative and is considered a ’Combined Funding property.’ 1

Proposed Alignment:

The solution to reducing the number of physical inspections required by Federal funding sources is to 

have one periodic and regularly-occurring Federal physical inspection acceptable to all Federal funding 

sources and the local and State agencies to which appropriate authority has been delegated. In order to 

achieve this alignment, the recommendation is to investigate a common physical condition inspection 

standard, a format of inspection results that can be utilized by each Federal funding source, an 

acceptable inspection frequency, and an acceptable sample size (number of units to be inspected). 

Achieving alignment in all these areas may not be possible for all programs, and alternatives are 

presented for consideration. 

Although this alignment effort may be achievable in the global context, each department maintains 

different enforcement standards based on physical inspection findings, and enforcement 

standardization is not being proposed. Each agency still retains the ability to follow-up on any 

compliance issues with subsequent agency-specific inspections or actions, as permitted by loan or 

business agreements and Federal regulations. 

Specific Actions to Effect Alignment: One periodically-scheduled physical inspection performed by one 

agency for the benefit of Federal agencies with a vested financial interest in that property will create 

efficiencies for the government, for property owners, and for residents of affordable housing whose 

apartments are subject to inspection. Alignment may be achieved by the following, which will be 

 1 The entire universe of Combined Funding properties are those that combine any number of federally-sourced 

subsidy or tax credit programs, including LIHTC, USDA-RD programs and loan guarantees, as well as HUD programs 

like FHA insurance, CDBG, HOME, Choice Neighborhoods and PBRA (State and Federal level). Data related to a 

subset of this universe of properties (i.e., those properties for which the LIHTC is combined with any number of 

other Federal programs, including USDA-RD and HUD programs) is sourced from HUD-PD&R, at 

http://lihtc.huduser.org.
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pursued in sequential order. (Once the results from the pilot program are in hand, a decision will be 

made whether alignment in these ways for HFAs should be promulgated as recommended best practices 

or in some stronger fashion.)

1. Alignment of inspection standards:

a. Use of the Uniform Physical Condition Standards (UPCS) protocol as the common 

inspection standard for on-going physical inspections on aligned properties for the 

LIHTC, HOME, Rural Development, Public Housing, project-based Section 8, Section 202 

and Section 811 and FHA-insured Multifamily programs; or

b. Use of the Uniform Physical Condition Standards (UPCS) or local code, whichever is 

more stringent, as the protocol and the common inspection standard for on-going 

physical inspections on all properties that have units supported by HOME funds. The 

Housing Choice Voucher Program (HCV) uses Housing Quality Standards which differ 

from UPCS and local code;

2. Use of a statistically valid sample size from all assisted units in a building on aligned properties;

3. An established inspection frequency of not less than every three years, providing for the 

flexibility that each participating Federal, State, or local agency may need to do more 

inspections depending on inspection findings (e.g., risk-based scheduling of subsequent 

inspections) and non-compliance issues. A review at least every three years ensures prudent but 

not intrusive oversight. During the pilot, properties will still be inspected as frequently as 

required by law.

Current Status: One area where Congress has already initiated the standardization effort is the Housing 

and Economic Recovery Act of 2008 (HERA). The Act states that if the Low Income Housing Tax Credit 

(LIHTC) allocating agency (HFA) is already performing periodic inspections on a multifamily property with 

an FHA-insured mortgage, no such inspections need be done by the mortgagee. However, HUD has not 

yet completed its rule-making process for implementing this provision. 

In addition, there is already some alignment between programs that could be formalized by this 

standardization action:

• For example, HUD’s Real Estate Assessment Center (REAC) which covers HUD-MF2 programs, 

and State housing finance agencies (HFAs) which perform physical inspections for the LIHTC

program, do or can use UPCS as the basis for their inspections3

• USDA-RD accepts third-party inspections, so alignment with HUD and LIHTC programs is 

relatively straightforward.

.

• Under § 1.42-5(d)(3) of the Income Tax Regulations, a State HFA is not required to do a physical 

inspection of a LIHTC property if the building is financed by USDA-RD under the Section 515 

program, USDA-RD inspects the building, and the State HFA and USDA-RD enter an agreement 

for USDA-RD to notify the State HFA of the inspection results.

 2 Multifamily properties with FHA-insured mortgages.

3 HFAs may also use local health, safety, and building codes for the LIHTC program.
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• Under § 1.42-5(d)(4), a State HFA agency may delegate inspection to an Authorized Delegate, 

which may include HUD or a HUD-approved inspector. The utilization of UPCS as an accepted 

standard for such projects is logical since it forms the basis for most inspections now. However, 

utilizing UPCS raw data does pose a problem for HUD programs that score projects under the 

REAC system, which is discussed more fully below. 

Future Alignment: This alignment effort covers a multitude of programs with varying standards, sample 

sizes, and frequency requirements. Some programs are project-based, meaning they cover all units in all 

buildings of a development; and some programs are unit-based and cover only some units in some 

buildings of a development. Due to the differing scales of programs, alignment across every program 

may not be possible. However, discussions with implementing agencies that already have alignment 

initiatives underway indicate that individual State partner groups should agree among themselves on 

the lead inspection agency for an aligned property type. For example, in a HUD-MF property with Low 

Income Housing Tax Credits, State partners may agree that HUD take the lead in inspections while in a 

Rural Development property with Low Income Housing Tax Credits, State partners may agree that RD 

take the inspection lead. This flexibility is important given today’s economic climate and budgetary 

considerations. Agreement among the State partners is the key to a successful initiative. The following 

chart identifies the aligned property types to be included in the pilot and the protocol to be used:

Aligned Property Type Protocol

HUD-MF/PIH properties HUD/UPCS-REAC

Tax Credit properties HFAs (using local code)/UPCS

Rural Development properties USDA-RD

HUD-MF/PIH + Tax Credit properties UPCS with uniform format

HUD-MF/PIH + USDA-RD UPCS-REAC

Tax Credit + USDA-RD UPCS or USDA-RD

HUD-MF/PIH + Tax Credit properties + USDA-RD UPCS with uniform format

HOME + Tax Credit properties

HOME + USDA-RD UPCS or local code, whichever is more stringent 

HOME + HUD-MF/PIH +/or Tax Credit +/or 

USDA-RD properties

UPCS or local code, whichever is more stringent
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Generally, agencies will follow their own inspection protocols on non-aligned properties. For example, 

Rural Development will continue utilizing its current physical inspection protocol on non-aligned 

properties with only RD financing. However, if an RD property should receive the benefit of LIHTC or a 

project-based Section 8 subsidy contract, the physical inspection protocol on that property would 

change to the common standard, with inspections conducted by either the State HFA or HUD, as USDARD lacks the financial resources to train and certify field staff in the UPCS standard. In addition, given the 

relative remote location of many USDA-RD properties, it may not be practical to find other certified 

UPCS inspectors. This would ensure that the ‘one scheduled physical inspection’ solution is maintained. 

In order to establish MOUs that designate an agency to take the lead as the inspecting agency on an 

aligned property type, there would need to be clear and comprehensive guidance for the field staff of 

Federal agencies and for the State HFAs. 

Resource Estimate for Implementation:

Uniform Reporting Format: HUD’s Public Housing, project-based Section 8-assisted housing, and 

Multifamily housing programs currently use a highly automated system to manage their inspections and 

processes, the Real Estate Assessment Center system (REAC). This system utilizes UPCS inspection 

standards at its base level, but also involves the interpretation of UPCS inspections into REAC-designated 

scores. This proposal will allow for options to be selected by the inspecting agency, yet due to the broad 

reach of UPCS and REAC, the Rental Policy Working Group suggests either of the following:

1. Use of the UPCS inspection standards by non-REAC inspectors that could be inputted into or 

“read” by HUD’s REAC software system, so that the inspection results could be scored according 

to HUD’s REAC protocol. The Team proposes adopting a common set of criteria that would 

ensure that all UPCS inspectors that inspect aligned properties are competent to perform the 

type of physical assessment required.

2. The REAC training and software protocols could be required of all UPCS inspections on 

Federally-assisted properties, i.e., whenever UPCS is used, it would be a REAC inspection. In 

order to support this adoption, HUD-REAC will make available training webcasts. This adaptation 

will enable the Rental Policy Working Group to test these alignments in the context of a pilot, 

where participation is voluntary.

Once the results from the pilot program are in hand, a decision will be made whether alignment in these 

ways for HFAs should be promulgated as recommended best practices or in some stronger fashion.

The Physical Inspection alignment proposal denotes that UPCS will be the common inspection standard, 

but does not require that the REAC system be used. This poses a challenge for HUD programs that utilize 

UPCS and other data to score a property under REAC. The uniform UPCS inspection format could be 

based on a paper inspection form or on an electronic (XML) form.

The costs associated with processing the inspection data and the costs of developing/modifying REAC’s 

databases so that non-HUD related data can be managed separately would largely be upfront to HUD. 

HUD estimates that the development costs for this initiative are estimated at $1,080,000 and could not 
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be completed until April 2013 at the earliest. Costs for an “all-REAC” alternative would incur to both 

HUD and stakeholders who pay for inspections, such as HFAs. System modification is a lesser cost than 

development of another input or processing method, and involves a shorter timeframe. In summary, the 

money/time cost of these alternatives is:

• Modify software/systems to expand the universe - $120,000 / 18 months

• Create an alternative input/processing method - $1,080,000 / 24 months

Establishing a common set of quality assurance criteria for all UPCS inspectors as an alternative to a 

REAC certification would have a cost associated with it, for which a funding source or sources would 

need to be identified. If the certification criteria mirror generally accepted criteria in the industry, 

however, this premium would be de minimis.

The average cost of a REAC inspection in FY2010 was $396 per inspection. For costing purposes below, 

that figure has been rounded to $400 per inspection.

The LIHTC program is today’s primary source of financing. For new or rehabilitated affordable housing 

units, the dollar-size of the LIHTC investment is several times that of other financing provided by HUD or 

USDA-Rural Development. Still, given today’s economic climate and the need for HFAs to consider 

budgetary constraints as much as the Federal government, it makes sense for the partners to come to a 

mutual agreement on use of staff resources to conduct these inspections. As of 2007, the universe of 

properties with LIHTC and some combination of other Federal funding sources is detailed below. Based 

on this information, the three agency entities in each State would have performed 22,546 separate 

inspections on 10,485 properties.

Number of Program Subsidies in 

addition to LIHTC Properties

Total Inspections 

x Subsidy 

programs

Low-Income 

Units

Tax Credit Properties with No Subsidy 27,594

1 Other Subsidy Program 9,177 18,354 645,924

2 Other Subsidy Programs 1,081 3,243 79,366

3 Other Subsidy Programs 187 748 12,066

4 Other Subsidy Programs 35 175 2,470

5 Other Subsidy Programs 4 20 386

6 Other Subsidy Programs 1 6 10

TOTALS 10,485 22,546 740,222 

* Other subsidy programs include only Tax-Exempt Bonds, HOME, CDBG, HOPE VI, USDA 515, ProjectBased Rental Assistance (Federal and State), and FHA insurance. Excludes properties no longer 

monitored for program compliance. Chart includes only properties placed into service through 2007. For 

more information see: http://lihtc.huduser.org/

Inspectors (Training or Contractors): State partners may elect to use their own staff to conduct these 

inspections or use outside contractors. Some agencies will choose to train inspectors in the UPCS 
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standard. There is no cost for this training; however, at this time, the course is offered by HUD only in 

Washington, DC as a one week course with a certification exam. All expenses (travel, lodging, and per 

diem) are solely borne by the participant. An online version of the training is still being developed but 

will not be available until 2012. Separately, there is no charge for use of the REAC software. The cost to 

participating HFAs would likely include any premium paid for inspections by contractor inspectors who 

have completed REAC training and who have invested in REAC compatible computer hardware.

On-Going Dedicated Staff Resources: Each agency involved in this implementation – not just the three 

departments at the Federal level but also Participating Jurisdictions (PJs) and State HFAs – will need to 

dedicate staff resources to serve as an agency liaison to ensure implementation and continuation of this 

proposal. These responsibilities would entail problem resolution, ensuring inspections are conducted in 

a timely manner, and that inspection report data is shared among the agencies within a specified 

timeframe. Although not a full-time job, it will be a commitment on the part of each agency to maintain 

the flow of communication and be alert for potential reporting problems. Ideally, agencies should 

identify two people per agency who have responsibility for this effort. It is estimated that these liaison 

duties may constitute 8-16 hours per month for most agencies.

Estimated Cost Savings to Owners, Operators, Developers, Investors, and/or Lenders:

Extrapolating from data compiled by PD&R, in 2007, an estimated 22,546 separate inspections took 

place on 10,485 properties with some combination of LIHTC and other Federal funding. Per industry 

estimates of the cost of a Federal physical inspection for their properties, at an estimated cost of 

foregone staff time of $2000/inspection4

Additionally, agencies may choose to further pursue a future reduction in the frequency of inspections. 

Over three years, there is an estimated duplicative inspection cost of $135 million. If the proposal to 

perform one Federal inspection every three years on each Combined Funding property (at a cost of $24 

million for an estimated, current national universe of 10,485 properties, per year) proceeds, it may 

result in savings of approximately $111 million over three years from the current non-aligned costs, and 

an additional $48 million over three years from an aligned inspection schedule of one inspection per 

year. Although these savings will not necessarily be reflected in reduced rents, they will lower expenses 

at the multifamily property.

, costs for 22,546 duplicative inspections could total up to $45 

million per year, nationally. By conducting aligned inspections on just LIHTC combined funding 

properties, savings realized within one year would be up to approximately $24 million.

Estimated Cost Savings for State, Local, and Federal Governments:

Utilizing the proposed inspection protocol will result in cost savings at the government level generally by 

a reduction in the number of inspections. These savings will be realized in the reduction of staff time out 

of the office and savings in travel expenses.

 4 Estimates for cost of inspections based on assumptions made in the Housing Development Center study in 

Oregon
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Extrapolating from data compiled by PD&R, in 2007, an estimated 22,546 separate inspections took 

place on 10,485 properties with some combination of LIHTC and other Federal funding. Based on the 

estimated Federal cost of approximately $400 per inspection, the cost of duplicative inspections 

required on properties with multiple Federal funding sources is approximately $9 million per year. 

Alignment of these inspections so that one inspection is performed on each combined funding property 

per year would result in approximate savings of $4.8 million in one year. Additionally, if agencies choose 

to further pursue a future reduction in the frequency of inspections to once every three years, savings 

realized at the end of a three year period would be approximately $22.2 million from the current nonaligned costs and $9.6 from an aligned inspection schedule of one inspection per year.

A percentage of these properties will require more frequent inspections to ensure that corrective action 

was taken by the owner or to follow-up on compliance issues. In order to estimate this percentage, the 

Team considered that seven percent of properties scored less than 60 on recent REAC inspections and 

required a follow-up inspection. Assuming a similar percentage of owners would require re-inspections 

of their properties, it is estimated that this would reduce savings to governments by $293,600 per year. 

Challenges to Effecting Proposed Alignment:

Agreement from all HFAs: The LIHTC program has given substantial latitude to HFAs to carrying out the

administration of the program. As such, implementation of the proposed standard protocol will require 

individual agreements with each HFA. In order to better understand the complexities that overall 

implementation may face, the Team is undertaking a pilot program with several HFAs to determine 

obstacles or complications in implementation of alignment.

Development of a Model Memorandum of Understanding: There are several versions of Memoranda of 

Understanding (MOU) that are currently in use among various agencies in several States, including the 

full-scale alignment of USDA-RD and State HFAs. The Team proposes development of a standard model 

that can be used with all States, HUD, and USDA-RD. Such an MOU would provide details on specific 

performance (format, sharing, timeliness, re-inspections, agency actions as a result of inspection 

findings) and remedies if data is not shared timely.

HOME Involvement: Additionally, when funding combined-funding rental projects with HOME dollars, 

HUD-CPD encourages HOME PJs to determine whether it can voluntarily align with the property 

inspection standards and (frequency) schedules for the project with other funders. In determining the 

feasibility of a voluntary alignment, the PJ must consider whether its ongoing property standard and 

maintenance requirements for HOME units meet or exceed the requirements of other funders, and 

remain cognizant of its obligation to repay HOME funds invested in noncompliant properties that cannot 

be remedied.

Privacy Issues: The Team suggests that it may be necessary to obtain a release from property owners to 

share the property data among agencies. The Team believes Federal agencies’ general counsel(s) should 

make a determination whether this is needed. 

Regulatory Challenges: The Team found two potential regulation challenges:
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• The need for waivers of some current regulations for properties participating in the pilot and

• A regulatory challenge in selecting a representative sample of assisted units for inspection from 

properties that have multiple sources of Federal assistance supporting different units in a 

project. 

The Team has identified waivers and stipulations that can be included as part of the MOU among State

partners. The waivers from Treasury would be for inspection frequency, decoupling file review and

physical inspection of units, and use of a statistical sample of the universe of units rather than a 20% 

sample. HUD stipulations would be limited to a procedure change for REAC to include vacant units in 

the sample selection, regardless of the vacancy rate. Vacant units are generally only included if the 

property’s vacancy rate is 15% or greater. HUD’s HOME Program would provide a process for pilot 

participants to apply for waivers on inspection frequency and sample size, contingent on their meeting 

the requirements to be granted such a waiver.

Not all units would be inspected and only a statistical sample would be employed. However, all units 

would be in the universe from which the sample is drawn. For vacant units selected as part of a 

LIHTC/HUD-MF inspection, score impacts will be manually adjusted so the owner is not negatively 

affected in any REAC score by the inclusion of vacant units.

Rural Development accepts third-party inspections on a regular basis and no needed waivers were 

identified. As the Team progresses through the pilot phase, if there are other actions taken as a result of 

using the proposed protocol, the State partners have agreed that the property will be held harmless by 

the funding agencies while the pilot is active. Most of these issues cannot be determined at this time, 

but would become evident as the process and pilots evolve.

Cost Challenges: Cost and timing challenges were outlined above under Resource Estimate for 

Implementation.

Procedural Challenges: In addition to the regulatory challenges described above, there may be a 

procedural challenge in selecting a representative sample of assisted units for inspection from 

properties that combine Federal funding sources that require differing processes for obtaining 

statistically valid samples. The Team recommends that a valid statistical sample of all units be used as 

the basis for selecting units for inspection. The Team believes consistent data sharing with the lead 

agency for the project’s inspections will be required (in the MOUs and in practice) in order to ensure 

that a valid sample of each program’s units are inspected.

Schedule for Alignment Implementation:

The Federal agencies have created a model MOU among State HFAs, HUD, and USDA to agree that State

partners will determine the most appropriate partner to conduct physical inspections based on aligned 

property type and how inspection data information will be shared. The model MOU is to be shared with 

States selected for participation in the pilot. States will adapt the model MOU to develop an agreement 

that fits the circumstances of their particular State-level pilot.
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During the time that the State-level MOUs are being developed, individual program guidance for 

participating agencies can be developed, which is generally limited to administrative changes. These 

could be accomplished according to each Department’s regulatory schedule and should cover the period 

of time during which the pilot is active.

As the MOUs and individual agency guidance are finalized, the signing of the agreements at the Statelevel will mark the launch of the pilot program which will determine the viability of the proposal and 

identify implementation obstacles. Team members and points of contact at HFAs, HUD, and USDA-RD 

should adopt a short-term agreement on pilot program parameters. The Team proposes a model 

agreement to be used by all pilot States. The model would be similar to agreements already in place in 

some States among participating entities. The signing of the first MOU took place in early November, 

2011 with additional signings expected to follow shortly thereafter. For inspections, the pilot should 

cover a twelve month period to accommodate physical inspection schedules which are generally 

weather-impacted. Reporting on pilot progress would take place at three-month intervals. During the 

pilot period, the agencies’ regulatory changes could be completed. Following the end of the six-month 

reporting period, the Team expects a three-month period in which program guidance would be drafted 

for consideration by all field staff for HFAs, HUD, and USDA. Finalization of the guidance would come at 

the end of the pilot period.

Once the MOU among Federal agencies and participating HFAs has been signed, several programs can 

begin alignment implementation immediately:

• HUD-MF/PIH + USDA-RD

• LIHTC + USDA-RD

• HOME + LIHTC properties

On a longer-term implementation schedule, the following programs can be more properly aligned over a 

period of time:

• HOME + HUD-MF/PIH

• HUD-MF/PIH + LIHTC properties

• HUD-MF/PIH + LIHTC properties require approximately 24 months to be aligned on one format 

for UPCS inspection that can be used by all programs; however, implementation can begin 

during the pilot period to test the pilot parameters.
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Income Reporting and Definitions

Lead Office: Treasury-IRS

Participating Offices: Treasury-IRS, USDA-RD, HUD-MF, HUD-PIH, HUD-CPD

Prepared by: Michael Novey, Treasury-IRS

Issue Statement:

Various Federal programs to support affordable housing have slightly differing requirements for income 

certifications and require property managers to submit information on different forms. This may lead to 

inconsistencies in determinations of income and rents. In addition, property managers and owners 

sometimes submit income information through different processes. This may lead to inconsistencies 

and/or add to owners’ or governmental agencies’ administrative burden.

Evaluation of Program Differences:

1. In general, sections 42(g) and 142(d) of the Internal Revenue Code (Code) require income 

determinations for purposes of the Low Income Housing Tax Credit (LIHTC) to follow the 

determinations in HUD’s Section 8 program.5 That is, both programs use identical definitions for 

amounts that are included in—or excluded from—gross income. There is, however, one

significant difference, which concerns basic military housing allowances in certain locations. 6

2. Even when various programs employ the same theoretical definitions of income, the income 

amounts actually determined may vary because of differential access to relevant data. HUD 

programs may use HUD’s Enterprise Income Verification system (EIV) for access to data from the 

Department of Health and Human Services’ (HHS) data base of new hires. USDA and IRS, 

however, are statutorily prevented from using this information.7

 5 Section 142(d)(2)(B) provides in relevant part, “The income of individuals and area median gross income shall be 

determined by the Secretary [of the Treasury or the Secretary’s delegate] in a manner consistent with the 

determinations of lower income families and area median gross income under section 8 of the United States 

Housing Act of 1937 ... .” 

6

Under section 142(d)(2)(B)(ii) of the Code, for determinations made before January 1, 2012, certain basic military 

housing allowances are not taken into account in determining a tenant’s income. This exclusion does not apply for 

purposes of programs under Section 8 of the Housing Act. 

A further statutory difference relates not to ascertaining a tenant’s income but to determinations of area median 

gross income for property located in certain rural areas. See section 42(i)(8) of the Code.

7 Legislation would be needed for the IRS and USDA to have access to information from the new-hires data base. 

By reducing differential availability of relevant data, this access would reduce the extent to which different Federal 

programs using the same definition of income nevertheless reach different conclusions about the income of the 

same tenant.
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3. In addition, even if different programs have the same definitions of income and access to the 

same information, there may be variations in the ways that the programs use those definitions. 

In particular8

 Program differences concerning annual recertification may sometimes lead to multiple 

recertifications in the same calendar year. Individuals who are HUD or RD compliant may 

have been living in a building for several years at a time when the building owner receives 

LIHTC support for rehabilitation. The LIHTC program provides ‘grandfathering’ for tenants 

whose circumstances have improved since their initial LIHTC qualification, but the Code 

does not extend grandfathering to the tenants’ status under other Federal affordablehousing programs. Thus, even though assessment of the tenants’ current income is the 

same as that used for HUD or USDA-RD purposes, the practical consequences may differ 

drastically. By not recognizing HUD and USDA-RD ‘grandfathering,’ the LIHTC program treats 

units that these tenants occupy as not being low-income units.

—

9

 Even programs that directly or indirectly use HUD data regarding Area Median Income may 

make their own annual data updates applicable with effective dates that differ from HUD’s 

and from each other’s. Also, under USDA procedures, median income for an area does not 

decrease, even if new HUD data show such a reduction.

4. Developers operating in multiple States encounter a number of significant annoyances that 

impose additional costs. The LIHTC program sets general substantive and procedural 

requirements with which State HFAs have to comply, but many of the implementing details are 

left to the States’ discretion and may not be consistently interpreted. Some stakeholders believe 

that this flexibility is one of the strengths of the LIHTC program. Others, however, contend that 

the absence of cohesive, specific, mandatory Federal guidance means that multi-State 

developers incur extra costs for, among other items, software and staff training. Following are 

key examples of these differences:

 Some States compute amounts of income to the nearest penny, while others round to the 

nearest dollar. HUD-MF, HUD-PIH, and USDA-RD follow the latter practice. (Some believe 

 8 There is also a programmatic difference between Federal programs that do recertifications to check for 

compliance and those that use income for setting subsidy levels. For example, Section 8 of the Housing Act 

provides for monthly rent supplements. In order for these supplements to be adjusted for short-term variations in 

the tenant’s economic circumstances, more-frequent-than-annual adjustments to income may be required, based 

on “interim” certifications. Adjustments of this sort would have no role to play under section 42. Because this 

difference responds to basic differences between the programs, alignment as to timing would be inappropriate.

9 Preliminary inquiry suggests that legislation may be needed in order for the LIHTC program to “grandfather” preexisting tenants who qualify under a HUD or USDA-RD program but who are over-income (or otherwise not 

qualified) at the beginning of LIHTC rehabilitation. Any such grandfathering based on status under a non-LIHTC 

program could be specifically focused on the terms and timing of the HUD or USDA-RD qualification. Alignment of 

this sort, however, is unlikely to extend beyond the continuing tenants that would have been qualified for LIHTC at 

the time that they first qualified for some other Federal affordable-housing program.
15

that greater precision is appropriate for LIHTC computations, which produce a binary result

(eligible vs. ineligible), than for computations that determine a monthly subsidy.)

 Varying relation codes are used to communicate to the owner’s software the role that an 

individual may play in a (potential) resident family. This variation seems to be only partially 

due to the fact that only HUD can access HHS new-hires data.

 For LIHTC purposes, owners are required only to retain sufficient documentation to show 

that a tenant is qualified. As a result, States vary in the volume of data (for example, 

underlying worksheets of components of a reported total) for which they require reporting. 

HUD, with its EIV access, requires full detail of income and assets.

 For purposes of the LIHTC requirements, States vary in some of the details of income 

computation (e.g., whether to include a portion of the earned income of a family member 

that turns 18 during the coming year). This may be due to HFA confusion about how this 

circumstance is treated for HUD Section 8 purposes.

Proposed Alignment:

1. Recertification requirements will be addressed with an eye to ending the problems caused when 

multiple sources of Federal benefits trigger multiple recertification events in a single year.

2. Differences in Member Relation Codes across funding programs will be reduced or eliminated, 

and the team will support the development of common Tenant Income Certification (TIC) forms 

(such as those under development by the National Council of State Housing Agencies) in order 

to align varying definitions of income. Stakeholders have been vigorous and unanimous in 

stressing that the most important alignment improvement related to income determination 

would be the development of a common TIC form. Complete alignment of forms, however, may 

not be possible for programs whose access to HHS data is unequal.

3. IRS will determine whether State-to-State variability can be reduced consistent with a statute

that promotes flexibility for the States. Areas that merit particular attention are rounding to the 

penny vs. the dollar and diverse treatment of individuals within a household who reach the age 

of majority. HUD has already provided guidance on these topics. 

Specific Actions to Effect Alignment: 

1. Interim certification alignment

The promotion of a single annual recertification can occur to the extent that flexibility in 

program recertification requirements allows owners to sync and coordinate their recertifications 

to satisfy the requirements of all programs at once. 

• Under existing program rules, a shared recertification date can be set to accommodate the 

least flexible of the programs that apply to the household, provided that the shared date 

does not cause the time between recertifications for any program to exceed one year. If 

some circumstance requires a Federal program to perform a new-qualification certification, 
16

the owner/agent may achieve synchronization of recertification dates either by accelerating 

the recertifications for that tenant under other programs or by accelerating the next 

recertification under that program to match the others. Mass recertification dates might be 

permitted for all programs.

2. Further alignment will be achieved through reduced variability in Member Relation Codes. The 

development of a single Tenant Income Certification (TIC) form would be an important 

component of aligning relation codes across USDA, HUD-PIH, and HUD-MF and can be achieved 

preliminarily through the support of a “model” TIC that promotes such alignment. NCHSA has 

already begun the process of updating their existing “model” TIC that State HFAs would adopt 

and that could be used by non-LIHTC Federal programs. The team will support their work as 

necessary to achieve greater alignment in the forms used by HFAs for recertification that will 

meet the needs of all agencies while still maintaining the discretion and input of the State HFAs 

in the process through their involvement with NCHSA.

3. State-to-State variability

Much of the State-to-State variability seen in tenant income certification can be addressed 

through more intensive education and outreach for States regarding the rules for addressing 

unique tenant circumstances, such as what happens when a member of the household turns 18 

or the extent to which rounding to the nearest dollar is acceptable.

Challenges to Effecting Proposed Alignment:

 Some Federal efforts to increase alignment among the various States may require more 

resources than can be justified by an outcome that would still tolerate substantial State-to-State 

variation.
17

Financial Reporting

Lead Office: USDA-RD (Short term alignment), HUD-MF (Long term alignment)

Participating Offices: HUD-MF, USDA-RD, Treasury-IRS, HUD-PIH, HUD-CPD 

Prepared by: Megan Thibos, HUD-PIH, updated by Victoria Laws, HUD-MF, Scott Loveday, HUD-REAC, 

and Diane Larson, USDA-RD

Issue Statement:

Properties with funding from different Federal programs may have to submit duplicative financial 

statements and have multiple audits prepared according to different audit standards. Owners with large 

portfolios, including high-capacity mission-driven owners, also incur significant and unnecessary staff 

and infrastructure costs when properties across their portfolio are required to file financial reports in 

different formats and submit audits according to different guidelines.

Proposed Alignment:

1. USDA-RD & HUD-MULTIFAMILY ALIGNMENT ON JOINTLY SUBSIDIZED PROPERTIES 

Approximately 1,200 properties representing 28,000 units are jointly subsidized by USDA and 

HUD-MF, and are currently subject to duplicative and overlapping financial reporting 

requirements. These properties were constructed using USDA Section 515 (of the Housing Act of 

1949) financing, but the ongoing project-based rental assistance subsidy is provided by HUD-MF 

in the form of a Housing Assistance Payment (HAP). The Team proposes to align the majority of 

conflicting and/or overlapping requirements for this select group of properties through specific 

actions taken by USDA-RD and HUD-MF to modify requirements or exempt these properties 

from certain requirements. 

2. MULTI-PROGRAM STANDARDIZATION OF FINANCIAL REPORTING REQUIREMENTS

Currently, HUD-MF, USDA-RD, and the State HFAs that administer Treasury’s Low Income 

Housing Tax Credit (LIHTC) program all require owners to submit financial statements using 

some type of agency-specified chart of accounts (or specific line items).10

 10 The decision was made to exclude HUD-PIH from alignment implementation because (1) public housing is 

operated and regulated significantly differently from other types of federally-subsidized housing, (2) the universe 

of entities that operate both public housing and other types of Federally-subsidized housing is comparatively small, 

(3) those entities that do operate both public housing and other types of Federally-subsidized housing do so in a 

very ‘siloed’ fashion, and (4) stakeholders did not express significant complaints over lack of harmonization 

between public housing and other programs. The decision was made to exclude HUD-CPD from alignment 

implementation because HUD-CPD does not require submission of financial statements under its HOME program, 

and stakeholders had few complaints about harmonization between HOME and other programs, reporting that the 

Each funding agency 
18

also requires many (although not all) owners to obtain an audit of their financial statements that 

has been prepared according to agency-specified audit guidelines. The Team proposes to (a) 

create a unified chart of accounts acceptable to both HUD-MF and USDA-RD; (b) create a unified 

set of audit guidelines acceptable to both HUD-MF and USDA-RD; and (c) actively encourage 

State HFAs to adopt the new Federal standards for chart of accounts and audit guidelines. This 

proposal is significantly more ambitious and will require more time and resources than Proposal 

1; however, it is believed to be accomplishable and would produce significant cost savings to 

owners.

Specific Actions to Effect Alignment: 

1. USDA-RD & HUD-MULTIFAMILY ALIGNMENT ON JOINTLY SUBSIDIZED PROPERTIES 

a. Align eligibility for exemption from audited financial statements requirement 

HUD-MF will pursue an exemption threshold for audited financial statements to align

with USDA-RD. This will benefit not only the owners of jointly subsidized properties that 

fall under the threshold for audited financial statements, and properties constructed 

using USDA Section 515, but also owners that manage portfolios with different 

properties subsidized by the two agencies. This policy change will actually produce 

alignment on this specific issue across the entire HUD-MF and USDA-RD portfolio, not 

just the jointly subsidized properties. In the short term, for exempted properties and 

subject to the approval of HUD’s Office of Housing, HUD will agree to accept hard copies 

of the USDA required financial reports (RD Form 3560-7 and RD Form 3560-10, including 

the AUP requirements for 16-23 unit properties). 

b. USDA defers to HUD-MF on audit guidelines

For jointly subsidized properties that receive HUD audits, USDA will accept the HUD 

audits and relinquishes the USDA “Agreed Upon Procedure” (AUP) requirement and RD 

Form 3560-10. However, for jointly subsidized properties that are not yet required by 

HUD to submit audited financial statements, USDA will still require them. USDA 

currently requires AUP – a specific set of criteria a CPA must investigate and opine on –

for all properties with 16 or more units. 11

 

local jurisdictions that administer the HOME program are primarily concerned with financial reporting during 

construction rather than ongoing financial reporting.

 For these properties, the AUP serves as a 

“light” audit. For properties with 24 or more units, which are required to submit fully 

audited financial statements, the AUP is required as a supplement to standard audit 

11 Non profit or local government-owned properties receiving more than $500,000 in combined Federal assistance 

must submit an audit to OMB in compliance with the Single Audit Act, OMB circular A133. Those properties are 

exempt from USDA’s AUP requirement, and instead submit a copy of their OMB A-133 audit plus the HUD Uniform 

Chart of Accounts as a supplement to HUD, and a copy of the OMB A-133 audit to USDA-RD. This policy would 

remain unchanged under Proposal 1.
19

procedures. In light of the fact that HUD-MF is providing the ongoing rental 

assistance/operating subsidy on these properties, USDA-RD will consider an exemption 

for jointly subsidized properties from their AUP requirement and from most USDAspecified audit requirements. In this case, USDA-RD would agree to accept a copy of the 

HUD-specified audited financials, in hard copy directly from the borrower if necessary.

c. Financial statement format requirements 

USDA properties will use the HUD FASS MF system "as is", instead of paper or other 

USDA systems, to electronically submit their financial statement data. The data can be 

audited or unaudited depending on the size of the entity or the risk they pose to HUD. 

Analysis shows that the variations between HUD and USDA are minor and that the HUD 

FASS MF system can capture nearly all of the USDA financial data, can do it 

electronically, and can provide automated compliance edits. However, in order to 

implement this recommendation, the following information technology limitations 

would need to be overcome: 1) HUD needs to determine how to open access to its 

system to allow data entry by USDA program recipients; and 2) HUD needs to develop a 

method to allow USDA to receive the results of data collection and compliance edits.

2. MULTI-PROGRAM STANDARDIZATION OF FINANCIAL REPORTING REQUIREMENTS 

To address remaining duplication in financial reporting, the team proposes to create crossagency standardization on both (a) the format of financial statements (also known as chart of 

accounts or supplemental schedules) and (b) the audit guidelines governing the preparation of 

audited financial statements (for those properties that must submit audited financials). (See 

Appendix 1 for a summary of program requirements.)

Although HFAs are a significant source of conflicting requirements and owner frustration, the 

team recommends concentrating on producing a Federal standard acceptable to both HUD-MF 

and USDA-RD, with consultation from key HFAs and/or the National Council of State Housing 

Agencies (NCSHA) to ensure that the Federal standard has a good chance of being adopted by 

HFAs. Similarly, it would be ideal if the Federal standards for financial statement format and 

audit guidelines were also acceptable to major investors, lenders, and syndicators so that 

properties would only have to submit one audit. The interagency working groups established 

under this Proposal should also consult with key members of these industries early on in the 

process to assess whether these private sector partners would be amenable to accepting this 

Federal standard, and what key features the Federal standard would need to include in order to 

facilitate adoption by the private sector.

Subject to a detailed assessment of the cost, method, and timeframe for proceeding relative to 

existing resources, HUD and USDA would implement the following changes to the FASS MF 

system that benefit both agencies:
20

a. USDA-RD currently collects budget information simultaneously with financial 

information which allows the agency to be better informed in regards to the financial 

management of the property. Recognizing the advantages of this practice, HUD will 

modify its system to collect budget information (for those projects required to submit 

budgets) simultaneously with financial information like USDA does now. 

b. HUD will exempt properties which have small HUD investment from audits to match 

USDA’s practice. This does not mean that small properties will be exempt from financial 

reporting. All owners will submit financial statements on their properties; they will only 

be exempt from audits on those statements. 

Resource Estimate for Implementation: 

1. USDA-RD & HUD-MULTIFAMILY ALIGNMENT ON JOINTLY SUBSIDIZED PROPERTIES 

No additional resources should be necessary. The program staff from USDA and HUD-MF should 

be able to implement the policy changes in the course of their regular duties. Co-project leads 

(one from HUD-MF, one from USDA) should be appointed to keep each other up to date on their 

respective agency’s project and coordinate public release of information.

2. MULTI-PROGRAM STANDARDIZATION OF FINANCIAL REPORTING REQUIREMENTS 

This proposal will require significant staff time and a modest amount of travel funding to bring 

the relevant stakeholders together for in-person meetings. Each working group (financial 

statement formats, audit guidelines) will require a facilitator or project lead. In order to produce 

results quickly, that project lead should be given temporary relief from his/her regular duties to 

focus on the project full-time or nearly full-time. Other working group members should be given 

partial relief of their regular duties so as to give the project the deep and focused attention it 

will require.

The proposal would require IT funding to make the necessary adjustments to the databases. The 

IT staff in HUD-REAC estimates that making the required changes to its outdated database could 

cost in the vicinity of $400,000 to $500,000. The IT staff at USDA-RD has suggested that 

depending on how extensive the changes are, the cost could be as little as $200,000 or as much 

as $800,000.

Estimated Cost Savings for Owners, Operators, Developers, Investors, and/or Lenders:

1. USDA-RD & HUD-MULTIFAMILY ALIGNMENT ON JOINTLY SUBSIDIZED PROPERTIES 

The owners of approximately 1,100 jointly subsidized projects with 16 units or more should save 

approximately $3,000 each from not having to do the USDA audit and/or AUP. This would 

amount to around $3.3 million per year. Approximately 300 projects with 23 units or less could 

save as much as $10,000 each, or as much as $3 million total, from not having to complete a 

HUD audit. Total savings from the two parts of the proposal could total as much as $6.3 million 

per year.
21

2. MULTI-PROGRAM STANDARDIZATION OF FINANCIAL REPORTING REQUIREMENTS 

With HFA participation, standardization of audit guides could save approximately 4,800 

properties as much as $3,000 each, or as much as $14.5 million per year. 

Stakeholders suggest that, particularly for high-capacity owners, the dollar savings in staff costs 

of standardization on both audit guides and financial statement submission formats could 

exceed the dollar savings on audit costs.

Estimated Cost Savings for State, Local, and Federal Government:

1. USDA-RD & HUD-MULTIFAMILY ALIGNMENT ON JOINTLY SUBSIDIZED PROPERTIES 

Savings from this alignment primarily accrue to owners.

2. MULTI-PROGRAM STANDARDIZATION OF FINANCIAL REPORTING REQUIREMENTS 

Savings to the Federal government from standardization will be somewhat difficult to pinpoint, 

but there may be staff efficiencies and administration efficiencies when separate entities of the 

Federal government act in tandem. As HFAs sign up, the savings to them could be considerable 

as they will not need to expend staff resources on maintaining their own standards.

Schedule for Alignment Implementation:

1. USDA-RD & HUD-MULTIFAMILY ALIGNMENT ON JOINTLY SUBSIDIZED PROPERTIES 

Action Timing (Start – End) 

Decision to proceed September 2011

MOU executed with USDA exempting HUDsubsidized properties from AUPOctober 2011 – January 2012

Policy issued changing audit exemption 

threshold

January 2012

Implementation of new audit guidelines January 2012 – March 2012

Implementation of new financial submission 

formats

Will depend on completion of Electronic 

Systems Alignment

2. MULTI-PROGRAM STANDARDIZATION OF FINANCIAL REPORTING REQUIREMENTS 

Action Timing (Start – End)

Decision to proceed September 2011

Convening of financial statement format and 

audit guideline work groups

November 2011 – December 2011

Approval of prototypes created by work 

groups

January 2012

Implementation of new audit guidelines February 2012 – April 2012

Implementation of new financial submission 

formats

Will depend on completion of Electronic 

Systems Alignment
22

Challenges to Effecting Proposed Alignment:

1. USDA-RD & HUD-MULTIFAMILY ALIGNMENT ON JOINTLY SUBSIDIZED PROPERTIES

a. The USDA OIG will need to opine on the proposal to exempt jointly subsidized 

properties from the AUP and USDA-specific audit procedures.

b. HUD OIG will also be consulted on the corresponding exemption threshold to be 

adopted in alignment with USDA-RD.

2. MULTI-PROGRAM STANDARDIZATION OF FINANCIAL REPORTING REQUIREMENTS 

a. Each program has invested time and effort in developing its requirements and may be 

reluctant to relinquish them. 

b. While standardization between HUD-MF and USDA-RD will be beneficial to owners, to 

achieve the full potential of this effort the Team must coordinate with HFAs. However, 

negotiating with all 50+ HFAs as full stakeholders from the beginning would be 

challenging. Thus, the Team must proceed with HUD-MF and USDA-RD standardization 

in such a manner as to encourage the eventual adoption of our standard by the HFAs, 

through pilot implementation and working with industry groups such as NCSHA.

c. Syndicators and lenders may already be imposing financial reporting or auditing 

requirements. The working groups need to determine how to take these requirements 

into consideration.
23

Common Energy Efficiency Requirements

Lead Office: HUD

Participating Offices: DOE, Treasury-IRS, USDA-RD, EPA, HUD-OSHC, HUD-MFH, HUD-CPD, HUD-PIH

Prepared by: Stockton Williams, DOE and Rachel Kirby, HUD-OSHC, Updated by Michael Freedberg, 

HUD-OSHC

Issue Statement

Today, the Federal programs that help produce and preserve rental housing vary widely in terms of their 

energy efficiency requirements. While some variety is appropriate, given that the Federal government 

provides various forms and levels of assistance to properties along a continuum of physical and financial 

condition, there is an opportunity to achieve greater alignment and in the process maximize the 

potential for energy savings in rental housing, generating significant financial savings.

The Common Energy Efficiency Requirements (EE) Team recognizes the challenges in implementing 

Federal energy requirements for rental housing. Building codes are largely a State and local 

responsibility. Code compliance and enforcement is highly uneven across the country. And the limited 

data available suggests that stronger energy requirements tend to increase development/rehabilitation 

costs. Having said that, HUD and USDA, recognizing the economic as well as energy benefits, have 

already begun to significantly strengthen and align energy requirements in Federal rental housing 

programs. Building on that progress and extending it to cover more rental housing production and 

rehabilitation programs has the potential to save time, reduce duplicative efforts, and clarify Federal 

policy intent for agencies and the end-users of their programs, while supporting progress on important 

energy efficiency goals of the Administration. HUD, USDA, and the Department of Energy (DOE) will 

work closely together on implementation.

Proposed Alignment

A five-part framework is recommended:

1. New construction and/or gut rehabilitation with Federal grants

New construction or gut rehabilitation12 of rental housing supported with Federal grants13

 12 For the purposes of these recommendations, gut rehabilitation means the total removal and replacement of all 

interior (non-structural) systems, equipment, components, or features of the existing structure, and may include 

modifications of the exterior of the structure (Housing Trust Fund Proposed Rule, 24 CFR 92.741).

should meet or exceed the current requirements for Energy Star for New Homes or Energy Star 

13 Excludes Community Development Block Grant (CDBG) formula grants and related programs. 
24

for Multifamily High Rise,14 or Builder’s Challenge Quality Criteria;15

2. Other new construction or gut rehabilitation

Note that there are certain 

provisions of Energy Star for New Homes Version 3.0 that will not apply to rehabilitation 

projects; until EPA has established guidelines for gut rehabilitation under Energy Star Version 

3.0, Version 3.0 shall not apply to gut rehabilitation. 

New construction or gut rehabilitation of rental housing supported with Federal insurance, 

direct loans, loan guarantees,16 or public housing capital and operating funds should meet or 

exceed the most current applicable International Energy Conservation Code (IECC) or ASHRAE 

90.1 standard that is deemed feasible to apply on a nationwide basis.17 The current applicable 

codes are the 2006 International Energy Conservation Code (IECC) and American Society of

Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) 90.1-2004;18

3. Substantial Rehabilitation

Substantial rehabilitation19 of rental housing is encouraged to implement such energy 

improvements that a new Capital Needs Assessment (CNA) template tool as recommended by 

the Capital Needs Assessment Work Team determines are financially feasible for the property;20

 14 For all single-family or low-rise multifamily projects, Energy Star for Homes shall apply. Version 2.0 applies to 

projects which submitted applications prior to April 1, 2011; Version 2.5 to projects which applied for funding 

between April 1 and December 31, 2011; and Version 3.0 for projects submitting applications after January 1,

2012. Homes built to Version 3.0 guidelines will be at least 20% more energy efficient than homes built to the 

2009 IECC. Energy Star Multifamily High Rise (MFHR) guidelines shall apply to Type 1 or Type 2 multifamily 

buildings specified at http://www.energystar.gov/index.cfm?c=bldrs_lenders_raters.nh_multifamily_highrise; 

these are designed to be at least 15% more energy efficient than ASHRAE 90.1-2007. For both low-rise and high 

rise, buildings may pursue a “performance path” or “prescriptive path” to meet the Energy Star guidelines.

15 The Builders Challenge Quality Criteria for single-family and low-rise multifamily are a mix of prescriptive and 

performance-based requirements that must achieve a HERS index of 70 or lower. Both Builder Challenge and 

Energy Star qualified properties should comply with the underlying IECC or ASHRAE code requirements.

16 Does not include Loan Guarantees under Section 108 of the Housing and Community Development Act of 1974.

17 Minimum requirements of the Energy Independence and Security Act of 2007 (EISA) are currently set at the 

2006 International Energy Conservation Code (IECC) for single family or low-rise multifamily, and ASHRAE 90.1-

2004 for high-rise multifamily construction. EISA also requires the Secretaries of HUD and USDA to adopt more 

recent successor IECC and ASHRAE codes provided that these standards do not adversely impact the affordability 

or availability of covered housing.

18 Public housing capital and operating funds included in this category do not include HOPE VI new construction -

which is covered under Category 1, “New construction or gut rehabilitation with federal grants.”

19 “Substantial rehabilitation” means repairs, replacements, and improvements that: 1) Involve the replacement of 

two or more major building components, or 2) the cost of which exceeds either: a) 15 percent of the property's 

replacement cost; or b) $6,500 per dwelling unit (HUD Handbook 4460.1, 4-2, Architectural Analysis and 

Inspections for Project Mortgage Insurance, Chapter 4, Rehabilitation). Project-based Section 8 Substantial 
25

4. Moderate or Other Rehabilitation

Moderate or other rehabilitation,21 minor rehabilitation, capital improvements, or 

modernization of rental housing may also implement measures recommended in a CNA, but 

should at minimum replace systems and appliances as needed with the most energy- and waterefficient options, including Energy Star, WaterSense, or FEMP-designated products and 

appliances, to the extent they are financially feasible.22

5. Energy Retrofits

Energy retrofits are specifically targeted towards promoting energy and water conservation. 

They are custom-designed to implement a package of water and Energy Conservation Measures 

(ECMs) that are deemed “cost-effective” for each property; no changes are required for these 

programs. Examples include DOE’s Weatherization Assistance Program (WAP) and Energy 

Performance Contracting (EPC) in public housing.

Notes on Specific Programs

The Low Income Housing Tax Credit (LIHTC), Weatherization Assistance Program (WAP), and Public 

Housing Operating and Capital Fund programs are treated differently for the purpose of these 

recommendations. The EE Team recommends the following with respect to these programs:

Low Income Housing Tax Credits

For LIHTC, a qualified allocation plan must contain a variety of selection criteria. These criteria include 

“the energy efficiency of the project.” 26 USC 42(m)(1)(C)(ix). In light of the alignment effort described 

in this document, Treasury will work with NCHSA to determine how States are administering this 

statutory energy-efficiency criterion, and will consider appropriate follow up action.

Weatherization Assistance Program 

 

Rehabilitation as defined at 24 CFR 883.302 may include gut rehabilitation; if so, it would be covered under

Category 2, “Other New Construction or Gut Rehabilitation.”

20 The CNA tool to be developed by Capital Needs Assessment Work Team will remain optional for HFAs, for LIHTC 

properties, and for HOME Participating Jurisdictions. For public housing, HUD-PIH is developing a Physical Needs 

Assessment (PNA), which is closely aligned with the proposed CNA. 

21 “Moderate rehabilitation” means rehabilitation involving a minimum expenditure of $3,000 for a unit, to comply 

with the Housing Quality Standards or other standards approved by HUD, from a condition below those standards.

(Section 8 Moderate Rehabilitation Program, 24 CFR 882.802).

22Pending further development of the template tool recommended by the Capital Needs Assessment Work Team, 

some properties in the moderate rehabilitation category may be able to utilize a CNA as well (e.g. HOME).
26

For WAP, no change should be made. Under the WAP regulations, grantees are required to hold average 

costs to a defined level and only perform a limited group of energy interventions. The measure of cost 

effectiveness for weatherization efforts is described at 10 CFR 440.21(d), which States that 

weatherization measures “must result in energy cost savings over the lifetime of the measure(s), 

discounted to present value, that equal or exceed the cost of materials, [and] installation.” Thus, WAP 

already has a specified regulatory regime for establishing energy requirements; the regime imposes a 

“cost effectiveness test,” to help ensure that the maximum level of efficiency is achieved with available 

funds. The EE Team believes that this is an appropriate framework for WAP.

Public Housing Capital and Operating Funds

For Public Housing Capital and Operating Funds, HUD-PIH is strengthening its requirements or guidance 

for capital planning for energy efficient substantially or moderately rehabilitated properties or 

continuing capital improvements. HUD has issued a proposed rule describing a Physical Needs 

Assessment (PNA) which, if implemented will assist Public Housing Authorities (PHAs) in incorporating 

energy efficiency measures in their capital plans. As noted in the CNA team report, the public housing 

PNA “is anticipated to be very closely aligned with the CNA:” 

NOTE: The major difference between the two products relates to the level of complexity and 

associated burden, and the level of control the agency has in the process. The HUD-PIH PNA will 

be completed by PHAs every five years and updated annually by over 3,100 PHAs, including some 

2,100 small PHAs. However, the CNA tool is intended to be transactional, and thus would be 

undertaken by a much smaller subset of entities much less frequently, potentially only once every 

15 or 20 years. The CNA tool will be publicly available and is expected to be a useful tool for 

managers of large affordable housing portfolios for capital planning or transactional purposes. 

The EE Team notes that PHAs are required to conduct energy audits of their projects at least every five 

years and incorporate the most cost-effective measures into their capital improvement plans, including 

insulation, weather stripping, storm doors and windows, flow restrictors for hot water lines, improved 

boiler controls, solar energy systems, and installation of individual utility meters. HUD plans to publish 

more specific guidance for PHAs on implementing the energy audit as an integral component of the 

PNA. 

PHAs are also required to choose Energy Star or FEMP-designated products, unless the products are not 

cost effective (essentially the same as recommendation 4 above). HUD has issued a proposed rule for 

the Public Housing Capital Fund that clarifies and strengthens these provisions (RIN–2577–AC50).

HOME

Because the HOME program provides formula grants to State and local governments, all HOME-assisted 

units must, at a minimum, meet all applicable State and local energy codes and rehabilitation standards.

The HOME program statute and current regulations require new HOME-assisted units to meet or exceed 

the current edition of the IECC or ASHRAE Standard 90.1 (for multifamily high rise buildings), in 

accordance with Section 215 of the National Affordable Housing Act. HUD is currently considering 
27

rulemaking to establish energy efficiency requirements for new construction and gut rehabilitation, as 

well as separate requirements for all other types of rehabilitation (i.e. other than gut rehabilitation). 

Note that HOME property standards at 24 CFR 92.251 do not currently differentiate between different 

levels of rehabilitation; HOME regulations do not (and will not) have substantial, moderate, or minor 

categories of rehabilitation. 

CDBG

The CDBG program defers to local energy codes and standards. CDBG contains no requirements 

regarding the design of local rehabilitation programs, and grantees are given flexibility regarding the 

level and type of rehabilitation work to be performed and the standards to be met. The Section 108 

Loan Guarantee Program and the Neighborhood Stabilization Program are authorized under the 

umbrella of the CDBG program statute, and follow most of the same rules; therefore, no changes are 

proposed to set energy efficiency requirements for rental housing assisted with CDBG, or Section 108 

program funds.

USDA Rural Rental Housing Programs

USDA’s multifamily housing programs offer strong incentives in all of their Notices of Funding Availability 

that encourage borrowers to adopt higher energy standards or measures than the minimum

IECC/ASHRAE requirements outlined in this alignment report. 

For new construction and substantial rehabilitation, points are awarded for participation in energyefficiency and green building programs including Energy Star for Homes, Builder’s Challenge, LEED for 

Homes, NAHB’s National Green Building Standard, and Green Communities. Additional scoring points 

are awarded for on-site renewable energy generation, and for having certified Green property 

management. Because of the competitive nature of these programs, it is very likely that all of the new 

construction of housing with USDA funding will at minimum meet Energy Star for Homes. 

For moderate rehabilitation, points are awarded for projects that meet Enterprise Green Communities 

program criteria. For rehabilitation and repairs that are less than moderate rehabilitation, the Notice of 

Funding Applicability for the Multifamily Preservation and Revitalization program awards points for 

specific measures such as the use of Energy Star appliances when replacing appliances, and Water Sense 

fixtures in replacing plumbing fixtures. Due to the competitive nature of funding for rehabilitation 

programs, it is very likely that all of the rehabilitation projects, where component replacement includes 

appliances, mechanical equipment, lighting and plumbing fixtures will utilize Energy Star appliances, 

Water Sense fixtures, and energy-efficient lighting. 

Specific Actions to Effect Alignment:

The EE Team recommends that the recommended framework be articulated as a joint notice of agency 

policy by HUD and USDA, subject to the timetable outlined below. The notice would describe the 

framework, its rationale, the affected programs, and how HUD and USDA will ensure compliance and 

provide support to stakeholders in implementing the requirements.
28

New Construction 

As noted above and summarized below, most HUD and USDA new construction programs reflect Energy 

Star, IECC, or ASHRAE standards, i.e. Recommendations 1 and 2. 

Alignment with revised IECC and ASHRAE standards 

 23 USDA Direct Loan and Guaranteed Loan programs have strong incentives in their Notices of Funds Availability for 

Energy Star for New Homes and other green building measures that encourage borrowers to go beyond these 

minimum requirements. 

New Construction 

Requirement

Already Reflect the Requirement Changes Required 

to Reflect 

Alignment

Energy Star for Homes 

or 

Energy Star for 

Multifamily High Rise

or 

Builders Challenge 

HUD

Choice Neighborhoods 

Housing Trust Fund (proposed) 

Neighborhood Stabilization Program -3

Section 202/Section 811 

Self-Help Homeownership Opportunity 

Program (SHOP) 

HUD

HOME

HOPE VI 

IECC/ASHRAE HUD

Public Housing Capital Fund and 

Operating Grants 

Multifamily Insurance Programs

USDA

Section 515 New Construction (Direct 

Loan)

Section 514/516 Farm Labor Housing 

(Direct Loan) 23

Multifamily Preservation & 

Revitalization (Direct Loan)

Section 538 Guaranteed Rural Rental 

Housing (Guaranteed Loan)

Meet Local Codes HUD 

CDBG

ICBG, IHBG

Qualified Allocation 

Plans and Local Codes

Treasury:

Low Income Housing Tax Credit (LIHTC)
29

The EE Team notes that Energy Star, IECC, and ASHRAE standards for new construction are regularly 

revised and generally made more demanding over time. The EE Team recommends aligning all major 

Federal rental housing production programs to the specified levels summarized above as a major first 

step. The EE Team is not at this time recommending that as underlying standards are revised, the 

requirements in all Federal programs would automatically follow suit. 

Instead, the EE Team recommends that the participating agencies follow the approach contained in the 

Energy Independence and Security Act of 2007, which generally established certain minimum energy 

requirements for HUD programs and further required the agencies to adopt revised standards as they 

were promulgated, provided their analysis determined that doing so would not adversely affect 

affordable housing.

Substantial Rehabilitation

In the case of Recommendation 3 for substantial rehabilitation, the EE Team refers to the 

recommendation of the CNA Work Team (CNA Team), which recommends that participating Federal 

agencies direct and procure the development and implementation of a new, single CNA template tool 

for programs that require CNAs that includes a traditional, comprehensive property evaluation, an 

assessment of green building and energy efficiency needs and opportunities, and a utility data collection 

component. With respect to actions to effect alignment, the CNA Team noted that: 

NOTE: Development and adoption of a single CNA template tool will require a robust training 

and implementation component for agency and stakeholder users of the new CNA template. This 

training will include, at a minimum, a comprehensive user guide, in-person training for respective 

agency staff, regional in-person training for CNA providers and other stakeholders, and a 

webinar (or potentially multiple webinars targeting various stakeholder audiences) conducted 

jointly by the agencies and the contractor responsible for development of the template, as part 

of its overall engagement.

The EE Team builds on the CNA Team’s recommendation by establishing uniform utilization of the 

template tool across all covered programs: substantial and moderate rehabilitation projects supported 

by programs that adopt the new, single CNA template tool would be required to adopt the 

recommendations generated by the tool to the extent they financially feasible for the property. 

The major action to effect Recommendation 3 for substantial rehabilitation is to link the results of the 

CNA to the financial underwriting model used by each covered program to support funding award 

decisions, loan sizes, etc. This process may require a significant investment of staff time and resources, 

as discussed more below.

Moderate or Other Rehabilitation

In the case of Recommendation 4 for moderate or minor rehabilitation, the EE Team recommends the 

agencies adopt a policy along the lines of the policy HUD already has proposed for the Housing Trust 

Fund program:
30

NOTE: ENERGY STAR-labeled and WaterSense-labeled products must be installed when older 

obsolete products (such as windows, doors, lighting, fans, water heaters, furnaces, boilers, air 

conditioning units, refrigerators, clothes washers, dryers, dishwashers, toilets, showers, and 

faucets) are replaced as part of the approved rehabilitation work, and such products are 

appropriate for achieving energy efficiency for the climate area in which the housing is located.

24

In addition, the agencies may work separately or together to develop guidelines and/or protocols for 

additional energy efficient rehabilitation practices and procedures (e.g. recommended insulation levels 

and installation procedures, use of blower door test for air sealing, etc.). 

Resource Estimate for Implementation: 

The EE Team believes that sufficient staff resources and expertise are already available to implement 

the first phase of these recommendations: developing and issuing a joint HUD-USDA notice articulating 

the alignment policy. Both agencies have dedicated staff that could continue to flesh out the framework 

if approved to do so by their Departmental leadership. 

In the case of Recommendations 3, 4, and 5 for rehabilitation and energy retrofits, self certification is 

likely the only feasible way to ensure compliance.

Estimated Cost Savings for Owners, Operators, Developers, Investors, and/or Lenders: 

The issues of costs and benefits (i.e. savings) associated with energy efficiency requirements for newly 

constructed and rehabilitated rental housing are complex. The most comprehensive study to date found

that building and rehabilitating low-income developments to the Energy Star for Homes standard or a 

similar standard added only 2.1 percent to average total project costs. The study also found that the 

projected lifetime cost savings were greater than the average additional upfront costs on a net present 

value basis.25 These findings are consistent with other research on the costs and benefits of broader 

“green building” improvements that include energy criteria. In other words, the limited available data 

suggests that stronger energy requirements do lead to modestly increased development costs for the 

private sector.26

Balanced against these additional development costs are the life-cycle savings generated by investments 

in energy efficiency. According to a somewhat more theoretical analysis, improving energy efficiency by 

30 percent in the multifamily housing stock (which mostly consists of rental properties) could generate 

$9 billion in savings annually to renters and owners, while achieving energy savings equivalent to the 

annual electrical output of 20 coal plants and the entire natural gas usage of California, Oregon, and 

 24 Housing Trust Fund, Proposed Rule, 24 CFR Parts 91 and 92, FR-5246-P-02.

25 Dana L. Bourland, “Incremental Costs, Measureable Savings: Enterprise Green Communities Criteria,” Enterprise 

Community Partners, 2009.

26 Davis Langdon, “Cost of Green Revisited: Reexamining the Feasibility of Sustainable Design in the Light of 

Increased Market Adoption,” Davis Langdon, 2007.
31

Washington States and avoid the emission of at least 50 - 100 million tons of CO2 per year – equivalent 

to the emissions associated with the current energy use of 4 - 8 million U.S. households.27

Estimated Cost Savings for State, Local, and Federal Governments: 

HUD’s own recent experience further affirms that significant savings are achievable in existing 

multifamily rental properties. The 20,000 apartments in 221 properties that benefitted from the HUD 

Green Retrofit Program are expected to reduce energy consumption by more than 25 percent on 

average and save an estimated $12 million annually on utility bills. Of course, in rental properties, the 

party that incurs the cost of making energy improvements may not be the same party that benefits from 

resulting savings. This “split incentive” challenge is in and of itself a major barrier to retrofitting existing 

rental properties of all kinds. There are not expected to be additional costs to State or local government 

as a direct result of the recommended alignments, although those levels of government may be 

motivated to invest more in energy code compliance in part as a result of this effort.

Schedule for Alignment Implementation: The Federal agencies generally expect to have a policy 

framework in place for implementing all or most of the recommended alignments by the end of 2011. As 

noted above, the policy implementation plan may phase-in certain components over a period of time.

Challenges to Effecting Proposed Alignment:

The EE Team recognizes the challenges in implementing Federal energy requirements for rental housing 

that are both internally consistent and sufficiently robust. Building codes are largely a State and local 

responsibility. Code compliance and enforcement is highly uneven across the country, due to gaps in 

knowledge, capacity, and resources, as well as concerns about cost. These issues may be especially 

acute for affordable rental housing. (As noted above, there is a general consensus that stronger energy 

requirements generally add to development costs; is not clear however that the incremental increase is 

significant enough to reduce the number of affordable housing units that would otherwise be available.) 

In addition, codes are not always the most effective tool for addressing energy performance in existing 

properties, and tools to serve that market – such as CNAs that reflect energy consumption and costeffective opportunities to reduce it – are at a more nascent State of development and deployment.

The EE Team believes that it is possible, and necessary, to continue to strengthen energy requirements 

for rental housing programs. Not only does it appear that it is possible to do so without imposing 

burdensome additional costs on developers and owners, recent research suggests that energy 

requirements can directly lead to positive energy and environmental outcomes. According to one recent 

 27 Benningfield Group, Inc, “U.S. Multifamily Energy Efficiency Potential by 2020,” Prepared for the Energy 

Foundation, October 29, 2009.
32

study, for example, stronger residential energy codes are associated with a 4 percent decrease in 

electricity consumption and a 6 percent decrease in natural-gas consumption.28

Additional Improvements to These Requirements 

The framework outlined in this report is not intended to prevent any agency or program from continuing 

to strengthen their requirements beyond what has been outlined herein. For example, HUD is in the 

process of developing more detailed recommendations in three areas: (1) energy efficiency measures in 

rehabilitation projects that address building envelope and HVAC efficiency measures in addition to 

Energy Star/WaterSense products and appliances; (2) water conservation; and (3) green building 

standards or guidelines. Energy efficiency is a critical building block in the development of a

comprehensive healthy and green building strategy for rental housing. 

 28 Jacobsen and Kotchen, “Are Building Codes Effective at Saving Energy? Evidence from Residential Billing Data in 

Florida,” The National Bureau of Economic Research, July 2010.
33

Appraisal Primer

Lead Office: HUD-MF

Participating Offices: USDA-RD, HUD-MF, HUD-PIH, HUD-CPD, HUD-OSHC, Treasury-IRS 

Prepared by: David B. Wilderman, HUD-MF

Issue Statement:

Federal law indirectly requires the use of the Uniform Standards of Professional Appraisal Practice 

(USPAP) as the basis for real estate appraisal work; however, Federal and State housing agencies’ 

capabilities and methods for enforcement vary. USPAP still remains widely misunderstood and, in some 

cases, is even unknown to rental housing program staff and participants who are not themselves 

professional appraisers. In addition the specific ways in which USPAP applies to valuation of rental 

housing in various subsidy situations is frequently misunderstood or ignored. 

Subject matter experts have pointed out that numerous variations exist among State and local housing 

agencies and Federal programs as to when an appraisal is needed and the scope of work the particular 

agency requires. USPAP makes appraisers accountable to their clients to know and understand a correct 

scope of work for any particular appraisal. But in many cases, the appraiser’s client is a lender or an 

agency, not a property owner or developer. As a consequence, the appraiser is often not informed of 

the property owner/developer’s intent to seek multiple financing sources that may trigger an expanded 

scope of work, or indeed, the decision to seek additional or alternative financing sources may occur 

after an initial appraisal has been completed. Lack of communication with the appraiser about the 

prospective uses of the appraisal report and lack of user knowledge about how to describe an 

appropriate scope of work create situations where completed appraisals are not responsive to the 

demands of all funding sources engaged in a project. In addition, the passage of time from one funding 

application to another may exceed the acceptable shelf life of an initial appraisal.

These circumstances expose end users of rental housing programs to inconsistent use of appraisals 

among Federal and State offices and the periodic frustration of obtaining additional or updated 

appraisal work. Lack of knowledge about USPAP fundamentals among users and laypersons (nonappraisers, in and out of government) weakens USPAP as a tool intended to discipline and standardize 

appraisal practice. 

Proposed Alignment:

To improve use and understanding of USPAP among rental housing professionals who are not 

appraisers, the Team proposes to develop and publish a primer intended to be freely available, both in 

print and on the web, and widely distributed, and to promote this learning tool among agencies and 

industry participants. The primer should explicitly describe the general USPAP principles that apply to 

valuation of rental housing when public subsidies are provided. In addition the primer should either 
34

contain as an appendix, or reference as a source, a table setting out general lender and agency scope of 

work requirements for appraisals as well as their acceptable shelf life so that all users can make 

informed decisions when scoping an appraisal. It should be noted that the primer represents an 

education strategy to solve a knowledge problem and to enable appraisal users to be more ’informed 

consumers’ of appraisal products and hence reduce confusion and miscommunication. To the extent 

that informed consumers exert market discipline, appraiser carelessness or misconduct will also be 

reduced.

Creation of the primer does not require any Federal rule making, but it does involve some decision 

making and an actionable plan by certain participants, together with a potential need for modest 

funding and the allocation of some personnel resources.

Specific Actions to Effect Appraisal Alignment:

1. The Appraisal Institute has committed to preparing and publishing a primer as a public service 

relying on expertise of its individual members obtained through an internal proposal process. 

The Appraisal Institute is the largest publisher of appraisal education resources and is well 

equipped to prepare and publish (in multiple formats/media) the envisioned primer. It is 

anticipated that the primary means of distribution will be electronic. Federal Agencies will 

provide technical assistance to support this effort as requested and as appropriate.

2. HUD-CPD will incorporate appraisal concepts and appraisal literacy as part of its ongoing 

development of training curriculum for community development practitioners.

Resource Estimate for Implementation:

Necessary resources will be limited to hours of staff time devoted to providing subject matter expertise 

and comment on the content of the Appraisal Primer and similar attention to the content of training 

curriculum.

Estimated Appraisal Cost Savings:

There are at least two ways to consider possible results from publication and wide distribution of the 

appraisal primer. The first is quantitative. Will the government or program users save money or time? 

How much? The second is qualitative. Will the quality of real estate decision making be improved and 

will this have any particular impacts?

Appraisals are transactional due diligence documents normally prepared in association with the 

purchase, recapitalization, or construction of a real estate asset. So, a key data item is the average 

number of transactions per year. Obtaining such a figure only for multifamily properties is not that easy. 

Activity varies widely with economic conditions, interest rates, employment and household growth, and 

similar factors. But data suggest that in an average year:

• About 2,600 new multifamily projects start construction.
35

• The number of refinance and purchase transactions exceeds new starts by a factor of about 4 to 

1, meaning that in an average year there may be 10,000 to 11,000 refinancing or sale 

transactions.

• There are about 1,300 new tax credit transactions per year and of these about 900 are new 

constructions and 400 are acquisitions and rehabilitation. 

• Of the other new construction starts, about 125 are FHA-insured starts. Historically, few FHA 

insured starts have LIHTCs. By contrast, 80% to 85% of USDA-RD transactions are LIHTC deals 

and there is an average of 130 USDA-RD multifamily transactions per year. All FHA and USDA-RD 

starts require appraisals. While many State agencies do not require appraisals for allocation of 

tax credits, some do, and most deals will encounter an appraisal requirement by either or both 

the lender and investor.

• A significant and probably growing percentage of LIHTC transactions involve multiple funding 

sources that could trigger additional or duplicative requirements for appraisal work. If all 

additional sources required such documentation, the number of additional appraisal 

requirements would average about 1,400 appraisals per year. However, it is reasonable to 

estimate that no more than half of supplementary funding sources require additional appraisal 

work and the preponderance of this would be revisions to an existing document rather than an 

entirely new appraisal report. Accordingly, an estimated 700 modified or additional appraisals 

per year are generated by supplementary funding sources

• Accordingly, a reasonable estimate of annual multifamily appraisal activity suggests that there 

are 14,000 appraisals for transactions each year (2,600 new, 11,000 existing, and 500 to 700 

duplicates). At an average cost of $8,000 per appraisal the multifamily appraisal industry 

generates about $112,000,000 per annum.

Estimated Costs Savings to Owner/Developers:

The maximum savings to developers by eliminating duplicates would be $5,600,000 (700 x $8,000). 

Although the primer will be helpful in eliminating some duplicates, it will not be 100% effective. The 

Team hopes that the primer will result in a 25% reduction in duplication costs or $1,400,000. Every 

instance where there are dollar savings will also represent a time savings as the time to discover a need 

for a new or amended appraisal as well as the time to prepare the actual document will be eliminated. 

Lenders and investors do not typically bear appraisal costs since they charge borrowers or owners for 

the costs of third party reports.

Estimated Cost Savings to State, Local, and Federal Governments: 

There will be no direct savings in costs to governments. However, it is reasonable to expect that 

improved knowledge of appraisal practice, more accurate and more correctly written scopes of work 

and other qualitative improvements in the use and understanding of appraisal documents will improve 

real estate decision making and reduce waste of government staff time spent dealing with poor or 

inappropriate appraisal documents. More importantly, improved decisions should result in more 

efficient use of Federal rental housing dollar resources and reduced exposure to default risk for lenders 

as well as for the Federal mortgage insurance programs of HUD-FHA and USDA-RD.
36

Schedule for Alignment Implementation:

Work on the primer can proceed promptly after approval and should be completed on a 12 month or 

shorter, schedule.

Challenges to Effecting Proposed Alignment:

Since the appraisal primer is being prepared as a project of the Appraisal Institute, the key challenge is 

that HUD has no actual control over the execution or progress of the proposal.
37

Market Study Standards Alignment

Lead Office: HUD-MF

Participating Offices: USDA-RD, HUD-MF, HUD-PIH, HUD-CPD, HUD-OSHC, Treasury-IRS 

Prepared by: David B. Wilderman, HUD-MF

Issue Statement:

While some excellent model practice standards exist for market studies, there is no national standard of 

practice for market studies comparable to Uniform Standards of Professional Appraisal Practice (USPAP) 

for appraisals and no broadly acknowledged ’keeper’ of such standards comparable to the Appraisal 

Foundation, which promulgates and periodically amends USPAP. The absence of a national practice 

standard is not for lack of effort. There are two primary sources of best practices or standards for 

market studies for rental housing. One of these is the code of ethics and practice guidance for rental 

housing market studies published by the National Council of Affordable Housing Market Analysts 

(NCAHMA), which have been adopted by a number of State housing agencies and endorsed by the 

Affordable Housing Investors Council (AHIC)29

The absence of a fully developed, national practice standard and guide for market analyses results in a 

wide disparity in the content, methodology, quality, and reliability of studies that are used for three 

primary purposes:

. This guidance in this proposal is specific to affordable 

housing, but the concepts in it are also broadly applicable to all rental housing. Indeed, NCAHMA has 

been and remains an advocate of a national practice standard with broad applications. Another is the 

market study portion of HUD’s Multifamily Accelerated Processing Guide (MAP Guide), which addresses 

market study guidance for both affordable and market rate multifamily housing, but in the context of 

HUD’s multifamily mortgage insurance programs.

1. By State Housing Finance Agencies (HFAs) to allocate Low Income Housing Tax Credits and 

establish feasibility for new development of rental housing;

2. By HUD-FHA and USDA-RD lenders and field staff to underwrite applications for mortgage 

insurance or direct loans; and

3. By developers, investors, and lenders to identify investment opportunities in rental housing.

Among States, practice varies widely, with some States prescribing sound but unique methodologies, 

while others have only loosely defined standards and others, as noted, have adopted NCAHMA's 

guidance in whole or in part. In spite of existing guidance provided by HUD-FHA and USDA-RD, studies 

prepared in support of applications for Federal mortgage insurance and direct loan programs are 

inconsistent in content, methodology, quality, and reliability. HUD-FHA has taken a significant step 

 29 A table of States which have adopted (either fully or partially) NCAHMA Market Study Guidelines is included at 

the end of this report.
38

forward by preparing new guidance as a portion of the revised Multifamily Accelerated Processing Guide 

(MAP Guide). The revised MAP Guide provisions for market analyses closely parallel in substance the 

guidance published by NCAHMA.

The effects of disparate market study practice and quality can be both specific and cumulative. Specific 

effects include confusion, loss of time and extra expense for developers and owners who pay for market 

studies that may add little value to the quality of real estate decision making. Sometimes, these 

developers and owners may be required to pay for additional market studies when a study prepared for

one purpose proves unacceptable for another. Cumulative results include higher and/or unforeseen 

risks of failure, with losses for developers and investors and loan defaults for lenders, with consequent 

impacts on HUD-FHA and USDA-RD mortgage insurance pools rising from poor or uninformed real estate 

decisions. 

Subject matter experts indicated that a major obstacle to formation of an independent ’keeper entity’ 

for market study practice standards has been inadequate economies of scale. Relative to the entire 

appraisal profession, independent market analysis engages a small number of practitioners. The effort 

to form and sustain a ’keeper entity’ exceeds the resources of the profession when the range of 

interests is limited to rental housing. An independent, privately-supported, but widely-recognized 

’keeper entity’ for market study practice requires a broader base of practitioners engaging in specialties 

beyond rental housing. But even with a broader base of practitioners, the feasibility of a ’keeper entity’ 

is uncertain. Accordingly, the immediate and primary means of aligning rental housing market study 

practices is found by assuring consistency and quality of Federal agency guidance in cooperation with 

State and private sector entities that wish to participate.

Proposed Alignment:

A necessary first step in alignment is to coordinate USDA-RD and HUD-FHA guidance on markets studies. 

Additional measures include ongoing support and assistance to NCAHMA and other industry advocates 

of market study standards of practice as well as promotion of market study literacy among housing and 

community development practitioners.

To align market study practices, the Team recommends: 

1. Using HUD-MF’s MAP Guide market study guidelines as the starting point for alignment efforts, 

given the fact that HUD-MF has recently completed a stakeholder feedback process in tandem 

with guideline development and that the HUD-MF guidelines substantially conform to NCAHMA 

standards, the Team will work to align USDA-RD and HUD FHA market study guidance.

2. Provide technical assistance as needed to support emerging 3rd party market study 

standardization efforts, such as those currently underway by NCAHMA.

3. Incorporating market study literacy training in HUD sponsored training and curriculum 

development for housing and community development practitioners.
39

NOTE: The Team effort has been limited to rental housing without special, assistive or health services. 

Subsequently, no consideration has been given and there is no intent expressed here to align market 

study practices unique to assisted living, sheltered housing, or the various types of senior care facilities. 

The anticipated market study practice recommendations probably do not involve Code of Federal 

Regulation (CFR) changes, but may result in revised guidance to be published consistent with Agency

clearance processes. Implementing these recommendations does contemplate use of significant 

personnel resources.

Specific Actions to Effect Alignment:

1. USDA RD should redraft existing market study guidance consistent with HUD’s MAP Guide, 

Chapter 7 with exceptions for market and locations conditions appropriate to rental housing in 

rural communities. 

2. HUD-FHA will support and provide assistance to advocates of national market study practice 

standards for rental housing development.

3. HUD will incorporate market study literacy as it develops training curriculum for community 

development and housing practitioners.

Resource Estimate for Implementation:

The resource needed for implementation is staff time of Agency personnel.

Estimated Cost Savings for Owners, Investors, and Lenders:

Market studies typically are needed during the development process and occasionally when a property 

is refinanced or repositioned. Accordingly, the minimum number of market studies conducted in a year 

approximates the number of multifamily housing starts, about 2,600 in an average year. (The current 

economic climate has made such ‘averages’ problematic.) However, market studies are often conducted 

for proposed developments that are never built. So, the number of studies prepared each year is a 

function of the number of new starts times a factor for development proposals that never get to closing.

The price for a study depends on the complexity of the development proposal and the market for which 

it is proposed, but a typical LIHTC-oriented market study likely would cost $4,000 to $6,000. An 

estimated 700 transactions per year have multiple funding sources that result in duplicate studies. If this 

duplication could be eliminated by alignment of study requirements, the savings to owner/developers 

would be in the range of $3,500,000 (700 x $5,000). Generally, lenders and investors do not pay for 

market studies but charge these costs to their clients.

Estimated Cost Savings to State, Local, and Federal Governments: 

Governments generally do not pay for market studies. There will be no direct dollar benefit to 

government. However, high quality market analysis is essential to sound real estate decision making, 

and useful in working to minimize failure and poor performance in rental housing assets. To the extent 
40

that decision making is improved, all parties will experience fewer losses and government agencies will 

see fewer claims on government mortgage insurance funds or other credit enhancements.

Schedule for Implementation: The schedule for USDA-RD guidance revisions is near term and relatively 

short, meaning less than one year. Training and technical assistance activities will be ongoing.

Challenges to Effecting Proposed Alignment:

• Agency and stakeholder inertia.

• Securing agency commitment of personnel resources required to coordinate and draft revisions 

to existing guidance.

States which have adopted (either fully or partially) NCAHMA Market Study Guidelines

State Level of NCAHMA Standards Usage

Arizona If ADOH Market Study Guidelines have not been followed, then the analyst followed 

NCAHMA model.

California 2010 California Market Study Guidelines use very similar language to MCAHMA 

standards throughout - in certain places, identical language is used.

Georgia DCA would prefer the Principal(s) of the firm to be certified members of the National 

Council of Affordable Housing Market Analysts

Indiana The Preferred Market Study Provider Application asks if the applicant belongs to 

NCAHMA.

Kansas Incorporates NCAHMA's full Model Content Standards and Checklist

Kentucky In its 2010 RFQ, KHC lists as a preferred requirement: "Professional affiliations, such 

as National Council of Affordable Housing Market Analysts, that contribute to the 

ability to complete the work described in this proposal."

Louisiana Consultant must include the following in application packet: Proof of membership to 

the National Council of Affordable Housing Market Analysts

Maine The study must be prepared by a qualified professional acceptable to Maine Housing 

in accordance with the MCAHMA Model Standards for Market Studies for Rental 

Housing in effect 120 days prior to the deadline for Applications for the applicable 

Credit round.

Maryland Applications must include a market study prepared by an independent professional 

who has experience with multifamily rental housing and/or tax credit housing in 

Maryland and whose firm appears either on the list of acceptable market analysts 

maintained by the Department or on the list of firms who have undergone peer 

review by NCAHMA.

Massachusetts The Department will accept membership in the NCAHMA organization as indication 

that the market analyst is a qualified professional acceptable to the Department. 

DHCD strongly encourages sponsors to direct their market analyst to produce a 

market study consistent with NCAHMA guideline materials and standards.

Minnesota These guidelines were adopted in part from NCAHMA recommended practices.

Mississippi Information on level of standards not available.
41

Missouri A statement is inserted in market studies prepared by market analysts that are 

members of NCAHMA. Signed by the analyst that prepared the market study, the 

statement will certify that the analyst has no financial interest in the project and that 

the market study has been prepared in conformance with NCAHMA's Market Study 

Terminology and Model Content Standards (and, in areas where it does not conform, 

the reasons for non-conformance).

New Jersey Requires a statement of the competency of the analyst conducting the study, 

certifying that he or she is a certified member of NCAHMA.

New Mexico Verbatim language used to make up a majority of NM's requirements.

Ohio The Preferred Market Study Provider Application asks if the applicant belongs to 

NCAHMA.

Oklahoma References NCAHMA's definition of Capture Rate

Rhode Island Prior to closing, Rhode Island Housing requires that a comprehensive market study 

conforming to NCAHMA standards be conducted as a condition of credit allocation 

analyzing the market area, including the depth and breadth of demand, comparable 

properties and rates, comparable operating expenses, market absorption rates as 

well as a study of the needs of the prospective population.

South 

Carolina

Prefers the Principal(s) of the firm to be a certified member, in good standing, with 

NCAHMA.

Vermont Market Study Standards uses language very similar to NCAHMA's - and in some cases, 

identical - throughout its text.

West Virginia Notes that NCAHMA’s website provides guidance on the determination of the market 

area.

Wisconsin WHEDA Market Study Guidelines uses very similar, and in some cases identical 

language to NCAHMA's Model Content Standards.
42

Subsidy Layering Review

Lead Office: USDA-RD

Participating Offices: Treasury-IRS, USDA-RD, HUD-MF, HUD-PIH, HUD-CPD 

Prepared by: Larry Anderson, USDA-RD

Issue Statement:

The Housing and Economic Recovery Act of 2008 (HERA) encouraged the Federal government to 

standardize its subsidy layering review (SLR) processes, but consistency is still lacking. In many cases, 

Federal programs have a common denominator approach where some Federal programs overlap only 

when another Federal program mirrors all of their requirements. Absent this, subsidy layering review 

processes remain inconsistent. Inconsistency in review processes leads to slow and uncoordinated 

processing and decision making, and creates problems related to data collection and timing of the 

subsidy layering reviews, particularly as they may relate to the ‘critical path’ of the development project.

Background:

Section 102 of the Department of Housing and Urban Development Reform Act of 1989 requires all 

projects receiving HUD subsidy combined with any form of other governmental assistance to undergo a 

SLR. This review will certify that there is no overlap of government subsidies when combining housing 

assistance programs administered by FHA with other forms of Federal funds administered by Federal, 

State, or local agencies. Subsequently, this requirement was merged with the Section 911 reviews 

required by housing finance agencies (HFAs) per LIHTC involvement to comply with the regulatory 

requirements of Section 42(m)(2) of the Internal Revenue Code.

The issue of subsidy layering is addressed differently by Treasury, HUD, and USDA. Subsidy layering is a 

statutory requirement to assure that Federal resources are neither duplicative nor wasteful when 

applied to affordable rental housing. These differences largely turn on the extent of subsidy layering 

analysis that the agencies require - ranging from USDA-RD requirements that rely on the subsidy 

layering review performed for LIHTC subsidy layering review purposes, to HUD-CPD’s HOME program, 

which provides detailed guidance on how the analysis must be completed. 

Developers often approach the subsidy funding process without a full picture of what resources will be 

used or obtained. This may result in a significant stretch of time between the start of the process and 

the final assembly of all funding sources. In addition, while there is a description of ’best practices’ 

administered by HFAs, some funding review processes are more robust than others. 

Other issues that may create challenges include timing issues (i.e., Does a review of resources require a 

commitment of all resources? Will professional reports such as an appraisal be used within their 

effective period?), data definitions (i.e. Will the appraised value or Capital Needs Assessment (CNA)

findings be acceptable to all programs? How will reserve account deposits be determined, and how will 
43

operating costs be defined? ), or how to resolve findings or issues (i.e., What happens when one 

program disagrees with another on underwriting data or terms being provided? What kind of notice will 

be required when a problem is found? Will joint actions against developers be used? How will issues be 

communicated to the developer community?). 

Proposed Alignment:

The Team proposes to pursue the following, with the ultimate goal of reducing redundant reporting and 

increase the timeliness of SLR and funding approvals:

• Agree on a standard set of SLR facts: Standard ’facts’ include information about sources and 

uses of funds, appraised values, current and projected capital needs, and market information;

• Collect the SLR facts in a standard format: The standard ‘format’ includes forms, applications, or 

submissions to an automated database;

• Establish a process and timeline to immediately share the facts and findings among all Federal

funders, housing finance agencies, and the LIHTC allocating agencies: ’Sharing’ refers to how and 

when the information can be used by Federal funders, housing finance agencies and 

participating LIHTC allocating agencies to conduct the SLR and other funding approval decisions. 

Specific Actions to Effect Alignment: To implement this recommendation, the Team has established a 

working group to review existing data and data collection currently performed by several programs 

within HUD and by HFAs in support of the LIHTC program. Based on that review, the working group will 

propose a standard set of SLR facts for acceptance by all Federal funders and LIHTC allocating agencies.

A second working group will review internal protocols to share and make recommendations using SLR 

information to further align the process of reviewing the information and approving the transactions. 

Since much of the information captured in the SLR involve issues being considered by other alignment 

teams, such as those reviewing CNAs, appraisals, and market studies, a strong effort will be made to 

ensure our recommendations fit with those being developed by other teams. A third working group will 

provide recommendations on the most effective way to communicate to the development and 

professional community the changes to current protocols and requirements. 

To achieve full implementation, the Team expects to adopt a data collection and review protocol that 

resembles the following five steps:

1. Establish a point of contact for each State HFA and each Federal rental program.

2. Establish or adopt a SLR/Sources and Uses Form that is agreed upon by all stakeholders. This 

form should require the developer’s signature certifying all sources applied for as of the date of 

application or that will be applied for are included and their uses do not overlap. The form 

should also include the developer/borrower agreeing to release all submitted data to any 

applicable funding source or government agency.

3. The developer/borrower submits the form as a part of the initial application for funding. Each 

source of financing listed would be emailed a copy of the SLR/Sources & Uses form as approved 

by the subject agency after their underwriting (the form is still an estimate at this point).
44

4. An updated/interim submission of the same SLR form should be submitted to all overseers of 

the sources of financing at construction close. This updated form would be emailed to each of 

the sources of financing listed after underwriting review (the form is still an estimate at this 

point).

5. A final SLR should be submitted by developer/borrower to all sources of financing once 

substantial lease up occurs (or if tax credits, when 8609’s are issued). This form would include 

the final uses and which sources of financing covered those final uses. Each financing source 

would be emailed a final copy of this form after review and certification by the reviewing 

agency.

This would satisfy the goal of public disclosure of sources and uses. It would also allow us to have 

verification from each of the sources of financing at the appropriate stages – application, construction 

close, and lease up. Currently, many agencies have a cost certification process in which the 

developer/borrower submits their paid construction invoices to the financing agency and they verify 

those costs as eligible uses of their funds. Each agency would have a register of project expenses (uses) 

and a corresponding register of sources.

State-level Pilots: To initiate this process, pilots are being implemented in several States to see if these 

SLR alignment actions can be implemented quickly at a State level. The goal of the pilots will be to have 

an MOU established between the State HFA, HUD, and USDA that states what entity will perform the 

SLR and identify how data will be shared between parties to assure that all further funding review and 

approval decisions are made using the same information. The implementation efforts of the pilots will 

be used as basis for the working groups to complete their tasks and establish a national format that can 

be used in other States.

Resource Estimate for Implementation:

It is anticipated that the resources needed to implement this proposal as a pilot will be limited since 

many SLRs are already being conducted by housing finance agencies, and the basic product of the 

alignment concept is an agreement or MOU on how to proceed. However, for national implementation, 

depending on the level and extent of existing efforts, resources will be needed to review the current 

situation, resolve issues and differences, and establish an agreement to proceed. 

For the pilot, the Team anticipates a series of meetings will be necessary to determine best how to 

implement these provisions in each State where an agreement is established. Representatives from the 

HFA, USDA, and each program to be covered by that agreement in HUD will need to be represented 

during these meetings and legal assistance will be necessary to prepare the agreement. The Team 

anticipates decision making for the funding of approximately 200 USDA projects and 300 HUD projects 

with LIHTC resources will be affected by this proposal each year, after full implementation (about 50 

during the pilot).

Additionally, there may be merit to eliminating or streamlining any subsidy layering requirements that 

cause any Federal program to be treated differently. One possibility is to mutually agree to a single point 

of contact for all SLR reviews, such as the State HFA. This may require development of a compensation 
45

schedule for any project’s SLR which the HFA completes on behalf of one of the agencies but which 

doesn't receive direct Federal funding through that particular State agency.

Estimated Cost Savings for Owners, Operators, Developers, Investors, and/or Lenders:

The Team anticipates the primary benefit will be faster SLRs that result in quicker transactional 

decisions. This will reduce some of the developer’s risk and lead to fewer instances where seed capital 

or dependent 3rd party funding is lost because of delayed subsidy layering or underwriting reviews. The 

Team also expects there to be some reduction in the costs to submit approval documentation as the 

goal will be for the developer to submit their information to only one agency. The Team will be able to 

identify more realistic cost savings once the pilot proceeds and additional feedback from stakeholders 

has been received.

Estimated Cost Savings for State, Local, and Federal Governments:

For example, HUD-PIH estimated staff time related to reviewing and approving a complete and errorfree SLR application is 4 hours, with a policy-based limitation of 30 days total for review. For pilot States, 

staff time related to approvals equals approximately 980 hours on the 121 CF properties for which a SLR 

was performed in 2007. Staff time savings due to SLR alignment would be dependent upon the number 

of subsidy streams each property has; however, if SLR alignment had been implemented for the CF 

properties in 2007, approximately 496 staff hours could have been saved.

Additionally, the Team anticipates an additional benefit to government will be consistent reporting of 

facts by applicants leading to faster and better informed decision making. The Team also expects faster 

access to information and an opportunity to reduce the number of reviews associated with transactional 

approval. Ultimately, the instances of poorly informed decision making to be reduced saving the 

government unwise expenditures of limited housing resources. The Team will be able to identify more 

realistic cost savings once the pilot proceeds and additional feedback from stakeholders has been 

received.

Schedule for Alignment Implementation:

The initial steps in implementation are the pilot, followed by the finalization and approval of the 

conceptual approach, after which full implementation will follow. It is anticipated that during fall 2011 

the Team will make contacts with target pilot States, establish working groups to implement the State 

pilots and receive final direction from DPC and RPWG to pursue pilot milestones. During late fall 2011, 

the Team will proceed with discussions on a State by State basis and seek to establish MOU’s once a 

decision is made to begin implementation. Once the pilots are under way and the resulting conceptual 

approach is approved, a full national roll out could be achieved within 12 months of a successful pilot.
46

Capital Needs Assessment

Lead Agency: HUD

Participating Offices: Treasury-IRS, USDA-RD, HUD-MF, HUD-PIH, HUD-CPD, HUD-OSHC

Prepared by: Ted Toon, HUD-MF, and Meghan Walsh, USDA-RD

Issue Statement:

Federal agencies and programs currently have different requirements for what constitutes a valid 

Capital Needs Assessment (CNA). While some of these differences are necessary consequences of using 

CNAs for different purposes, administrative alignment of minimum requirements and standards of CNAs 

across Federal rental housing programs will help avoid duplicative studies if owners and developers 

introduce a new Federal funding source to the project. In addition to CNAs completed for a specific 

action or transaction, some CNAs are completed for property and portfolio assessment, long-term 

capital planning, and asset management purposes, which translate into a different overall scope. 

Minimum qualifications for providers of CNAs are inconsistent across agencies and programs, and in 

some cases, are non-existent. Finally, CNAs today generally do not capture utility consumption data that 

would allow measurement, benchmarking, and establishment of baselines. 

Proposed Alignment:

The participating Federal agencies will direct and procure the development and implementation of a 

new, single CNA template tool for use by Federal and State agencies that administer rental housing 

program funds that require CNAs. The CNA template will include the actual CNA assessment tool, 

protocols for its use, reporting requirements, and minimum professional qualifications for the providers 

performing the CNA reviews. The CNA template will include a traditional, comprehensive property 

evaluation, an assessment of green building and energy efficiency needs and opportunities, and a utility 

data collection component. HUD and USDA will adopt the CNA template as the standard required 

protocol for all programs currently utilizing or requiring CNAs, while Treasury/IRS will share the CNA 

protocols and template tool as a ’best practice’ with State Housing Finance Agencies (HFAs) that 

administer Low Income Housing Tax Credit (LIHTC), through the National Council of State Housing 

Agencies (NCSHA), for potential use by HFAs in administration of their programs. 

These recommendations are based on a detailed assessment of the requirements, standards, and 

components of several CNAs currently in use by the participating agencies and some major lenders, as 

well as a review of a NCSHA report on CNA recommended practices for State LIHTC providers. The CNA 

team’s outreach efforts on this alignment initiative have received overwhelmingly positive feedback 

from subject matter experts and stakeholders, including property owners and owner associations, 

lenders, State administrators, and CNA providers.
47

Specific Actions to Effect Alignment: Two primary actions will most effectively advance the CNA 

alignment effort:

1. Creation of a single CNA template tool for use by entities that administer Federal rental housing 

funds, in the form of an electronic model (e.g., Microsoft Excel workbook , web-based software 

application, Oracle application, or other models designed to allow housing developers and 

agency users to access pages in the template that are specific to funding sources or programs. 

Upon opening the template and selecting the agency or program that is requiring the CNA, the 

template will show the pages appropriate to that program and the level of CNA review and 

analysis required for that program. 

This single template CNA tool will include:

• An assessment of all building systems, components, and elements to determine current 

needs and a standard 20-year projection of physical needs.

• A data collection page to record (often for the first time) information critical to efforts to 

benchmark performance for properties relative to their peers, in order to establish baselines 

for measurement of future performance. Data collection points and protocols will be 

consistent with industry-accepted standards, and will include utility configuration options 

(who pays for which utilities), fuel sources and costs, water and sewer costs and 

responsibilities, and whole-building utility consumption data, normalized for weather and 

occupancy variances.

• Two levels of review and analysis. Agencies would require the assessment level most 

appropriate to fulfill the needs of the applicable program. 

o Level 1: Agency programs using the CNA for asset management purposes, capital 

needs assessments, portfolio reviews, and purposes other than specific 

rehabilitation planning, will presumably require the Level 1 CNA review. Level 1 will 

be less expensive than Level 2 to complete, and will have less action-oriented 

recommendations than a Level 2 analysis, but would include the primary elements 

of energy efficiency, green building, and life cycle analysis to facilitate informed 

future decision making about underlying properties.

o Level 2: In general, programs using the CNA to support property development, 

rehabilitation, refinancing and repositioning, long-term capitalization and capital 

planning, and energy efficiency and green building retrofits, will presumably use 

Level 2, which would be the most rigorous level of CNA review and analysis. Two 

CNA standards in use today illustrate the approximate scope of review proposed for 

Level 2 of the new CNA template – the Enterprise Green Communities program CNA 

protocols and the HUD Recovery Act/Green Retrofit Program CNA model. 

• The CNA template will build in life cycle cost analysis for all CNAs to allow users to consider 

these attributes when determining the size of reserve accounts and to assist in investment 

decisions that may result in reducing utility costs going forward.
48

• The standard template CNA will include built-in analytics and logic models to enable the tool 

to make recommendations about the most cost-effective solutions to needs identified 

through the assessment. These analytics would include:

o Cost-benefit /payback analyses

o Early replacement analyses 

o ‘Cradle to grave’ review of materials and components, to the extent possible and as 

this information becomes more widely available

o Other environmental benefits of systems and components, such as indoor air quality 

benefits, recycled content, recyclability, durability/useful life, etc.

o Origin of materials and local sourcing

• It is important to note that while the CNA template will include the sophisticated analytics 

and logic to develop recommendations (as described above):

o All recommendations made by the tool can be manually overridden by the user, for 

any number of reasons (i.e., cost constraints, availability of materials, physical 

constraints, etc.). A built-in audit function will allow the user to view an inventory of 

overridden fields.

o The CNA review may identify a need for further supplemental, specialized 

assessments such as lead-based paint testing, an ADA accessibility study, asbestos 

review, feasibility testing for some alternative energy installations, underground 

storage tank testing, etc. The CNA itself will not include these specialized 

assessments, but will include ’flags’ to alert the CNA provider to the potential need 

for further studies, either because of the funding source requirements or because 

property characteristics warrant further study.

o The template CNA will assess and report on the physical needs and opportunities at 

the subject property, but will not require any work to be completed. Any 

requirements for action to be taken based on the CNA report will be driven solely by 

the agency and/or program utilizing the tool. In other words, the CNA tool provides 

the assessment but the agency/program applies its rules to the use of the CNA tool 

and the actions that may be required to address the assessment.

o Any agency using the template CNA can exercise its discretion to waive or modify 

the CNA requirements for very small properties, where the cost of assessment 

would be prohibitive.

• The CNA may include a link between the CNA template and an online industry source for 

accurate and current construction cost data and estimated useful life (EUL) tables for

materials and building systems that will be maintained and updated on an annual basis, to 

improve the accuracy and consistency of CNAs across all users. 

o It may also be possible to retain an outside contractor to link the CNA template to 

accurate and current construction cost data, and to maintain this data on an annual 

basis. This would greatly improve the accuracy of CNAs across the country. 
49

• Further adaptation of these standards by the agencies could be additive but presumably not 

be subtractive, i.e., the minimum assessment standards would apply in all cases, but some 

agencies or programs may layer additional requirements beyond the CNA review. 

Capital Needs Assessment Tool and the HUD-PIH Physical Needs Assessment Tool

Currently, HUD-PIH is working on the development of a Physical Needs Assessment (PNA) tool which will 

be used by Public Housing Authorities (PHAs) for capital planning. The HUD-PIH capital planning PNA is 

being created based on a CNA constructed by HUD-MF’s Office of Affordable Housing Programs (OAHP) 

for its Green Retrofit program. Pilot testing began in the summer of 2011 and roll out to all PHAs is 

anticipated in 2012.

The HUD-PIH PNA is anticipated to be very closely aligned with the CNA. The major difference between 

the two products relates to the level of complexity and associated burden, and the level of control the 

agency has in the process. The HUD-PIH PNA will be completed by PHAs every five years and updated 

annually by over 3,100 PHAs, including some 2,100 small PHAs. However, the CNA tool is intended to be 

transactional, and thus would be undertaken by a much smaller subset of entities much less frequently, 

potentially only once every 15 or 20 years.

PHAs would only infrequently use the CNA tool for capital planning as the level of sophistication and 

complexity associated with it would be greater than with the PNA. It should be noted however that the 

CNA protocol could potentially apply to HUD-PIH transactional programs (such as Choice Neighborhoods 

or Public Housing Capital Grants) in instances where the program requires more rigorous standards than 

the PNA provides. Major recapitalization and substantial rehabilitation events generally require 

borrowers to meet a higher standard to justify the long term commitments implicit in the financing.

CNA training

Development and adoption of a single CNA template tool will require a robust training and 

implementation component for users. This training will include, at a minimum, a comprehensive user 

guide, in-person training for respective agency staff, regional in-person training for CNA providers and 

other stakeholders, and a webinar (or potentially multiple webinars targeting various stakeholder 

audiences) conducted jointly by the agencies and the contractor responsible for development of the 

template, as part of its overall engagement. This webinar training will continue to be available 

nationally, and archived for future use by anyone, accessible on the respective agencies’ websites. CNA 

providers using existing CNA templates have emphasized the critical need for training and technical 

assistance, as the learning curve for a new tool and protocol (even for experienced providers) can be 

steep. Additionally, the presumed streamlining savings anticipated are dependent upon up-front 

training. 

2. In conjunction with the new CNA template tool, the team proposes development of a minimum 

professional qualification standard for providers of CNAs, to ensure that providers have the 

experience and ability to assess the capital needs of rental housing properties. The CNA 

template proposed is more in depth than some CNA protocols in use today, including the energy 
50

audits/assessments, life cycle cost analysis, and accessibility standards components, each of 

which requires specific knowledge and experience. It is critical that the new CNAs are completed 

by professionals capable in these areas so that assessments are correct and usable. The 

common qualification standard will likely reference and accept any number of broadly available 

industry qualifications, standards, certifications, or accreditations. 

Resource Estimate for Implementation: Based on CNA team research into the resource requirements to 

develop other CNAs currently in use by other parties, the team estimates that the total cost to design, 

develop, implement, provide training on, and maintain the CNA template tool would be approximately 

$1 million - $1.5 million. This estimate includes procurement, design, development, testing, training 

development, training delivery, implementation and roll out of the CNA electronic tool, and associated 

protocols, user guide, and training materials. This total cost breaks down approximately as:

• CNA design and development: $0.8 - $1.25 million. This estimate assumes that one or more of 

the existing CNA templates can be used as a basis for design and development

• Implementation, training, technical assistance, user guide development: $0.25 - $0.5 million

It is critical that the full range of activities associated with the initiative is funded together. 

This investment is recommended to be a shared cost between two of the Rental Policy Working Group 

lead agencies. HUD, as the most intensive user of CNAs, will assume the largest share of cost, with USDA 

assuming part of the responsibility commensurate with demand. Because Treasury works to provide 

guidance to State HFAs, but does not otherwise provide resources with which State HFAs are to 

administer the LIHTC program, Treasury/IRS may issue guidance related to the CNA tool but will not 

require HFAs to make the new CNA a required component of HFAs allocation process and will not 

contribute to costs of development. This initiative includes elements of Information Technology, 

Technical Assistance, and Transformation, and the team recommends pooling resources from each of 

these areas in the respective Agencies. This resource allocation is a strategic investment in a tool and 

protocol that will streamline operations, and save considerable Agency and stakeholder resources in the 

long run.

Estimated Cost Savings for Owners, Operators, Developers, Investors, and/or Lenders:

Cost savings are anticipated as providers of CNAs gain familiarity with the standardized requirements of 

CNAs across agencies. While difficult to estimate, the standardized CNA template tool could 

conservatively be expected to save 10-20% on the cost of an average, comparable CNA assessment and 

report, primarily due to the efficiencies of a standardized assessment approach. CNA providers, 

regardless of agency, program, or location of the property (depending on which State LIHTC 

administrators adopt the standard CNA), will be familiar with the tool, protocols, and expectations of 

the assessment.

Streamlining for providers should result in reduced costs to the consumers of the reports, i.e. the 

owners, developers, lenders, and/or investors. A back-of-the-envelope estimate of potential savings 

assumes approximately 3,000 CNAs are performed per year in the various HUD, USDA, and LIHTC 
51

refinance and/or rehabilitation programs’ assisted or subsidized properties. At an average cost of 

$10,000, and a conservative, average assumed efficiency savings from using this new CNA template of 

10%, annual savings from this alignment will be (3,000 x $10,000 x 10% =) $3 million.

The CNA tool will include, as described, cost/benefit analyses and life cycle cost analyses, informing 

investment decisions in components and technologies that will result in measurable savings generated 

from utility and water efficiency savings. These savings may accrue to the owners, investors, lenders, 

agencies, and/or residents, depending upon utility configuration, subsidy structure, etc.

Savings to stakeholders will also result from the elimination of the need for duplicate CNAs on the same 

transaction. For example, a property currently may need to meet one CNA standard for an agency (HUD 

or USDA) and another standard for the State administrator of LIHTCs, requiring two similar but distinct 

CNAs to be produced. Additionally, equity investors and lenders may continue to require their own 

independent CNAs. Properties subject to multiple program requirements across multiple agencies may 

similarly be required to produce (and pay for) multiple CNAs to satisfy each agencies’ unique 

requirements. 

Estimated Cost Savings for State, Local, and Federal Governments:

The single CNA template will simplify future coordination and updates to all of the agencies’ CNAs, as 

regulations and requirements change, energy efficiency advancements are made, and new components 

and technologies become available, all of which will affect the rental housing industry and will be 

reflected in future versions of the CNA tool. Currently, HUD and USDA hire outside contractors to 

separately develop, update, and maintain these various templates. These costs average more than $1 

million per year. When there is only one standard template, there will be savings by reducing overlaps in 

work between agencies to keep templates updated.

The CNA tool will include, as described, cost/benefit analyses and life cycle cost analyses, informing 

investment decisions in components and technologies that will result in measurable savings generated 

from utility and water efficiency savings. These savings, while difficult to estimate, should equate to tens 

of millions of dollars per year in the near term; HUD and USDA alone spend in excess of $6 billion 

annually on utilities in some form (i.e., tenant utility allowances, inclusive rents, budget-based operating 

subsidies, etc.). CNAs that drive owners and investors to make efficiency investments that result in very 

modest utility savings of 10-20% will generate millions in savings in a very short time. (These savings are 

very achievable: EnergyStar requires a standard that is 15% more efficient than local code, and 

experience in some HUD retrofit programs has shown that 20% savings are readily realized with modest 

investment.) The long-term goal is to utilize a CNA that includes an energy audit component, as 

recommended here, to make the agencies’ portfolios much more efficient and affordable over time.

The agency program administrators that utilize the CNA reports and recommendations to support 

programs will benefit through saved staff time by having a standardized tool; currently, the lack of a 

standard format for presentation of CNA findings and recommendations result in a great deal of backand-forth between the agency staff and the CNA provider. A standard tool with a clear and explicit 
52

protocol for reporting and on which all parties are trained will greatly reduce the time and effort to 

successfully complete a property assessment. 

Finally, the CNA tool, if linked to cost-estimating software or data, will save agency time and money (as 

well as owner/investor time and money) through more accurate and timely cost estimating and capital 

planning than can be performed currently.

Schedule for Alignment Implementation: The total development and implementation time for the single, 

multi-agency CNA template is estimated to be 24 months. This includes:

• Development of specifications and scope of work: 3 months

• Procurement of services: 3 months

Major Milestone at 6 months: Contract procured/Contractor selected for development of CNA

• Design and drafting of detailed template functionality and interface specifications with selected 

contractor: 4 months

• Development of beta version of template tool: 4 months

Major Milestone at 14 months: Beta tool developed for testing

• Testing, revisions, finalization of template tool: 3 months

• Limited release for final testing: 2 months

• Creation of user guide, training materials, on-line training sessions, technical assistance 

materials, etc.: 3 months (concurrent)

• Finalization of template tool: 1 month

Major Milestone at 21 months: Final tool and training materials released; training begins

• Public release of final CNA template tool, training for agency staff, CNA providers: 3 months (and 

ongoing via on-line training materials)

Major Milestone at 24 months: First round of training for agency staff and CNA providers completed, 

archived webinars and training materials available for public use 

It is recommended that participating agencies adopt the CNA template for all programs requiring the 

use of a CNA within six months of public release of the template.

Challenges to Effecting Proposed Alignment:

Stakeholders have raised concerns that a CNA template and protocol that involves more rigorous review 

and reporting requirement than may currently be required, such as the addition of an energy audit 

component, will lead to increased costs per CNA.30

 30 The savings from efficiencies estimated above are savings over a similar-scope CNA.

These are legitimate concerns, as some agency 

programs that convert to the new template CNA will increase the rigor of the review and likely the cost 
53

to have a review performed. However, any increase in the rigor of CNA requirements are most likely 

coming regardless of this alignment initiative. In fact, the aligned CNA template should minimize the cost 

increases because of the cost-reducing effects of standardization. As detailed above, many programs’ 

CNAs should fall in cost due to the alignment. 

A related cost concern raised by stakeholders is that establishing minimum professional qualifications 

and training requirements for the professionals performing CNAs could, at least in the short term, 

increase the cost of finding a qualified professional to perform the CNA, particularly in rural areas and 

for owners that perform CNAs using internal staff who may or may not meet the aligned qualification 

requirements. While the development of common CNA provider qualifications promotes useful and 

proper CNA assessments, the enactment of such minimum qualifications or certifications may lead to an 

increase in the cost of providing/attaining a CNA, at least initially until the market catches up to the 

qualification standard. These challenges are believed to be short term, as the provider industry gets up 

to speed on qualifications, and that this potential cost increase is more than offset by the savings 

resulting from standardization. 

The use of CNAs to meet the requirements of the various agencies and program offices varies greatly. 

The development of each of the primary forms of CNAs in use or development by the respective 

agencies today has been a lengthy and expensive process, involving considerable contract dollars and 

internal agency resources to guide the development and implementation of the tool. Modifications 

recommended through this alignment process, if adopted, may result in time-intensive and costly 

changes to guidance, software, training, and roll-out, which could render their implementation 

challenging. For example, many public housing authorities (PHAs) have a CNA system in place, either 

internally or through a third party provider. Some of these third party arrangements involve an ongoing 

contractual relationship for maintenance of the database created through the CNA. Some of these 

databases are further integrated into the PHAs other internal operating systems. Further, many PHAs 

perform the CNA activity for strategic planning with qualified in-house staff; a professional qualification 

requirement, if greater than today’s requirements, would potentially force PHAs to bear the expense of 

third party providers or of extensive re-training for their staff to obtain professional certification.

Another example comes from the green CNA developed to support HUD’s Green Retrofit Program; the 

tool was developed using an existing HUD CNA tool as the baseline, and considerable time and contract 

dollars to develop, test, train, and implement the tool. That CNA tool is designed to support a specific 

program, in that the results of the CNA are automatically electronically linked into the financial 

underwriting model used to support award decisions, loan and grant sizing, and loan committee 

reviews. 

The development of a single CNA template capable of supporting the specific requirements and nuances 

of each of the application templates, with the functionality to allow the user to select the agency and 

program and have the appropriate screens appear, would in itself be a considerable undertaking in 

terms of agency resources, as described above. Once created and tested, there will be a considerable 

commitment of time and resources to then provide training and support to the various stakeholders in 
54

becoming familiar with the tool. There will be an ongoing need for maintenance and updating the tool, 

and technical support to the users of the tool. 

On the other hand, once in place, this template CNA tool will be easier to maintain and update with 

newer, more accurate information than multiple CNAs between agencies. With an increased emphasis 

on energy efficiency in rental housing, energy subsidies would correspondingly be reduced as well.

Despite these challenges, it is the team’s collective recommendation that this undertaking is a strategic 

investment in a tool and protocol that will streamline operations and save considerable agency and 

stakeholder resources in the long run.
55

Improve Sharing of Data on Owner Defaults

Lead Office: HUD-MF

Participating Offices: Treasury-IRS, USDA-RD, HUD-MF, HUD-PIH, HUD-CPD, HUD-OSHC

Prepared by: Janet Stouder, USDA-RD

Issue Statement: 

Multifamily participants are required by most HUD multifamily mortgage insurance and subsidy 

programs, and by USDA-RD, to submit an application for previous participation clearance when new 

business is proposed. The application clearly identifies the participant, its proposed role in a multifamily 

property, and its portfolio of multifamily properties, which includes HUD Multifamily-insured and/or 

subsidized cases, USDA-RD financed cases, and State/local government housing agency financed cases.

By reviewing this information, HUD and USDA-RD are able to identify instances of prior noncompliance 

with agency requirements. For example, applicants are required to disclose the most recent results of 

physical inspections and management reviews, disclose defaults on any cases in the last 10 years, and 

even identify debarments. This information is used to determine whether new business should be 

conducted with the applicant, and always takes into consideration whether the problems were 

satisfactorily resolved.

HUD’s Office of Multifamily Housing Programs (HUD-MF) uses an automated system (’Active Partners 

Performance System,’ or APPS) for storing this information, and HUD-MF staff reviews it when 

considering new applications for previous participation clearance. Outside clients (i.e., owners and 

management agents) can access the system to create and update their entity’s organizational 

information and portfolio. APPS is also updated by feeds from other HUD systems (i.e., IREMS) regarding 

physical inspections, management reviews, and defaults for HUD multifamily cases. At this time, HUD 

has to verify information from other agencies with regard to compliance with RD- and State-agency 

financed cases.

Proposed Alignment:

1. Grant USDA-RD access to HUD’s APPS database.

As noted above, USDA-RD programs require Previous Participation Clearance; however, only 

staff of HUD’s programs has direct access to the APPS system. Therefore, USDA-RD personnel 

must contact a HUD office for information if they wish to learn whether a participant has a 

record of non-compliance, or if they wish to share information on a participant within their 

respective programs. As this automated APPS system is already in existence, giving (at 

minimum) read-only access to counterpart agencies like USDA-RD will help to streamline and 

speed up the process of approving new business. Reducing the processing time would improve 

delivery of services to our clients.
56

2. USDA-RD provides compliance information to HUD’s APPS database.

USDA currently has a management information database that contains compliance status for 

the USDA Multifamily borrowers. The compliance information is similar to HUD’s APPS database 

that reports on financial, physical, management, owner and civil rights non-compliance issues. 

Including USDA compliance issues into the database would provide the two departments with a 

central depository of information on a multifamily property program participant’s performance 

that would in turn provide both departments with important information when making 

determinations of eligibility and continued performance. If USDA-RD were granted data input 

access to APPS, this would also provide increased access to information and would improve 

review of the multifamily participant’s performance. 

Specific Actions to Effect Alignment: HUD is currently in the beginning stages of upgrading the APPS 

system to address several other unrelated issues. Therefore, if this proposal is acceptable, HUD will need 

to include these requirements in the business design of the upgrade. In addition, USDA-RD will need to 

provide HUD APPS system with performance information from USDA-RD MFH Information System.

Resource Estimate for Implementation: This information is still to be determined, but there is likely low 

incremental cost if alignment is included as part of the business design for overall upgrade.

Estimated Cost Savings for Owners, Operators, Developers, Investors, and/or Lenders:

There will be a small benefit for owners, operators, developers, investors, and/or other lenders due to 

quicker review by the Federal government of the data submitted.

Estimated Cost Savings for State, Local, and Federal Governments: 

There is limited monetary savings. However, non-financial savings will be gained by more reliable data 

and efficiency in gathering and reviewing data by HUD and USDA-RD.

Challenges to Effecting Proposed Alignment: 

• Funding for the IT enhancement will need to be in place to incorporate the additional business 

requirements

• HUD is required to contact Congressional oversight committees for any changes to the APPS 

database.

• Regulations will need to be modified to notify the public that HUD will be sharing information 

with USDA-RD.

• Security issues for access to APPS system by USDA-RD users will need to be reviewed by both 

departments’ CIO staff.
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Fair Housing Compliance Enforcement

Lead Office: HUD-FHEO

Participating Offices: USDA-RD, HUD-FHEO, HUD-OGC, DOJ & Treasury-IRS

Prepared by: Jack Malgeri, HUD-FHEO

Issue Statement: 

In 1997, the Secretaries of HUD and Agriculture signed a memorandum of understanding (MOU) 

between the two agencies concerning cooperation in the processing of USDA civil rights cases, joint 

investigations of civil rights issues, sharing of documents, and cooperation in the conciliation, informal 

resolution of cases, and the development of sanctions. While initially operational, the HUD-Agriculture 

MOU has largely not been followed and its dormancy has produced a lack of meaningful dialogue 

between the two agencies concerning the resolution of significant civil rights issues and proactively 

cooperating to address common civil rights problems in housing programs, frequently financed with 

both HUD and USDA financing. Little effort has been made on coordinating a common approach to the 

statutory requirement to affirmatively further fair housing, and how a coordinated effort by USDA, HUD, 

and Department of Justice (DOJ) program staff could enhance USDA efforts in the realm of affirmatively 

furthering fair housing in its housing assistance programs. 

In 2000, the Secretary of the Treasury, the Secretary of HUD, and the Attorney General of the United 

States signed a Fair Housing Act MOU among the three agencies seeking to improve Fair Housing Act 

enforcement, educational outreach, and IRS agency guidance addressing significant civil rights concerns 

in the low-income housing credit program. Since 2000, the Fair Housing Act MOU has been successful in 

leading to the resolution of dozens of civil rights cases involving low-income housing credit projects 

referred to the IRS by HUD and DOJ. Specifically, through a coordinated process, the IRS has sent 

advisory letters to project owners based on the underlying HUD or DOJ civil rights action, noting the 

potential loss of low-income housing credits if the project owners fail to address the underlying civil 

rights issue. The three agencies continue to engage in educational outreach to project owners, 

syndicators, and housing credit agencies on civil rights matters, including disabled accessibility 

requirements. In addition, the IRS improved its guidance on civil rights issues for project owners, 

housing credit agencies, and the general public based on technical assistance from HUD and DOJ. 

Nevertheless, a limitation of the existing Fair Housing Act MOU is that its practical focus has been 

limited to improving inter-agency technical operations issues, rather than focusing on addressing 

substantive civil rights policy concerns. There is also a need for more regular discussions among the 

three agencies and greater harmonization among Federal agencies concerning fair housing and civil 

rights issues. 

For example, issues of harmonization include, but are not limited to: 1) the need for closer cooperation 

and more effective coordination among the U.S. Treasury Department, USDA, HUD, and DOJ in 
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addressing civil rights problems involving commonly funded housing projects, including disabled 

accessibility, local opposition to the development of affordable housing, and systemic patterns of 

discrimination; 2) the need for improved and coordinated data collection about tenant demographics

and housing placement; 3) the lack of uniform guidance among the Federal housing programs about 

discrimination against voucher holders; 4) the need for greater unified educational outreach by the 

Federal housing agencies and the DOJ to developers, project investors, property managers, lenders, 

syndicators, housing credit agencies, and tenants; 5) the lack of consistent application of affirmative 

fair housing marketing in the low-income housing credit program that are utilized in other Federal

housing programs; and 6) the lack of consistent site and neighborhood standards in the low-income 

housing credit program which would help avoid placement of housing in highly minority and poverty 

concentrated areas. 

Proposed Alignment:

The outline for greater fair housing and civil rights alignment includes reconstituting and restarting the 

coordination process established in the original 2000 Fair Housing Act MOU among Treasury, HUD, and 

DOJ, and the 1997 HUD-Department of Agriculture MOU. Specific actions are listed in the approximate 

order in which they could be achieved, with the understanding that many of these proposals may be 

pursued simultaneously. 

Specific Actions to Effect Alignment: 

1. Reinvigorate the Interagency Coordination Process Set Forth in the MOUs

• Designated Staff. Designate career staff from each agency to serve as the point person for 

implementing the 1997 and 2000 MOUs and to confer on key guidance and enforcement 

issues set out below. Establish semi-annual meetings of IRS, HUD, USDA, and DOJ personnel 

to discuss fair housing issues applicable to the low-income housing credit program and 

improvements to processes, agency guidance, and cooperation among the agencies. 

2. Enhance Educational Outreach and Training for State Housing Credit Agencies, Syndicators, 

Project Managers, and Developers

Within the existing structure of the 2000 MOU, the Federal agencies should reinvigorate:

• Cooperation among HUD, USDA, IRS, and DOJ officials in conducting annual training 

seminars, and meetings with: 

o State and local housing credit agencies about their obligation to comply with the 

Fair Housing Act when allocating low-income housing credits and performing 

compliance monitoring; and 

o Associations of developers, syndicators, property managers, and investors that 

participate in the LIHTC and USDA loan assistance programs about how they can 

comply with the Fair Housing Act, including training on exclusionary zoning law and 

practices, and accessibility requirements. 

3. Enhance Quality Control of Non-Compliance Reporting to IRS
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Within the existing structure of the MOU, the Federal agencies should reinvigorate the process 

of reporting Federal and State civil rights causes of action: 

• Form 8823. Help ensure that housing credit agencies are timely and comprehensively 

reporting to the IRS and notifying owners when HUD has reported a charge or a reasonable 

cause determination by a substantially equivalent fair housing agency, regarding a LIHTC 

project, or when DOJ has filed a Fair Housing Act lawsuit. Establish a mechanism whereby 

DOJ and HUD can notify IRS directly of these events through a point of contact with the IRS

Service Center processing the Forms 8823. 

Resource Estimate for Implementation: 

The resources necessary for implementation of these recommendations is minimal. It is anticipated that 

one staff FTE from each of HUD, USDA, IRS, and DOJ would need to commit to one-quarter of their time 

over the course of the one year implementation period in coordinating the effort to work on refining the 

existing MOUs, and in implementing the development of educational outreach programs, improved 

agency guidance, and operational details. The only expenditures contemplated would be for HUD and 

DOJ training, travel, and educational outreach efforts to stakeholders in the syndicator, lending, 

property management, and housing credit agency communities, which again is contemplated under the 

existing Fair Housing Act MOU.

Estimated Cost Savings for Owners, Operators, Developers, Investors, and/or Lenders: 

The savings to owners and developers will largely result from avoiding litigation, retrofitting, and civil 

penalties as a result of published guidance and educational outreach which will mitigate the potential 

for fair housing violations. Lenders and syndicators will also save money, time, and resources by 

possessing greater certainty about potential civil rights problems and corrective measures before 

investing in a project. 

Estimated Cost Savings for State, Local, and Federal Governments: 

State and local governments will benefit though avoidance of potential litigation through greater 

guidance and education about civil rights problem areas. 

The Federal Government will benefit from inter-agency cooperation which will help mitigate the need 

for resources devoted to litigation to correct civil rights deficiencies through more effective educational 

outreach and proactive compliance civil rights monitoring. 

Schedule for Alignment Implementation: 

Work on the enhancements to the respective MOUs and improved guidance and educational outreach 

can be completed on a one year schedule. Please see the following projected schedule: 

• September 2011 – Convene agencies to discuss existing MOUs and suggested 

improvements;

• December 2011 – Revise existing MOUs; 
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• January 2012 – Begin educational outreach to housing credit agencies, syndicators, 

developers, and project managers; 

• August 2012 – Reassess quality control efforts, educational outreach, and new processes 

developed under the MOU for effectiveness. 

Challenges to Effecting Proposed Alignment:

The challenges for adopting these proposed solutions will require inter-agency cooperation. IRS, HUD, 

USDA, and DOJ have cooperated in the past and recognized the benefits of a unified effort to address 

civil rights problems in their respective housing programs. A key challenge is maintaining energy, 

commitment, and purpose, which was sometimes absent in past inter-agency civil rights initiatives. 

From past experience with the Fair Housing Act MOU among Treasury, HUD, and DOJ, the housing

industry and housing credit agencies will be somewhat reluctant to implement requirements such as 

affirmative fair housing requirements, or site and neighborhood standards, perhaps because of 

erroneously perceived conflicts with neighborhood revitalization. We believe that this initial reluctance 

can be overcome by active outreach to the developer, syndicator, lending, and housing credit agency 

communities to fully explain the rationale and benefits of enhanced civil rights planning and compliance. 

Such outreach efforts occurred in 2000 in conjunction with the signing of the Fair Housing Act MOU and 

these outreach efforts significantly eased concerns and promoted the active partnership of key 

stakeholders such as the syndicator, property management, and housing credit agency communities.