[Federal Register Volume 69, Number 239 (Tuesday, December 14, 2004)]
[Rules and Regulations]
[Pages 74894-74895]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-27208]



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Part IV





Department of Housing and Urban Development





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24 CFR Part 200



Distribution of Tax Credit Proceeds; Final Rule

Federal Register / Vol. 69, No. 239 / Tuesday, December 14, 2004 / 
Rules and Regulations

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 200

[Docket No. FR-4792-F-02]
RIN 2502-AH91


Distribution of Tax Credit Proceeds

AGENCY: Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner, HUD.

ACTION: Final rule.

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SUMMARY: This rule adopts as final an interim rule that amended the 
Department's regulations with respect to funding for project 
completion. The regulatory change allows the proceeds from syndication 
of low-income housing tax credits and historic tax credits to be 
treated in the same manner as loan or grant funding provided through 
federal, state, or local government agencies. This final rule follows 
an interim rule that was published in the Federal Register of July 30, 
2003. Two comments were received in response to the interim rule's 
invitation for public comment. After careful consideration of the two 
comments received, HUD is adopting the interim rule without change.

DATES: Effective date: January 13, 2005.

FOR FURTHER INFORMATION CONTACT: Michael McCullough, Director, Office 
of Multifamily Development, Office of the Deputy Assistant Secretary 
for Multifamily Housing, Room 6148, Department of Housing and Urban 
Development, 451 Seventh Street, SW., Washington, DC 20410-8000. 
Telephone (202) 708-1142, extension 5426 (this is not a toll-free 
number). Hearing- or speech-impaired persons may access this number by 
calling the Federal Information Relay Service at 800-877-8339 (this is 
a toll-free number).

SUPPLEMENTARY INFORMATION:

I. Background

    On July 30, 2003, (68 FR 44844) HUD published an interim rule to 
revise the Department's regulations at 24 CFR 200.54. Readers are 
referred to the July 30, 2003, interim rule for a full discussion of 
the basis and rationale advanced by the Department for adopting the 
revised regulations.

II. This Final Rule

    This final rule follows publication of the July 30, 2003, interim 
rule, and takes into consideration the two public comments received on 
the interim rule. The two comments received during the public comment 
period were from an association representing mortgage bankers and an 
association of home builders, respectively.
    Comment: Support for interim rule. One commenter strongly supported 
the rule, applauding HUD for taking a proactive step to simplify and 
improve the process of using low-income housing tax credits with FHA-
insured multifamily loans. The commenter also encouraged HUD to seek 
additional ways to streamline the approval process for FHA-insured 
loans that fund low-income tax credit properties.
    HUD Response. HUD appreciates the commenter's support. As suggested 
by the commenter, HUD will continue to pursue ways to make the approval 
process for FHA-insured loans more efficient.
    Comment: Clarify amount of tax credit proceeds to be escrowed. The 
commenter requested that HUD's implementing instructions clarify that 
only the tax credit proceeds required for the front money escrow be 
placed in escrow with the mortgagee prior to the start of construction.
    HUD Response. HUD agrees with the comment and has made the 
clarification in the implementing instructions in the Multifamily 
Accelerated Processing (MAP) guide.
    Comment: A letter of credit should satisfy the tax credit proceeds 
required at closing. The second commenter recommended that to make FHA 
insurance a more attractive and cost-effective financing vehicle for 
projects with low-income housing tax credits, HUD allow tax credit 
proceeds required at closing to be held by the mortgagee in the form of 
an unconditional, irrevocable letter of credit issued by a banking 
institution. The commenter wrote that if this recommendation were 
adopted, it would conform the policy for tax credit proceeds with that 
now allowed where grant or loan funds such as funds provided under 
HUD's HOME or Community Development Block Grant (CDBG) program are 
provided from a government agency or instrumentality. If there is a 
problem with collecting on the letter of credit, the mortgagee would be 
at risk and required to provide the funds necessary to complete the 
project. The commenter concluded that HUD would be at risk only if both 
the banking institution and the mortgagee failed to meet their 
obligations.
    HUD Response: HUD disagrees with the recommendation and, as noted 
above, adopts the interim rule without change. Where FHA has insured 
loans with funds from a governmental agency, the agency executes a 
commitment that is binding on present and future administrations. Under 
the commenter's recommendation, if the lending institution that issued 
the letter of credit failed to honor its letter of credit, FHA's sole 
reliance would be on the mortgagee. FHA permits mortgagees to accept 
letters of credit in lieu of cash for items such as initial operating 
deficit, working capital, and assurance of completion. In a tax credit 
transaction, a mortgagee that accepted a letter of credit would be 
backing major equity (sometimes at least 50 percent of the cost of the 
transaction).
    Multifamily mortgagees are currently required to have only $250,000 
of net worth. For FHA to consider an arrangement such as the one 
suggested by the commenter, FHA would have to evaluate the current net 
worth of the mortgagee at the time of the transaction or establish a 
separate category of mortgagees with much higher net worth that could 
handle such financial risk. Either solution would be too 
administratively burdensome for the Department to undertake at this 
time.

III. Findings and Certifications

Environmental Review

    A Finding of No Significant Impact with respect to the environment 
for this rule was made at the interim stage, in accordance with HUD 
regulations at 24 CFR part 50, which implement section 102(2)(C) of the 
National Environmental Policy Act of 1969. That Finding of No 
Significant Impact remains applicable to this final rule and is 
available for public inspection between 8 a.m. and 5 p.m. weekdays in 
the Regulations Division, Office of the General Counsel, Room 10276, 
Department of Housing and Urban Development, Room 10276, 451 Seventh 
Street, SW., Washington, DC 20410-0500.

Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) 
establishes requirements for federal agencies to assess the effects of 
their regulatory actions on state, local, and tribal governments and 
the private sector. This final rule does not impose a federal mandate 
that will result in expenditure by state, local, or tribal government, 
within the meaning of the Unfunded Mandates Reform Act of 1995.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) generally 
requires an agency to conduct a regulatory flexibility analysis of any 
rule subject to notice and comment rulemaking requirements unless the 
agency certifies that the rule will not have a significant economic 
impact on a substantial

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number of small entities. There are no anti-competitive discriminatory 
aspects of the rule with regard to small entities, and there are no 
unusual procedures that would need to be complied with by small 
entities. Rather, this rule amends 24 CFR 200.54(b) to allow the 
proceeds from syndication of low-income housing tax credits and 
historic tax credits to be treated in the same manner as loan or grant 
funds provided through federal, state, or local government agencies. To 
the extent that the rule has an impact on program participants, it will 
be the beneficial impact of simplifying the use of tax credits with the 
FHA mortgage insurance programs by allowing the pro-rata distribution 
of the required borrower equity and of the mortgage proceeds. As a 
result, this rule will not have a significant economic impact on a 
substantial number of small entities. Accordingly, the undersigned 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on state and local 
governments and is not required by statute, or the rule preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the order. This rule does not have federalism 
implications and will not impose substantial direct compliance costs on 
state and local governments nor preempt state law within the meaning of 
the order.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers for 24 CFR part 
200 are 14.135 and 14.139.

List of Subjects in 24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Housing standards, Lead poisoning, Loan 
programs-housing and community development, Manufactured homes, 
Mortgage insurance, Reporting and recordkeeping requirements.

0
Accordingly, for the reasons stated in the preamble, the interim rule 
for part 200 of title 24 of the Code of Federal Regulations, published 
on July 30, 2003 at 68 FR 44844, is promulgated as final without 
change.

    Dated: November 15, 2004.
John C. Weicher,
Assistant Secretary for Housing--Federal Housing Commissioner.
[FR Doc. 04-27208 Filed 12-13-04; 8:45 am]
BILLING CODE 4210-27-P