74894 Federal Register / Vol. 69, No. 239 / Tuesday, December 14, 2004 / Rules and Regulations 

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.

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 lowincome 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 costeffective 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 

Federal Register / Vol. 69, No. 239 / Tuesday, December 14, 2004 / Rules and Regulations 74895

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 prorata 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.

■ 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