[Federal Register Volume 86, Number 8 (Wednesday, January 13, 2021)]
[Proposed Rules]
[Pages 2582-2607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-00098]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 86, No. 8 / Wednesday, January 13, 2021 / 
Proposed Rules

[[Page 2582]]



DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5, 92, 93, 200, 574, 576, 578, 880, 882, 884, 886, 
902, 982, 983 and 985

[Docket No. FR-6086-P-01]
RIN 2577-AD05


Economic Growth Regulatory Relief and Consumer Protection Act: 
Implementation of National Standards for the Physical Inspection of 
Real Estate (NSPIRE)

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, Office of the Assistant Secretary for Community Planning 
and Development, Office of the Assistant Secretary for Public and 
Indian Housing, HUD.

ACTION: Proposed rule.

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SUMMARY: This rule proposes a new approach to defining and assessing 
housing quality: The National Standards for the Physical Inspection of 
Real Estate (NSPIRE). This proposed rule is part of a broader effort 
across HUD to revise the way HUD-assisted housing is inspected and 
evaluated. The purpose of NSPIRE is to reduce regulatory burden and 
improve HUD oversight through the alignment and consolidation of the 
inspection regulations used to evaluate HUD housing across multiple 
programs, which are currently evaluating housing quality through 
differing standards, protocols, and frequencies. The goal of this 
alignment and consolidation is to create a unified assessment of 
housing quality. In advancement of HUD's mission to create quality 
affordable housing and strong, sustainable, and inclusive communities, 
this rule would establish the method HUD will use for the 
implementation of specific NSPIRE standards, scoring, and processes 
through Federal Register notices. Additionally, the proposed rule seeks 
to apply a ``safe, habitable dwellings'' standard; reduce the 
categories of current inspectable areas for physical condition 
standards for covered housing programs from five to three; implement a 
new annual self-inspection and reporting requirement for certain HUD 
housing; establish an administrative process for the treatment of 
health and safety deficiencies; and incorporate provisions of the 
Economic Growth and Recovery, Regulatory Relief and Consumer Protection 
Act that will reduce administrative burden on small rural PHAs.

DATES:  Comment Due Date: March 15, 2021.

ADDRESSES: Interested persons are invited to submit comments to the 
Office of the General Counsel, Rules Docket Clerk, Department of 
Housing and Urban Development, 451 Seventh Street SW, Room 10276, 
Washington, DC 20410-0001. Communications should refer to the above 
docket number and title and should contain the information specified in 
the ``Request for Comments'' section. There are two methods for 
submitting public comments.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW, Room 10276, 
Washington, DC 20410-0500. Due to security measures at all federal 
agencies, however, submission of comments by mail often results in 
delayed delivery. To ensure timely receipt of comments, HUD recommends 
that comments submitted by mail be submitted at least two weeks in 
advance of the public comment deadline.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make comments 
immediately available to the public. Comments submitted electronically 
through the http://www.regulations.gov website can be viewed by other 
commenters and interested members of the public. Commenters should 
follow instructions provided on that site to submit comments 
electronically.
    Note: To receive consideration as public comments, comments must be 
submitted through one of the two methods specified above. Again, all 
submissions must refer to the docket number and title of the notice.
    No Facsimile Comments. Facsimile (fax) comments are not acceptable.
    Public Inspection of Comments. All comments and communications 
submitted to HUD will be available for public inspection and copying 
between 8 a.m. and 5 p.m. weekdays at the above address. Due to 
security measures at the HUD Headquarters building, an advance 
appointment to review the public comments must be scheduled by calling 
the Regulations Division at (202) 708-3055 (this is not a toll-free 
number). Copies of all comments submitted are available for inspection 
and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Timothy Weese and Samuel Franco, Real 
Estate Assessment Center, Office of Public and Indian Housing, 
Department of Housing and Urban Development, 550 12th St SW, Suite 100, 
Washington, DC 20410-4000, telephone number 202-708-1112 (this is not a 
toll-free number). Individuals with hearing or speech impediments may 
access this number via TTY by calling the Federal Relay during working 
hours at 800-877-8339 (this is a toll-free number).

SUPPLEMENTARY INFORMATION: 

I. Background

    There are currently two inspection models used across the majority 
of HUD housing programs: The Housing Quality Standards (HQS) developed 
in the 1970s, which are currently found at 24 CFR 982.401, and the 
Uniform Physical Condition Standards (UPCS) developed in the 1990s, 
which are currently found at 24 CFR 5.703. Both remain largely 
unchanged since their inception. The housing portfolio that was once 
dominated by government-owned properties has changed in the past two 
decades to become largely increasingly owned by private entities. This 
shift has caused Congress and HUD's evolving list of stakeholders to 
demand revisions to the physical inspection products and services that 
will both provide reliable evaluations of housing conditions and 
protect residents.
    HUD analyzed the way inspections are conducted under both models to

[[Page 2583]]

better understand how housing quality regulations needed to evolve. HUD 
found that both inspection models can sometimes provide inaccurate and 
inconsistent results and can prevent HUD from effectively evaluating 
housing across programs. HUD determined that while the models are well-
intentioned in design, neither model currently aligns with HUD's 
priorities, the state of the housing industry and improvements in 
technology. This is partly because neither model includes mechanisms 
for continual update. This analysis also identified a disproportionate 
emphasis around the appearance of items that are otherwise safe and 
functional and paid inadequate attention to the health and safety 
conditions within the built environment. HUD has concluded that 
existing housing standards need to focus on habitability and the 
residential use of the structures, and most importantly, the health and 
safety of residents.
    To this end, HUD announced the implementation of NSPIRE through the 
publication of an August 21, 2019, notice,\1\ which described the 
development of a new inspection model for HUD programs. HUD began 
building the updated standards, procedures, and scoring methodologies, 
which will to be refined through a multistage NSPIRE demonstration. The 
demonstration will test and HUD will further refine the future state of 
HUD's physical inspection model to best serve residents. NSPIRE 
programmatic provisions will be published in the Federal Register and 
will provide an opportunity for public comment.\2\ The improvements 
being refined through the NSPIRE demonstration are intended to occur in 
parallel to support and reinforce the changes being proposed by this 
rule.
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    \1\ 84 FR 162.
    \2\ https://www.federalregister.gov/.
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Regulatory Consolidation and Alignment

    As noted above, the proposed rule would consolidate and align 
housing quality requirements and associated inspection standards across 
programs wherever possible. To achieve this, housing quality 
regulations across HUD programs would be consolidated into one location 
at 24 CFR part 5. HUD understands, however, that regulations must be 
flexible enough to accommodate each program's unique circumstances. 
Where differing statutory requirements or public policy considerations 
prevent alignment to 24 CFR part 5, those program-specific requirements 
would be maintained in their respective program regulations and would 
supersede or supplement 24 CFR part 5.
    Current program regulations governing housing quality and 
inspections have a large regulatory footprint. Rather than being in a 
single location, they are located under 24 CFR part 5 and part 200 for 
programs governed by Uniform Physical Condition Standards (UPCS); 24 
CFR 982.401 for programs governed by HQS; and within each program's 
individual regulations in 24 CFR parts 92, 93, 200, 574, 576, 578, 880, 
882, 884, 886, 902, 982, 983, and 985. This means that finding and 
understanding the requirements across programs--even those governed by 
the same standard--is often cumbersome. Instead, this rule would 
consolidate 14 dispersed sections which are spread across 24 CFR, into 
7 consecutive sections.
    Further, there are often minor, unnecessary discrepancies in 
language across regulations. The use of ``decent, safe, and sanitary'' 
is a good example. The physical condition standards applicable to 
Public Housing and HUD's Multifamily Housing program outlines that 
housing must be ``decent, safe, sanitary, and in good repair.'' \3\ The 
Housing Choice Voucher (HCV) and Project-Based Voucher (PBV) program 
regulations state housing must be ``decent, safe, and sanitary rental 
housing of a modest (non-luxury) nature with suitable amenities.'' \4\ 
Meanwhile, regulations for the Home Investment Partnerships (HOME) 
program state housing be ``decent, safe, sanitary and affordable.'' HUD 
believes that all standards governing HUD housing are equivalent in 
that they mandate safe, habitable housing for residents. An alignment 
of these standards would create a single expectation of housing quality 
across these programs and remove these unnecessary discrepancies.
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    \3\ 24 CFR 5.703.
    \4\ 24 CFR 982.1(a)(1).
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    Finally, programmatic alignment and consolidation is increasingly 
important as HUD's inspection portfolio has shifted to include greater 
numbers of mixed finance properties which are subject to multiple 
inspection standards by the nature of their financing. A similar 
challenge is faced by PHAs and owners whose portfolio includes multiple 
HUD program types or that convert from one funding stream to another, 
such as through the Rental Assistance Demonstration (RAD) program. HUD 
acknowledges that the challenges a PHA faces are not always the same 
challenges that owners face, but in both cases, the lack of aligned 
requirements unduly increases the complexity and uncertainty associated 
with participating in HUD's programs and may deter some owners from 
future involvement.

Programmatic and Statutory Limits on Alignment

    Part of this alignment will consolidate and align the regulations 
governing the physical condition of HUD housing to create a shared 
expectation of housing quality across a wide array of distinct 
programs. The remainder of the alignment centers around program 
administration: Inspection protocols, processes, and procedures.
    Regarding these inspection protocols, processes, and procedures, 
the majority of the alignment that HUD is proposing involves the 
program regulations for the public housing and multifamily programs. 
However, given the unique nature of some HUD programs and the limits 
posed by existing statutory requirements, it is not possible for HUD to 
align all program administration regulations across all programs under 
this proposed rule.
    Within this proposed rule, the Housing Choice Voucher (HCV) 
program, comprised of the Project Based Voucher (PBV) and Tenant Based 
Voucher (TBV) programs, has been aligned with other HUD programs to the 
maximum extent possible, while also acknowledging that varying types of 
rental housing and unique geographic features conditions nationwide 
necessitate separate requirements in certain areas. HUD's approach for 
aligning these programs accounts for the:
    <bullet> Unique statutory requirements related to the standards of 
individual units rather than the project as a whole; \5\
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    \5\ U.S.C. 1437f(o)(8)(C).
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    <bullet> Nature of the entity responsible for conducting 
inspections \6\ (the PHA rather than HUD);
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    \6\ U.S.C. 1437f(o)(8)(C).
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    <bullet> Relationship of housing quality standards to State and 
local codes; \7\
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    \7\ U.S.C. 1437f(o)(8)(G).
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    <bullet> Pass/fail nature of inspections; and
    <bullet> Frequency of inspections.\8\
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    \8\ U.S.C. 1437f(o)(8)(D)(i).
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    All of these differ greatly from other HUD programs, particularly 
project-based assistance programs.\9\
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    \9\ Important to note that PBVs are part of the HCV program and 
PBV units under section 8(o)(13) are subject to the requirements 
under section 8(o)(8), thus, using the Housing Quality Standards 
similar to tenant-based voucher units. Thus, key elements of 
physical standard requirements for the PBVs align with the HCV 
program and by virtue of section 8(o)(8) will be distinct and 
separate from PBRA and public housing.

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[[Page 2584]]

    Similarly, while the proposed rule aligns the Office of Community 
Planning and Development (CPD) programs whenever possible, CPD programs 
pose unique challenges to alignment, both across HUD and within CPD. 
CPD programs provide housing assistance, one-time or time-limited 
assistance (such as mediation with a property owner or a one-time 
payment of rental arrears to help a family avoid eviction from their 
existing housing, or payment of rental application fees to help a 
person in shelter get back into housing), and special housing needs 
programs. CPD programs also fund various services, such as legal 
assistance and mediation to prevent eviction and housing search and 
placement, for special needs populations. The variety of housing 
assistance and services offered through CPD programs required HUD to 
adopt, as proposed here, unique inspection frequencies and protocols 
that account for the needs of these different programs and assistance 
types. Furthermore, this alignment accounts for the fact that CPD 
programs are administered differently. For example, CPD's formula 
grant-based programs are provided to States, eligible units of local 
government, the District of Columbia, U.S. Territories and Tribal 
governments, which often follow local code requirements.
    Through the rulemaking process, HUD invites recommendations on 
opportunities to further consolidate similar regulatory provisions.
    With regard to consolidation, HUD is requesting public comments on 
the following questions:
    Question for Comment #1: The Economic Growth and Recovery Act 
mandates that for small public housing agencies, the same standards 
apply to small public housing agencies for the acceptable condition of 
public housing projects also apply to projects assisted under Section 
8. Is there a preferable approach to implementing the statutory 
provision that requires the same standards for small rural Section 8 
projects and PHA public housing projects? If so, how should the 
standards for and small rural PHA Section 8 projects and public housing 
projects differ from the standards employed for all other public 
housing and HCV units while ensuring that all HUD housing must be free 
of health and safety hazards?

Why HUD Is Implementing NSPIRE Through Rulemaking

    As previously noted, the current regulatory footprint of all 
housing standards is sprawling. HUD believes that consolidating these 
standards--a total of 16 regulations containing many administrative and 
procedural differences--is required to reduce administrative burden and 
increase resident safety.
    While some of the programmatic modifications made by this proposed 
rule could have been implemented without formal rulemaking, proceeding 
with this proposed rule provides a framework for continued stakeholder 
engagement and ensures transparency throughout the process.
    During the NSPIRE implementation and in parallel to formal 
rulemaking, HUD plans to draft Federal Register notices that would 
outline the specific standards, scoring, and protocols under NSPIRE. 
All updated standards and scoring methodologies would be published--as 
required by this proposed rule--through a Federal Register Notice at 
least once every 3 years with the opportunity for public comment prior 
to implementation. This would provide opportunity for both industry 
stakeholders and the general public to examine the proposed changes, 
provide pertinent comments, and suggest the inclusion of any relevant 
industry best practices. This would also allow HUD to be more 
responsive to the changing portfolio and evolving needs in the field 
and would allow HUD to further ensure resident safety remains at the 
forefront.

II. The Proposed Rule

    There are three sections under this heading representing the four 
types of changes this rule is making: Section A covers amendments and 
additions to 24 CFR part 5, which make up the bulk of the changes 
proposed;'' Section B covers HUD's implementation of its statutory 
mandate regarding Small rural PHAs;'' and Section C discusses other 
changes which the proposed rule would make to regulations for programs 
which are being integrated under NSPIRE.

A: Amendments and Additions to 24 CFR Part 5

    Amending 24 CFR part 5 would allow HUD to consolidate multiple 
physical condition requirements into a single regulation. This would 
align overarching policies related to the frequency of inspections, the 
method of appealing results, and the actors responsible for conducting 
inspections. It would also make several technical modifications to 
other regulations. These changes would ensure transparency, consolidate 
regulatory sprawl, and reduce overall burden for PHAs and owner/agents.
    HUD's consolidation and alignment of the inspections regulations 
under this part broadly fall into two categories. First, amended and 
aligned Sec.  5.703 would generally apply across all HUD programs 
covered under the proposed rule. These regulations are meant to convey 
clear expectations of housing quality and maintenance requirements 
across HUD programs, ensuring residents have a shared expectation of 
safe, habitable housing regardless of program type. Second, changes and 
alignment in Sec.  5.705 through Sec.  5.713 are generally only 
applicable to the public housing and multifamily programs as they deal 
with administrative procedures and scoring for HUD-conducted 
inspections. To clarify, by nature of their differing statutory 
requirements and programmatic considerations, Sec.  5.705 through Sec.  
5.713 in part 5 generally do not apply to Section 8(o) programs (HCV 
and PBV), Moderate Rehabilitation, or certain CPD programs (i.e., HOME 
and Housing Trust Fund (HTF)).
    HUD proposes the following amendments and additions to 24 CFR part 
5:
a. Section 5.701 Applicability
    The current regulations at Sec.  5.701 state that the physical 
condition standards in 24 CFR part 5 apply to Public Housing and 
certain programs administered under HUD's Office of Multifamily 
Housing, including all project-based Section 8 programs and any housing 
with mortgages insured or held by HUD or receiving insurance from HUD.
    Amended Sec.  5.701 would extend this subpart to the HCV (part 982) 
and PBV programs (part 983). CPD programs would adopt these standards 
by reference in the applicable CPD regulations to include: The HOME 
Program (part 92); HTF) (part 93); Housing Opportunities for Persons 
with Aids (HOPWA) (part 574); Emergency Solutions Grants (ESG) Program 
(part 576); and Continuum of Care (CoC) (part 578).
b. Section 5.703 National Standards for the Condition of HUD Housing
    HUD's housing condition standards are located in two areas in the 
regulations today: Existing Sec.  5.703 applies to public housing, 
multifamily, and some CPD programs while existing Sec.  982.401 applies 
to HCV and PBV, and to some other CPD programs via cross-reference. CPD 
programs do not apply any scoring, weighting, ranking or enforcement 
from Part 5. This is outlined in the CPD program rules (e.g., HOME rule 
at 24 CFR 92.251(f)(1)(i).)). CPD programs are fundamentally different 
than many of the programs subject to REAC inspections as they are

[[Page 2585]]

programs administered by local governments subject to local decision 
making. CPD programs have their own means of enforcement specified in 
each program regulation. These functions are instead performed by HUD 
CPD staff, and can include requiring the participating jurisdiction or 
grantee repaying the full amount of subsidy provided to the project. 
Amended Sec.  5.703(a) through (e) consolidates and replaces both Sec.  
5.703 and Sec.  982.401. These provisions parallel the specific 
directives at 42 U.S.C. 1437(f)(2) and 42 U.S.C. 1437(o)(8)(B) that 
require the Secretary to establish quality standards that ensure 
housing is safe and habitable. In these provisions, HUD proposes to 
define ``safe, habitable dwellings'' as those for which ``the items and 
components located inside the building, outside the building, and 
within the units of HUD housing . . . [are] functionally adequate, 
operable, and free of health and safety hazards.'' HUD believes the 
requirement of ``functionally adequate, operable, and free of health 
and safety hazards'' is generally equivalent to ``decent, safe, and 
sanitary.'' The intentional shift in language would serve as a uniting 
phrase across programs. Additionally, the shift would help the public 
differentiate between the old and the new regulatory frameworks. It 
would further allow HUD to establish clear, objective, and aligned 
property inspection standards (described later in this rule at Sec.  
5.705(a) and Sec.  5.709) by creating identifiable limits that are 
comparable across housing programs. For example, the terms 
``functionally adequate'' and ``operable'' may be defined based on 
universal habitability requirements and design specifications for an 
item or component. In contrast, ``decent,'' is a highly subjective 
term. Perceptions of decency vary from person to person and location to 
location. The terms ``health'' and ``safety'' can also be measured 
universally and quantitatively by using standard public health and 
safety metrics related to morbidity and mortality. ``Health'' as used 
here would be inclusive of ``sanitary;'' HUD believes that term 
``health'' would be more useful for assessment of a broader range of 
impacts. HUD intends this new description to make clear that the built 
environment's effect on the health and safety of residents is more 
important than any building damage that is strictly cosmetic in nature. 
The new definition would also simplify the way in which this rule names 
the inspectable areas of a property by reducing the number of areas 
from five to three. This change is intended to increase readability, 
streamline the inspection process, and emphasize to stakeholders the 
importance of resident units.
    Section 5.703(a) would limit the ways in which the quality 
requirements apply to units occupied by HCV and PBV participants, as 
well as common areas and exterior areas which either service or are 
associated with such units. This limitation is generally derived from 
the unique statutory requirements for these programs related to the 
application of housing quality standards to units (as opposed to 
projects). Other factors that make this limitation appropriate is the 
entity responsible for conducting the inspections (the PHA), the 
relationship of the housing quality standards to local codes, and the 
frequency of those inspections.
    HUD also proposes to consolidate into Sec.  5.703(d) several 
provisions currently found in one section of the regulations but 
implied in others. For example, the proposed rule would make it clear 
that certain unit features, like having a kitchen area, are minimum 
habitability requirements across programs. Most renters would expect to 
have the ability to store and prepare food in their home. While not new 
requirements, they reinforce the importance that this rule places on 
residents' units and the primarily residential nature of HUD housing. 
Similarly, amended Sec.  5.703(d) would add the word ``safe'' to the 
current requirement that units have an adequate source of potable 
water. ``Safe'' in this context would be defined by HUD through future 
rulemaking after receiving public comments.
    This portion of the rule would also incorporate requirements 
currently described more clearly by the HCV regulations for smoke 
detectors, including those for hearing impaired persons and the 
requirement for hot and cold running water, and would replace current 
paragraph (f) concerning health and safety concerns. So that all the 
habitability provisions are in one place, paragraph (e)(2) would 
maintain language found in the current regulation at Sec.  5.703(f) 
regarding lead-based paint but would add information on applicability.
    The remaining provisions in (f) through (h) discuss the 
relationship of local codes to HUD housing and identify when 
alternatives to Sec.  5.703 would apply.
    New paragraph (g) would clarify that Sec.  5.703 may be replaced or 
supplemented by a state or local standard under the HCV and PBV program 
in line with the statutory exception for those programs found at 42 
U.S.C. 1437f(o)(8)(B). Additionally, for special housing types, such as 
Single Room Occupancies or congregate housing, that may have 
incompatible design requirements, like shared bathroom or kitchen 
facilities, paragraph (h) would clarify that the provisions in Sec.  
5.703 may be modified by program specific requirements which would 
continue to be found in the same program-specific sections of the 
regulations as they are today.
    With regard to standards, HUD is requesting public comments on the 
following questions:
    Question for Comment #2: HUD has the following questions regarding 
water safety:
    (a) How can HUD best define what is meant by safe or potable water?
    (b) Should ``safe'' mean water provided by a public water system 
that is in compliance with the Safe Drinking Water Act (42 U.S.C. 300f 
et seq.) as implemented by the EPA?
    (c) How should HUD monitor whether water is safe?
    (d) What elements should be reviewed during the physical inspection 
to determine water safety?
    (e) Should inspectors verify that a municipal water supply 
authority is in compliance with EPA's Safe Drinking Water Act? How 
would they best do this?
    Question for Comment #3: HUD is specifically seeking comment on 
whether the site and neighborhood standards as found in 24 CFR 
982.401(l), should be included in the regulation or only in the 
inspection standards? HUD also seeks comments on whether all of the 
explicit standards should be included or if there are certain site and 
neighborhood standards that HUD should consider changing?
    Question for Comment #4: The proposed rule would establish a subset 
of minimum NSPIRE standards to apply to rehabilitation of rental and 
owner-occupied or homebuyer housing and homebuyer acquisition of 
standard housing (i.e., down payment assistance) assisted with HOME or 
HTF at Sec. Sec.  92.251(b) and (c)(3) and Sec. Sec.  93.301(b) and 
(c)(3), and to HOME- and HTF-assisted rental projects throughout the 
affordability period at Sec.  92.251(f) and Sec.  93.301(e), and for 
units occupied by tenants receiving HOME Tenant-based rental assistance 
(TBRA) in accordance with Sec.  92.251(f)What minimum housing condition 
standards should HUD apply to HOME- and HTF-assisted rehabilitation 
activities for rental or owner-occupied housing and what minimum 
condition standard should apply to HOME-assisted homebuyer acquisition 
activities at completion to ensure that the housing is decent, safe,

[[Page 2586]]

sanitary and in good repair? In addition, what minimum housing 
condition standards should HUD apply throughout the affordability 
period to HOME- and HTF-assisted rental projects and units occupied by 
tenants receiving HOME TBRA to ensure that the housing remains decent, 
safe, sanitary and in good repair?
    Question for Comment #5: How do the NSPIRE standards in this 
proposed rule compare to minimum deficiencies that must be corrected in 
HOME- and HTF-assisted rehabilitation projects at Sec.  92.251(b) and 
Sec.  93.301(b) or which must be corrected prior to HOME- and HTF-
assisted homebuyer acquisition of standard housing (i.e., down payment 
assistance) to ensure that upon completion the housing is decent, safe, 
sanitary and in good repair?
    Question for Comment #6: Should HUD establish different minimum 
deficiencies that must be corrected in HOME- or HTF-assisted rental 
housing and homebuyer or owner-occupied housing rehabilitation projects 
at Sec.  92.251(b) and Sec.  93.301(b)? If so, what should HUD consider 
when establishing minimum standards for the rehabilitation of rental 
housing, homebuyer housing, or owner-occupied housing?
    Question for Comment #7: Should HUD establish different minimum 
deficiencies that must be corrected in large and small HOME- or HTF-
assisted rehabilitation projects at Sec.  92.251(b) and Sec.  
93.301(b)? If so, what should HUD consider when establishing minimum 
standards and what should HUD define as a large housing project?
    Question for Comment #8: Should HUD establish different minimum 
deficiencies that must be corrected for HOME or HTF-assisted 
rehabilitation and homebuyer or owner-occupied acquisition of standard 
housing (i.e., down payment assistance) projects at Sec.  92.251(c)(3) 
and Sec.  93.301(c)(3)? If so, what should HUD consider when 
establishing minimum standards for rehabilitation projects and 
homebuyer acquisition projects?
    Question for Comment #9: Should HUD establish minimum written 
property standards requirements for housing occupied by tenants 
receiving HOME TBRA at Sec.  92.251(f) that exceed or are different 
than minimum requirements for the ongoing condition of HOME-assisted 
rental housing? Should HUD establish a list of minimum deficiencies 
that must be corrected if found during an onsite physical inspection of 
HTF-assisted rental housing? If so, what elements should be required in 
the written property standards?
    Question for Comment #10: Alternatively, should HUD apply the 
NSPIRE standards established in accordance with this proposed rule (not 
to include the inspection procedures, administrative processes for 
scoring and ranking, or the enforcement requirements of NPSIRE) to 
housing occupied by tenants assisted receiving HOME TBRA at Sec.  
92.251(f)? HUD could require inspection of the assisted unit; the items 
and components within the primary and secondary means of egress from 
the unit's entry door(s) to the public way; the common features related 
to the residential use of the building (e.g., the laundry room, 
community room, mail room); and, the systems equipment that directly 
services the unit similar to the exceptions that are included in the 
proposed rule for HCV and PBV. Is there another national housing 
quality or condition standard that HUD should apply to housing occupied 
by tenants assisted with HOME TBRA?
    Question for Comment #11: Should HUD establish a list of minimum 
deficiencies that must be corrected if found during an onsite physical 
inspection of HOME- or HTF-assisted rental housing or housing occupied 
by a tenant receiving HOME TBRA at Sec.  92.251(f)? If so, should HUD 
establish separate lists for HOME and HTF-assisted rental housing and 
housing occupied by a tenant receiving HOME TBRA? What should HUD 
consider in the development of such lists of deficiencies?
    Question for Comment #12: Section 5.703(h) of the proposed rule 
identifies unique standards to special types of housing--single room 
occupancy (SRO) housing; congregate housing; group home; shared 
housing; manufactured home; cooperative housing; and homeownership--but 
applies this section only to the HCV, PBV, and Moderate Rehabilitation 
Programs. Should any of these unique standards--specifically SRO, 
congregate housing, shared housing, and manufactured homes--apply to 
the CoC, ESG, and HOPWA programs?
    Question for Comment #13: HUD is considering adding certain 
affirmative requirements at the final rule stage. Currently under 
consideration are related to ground-fault circuit interrupter (GFCI), 
an arc-fault circuit interrupter (AFCI); Heating, ventilation, and air 
conditioning (HVAC); Guardrail; and Lighting-Interior. In alignment 
with HUD's prioritization of resident safety, HUD welcomes public 
comment on all issues, but is specifically seeking feedback regarding 
implementing the following:
    a. Electrical Outlet and Switch--HUD is considering adding a 
deficiency under the Electrical Outlet and Switch Standard regarding an 
inadequate number of outlets (i.e., either 2 working outlets or 1 
working outlet and a permanent light) within all habitable rooms due to 
potential safety hazards, usability barriers, and inadequate 
illumination.
    b. GFCI & AFCI--HUD is considering adding a deficiency under the 
GFCI & AFCI Standard regarding the lack of GFCI protection where 
required (e.g., within 6 feet of sinks, tubs, showers; or exterior, 
garage, or unfinished basement areas) due to potential safety hazards, 
such as shock or electrocution.
    c. HVAC--HUD is considering adding a deficiency under the HVAC 
Standard regarding the lack of a permanently installed heating source 
due to potential health safety hazards, such as fire or carbon monoxide 
exposure.
    d. Guardrail--HUD is considering adding a deficiency under the 
Guardrail Standard to require a guardrail when there is an elevated 
walking surface with a drop off of 30 inches or greater measured 
vertically.
    e. Lighting--Interior--HUD is considering adding a deficiency under 
the Lighting--Interior Standard regarding the absence of a permanently 
mounted light fixture in the kitchen or bathroom due to potential 
safety hazards and inadequate illumination.
c. Section 5.705 Inspection Requirements
    The current Sec.  5.705 states that entities must inspect covered 
HUD housing programs annually in accordance with HUD-prescribed 
physical condition standards unless program regulations or HUD provide 
otherwise. Amended and expanded Sec.  5.705 would align inspection 
standards (including provisions pertaining to frequency), would 
identify entities responsible for conducting inspections, would outline 
timing of inspections and reinspection fees, and would mandate access 
to properties. Centralizing these standards would provide greater 
clarity and ease of access for stakeholders and oversight authorities.
    Section 5.705(a)(1) continues to require that any entity 
responsible for conducting an inspection of HUD housing determine 
compliance with this subpart. However, (a)(1) would require that 
entities must inspect such HUD housing in accordance with the standards 
and procedures set out by the Secretary and published in the Federal 
Register as described in Sec.  5.711, and would allow HUD to establish 
aligned

[[Page 2587]]

inspection standards across HUD programs.
    New paragraph (b)(1) would incorporate existing provisions from 
Sec.  200.855 describing the entity responsible for inspecting HUD 
housing. New paragraph (b)(2) would provide an exception for the HCV, 
PBV and Mod rehab programs in cases where the PHA is required to 
conduct the inspection.
    New subparagraph Sec.  5.705(c)(1) would pull elements from 
existing regulations which outline that a property must be inspected 
before the property is approved for participation in any of the HUD 
housing programs under this part unless the property is already a 
participant in another HUD program under this part. It would also 
continue to require that an entity responsible for conducting an 
inspection of HUD housing must determine compliance with this subpart 
and must inspect such housing annually, unless otherwise specified 
below.
    Current inspection requirements for public housing and multifamily 
programs are risk-based with frequencies ranging from annually to once 
every three years. The proposed rule would maintain risk-based annual 
inspection requirements. The proposed rule would expand this time 
period to between 2 and 5 years. The criteria under which a PHA or 
owner/agent may qualify for a longer inspection cycle would be 
described in a future Federal Register Notice and will be based on a 
risk assessment. This change in inspection frequency would further 
incentivize performance without any anticipated degradation in housing 
quality as it would not obviate the expectation of continuous 
compliance with housing quality requirements. Further, since proposed 
Sec.  5.707 would require properties to conduct an annual self-
inspection and submit results to HUD, the Agency believes that 
submission of self-inspection results and status of repair would 
mitigate risk associated with longer inspection frequencies. In all 
cases, HUD housing would be required to remain in compliance with all 
applicable laws and regulations, including the quality standards in 
Sec.  5.703, regardless of the date of the next inspection.
    Due to different statutory and programmatic requirements, 
requirements surrounding inspections frequencies for some programs 
would continue to be governed by current applicable regulations, 
including HCV, PBV, and Moderate Rehabilitation. Further, small rural 
PHAs would be exempted from the annual inspection requirement and would 
instead follow provisions of the Economic Growth and Recovery Act 
outlined later in this notice. Finally, HUD may exempt assisted-living 
facilities, board and care facilities, and intermediate care 
facilities, and any other Section 232 facilities if they meet certain 
criteria as outlined in the regulation.
    New paragraph (d) would incorporate and align existing language 
regarding reinspection costs from the public housing and multifamily 
regulations. The proposed rule would allow, but not require, the 
responsible entity (as identified in proposed Sec.  5.705(a)(1)) to 
charge a property owner (including PHAs) a reasonable reinspection fee 
when an owner notifies the responsible entity that a repair has been 
made, or the allotted time for repairs has elapsed, and a reinspection 
reveals the deficiency was not corrected.
    New paragraph (a)(3) would outline variants in inspection standards 
for the HCV and PBV programs by incorporating existing regulations at 
Sec.  982.401(a)(ii). As required by statute, the proposed rule would 
continue to give PHAs the ability to consider variations in local laws 
and practices and provide appropriate flexibility to facilitate the 
efficient provision of assistance.\10\
---------------------------------------------------------------------------

    \10\ 42 U.S.C. 1437(f)(o)(8)(g).
---------------------------------------------------------------------------

    With regard to inspection, HUD is requesting public comments on the 
following questions:
    Question for Comment #14: HUD is soliciting comment on the risk-
based annual inspection requirement expansion from 2 to 5 years. Is a 
different range merited? If so, what should HUD consider in setting and 
adjusting the ranges?
    Question for Comment #15: HUD is soliciting comment on how to 
involve tenants in helping REAC identify poor performing properties. 
For example, could tenants provide a ``1-5 rating'' of their units with 
``1'' being ``poor'' and ``5'' being ``excellent?'' Could tenants 
recommend their units for inspection separate from the statistical 
sample for scoring purposes to inform HUD's risk analysis of the 
property?
d. Section 5.707 Uniform Self-Inspection Requirement and Report
    While 42 U.S.C. 1437(d)(f)(3) requires that each PHA inspect all 
public housing projects annually, current regulations governing other 
covered HUD housing programs, such as those for Multifamily Housing, do 
not explicitly require an annual self-inspection of all units. The 
proposed rule would add a new regulation at Sec.  5.707 which would 
explicitly require annual self-inspections of all units in a project 
and would add a new electronic reporting requirement. The results of 
the electronic reporting requirement would be an integral part of HUD's 
real estate inspection process. With advances in technology, HUD 
believes it is now possible and practical to collect this type of 
property data electronically. The procedures for this reporting would 
be outlined in a future Federal Register Notice with an opportunity for 
public comment.
    By making regular, comprehensive self-inspections and reporting a 
part of each covered property's physical assessment regimen, HUD would 
once again signal a focus on identifying and mitigating risks to 
resident health and safety. Self-inspections are a key component of 
ensuring properties are maintained year-round and encourage regular, 
preventative maintenance rather than ``just in time'' repairs ahead of 
HUD-conducted inspections.
    It should be noted that due to the unique statutory requirements of 
the HCV, PBV, and CPD programs, they would be exempted from this 
electronic reporting requirement. Additionally, Moderate Rehabilitation 
would continue to follow program requirements described in the current 
regulations.
    With regard to self-inspection, HUD is requesting public comments 
on the following questions:
    Question for Comment #16: HUD is soliciting comment on how the 
clarification to self-inspect all HUD housing units in certain programs 
to ensure that units are being maintained in accordance with HUD 
housing quality standards will impact the operations of PHAs, owners 
and agents? What advantages and disadvantages would arise from 
extending this self-inspection requirement to the programs that do not 
explicitly require an annual self-inspection of all units (such as HCV, 
PBV, Moderate Rehabilitation, and CPD programs)?
    Question for Comment #17: Is there an alternative to the self-
inspection protocol (Sec.  5.707 Uniform self-inspection requirement 
and report) that would allow HUD to achieve the objective that families 
live in safe and habitable units, and what are the risks and benefits 
of that alternative?
e. Section 5.709 Administrative Process for Defining and Revising 
Inspection Criteria
    The proposed rule would add Sec.  5.709 which would require HUD to 
establish an administrative process for regularly receiving public 
comments on scoring and ranking criteria through Federal Register 
notices.

[[Page 2588]]

    New paragraph (a)(1) would establish a timeframe for revisions of 
standards of every 3 years, or every 3 years after the most recent 
revision, whichever is later. The inclusion of this regulation would 
allow HUD to respond to the changing needs of an evolving housing 
portfolio and technological changes that may impact the inspections 
process. This proposed rule would mandate that the Agency update the 
scoring and ranking criteria regularly and would further demonstrate 
HUD's commitment to ensure scoring is reasonable, responsive, and 
current.
    New paragraph (a)(2) would allow HUD to publish a notice without 30 
days of public comment in the case of an emergency. For Sec.  5.709, an 
emergency would be defined as a significant health hazard, a new safety 
concern due to changing construction technology, or another event as 
determined by the Secretary. This section would further highlight the 
Secretary's commitment to being responsive to the needs and safety of 
residents.
    Question for Comment #18: In alignment with HUD's desire to 
increase clarity and decrease ambiguity, HUD is considering definitions 
for kitchens and sanitary facilities. HUD seeks public input on the 
following:
    a. Should HUD define what constitutes a kitchen and its related 
components required for functional adequacy (e.g., cooking appliance, 
means of refrigeration, food preparation and storage)?
    b. Should HUD define what constitutes a sanitary facility and its 
related components required for functional adequacy (e.g., bathtub or 
shower, toilet, ventilation, sink)?
f. Section 5.711 Scoring, Ranking Criteria, and Appeals
    The proposed rule would add a new regulation at Sec.  5.711 which 
would incorporate and streamline existing regulations governing the 
scoring and ranking of covered properties, chiefly multifamily and 
public housing properties. Further, it would include the 
responsibilities of PHAs and owner/agents after an inspection and 
outline the process for appealing inspection results. Proposed Sec.  
5.711 would also incorporate and replace the current scoring and 
ranking process under Sec.  200.857 as well as the prior appeals 
process for physical inspections under the Public Housing Assessment 
System (PHAS) at Sec. Sec.  902.22, 902.24, 902.26, and 902.68. By 
aligning similar language across programs, HUD believes the proposed 
rule will increase clarity and ease of compliance while creating a 
standardized set of expectations.
    New paragraph (a) would exempt the HCV and PBV programs which would 
continue to be assessed under the Section Eight Management Assessment 
Program (SEMAP) as well as small rural PHAs which would be assessed 
under new subpart D of 985. As part of the streamlining in the proposed 
rule, new paragraph (b) moves the existing regulation at Sec.  
200.857(a)(1) to part 5.
    New paragraph (b)(2) would clarify that Public Housing projects 
would continue to be scored and ranked under the Public Housing 
Assessment System (PHAS) outlined in part 902. New paragraph (c)(1) 
would introduce the category of severe health or safety (SHS) 
deficiencies which are the most serious types of conditions that can be 
cited as violations of Sec.  5.703 and replaces the current exigent 
health and safety (EH&S) category of deficiencies found in Sec.  
902.22. Similar to the use of new language in Sec.  5.703, the change 
in terminology would serve as a visual marker to help a reader 
differentiate between the existing and proposed regulations. It would 
also help to minimize confusion across the aligned programs. The term 
``exigent health and safety'' has been associated with more than one 
definition in the past and has been confused with the term ``life-
threatening.'' For example, HUD's notice at 76 FR 10055 employed EH&S 
and life threatening synonymously despite the different meanings.\11\
---------------------------------------------------------------------------

    \11\ ``The UPCS physical inspection emphasizes health and safety 
(H&S) deficiencies because of their crucial impact on the well-being 
of residents. A subset of H&S deficiencies is exigent health and 
safety (EHS) deficiencies. These are life threatening (LT) and 
require immediate action or remedy. EHS deficiencies can 
substantially reduce the overall project score.'' See, 76 FR 10055 
https://www.federalregister.gov/documents/2011/02/23/2011-2633/changes-to-the-public-housing-assessment-system-phas-physical-condition-scoring-notice.
---------------------------------------------------------------------------

    While generally equivalent in purpose to the way EH&S is being used 
today, the new phrase, ``severe health or safety'' would provide a 
clear expression of the seriousness of these types of issues which 
would also be reflected in the proposed default timeframe of repair of 
24 hours. HUD acknowledges that current regulations are inconsistent in 
describing how soon an EH&S deficiency must be corrected, establishing 
a singular provision at Sec.  5.711(c)(1) for the correction of SHS 
deficiencies for most programs would address these inconsistencies.
    Additionally, the Housing Opportunity Through Modernization Act of 
2016 (HOTMA) limited HUD's flexibility in defining the timeframes for 
repair of deficiencies in the HCV or PBV programs. That act requires 
that life threatening conditions be addressed in 24 hours and all other 
deficiencies within 30 days. In order to accommodate that statutory 
constraint, HUD would identify in the notice described in Sec.  5.709 
which of the SHS deficiencies are life threatening and which ones are 
non-life threatening. Section 5.711 would also require the correction 
of non-SHS health or safety deficiencies within 30 days, for all 
programs.
    Further, proposed Sec.  5.711 would incorporate and condense the 
administrative review and enforcement action provisions found at Sec.  
200.857(h) and Sec.  200.857(i) to align with HUD's current procedures 
and eliminate inconsistencies with Section 219, Title II, Division H of 
the Consolidated Appropriations Act, 2020, Public Law 116-94, December 
20, 2019. As previously noted, CPD programs do not apply any scoring, 
weighting, ranking or enforcement from Part 5. This is outlined in the 
HOME rule at 24 CFR 92.251(f)(1)(i). CPD programs are fundamentally 
different than many of the programs subject to REAC inspections as they 
are programs administered by local governments subject to local 
decision making. CPD programs have their own means of enforcement 
specified in each program regulation. These functions are instead 
performed by HUD CPD staff, and can include requiring the participating 
jurisdiction or grantee repaying the full amount of subsidy provided to 
the project. New paragraph (d)(2) would consolidate current regulations 
governing the process for technical reviews into one section with an 
aligned set of procedures applicable to properties inspected by HUD.
    With regard to tenant-induced damage, HUD is requesting public 
comments on the following questions:
    Question for Comment #19: HUD is soliciting comment on how to 
fairly approach tenant-induced damage to units and properties in such a 
way that it will have a positive impact on HUD-assisted properties. 
What could be used as incentives or disincentives to discourage tenant-
induced damage?
    Question for Comment #20: HUD seeks input on the scoring threshold 
that should be used to refer a property to the Departmental Enforcement 
Center (DEC): What factors should be considered by HUD in setting the 
threshold, and whether should this be a stationary threshold or one 
that is updated periodically?

[[Page 2589]]

g. Section 5.713 Second- and Third-Party Rights
    The proposed rule would add new Sec.  5.713, which would 
incorporate and modify existing language at Sec.  982.407 on 
enforcement of inspection requirements. The new regulation would mirror 
existing regulations in place for the HCV and PBV programs--which in no 
way create any right to assert any claim against HUD or the PHA for 
damages, injunction, or other relief for alleged failure to enforce 
inspection standards, and would expand it to other programs under 
NSPIRE.

B: Addition of Part 902, Subpart H and Part 985, Subpart D Regarding 
Small Rural PHAs

    Small rural PHAs generally operate in a very different financial 
environment and rental housing market than larger PHAs in major 
metropolitan areas. These PHAs often have less access to private 
capital and their small size typically means that they operate with 
fewer staff and outside consulting services. Accordingly, regulatory 
burden often falls more heavily on small rural PHAs, reducing their 
ability to serve low-income families.
    On May 24, 2018, President Trump signed the Economic Growth and 
Recovery, Regulatory Relief and Consumer Protection Act (``Economic 
Growth Act'') into law. Section 209 of the Act added section 38 to the 
United States Housing Act of 1937 (42 U.S.C. 1437 et seq.) and made 
several amendments pertaining to small rural PHAs. Certain statutory 
amendments made by section 209 became effective 60 days after 
enactment, and HUD published a notice in the Federal Register on 
February 14, 2019,\12\ which, read together with the statutory 
language, was intended to aid HUD program participants and the public 
in understanding the reasons for deferred action with respect to 
specific statutory provisions. HUD published a notice in the Federal 
Register on February 27, 2020,\13\ explaining how HUD designates small 
rural PHAs and described which 209 provisions were being implemented. 
The notice also stated that HUD would undertake future rulemaking for 
full implementation of other provisions, including defining small rural 
PHAs in the regulations. This proposed rule would implement this 
definition of small rural PHA as well as a new assessment system for 
their public housing and HCV programs. HUD believes that the Economic 
Growth Act's focus on inspections and the directive to follow the same 
standards for small, rural public housing as that for projects assisted 
under Section 8 make the inclusion of the act's provisions in this rule 
a logical fit.
---------------------------------------------------------------------------

    \12\ 84 FR 4097, February 14, 2019.
    \13\ 85 FR 11381, February 27, 2020.
---------------------------------------------------------------------------

    The proposed rule would create new Subpart H under the current 902 
regulations for the Public Housing Assessment System (PHAS). Section 
209(a)(2) of the Economic Growth Act defined ``small public housing 
agency'' and directed HUD to use the existing definition of ``rural 
area'' contained in the regulations governing the Consumer Financial 
Protection Bureau (CFPB) at 12 CFR 1026.35(b)(2)(iv)(A). In the 
February 27, 2020 notice, HUD further refined this definition by 
defining PHAs that ``predominantly operate in a rural area'' and 
clarifying that these PHAs would be referred to as ``small rural PHAs'' 
to avoid confusion with other small PHA designations employed by HUD. 
The proposed rule would fully implement these definitions through Sec.  
902.101. A small rural PHA would be defined as a PHA that administers 
550 or fewer combined public housing and Section 8 voucher units and 
either has a primary administrative building with a physical address in 
a rural area or more than 50 percent of its combined public housing 
units and voucher units in rural areas. The methodology for identifying 
a small rural PHA was identified in the February 27, 2020 notice and 
Sec.  902.101(b) would require that HUD make this determination once 
every three years. PHAs would have the ability to appeal this 
determination in accordance with Sec.  902.101(c).
    The proposed rule would amend the current regulations for the 
Public Housing Assessment System (PHAS) to exempt small rural PHAs and 
would instead implement an alternate performance indicator and rating 
system. Under proposed Sec.  902.103, small rural PHAs would be 
assessed based on the physical condition of their public housing 
properties. Proposed Sec.  902.103(b) would establish an assessment 
frequency of no more than once every three years, as required under 
Section 209(c)(1)(A) of the Economic Growth Act, except that a troubled 
small rural PHA would be subject to an annual assessment.
    A small rural PHA's public housing program would be designated as 
troubled under Sec.  902.105 if:
    <bullet> The weighted average score of all property inspections is 
below 70 percent of the total available points; or
    <bullet> If a the PHA has a weighted average score of between 70 
and 80 percent of the total available points and has at least one 
property that receives fewer than 70 percent of the total available 
points.
    Troubled small rural PHAs would be referred to their local field 
office or other designated HUD office(s) for remedial action, 
oversight, and monitoring. HUD would negotiate and develop a Corrective 
Action Agreement (CAA) as described in Sec.  902.105(c) within 30 days 
of the PHA's notification of their designation as troubled. Section 
902.105(c) through (i) would outline the requirements and process for 
the CAA. Proposed Sec.  902.107 would describe the situation under 
which HUD may withhold, deny, or rescind a troubled designation. 
Conditions for appealing troubled designations are outlined in proposed 
Sec.  902.109. Sanctions for small rural PHAs that remain troubled as 
well as incentives for small rural PHAs that are high performers would 
remain the same as those currently described in the PHAS regulations.
    The Economic Growth Act provides that HUD may designate a small 
rural PHA as a troubled PHA with respect to its HCV program if HUD 
determines the agency has failed to comply with HCV inspection 
requirements, HUD is proposing to add a new subpart D to 24 CFR part 
985, Section 8 Management Assessment Program (SEMAP).
    Under proposed Sec.  985.201, PHAs that meet the definition of 
small rural under Sec.  902.101 would no longer be subject to SEMAP 
requirements but would instead be assessed on the basis of the 
performance indicators and rating system under subpart D. In assessing 
whether a small rural PHA's HCV program is a high performer, standard 
performer, or troubled, HUD would take four indicators into 
consideration, all of which are related to the small rural PHA's 
compliance with the inspection requirements. Each indicator would be 
scored on a pass/fail basis. The inspection indicators described in the 
proposed Sec.  985.203 include:
    <bullet> Inspection standards which would confirm the PHA is 
applying the applicable NSPIRE standards to HCV or PBV-assisted units 
or a HUD-approved variation under Sec.  5.703. The PHA would pass the 
indicator if all HCV and PBV units were inspected using the correct 
standards;
    <bullet> Initial unit inspections which would validate the PHA is 
conducting initial inspections within the appropriate timeframes. The 
PHA would pass the indicator if at least 98 percent of newly leased 
units passed inspection prior to the beginning of assistance;
    <bullet> Frequency of HQS inspections which would verify the PHA 
inspects tenant-based units under HAP contract and the required sample 
of PBV units at least once during the three-year period

[[Page 2590]]

from the last PHA inspection. The PHA would pass the indicator if at 
least 98 percent of the units were inspected; and
    <bullet> Unit condition enforcement would confirm the PHA is taking 
corrective action as required in cases where the owner fails to correct 
an identified unit deficiency in accordance with HUD requirements. The 
PHA would pass the indicator if 98 percent of inspections with 
identified life-threatening or other deficiencies were corrected within 
the required timeframe.
    In order for the small rural PHA to be designated as a high 
performer, additional requirements related to funding would also apply. 
Proposed Sec.  985.205(a) would state that for a PHA to be designated 
as a high performer, the PHA must:
    <bullet> Either utilize at least 98 percent of its HCV budget 
authority for the most recent calendar year or the percent of HCV units 
leased by renters or occupied by homeowners for the most recent 
calendar year must be at least 98 percent;
    <bullet> Not end the calendar year with excess HAP reserves; and
    <bullet> Not end the calendar year in a funding shortfall or 
receive shortfall prevention funding from HUD.
    If the small rural PHA passes all four inspection indicators and 
meets the funding criteria listed above, the PHA is designated as a 
high performer. If a PHA passes all four inspection indicators but does 
not meet the funding criteria listed above, the PHA will be designated 
as a standard performer. If the small rural PHA fails any one of the 
four inspection indicators, regardless of whether or not it meets the 
funding requirements, the PHA is designated as troubled.
    In accordance with statutory requirements contained in the Economic 
Growth Act, proposed Sec.  985.207 would establish an assessment 
frequency of no more than once every three years, except that a 
troubled small rural PHA would be subject to an annual assessment in 
accordance with Sec.  985.204.
    Proposed Sec.  985.209 would cover requirements that apply to small 
rural PHAs designated as troubled, including the statutorily mandated 
appeals process and the required corrective action agreement.
    Proposed Sec.  985.211 would state that HUD would maintain small 
rural PHAs' assessment files, including designations, appeals, and 
agreements, for at least 3 years.
    With regard to small rural PHAs, HUD is requesting public comments 
on the following questions:
    Question for comment #21: HUD is considering establishing the 
threshold for troubled PHAs under the small rural assessment as a PHA 
that either has a weighted average of less than 70 percent of all 
available points on physical inspections, or a PHA that has a weighted 
average of between 70 and 80 percent of all available points and that 
also has at least one property that received a score of less than 70 
percent of available points. HUD is seeking comment on how this 
threshold will impact PHAs and residents, and what alternative 
thresholds HUD should use to define a troubled PHA?
    Question for comment #22: HUD is specifically seeking comment on 
the four indicators proposed to determine if the PHA is failing to 
fulfill its responsibilities for unit inspections under the HCV program 
and the method by which HUD is proposing to determine if the PHA has 
passed or failed the indicator. Are the indicators proposed to make 
such determination appropriate? If not, are there better alternatives?
    Question for comment #23: HUD is specifically seeking comment on 
the criteria it is proposing to determine if the PHA is a high 
performer or a standard performer. Are the conditions related to 
funding utilization appropriate? If not, are there better alternatives? 
Should HUD be considering other criteria besides utilization to 
designate a PHA a high performer as opposed to a standard performer? If 
so, what other performance measures should be taken into account? How 
would HUD verify the PHA's performance on any suggested additional or 
alternative performance criteria, keeping in mind HUD's preference to 
move away from reliance on self-certifications wherever possible and to 
not require PHAs to report or submit data for PHA assessments that is 
not already collected as part of normal HCV PHA operations and HUD 
oversight?
    Question for comment #24: What specifically should be required in 
the corrective action agreement?

C: Other Regulatory Changes

    As discussed above, Sec.  5.701 would expand the scope of part 5, 
subpart G. Therefore, this proposed rule would amend regulations for 
the HCV (part 982), PBV (part 983), HOME (part 92), HTF (part 93), 
HOPWA (part 574), ESG (part 576), and CoC (part 578).
    The proposed rule would align HOME property standards requirements 
for housing with the requirements for ongoing property condition 
standards of rental housing at Sec.  92.251(f). Participating 
jurisdictions would be required to establish written property standards 
for housing occupied by tenants that meet minimum requirements at Sec.  
92.251(f) including compliance with State and local codes and 
ordinances, health and safety, and lead-based paint requirements.
    While most participating jurisdictions are subject to State and 
local building or rehabilitation codes, many are not subject to 
comprehensive property condition or habitability codes. The program 
regulations at Sec.  92.251(f) do not provide a uniform standard for 
housing that is decent, safe, and sanitary and in good repair where 
State and local codes are absent. HUD is proposing a uniform standard 
for what must be inspected during, and corrected as the result of, an 
ongoing physical inspection of HOME-assisted rental housing during the 
period of affordability or an annual inspection of housing occupied by 
a resident.
    Also under the proposed rule, the Housing Trust Fund (HTF) program 
regulations would be revised to make conforming changes to the HTF 
property standards requirements at Sec.  93.301(b)(1)(viii), (c)(3), 
and (e)(i). The specific deficiencies will be a subset of the 
deficiencies defined for NSPIRE and published in the Federal Register 
in accordance with Sec.  5.705.
    The proposed rule would also make conforming changes to apply Sec.  
5.703 to the Housing Opportunities for Persons with AIDS (HOPWA), 
Continuum of Care (CoC), and Emergency Solutions Grants (ESG) programs. 
The rule proposes to amend the HOPWA regulations at Sec.  574.310; the 
CoC regulations at Sec.  578.75; and the ESG regulations at Sec.  
576.403 to cite to Sec.  5.703. The CoC regulations at Sec.  578.75(b) 
regarding lead-based paint requirements would be amended only to apply 
Sec.  5.703 where Sec.  982.401 currently applies; this proposed rule 
makes no substantive changes to the lead-based paint requirements. The 
ESG regulations would be amended to include Sec.  5.703 in the minimum 
standards for permanent housing but not emergency shelters.
    These amendments are intended to replace program-specific standards 
with references to part 5. Further, Sec.  5.711 would incorporate and 
condense the administrative review and enforcement action provisions at 
Sec. Sec.  200.857(h) and 200.857(i) to align with HUD's current 
procedures and to eliminate inconsistencies with Section 219, Title II, 
Division H of the Consolidated Appropriations Act, 2020, Public Law 
116-94, December 20, 2019.
    HUD is also proposing technical changes for HAP contracts at 
Sec. Sec.  880.612, 884.217, 886.123 and 886.323 to require

[[Page 2591]]

annual compliance with the expanded part 5, subpart G.
    Under this proposed rule, the Moderate Rehabilitation program 
regulations at Sec.  882.516(b) would be revised to clarify that PHAs 
must inspect (or cause to be inspected) units at least annually and at 
other times as necessary in accordance with the NSPIRE standards 
established under Sec.  5.703. HUD would continue to conduct the 
inspections in accordance with the NSPIRE standards for mod rehab 
projects that are managed by the PHA as provided under Sec.  
882.516(d). In addition, the proposed rule would change the title of 
Sec.  882.516(c) from ``Units not decent, safe, and sanitary'' to 
``Units with health and safety hazards'' and add a title to Sec.  
882.516(e) for clarity.

D. Other Rulemakings

    HUD notes that there is some overlap in the proposed changes with 
HUD's Housing Opportunity Through Modernization Act of 2016: 
Implementation of Sections 102, 103, and 104 proposed rule (84 FR 
48820). HUD further notes that HUD intends to publish a proposed rule 
concerning the implementation of requirements to install carbon 
monoxide detectors in HUD-assisted and -Insured Housing, which would 
also overlap with this proposed rule. At the final rule stage, HUD will 
make any changes necessary to address any conflicts between these 
rules.

III. NSPIRE Improvements Beyond This Rule

    In addition to the regulatory changes being proposed by this rule, 
HUD is making other improvements to its physical inspection program. 
HUD is committed to extending the same principles reflected in this 
rule to other aspects of the NSPIRE effort. HUD has continued to move 
forward with the ``top-to-bottom review'' of its inspection process 
directed by the Secretary to ensure taxpayer-supported housing is 
healthy, safe, and habitable for the millions of families HUD serves. 
The regulation will signal to the public HUD's clear intent to change 
its business approach. HUD is proactively aligning Public Housing, HCV, 
and other programs, through establishing an approach to revise and 
publish inspection standards, testing and validating a new inspection 
scoring model, and continuously engaging with the public in HUD's 
improvement efforts.
    To ensure stakeholders can provide input on all aspects of NSPIRE, 
HUD launched listening sessions about making improving HUD's 
inspections better. That approach of early and often feedback has 
continued. For example, in the development of the physical inspection 
standards, HUD published drafts on the NSPIRE website for public 
input.\14\ For reference, these are the standards which will apply to 
all inspections (see Sec.  5.705(a)) and will be published formally for 
public comment prior to implementation (see Sec.  5.709). HUD has 
received hundreds of suggestions on the draft NSPIRE standards and has 
closely reviewed all the comments. The majority were successfully 
incorporated into revisions. HUD's analysis, supported by stakeholder 
feedback, has identified that the current Uniform Physical Condition 
Standards (UPCS) and Housing Quality Standards (HQS) specifications do 
not always clearly identify or explain the particular harm or hazard 
that HUD is trying to avoid. To address this concern, HUD applied best 
practices from risk analysis frameworks that feature predominantly in 
the public health discipline to help all stakeholders understand the 
``why'' or the ``rationale'' for each deficiency. A ``rationale'' is a 
plainly written risk-based assessment that describes the harm or 
negative result that could occur if that issue were to be present at a 
property. It justifies why that issue is critical to housing quality. 
By taking this approach, HUD can ground each standard in a clear and 
defensible explanation based in sound science.
---------------------------------------------------------------------------

    \14\ U.S. Department of Housing and Urban Development. (2019). 
National Standards for Physical Inspection of Real Estate (NSPIRE) 
Standards. Retrieved from: https://www.hud.gov/program_offices/public_indian_housing/reac/nspire/standards.
---------------------------------------------------------------------------

    Given the approach described above--and because it is important to 
ensure the standards remain up to date--HUD is working to establish an 
``infrastructure of partnerships'' to provide continuous technical 
input and scientific guidance for standards development. HUD started 
this effort by collaborating with partners across the public and 
private sectors--including other Federal agencies--and academic and 
non-profit organizations. HUD anticipates that the continued expansion 
of these relationships will help to provide the input into the three-
year updates to which HUD commits in this rule.
    Along with the efforts already described, HUD has launched two 
demonstrations: (1) The Demonstration to Assess the National Standards 
for the Physical Inspection of Real Estate (84 FR 43536) and (2) the 
Demonstration to Test Proposed New Method of Assessing the Physical 
Conditions of Voucher-Assisted Housing (81 FR 26759). These 
demonstrations are among the first steps in implementing an aligned 
inspection protocol for public housing, multifamily housing, and 
voucher programs. More information about those demonstrations can be 
found on the NSPIRE \15\ and ISDV \16\ websites.
---------------------------------------------------------------------------

    \15\ U.S. Department of Housing and Urban Development. (2019). 
The Demonstration to Assess the National Standards for the Physical 
Inspection of Real. Estate Retrieved from: https://www.hud.gov/program_offices/public_indian_housing/reac/nspire/demonstration.
    \16\ U.S. Department of Housing and Urban Development. (2019). 
The Demonstration to Test Proposed New Method of Assessing the 
Physical Conditions of Voucher-Assisted Housing. Retrieved from: 
https://www.hud.gov/sites/dfiles/PIH/documents/upcsvdemoparticpation.pdf.
---------------------------------------------------------------------------

    Strategically, the demonstration programs give HUD and properties 
an opportunity to ``stress test'' processes in a real-world setting to 
ensure they are stable and ready to scale out to the full population of 
Property Owner Agent (POA). In addition to being reasonable, HUD wants 
to ensure that its inspection standards are performable across a wide 
variety of inspectors. The demonstrations allow HUD the ability to make 
sure its administrative processes that support physical inspections are 
efficient and responsive. HUD is also leveraging technology to 
eliminate manual processes and to realize the benefits of having 
aligned programs.
    The information coming out of both demonstrations also informs the 
development and refinement of property scoring approaches. HUD has 
worked diligently to identify the most appropriate scoring models to 
improve the accuracy, objectivity, and consistency of assessment across 
different property configurations. Along with modifications to the 
current model, HUD is currently exploring alternative scoring models 
based instead on data-driven methodologies, including those based on 
probabilistic approaches.
    Finally, aligning HUD's oversight to property risk will benefit 
both HUD and the POAs. For example, HUD has proposed in this rule that 
a risk model inform the extension of the frequency of inspections up to 
5 years in some programs. Taking a risk-based oversight approach allows 
high-performing properties to continue to do those things that make 
them successful while ensuring struggling properties are able to get 
the attention needed. While HUD will maintain a ``pass/fail'' result 
for HCV and PBV inspections as required by statute, moving to NSPIRE 
with consistent inspection standards allows large volumes of inspection 
and housing quality data to be compared across programs for the first 
time. HUD believes that better data will lead to the

[[Page 2592]]

development of more refined risk models and also allow rigorous 
assessment of the impacts of deficiencies, individually and in 
combination, on residents.

IV. Findings and Certifications

Regulatory Review--Executive Orders 12866 and 13563

    Pursuant to Executive Order 12866 (Regulatory Planning and Review), 
a determination must be made whether a regulatory action is significant 
and therefore subject to review by the Office of Management and Budget 
(OMB) in accordance with the requirements of the order. Executive Order 
13563 (Improving Regulations and Regulatory Review) directs executive 
agencies to analyze regulations that are ``outmoded, ineffective, 
insufficient, or excessively burdensome, and to modify, streamline, 
expand, or repeal them in accordance with what has been learned.'' 
Executive Order 13563 also directs that, where relevant, feasible, and 
consistent with regulatory objectives, and to the extent permitted by 
law, agencies are to identify and consider regulatory approaches that 
reduce burdens and maintain flexibility and freedom of choice for the 
public.
    HUD believes that this proposed rule, by consolidating physical 
condition inspection standards into a streamlined format and utilizing 
improved technology and methods will aid all parties--PHAs, property 
owners, agents, and inspectors--in complying with HUD's physical 
condition standards creating a smaller burden while maintaining or 
increasing the effectiveness of HUD's physical condition requirements. 
The proposed rule has been determined to be a ``significant regulatory 
action,'' as defined in section 3(f) of the Order, but not economically 
significant under section 3(f)(1) of the Order. The docket file is 
available for public inspection online at www.regulations.gov.

Executive Order 13771, Regulatory Costs

    Executive Order 13771, entitled ``Reducing Regulation and 
Controlling Regulatory Costs,'' was issued on January 30, 2017. This 
proposed rule is expected to be an Executive Order 13771 deregulatory 
action. The requirements this proposed rule would place on the public 
are comparable to pre-existing requirements. This rule would also 
provide relief to small rural PHAs and certain qualifying properties 
and would provide relief by removing inconsistencies across HUD's 
programs, reducing compliance costs.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (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 number of small entities. 
There are 2,297 small PHAs all of which will be affected; however, the 
economic impact will not be significant.
    The economic impact will not be significant because the proposed 
rule would not change the substantive requirement that HUD program 
participants are required to maintain the physical condition of HUD 
housing. The proposed rule would also, in most cases, maintain the same 
level of review for compliance in the form of physical inspections. 
Regulatory flexibility would be increased by allowing HUD to require 
less frequent inspections for high-performing PHAs under PHAS. 
Regulatory relief would also be provided to small rural PHAs, which 
would only be subject to triennial inspections under PHAS. Accordingly, 
the undersigned certifies that the proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
Notwithstanding HUD's determination that this rule will not have a 
significant effect on a substantial number of small entities, HUD 
specifically invites comments regarding any less burdensome 
alternatives to this rule that will meet HUD's objectives as described 
in the preamble to this rule.

Environmental Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969 (42 U.S.C. 4332(2)(C)). The Finding of No Significant 
Impact is available for public inspection between the hours of 8 a.m. 
and 5 p.m. weekdays in the Regulations Division, Office of General 
Counsel, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street SW, Washington, DC 20410-0500. The FONSI is also 
available through the Federal eRulemaking Portal at http://www.regulations.gov.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either: (i) Imposes substantial direct compliance costs on State and 
local governments and is not required by statute, or (ii) preempts 
State law, unless the agency meets the consultation and funding 
requirements of section 6 of the Executive Order. This proposed rule 
would merely revise existing Federal standards in a way which would not 
increase or decrease compliance costs on State or local governments and 
therefore does not have federalism implications and would not impose 
substantial direct compliance costs on state and local governments or 
preempt state law within the meaning of the Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for federal agencies to 
assess the effects of their regulatory actions on State, local, and 
tribal governments, and on the private sector. This proposed rule would 
not impose any Federal mandates on any State, local, or tribal 
governments, or on the private sector, within the meaning of the UMRA.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501-3520), an agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information, unless the 
collection displays a currently valid Office of Management and Budget 
(OMB) control number. Except for the self-inspection report 
requirements, the information collection requirements contained in this 
proposed rule have been approved by OMB under the Paperwork Reduction 
Act and assigned OMB control numbers 2502-0369 (Uniform Physical 
Standards and Physical Inspection Requirements), 2577-0241 (Exigent 
Health and Safety Deficiency Correction Certification), 2577-0257 
(Public Housing Assessment System (PHAS) Appeals, Technical Reviews and 
Database Adjustments), 2577-0289 (National Standards for the Physical 
Inspection of Real Estate (NSPIRE)), and 2577-0169 (HCV Program and 
Tribal HUD-VASH). The collection requirements will be amended to 
reflect the altered burden contained in this proposed rule. The current 
PRA ``HCV Program and Tribal HUD-VASH'' (OMB 2577-0169) authorizes 
collection of unit inspection data from PHAs as part of their 
participation in the HCV and PBV programs. This proposed rule will not 
require a modification to this approved collection.

[[Page 2593]]

    The current PRA package ``National Standards for the Physical 
Inspection of Real Estate (NSPIRE)'' (OMB 2577-02890) authorizes 
collection of self-inspection data from properties participating in 
HUD's NSPIRE Demonstration. As NSPIRE moves from demonstration to 
implementation, the number of responses will increase to accommodate 
the full portfolio of properties required to submit self-inspection 
results to HUD.
    The current PRA package ``Administrative Process for Scoring, 
Ranking, and Appeals'' (OMB 2577-0257) authorizes the collection of 
data associated with data base adjustments, technical reviews, and 
appeals (Public Housing only) for Multifamily and Public Housing 
properties. HUD anticipates this number to remain constant upon 
implementation of NSPIRE.
    The current PRA package ``Uniform Physical Standards and Physical 
Inspection Requirements'' (OMB 2502-0369) authorizes the collection of 
data associated with inspections of HUD-insured mortgages. HUD expects 
this number to increase slightly due to higher unit sampling as part of 
the NSPIRE protocol.
    The current PRA package ``Other Reporting Requirements'' (OMB 2577-
0241) only authorizes the collection of electronic certifications by 
PHAs for corrected/mitigated Exigent Health and Safety (EH&S) 
deficiencies. The new number of responses and burden reflect the 
inclusion of all programs, beyond Public Housing, that will now be 
required to submit electronic closeout of all health and safety 
deficiencies, not just EH&S deficiencies.
    The burden of the information collections in this proposed rule is 
estimated as follows:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Number of responses      Burden hours per                        Total annual cost
                                                          --------------------------       response          Hourly  -----------------------------------
                  Information collection                                            ----------------------   cost *
                                                             Current        New       Current      New                     Current             New
--------------------------------------------------------------------------------------------------------------------------------------------------------
Inspection Reporting (HCV) (OMB 2577-0169)...............    3,680,527    3,680,527        .44        .44        $34    $55,060,684.00   $55,060, 684.00
Self-inspection Reporting (OMB 2577-0289)................        4,500       38,000        2.7        2.7         34        413,100.00      2,335,176.00
Administrative Process for Scoring, Ranking, and Appeals         1,510        1,510        7.7        7.7         34         51,366.00         51,366.00
 (OMB 2577-0257..........................................
Uniform Physical Standards and Physical Inspection              12,100       12,100        6.0        8.0         34      2,468,400.00      3,291,200.00
 Requirements (OMB 2502-0369)............................
Other Reporting Requirements (OMB 2577-0241).............          971       16,000        .28        1.0         34          9,244.00        544,000.00
                                                          ----------------------------------------------------------------------------------------------
    Totals...............................................    3,699,608    3,748,137  .........  .........  .........     58,002,794.00     61,282,426.00
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Estimates assume a blended hourly rate that is equivalent to a GS-12, Step 5, Federal Government Employee.

    In accordance with 5 CFR 1320.8(d)(1), HUD is soliciting comments 
from members of the public and affected agencies concerning the 
information collection requirements in the proposed rule regarding:
    (1) Whether the proposed collection of information is necessary for 
the proper performance of the functions of the agency, including 
whether the information will have practical utility;
    (2) The accuracy of the agency's estimate of the burden of the 
proposed collection of information;
    (3) Whether the proposed collection of information enhances the 
quality, utility, and clarity of the information to be collected; and
    (4) Whether the proposed information collection minimizes the 
burden of the collection of information on those who are to respond, 
including through the use of appropriate automated collection 
techniques or other forms of information technology (e.g., permitting 
electronic submission of responses).
    Interested persons are invited to submit comments regarding the 
information collection requirements in this rule. Under the provisions 
of 5 CFR part 1320, OMB is required to make a decision concerning this 
collection of information between 30 and 60 days after the publication 
date. Therefore, a comment on the information collection requirements 
is best assured of having its full effect if OMB receives the comment 
within 30 days of the publication. This time frame does not affect the 
deadline for comments to the agency on the proposed rule, however. 
Comments must refer to the proposed rule by name and docket number (FR-
6123) and must be sent to:

HUD Desk Officer, Office of Management and Budget, New Executive Office 
Building, Washington, DC 20503, Fax number: 202-395-6947

and

Colette Pollard, HUD Reports Liaison Officer, Department of Housing and 
Urban Development, 451 7th Street SW, Room 2204, Washington, DC 20410

    Interested persons may submit comments regarding the information 
collection requirements electronically through the Federal eRulemaking 
Portal at http://www.regulations.gov. HUD strongly encourages 
commenters to submit comments electronically. Electronic submission of 
comments allows the commenter maximum time to prepare and submit a 
comment, ensures timely receipt by HUD, and enables HUD to make them 
immediately available to the public. Comments submitted electronically 
through the http://www.regulations.gov website can be viewed by other 
commenters and interested members of the public. Commenters should 
follow the instructions provided on that site to submit comments 
electronically.

List of Subjects

24 CFR Part 5

    Administrative practice and procedure, Aged, Claims, Crime, 
Government contracts, Grant programs--housing and community 
development, Individuals with disabilities, Intergovernmental 
relations, Loan programs--housing and community development, Low and 
moderate income housing, Mortgage insurance, Penalties, Pets, Public 
housing, Rent subsidies, Reporting and recordkeeping requirements, 
Social security, Unemployment compensation, and Wages.

24 CFR Part 92

    Administrative practice and procedure, Low and moderate income 
housing, Manufactured homes, Rent subsidies, and Reporting and 
recordkeeping requirements.

24 CFR Part 93

    Administrative practice and procedure, Grant programs--housing and 
community development, Low and moderate income housing, Manufactured 
homes, Rent subsidies, and Reporting and recordkeeping requirements.

24 CFR Part 200

    Administrative practice and procedure, Claims, Equal employment 
opportunity, Fair housing, Housing

[[Page 2594]]

standards, Lead poisoning, Loan programs--housing and community 
development, Mortgage insurance, Organization and functions (Government 
agencies), Penalties, Reporting and recordkeeping requirements, Social 
security, Unemployment compensation, and Wages.

24 CFR Part 574

    Community facilities, Grant programs--housing and community 
development, Grant programs--social programs, HIV/AIDS, Low and 
moderate income housing, and Reporting and recordkeeping requirements.

24 CFR Part 576

    Community facilities, Grant programs--housing and community 
development, Grant programs--social programs, Homeless, and Reporting 
and recordkeeping requirements.

24 CFR Part 578

    Community development, Community facilities, Grant programs--
housing and community development, Grant programs--social programs, 
Homeless, and Reporting and recordkeeping requirements.

24 CFR Part 880

    Grant programs--housing and community development, Rent subsidies, 
and Reporting and recordkeeping requirements.

24 CFR Part 882

    Grant programs--housing and community development, Homeless, Lead 
poisoning, Manufactured homes, Rent subsidies, and Reporting and 
recordkeeping requirements.

24 CFR Part 884

    Grant programs--housing and community development, Rent subsidies, 
Reporting and recordkeeping requirements, and Rural areas.

24 CFR Part 886

    Grant programs--housing and community development, Lead poisoning, 
Rent subsidies, and Reporting and recordkeeping requirements.

24 CFR Part 902

    Administrative practice and procedure, Public housing, and 
Reporting and recordkeeping requirements.

24 CFR Part 982

    Grant programs--housing and community development, Grant programs--
Indians, Indians, Public housing, Rent subsidies, and Reporting and 
recordkeeping requirements.

24 CFR Part 983

    Grant programs--housing and community development, Low and moderate 
income housing, Rent subsidies, and Reporting and recordkeeping 
requirements.

24 CFR Part 985

    Grant programs--housing and community development, Public housing, 
Rent subsidies, and Reporting and recordkeeping requirements.

    For the reasons discussed in the preamble, HUD proposes to amend 24 
CFR parts 5, 92, 93, 200, 574, 576, 578, 880, 882, 883, 884, 886, 902, 
982, 983 and 985 as follows:

PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS

0
1. The authority for 24 CFR part 5 continues to read as follows:


    Authority: 12 U.S.C. 1701x; 42 U.S.C. 1437a, 1437c, 1437d, 
1437f, 1437n, 3535(d); Sec. 327, Pub. L. 109-115, 119 Stat. 2936; 
Sec. 607, Pub. L. 109-162, 119 Stat. 3051 (42 U.S.C. 14043e et 
seq.); E.O. 13279, 67 FR 77141, 3 CFR, 2002 Comp., p. 258; and E.O. 
13559, 75 FR 71319, 3 CFR, 2010 Comp., p. 273.

0
2. Revise subpart G to read as follows:

Subpart G--Physical Inspection of Real Estate

Sec.
5.701 Applicability.
5.703 National Standards for the Condition of HUD Housing.
5.705 Inspection Requirements.
5.707 Uniform self-inspection requirement and report.
5.709 Administrative Process for Defining and Revising Inspection 
Criteria.
5.711 Scoring, Ranking Criteria, and Appeals.
5.713 Second- and Third-Party Rights.


Sec.  5.701   Applicability.

    (a) Scope. This subpart applies the national standards for the 
physical inspection of real estate standards to the following HUD 
programs:
    (1) All Public Housing programs (programs for housing assisted 
under the U.S. Housing Act of 1937 other than section 8 of the Act);
    (2) The Housing Choice Voucher program under section 8(o) of the 
U.S. Housing Act of 1937, part 982 of this title and the Project-Based 
Voucher program under section 8(o)(13) of the Act and the regulations 
at part 983 of this title (referred to in this part as the HCV and PBV 
programs, or HCV and PBV housing);
    (3) All project-based Section 8 programs;
    (4) Section 202 Program of Supportive Housing for the Elderly 
(Capital Advances);
    (5) Section 811 Program of Supportive Housing for Persons with 
Disabilities (Capital Advances);
    (6) Section 202 loan program for projects for the elderly and 
handicapped (including 202/8 projects and 202/162 projects); and
    (7) Housing with mortgages insured or held by HUD, or housing that 
is receiving assistance from HUD, under the following authorities:
    (i) Section 207 of the National Housing Act (NHA) (12 U.S.C. 1701et 
seq.) (Rental Housing Insurance);
    (ii) Section 213 of the NHA (Cooperative Housing Insurance);
    (iii) Section 220 of the NHA (Rehabilitation and Neighborhood 
Conservation Housing Insurance);
    (iv) Section 221(d)(3) of the NHA (Market Interest Rate (MIR) 
Program);
    (v) Section 221(d)(3) and (5) of the NHA (Below Market Interest 
Rate (BMIR) Program);
    (vi) Section 221(d)(4) of the NHA (Housing for Moderate Income and 
Displaced Families);
    (vii) Section 231 of the NHA (Housing for Elderly Persons);
    (viii) Section 232 of the NHA (Mortgage Insurance for Nursing 
Homes, Intermediate Care Facilities, Assisted Living Facilities, Board 
and Care Homes);
    (ix) Section 234(d) of the NHA (Rental) (Mortgage Insurance for 
Condominiums);
    (x) Section 236 of the NHA (Rental and Cooperative Housing for 
Lower Income Families);
    (xi) Section 241 of the NHA (Supplemental Loans for Multifamily 
Projects). (Where, however, the primary mortgage of a Section 241 
property is insured or assisted by HUD under a program covered in this 
part, the coverage by two HUD programs does not trigger two 
inspections); and
    (xii) Section 542(c) of the Housing and Community Development Act 
of 1992 (12 U.S.C. 1707 note) (Housing Finance Agency Risk Sharing 
Program).
    (b) Conflicts. The regulations in this subpart may be supplemented 
by the specific regulations for the HUD-assisted programs listed in 
paragraph (a). The program-specific regulations may address the 
frequency of inspections, who performs the inspections and whether 
alternative inspections are available given the statutory and 
regulatory framework for the program. When there is conflict between 
the regulations of this subpart

[[Page 2595]]

and the program-specific regulations, the program-specific regulations 
govern.
    (c) HUD housing. For purposes of this subpart, the term ``HUD 
housing'' means the types of housing listed in paragraph (a) of this 
section.


Sec.  5.703   National Standards for the Condition of HUD housing.

    (a) General. To ensure that all residents live in safe, habitable 
dwellings, the items and components located inside the building, 
outside the building, and within the units of HUD housing must be 
functionally adequate, operable, and free of health and safety hazards. 
The standards under this section apply to all HUD housing. HUD housing 
under the HCV and PBV programs shall be subject to these standards only 
for:
    (1) The subsidized unit itself; and
    (2) Items and components within the primary and secondary means of 
egress from a unit's entry door(s) to the public way, those common 
features related to the residential use of the building (e.g., the 
laundry room, community room, mail room), and the systems equipment 
that directly services the voucher unit.
    (b) Inside. Inside of HUD housing refers to the common areas and 
building systems that can be generally found within the building 
interior and are not inside a unit. Examples of ``inside'' common areas 
may include, basements, interior or attached garages, enclosed 
carports, restrooms, closets, utility rooms, mechanical rooms, 
community rooms, day care rooms, halls, corridors, stairs, shared 
kitchens, laundry rooms, offices, enclosed porches, enclosed patios, 
enclosed balconies, and trash collection areas. Examples of building 
systems include those components that provide domestic water, 
electricity, elevators, emergency power, fire protection, HVAC, and 
sanitary services.
    (c) Outside. Outside of HUD housing (or ``outside areas'') refers 
to the building site, building exterior components, and any building 
systems located outside of the building or unit. Examples of 
``outside'' components may include fencing, retaining walls, grounds, 
lighting, mailboxes, project signs, parking lots, detached garage or 
carport, driveways, play areas and equipment, refuse disposal, roads, 
storm drainage, non-dwelling buildings, and walkways. Components found 
on the exterior of the building are also considered outside areas, and 
examples may include doors, attached porches, attached patios, 
balconies, car ports, fire escapes, foundations, lighting, roofs, 
walls, and windows.
    (d) Units. A unit (or ``dwelling unit'') of HUD housing refers to 
the interior components of an individual unit. Examples of components 
included in the interior of a unit may include the bathroom, call-for-
aid (if applicable), ceiling, doors, electrical systems, floors, water 
heater, HVAC (where individual units are provided), kitchen, lighting, 
outlets, switches, smoke detectors, stairs, walls, and windows. The 
unit must also meet the following affirmative requirements:
    (1) The unit must have hot and cold running water, including an 
adequate source of safe and potable water;
    (2) The unit must include its own sanitary facility, it must be in 
proper operating condition, usable in privacy, and adequate for 
personal hygiene and the disposal of human waste;
    (3) The unit must include at least one battery-operated or hard-
wired smoke detector, in proper working condition, on each level of the 
unit installed as specified in National Fire Protection Association 
Standard (NFPA) 72 or successor standards. If the unit is occupied by 
any hearing-impaired person, smoke detectors must have an alarm system, 
designed for hearing-impaired persons;
    (4) The unit must have a living room and a kitchen area;
    (5) For units assisted under the HCV or PBV program, the unit must 
have at least one bedroom or living/sleeping room for each two persons. 
Children of opposite sex, other than very young children, may not be 
required to occupy the same bedroom or living/sleeping room.
    (e) Health and safety concerns--(1) General. The inside, outside 
and unit must be free of health and safety hazards that pose a danger 
to residents. Types of health and safety concerns include, but are not 
limited to carbon monoxide, mold, flammable materials or other fire 
hazards, electrical hazards, garbage and debris, handrail hazards, 
infestation, and lead-based paint.
    (2) Lead-Based Paint. HUD housing must comply with all requirements 
related to the evaluation and control of lead-based paint hazards and 
have available proper documentation of such (see part 35 of this 
title). The Lead-based Paint Poisoning Prevention Act (42 U.S.C. 4821-
4846), the Residential Lead-based Paint Hazard Reduction Act of 1992 
(42 U.S.C. 4851-4856), and the applicable regulations at part 35 of 
this title apply.
    (f) Compliance with State and local codes. (1) The standards for 
the condition of HUD housing in this section do not supersede State and 
local housing codes (such as fire, mechanical, plumbing, property 
maintenance, or residential code requirements).
    (2) All HUD housing other than units assisted under the HCV and PBV 
programs must comply with State or local housing code in order to 
comply with this subpart.
    (3) State and local code compliance is not part of the 
determination whether a unit passes the standards for the condition of 
HUD housing under this section for the HCV and PBV programs (except in 
accordance with Sec.  5.705(a)(3)).
    (g) Use of an alternative or additional standard for HCV and PBV 
programs. A PHA is not subject to the standards set by this section 
when the PHA is approved by HUD to use an alternative standard in 
accordance with Sec.  982.406 of this title. PHAs may also elect to 
establish additional requirements for quality, architecture, or design 
of PBV housing, and any such additional requirements must be specified 
in the Agreement to Enter into a HAP Contract (``Agreement'') as 
provided in Sec.  983.152(d)(2) of this title.
    (h) Special housing types in the HCV, PBV, and Moderate 
Rehabilitation programs. part 982, subpart M of this title identifies 
special housing types which require standards unique to special types 
of housing. Unless modified by program-specific regulations, NSPIRE 
Standards will apply for these special housing types.


Sec.  5.705   Inspection requirements.

    (a) Procedures--(1) General. Any entity responsible for conducting 
an inspection of HUD housing, to determine compliance with this 
subpart, must inspect such HUD housing in accordance with the standards 
and procedures for identifying safe, habitable housing set out by the 
Secretary and published in the Federal Register as described in Sec.  
5.711.
    (2) Inspection Scope. The inspection requirement for HUD housing 
generally requires the inside, outside and unit to be inspected, in 
accordance with Sec.  5.703. The inspection requirement for the tenant-
based HCV program and the unit inspection for the PBV program only 
applies to units occupied or to be occupied by HCV and PBV 
participants, and common areas and exterior areas which either service 
or are associated with such units.
    (3) HCV and PBV Variant inspection standards. (i) HUD may approve 
inspection criteria variations for the following purposes:
    (A) Variations which apply standards in local housing codes or 
other codes adopted by the PHA; or
    (B) Variations because of local climatic or geographic conditions.

[[Page 2596]]

    (ii) Acceptability criteria variations may only be approved by HUD 
pursuant to paragraph (a)(3)(i) if such variations either:
    (A) Meet or exceed the performance requirements; or
    (B) Significantly expand affordable housing opportunities for 
families assisted under the program.
    (iii) HUD will not approve any inspection criteria variation if HUD 
believes that such variation is likely to adversely affect the health 
or safety of participant families, or severely restrict housing choice.
    (b) Entity Conducting Inspections. HUD housing must be inspected by 
the appropriate entity as described in paragraph (b)(1) of this 
section, except as described in paragraph (b)(2) of this section.
    (1) General. The owner, lender, contract administrator, or HUD is 
the entity responsible for performing inspections of HUD housing as 
provided in this title, or a regulatory agreement or contract. For 
properties with more than one HUD-insured loan, only the first mortgage 
lender is required to conduct the inspection. The second mortgage 
lender will be provided a copy of the physical inspection report by the 
first mortgage lender.
    (2) Exception. Under the HCV and PBV programs, the Public Housing 
Agency is responsible for inspecting HUD housing under those programs, 
unless another entity is assigned the inspection by the program 
regulations governing the housing, regulatory agreements or contracts. 
A PHA-owned unit receiving assistance under section 8(o) of the 1937 
act must be inspected by an independent entity as specified in Sec.  
982.352(b)(iv) of this title. Under the Moderate Rehabilitation 
Program, the PHA is responsible for inspecting the HUD housing unless 
the PHA is managing units on which it is also administering the HAP 
Contract in accordance with Sec.  882.412, in which case HUD is 
responsible for the inspections in accordance with Sec.  882.516(d) of 
this title.
    (c) Timing of inspections--(1) Generally. A property must be 
inspected before the property is approved for participation in any of 
the HUD housing programs under this part unless the property is already 
a participant in another of the HUD programs under this part. An entity 
responsible for conducting an inspection of HUD housing to determine 
compliance with this subpart must inspect such housing annually unless 
specified otherwise below. An inspection shall be conducted no earlier 
than 3 months before and no later than 3 months after the date marking 
the anniversary of the previous inspection in the year that the 
inspection is due; however, an inspection must be completed before the 
end of the calendar year that the inspection is due.
    (2) Extended Inspection cycle. HUD housing other than HCV, PBV, and 
Moderate Rehabilitation housing shall be subject to annual inspection 
as described in paragraph (c)(1) of this section, except that the 
Secretary, based on appropriate evaluation of risk, may extend the 
inspection cycles of certain qualifying properties for a period between 
two and five years, through publication in the Federal Register, 
following notice and the opportunity to comment.
    (3) Triennial cycle for small rural PHAs. Small rural PHAs as 
defined in Sec.  902.101 of this title shall be assessed in accordance 
with part 902, subpart H of this title.
    (4) Housing Choice Vouchers. PHAs must inspect units subject to 
part 982 of this title in accordance with the frequency described in 
Sec.  982.405 of this title.
    (5) Project Based Vouchers. PHAs must inspect units subject to part 
983 of this title in accordance with the frequency described in Sec.  
983.103 of this title.
    (6) FHA insured mortgages section 232 facilities. HUD may exempt 
assisted-living facilities, board and care facilities, and intermediate 
care facilities from physical inspections under this part if HUD 
determines that the State or local government has a reliable and 
adequate inspection system in place, with the results of the inspection 
being readily and timely available to HUD. For any other Section 232 
facilities, the inspection will be conducted only when and if HUD 
determines, on the basis of information received, such as through a 
complaint, site inspection, or referral by a State agency, on a case-
by-case basis, that inspection of a particular facility is needed to 
assure protection of the residents or the adequate preservation of the 
project.
    (d) Inspection Costs. The cost of an inspection shall be the 
responsibility of the entity responsible for the inspection as 
identified in paragraph (a) of this section, except that a reasonable 
fee may be required of the owner of a property for a reinspection if an 
owner notifies the entity responsible for the inspection that a repair 
has been made or the allotted time for repairs has elapsed and a 
reinspection reveals that any deficiency cited in the previous 
inspection that the owner is responsible for repairing was not 
corrected. No fee may be passed along to the household residing in the 
unit or units.
    (e) Access to property for inspection--(1) HUD Inspections. Nothing 
in this subpart shall restrict the right of HUD, or an entity 
contracted by HUD, to inspect HUD housing.
    (2) Public housing projects. All PHAs are required to provide HUD 
or its representative with full and free access to all facilities in 
its projects. All PHAs are required to provide HUD or its 
representative with access to its projects and to all units and 
appurtenances in order to permit physical inspections, monitoring 
reviews, and quality assurance reviews under this part. Access to the 
units shall be provided whether or not the resident is home or has 
installed additional locks for which the PHA did not obtain keys. In 
the event that the PHA fails to provide access as required by HUD or 
its representative, the PHA shall be given a physical condition score 
of zero for the project or projects involved. This score of zero shall 
be used to calculate the physical condition indicator score and the 
overall assessment score for that PHA.


Sec.  5.707   Uniform self-inspection requirement and report.

    All owners of HUD housing, other than owners participating in the 
HCV, PBV, and Moderate Rehabilitation Programs, are required to 
annually inspect their properties, including all units, to ensure the 
units are maintained in accordance with the standards in Sec.  5.703 
and electronically report results to HUD, in accordance with the 
procedures set out by the Secretary and published in the Federal 
Register, following notice and the opportunity to comment. This self-
inspection is independent of other HUD inspections discussed in Sec.  
5.705.


Sec.  5.709   Administrative Process for Defining and Revising 
Inspection Criteria.

    (a) Inspection standards and scoring methodology. The Secretary 
will publish in the Federal Register, following notice and the 
opportunity to comment, a list of deficiencies and methodologies to use 
for scoring and ranking HUD housing. The Federal Register notice will 
include the factors for determining if an HCV unit passes or fails the 
inspection in addition to the scoring and ranking of other HUD housing. 
After considering the public comments received on the Federal Register 
notice, HUD will publish a notice announcing the new inspections 
procedures, and the date on which the new procedures becomes effective.

[[Page 2597]]

    (1) Revisions. HUD will issue a notice in the Federal Register 
published for 30 days of public comment making any revisions to the 
inspection procedures HUD deems necessary, every three years, or three 
years after the most recent revision, whichever is later.
    (2) Emergency Revisions. The Secretary may publish a final notice 
without 30 days of public comment in the case of an emergency to 
protect Federal financial resources or the health or safety of 
residents of public housing projects, after HUD makes a documented 
determination that such action is warranted due to:
    (i) A Severe Health or Safety deficiencies and other significant 
risks to safety as outlined in Sec.  5.703;
    (ii) A new safety concern due to changing construction technology; 
or
    (iii) Other events as determined by the Secretary.


Sec.  5.711   Scoring, Ranking Criteria, and Appeals.

    (a) Applicability. Administrative process for scoring and ranking 
the physical condition of HUD housing properties under this section 
does not apply to the HCV or PBV program. PHAs administering HCV and 
PBV programs will be assessed under the Section 8 Management Assessment 
Program (``SEMAP'') or the small rural PHA assessment in accordance 
part 985 of this title.
    (b) Scoring and ranking of HUD housing--(1) General. HUD's Real 
Estate Assessment Center (REAC), or the appropriate entity either as 
described in Sec.  5.705(b), or as identified in the regulator 
agreement or contract for the property as described in Sec.  
5.705(b)(1), will score and rank the physical condition of HUD housing 
properties in accordance with the procedures set out by the Secretary 
in Sec.  5.709.
    (2) Public Housing programs. PHAs operating Public Housing will be 
scored and ranked under the Public Housing Assessment System (``PHAS'') 
outlined in part 902 of this title.
    (c) Inspection report requirements--(1) Severe health or safety 
deficiencies. Upon completion of an inspection, or at the end of each 
day on a multiple-day inspection, REAC, or the appropriate party as 
described in Sec.  5.705(b), will provide the owner or PHA or owner's 
representative, a notice of any items classified as Severe Health or 
Safety (SHS) deficiencies. All SHS items must be mitigated within 24 
contiguous hours of receipt of notice of these items, and the owner or 
PHA or owner's representative must electronically certify and provide 
supporting evidence within 3 business days after the end of the 
inspection that the SHS items have been resolved or sufficiently abated 
such that they no longer pose a severe health or safety risk to 
residents of the property. SHS deficiencies (together with other types 
of deficiencies) will be fully described in a future Federal Register 
notice.
    (2) Post-report inspection. The owner or PHA must carefully review 
the inspection report and is responsible for conducting its own survey 
of the total property based on the inspecting entity's inspection 
findings. Non-severe health or safety deficiencies must be corrected 
expeditiously, and electronic evidence provided of correction.
    (3) Identification of material errors or adverse conditions. If, 
after reviewing the inspection results, the owner or PHA reasonably 
believes that either an objectively verifiable and material error 
occurred in the inspection or that adverse conditions beyond the 
owner's or PHA's control negatively impacted the score, and that the 
error or adverse condition, if corrected or accounted for, would result 
in a significant improvement in the property's overall score, the owner 
or PHA may electronically submit a request for a technical review.
    (d) Technical review of inspection results--(1) Timing. A request 
for a technical review of inspection results must be submitted 
electronically and must be received by the inspecting entity no later 
than the 45th calendar day following the release of the inspection 
report.
    (2) Request for technical review. The request must be accompanied 
by the owner's or PHA's relevant evidence that an objectively 
verifiable and material error occurred or adverse conditions beyond the 
owner or PHA's control occurred, which if corrected will result in a 
significant improvement in the overall score of the owner's property. A 
technical review of the inspection results will not be conducted based 
on conditions that were corrected subsequent to the inspection. Upon 
receipt of this request from the owner or PHA, the REAC will review the 
inspection and the evidence. If the REAC review determines that an 
objectively verifiable and material error (or errors) or adverse 
condition(s) beyond the owner or PHA's control has been documented and 
that it is likely to result in a significant improvement in the 
property's overall score, the REAC will take one or a combination of 
the following actions:
    (i) Undertake a new inspection;
    (ii) Correct the original inspection; or
    (iii) Issue a new physical condition score.
    (3) Burden of proof that error or adverse conditions occurred rests 
with owner. The burden of proof rests with the owner to demonstrate 
that an objectively verifiable and material error (or errors) or 
adverse conditions occurred in the REAC's inspection through submission 
of evidence, which if corrected will result in a significant 
improvement in the property's overall score. The REAC will apply a 
rebuttable presumption that the inspection was conducted accurately. To 
support its request for a technical review of the physical inspection 
results, the owner may submit photographic evidence, written material 
from an objective source with subject matter expertise that pertains to 
the item being reviewed such as a local fire marshal, building code 
official, registered architect, or professional engineer, or other 
similar evidence.
    (4) Basis for Technical Review. There are four sources of error 
that are associated with an inspection score. After review of each type 
of error, the property's score may be adjusted or other action taken.
    (i) Material errors. An objectively verifiable material error must 
be present to allow for a technical review of inspection results. 
Material errors are those that were not due to the fault of the owner 
and exhibit specific characteristics and meet specific thresholds. The 
three types of material errors are as follows.
    (ii) Building data error. A building data error occurs if the 
inspector inspected the wrong building or a building that was not owned 
by the property, including common or site areas that were not a part of 
the property. Incorrect data due to the failure of an owner to ensure 
HUD's systems of records are updated cannot form the basis of a review. 
Incorrect building data that does not affect the score, such as the 
address, building name, year built, etc., would not be considered 
material.
    (iii) Unit count error. A unit count error occurs if the total 
number of units considered in scoring is incorrect due to the fault of 
HUD. Since scoring uses total units, REAC will examine instances where 
the participant can provide evidence that the total units used was 
incorrect and that the results were not representative of the condition 
of the property.
    (iv) A non-existent deficiency error. A non-existent deficiency 
error occurs if the inspection records an observed deficiency that does 
not satisfy or does not meet a reasonable interpretation of the 
definition of that deficiency as defined by inspection procedures.

[[Page 2598]]

    (5) Significant improvement. Significant improvement in the 
project's overall score refers to an increase in a score for the owner 
or PHA such that the new score crosses an administratively significant 
threshold.
    (6) Reinspection. If HUD determines that a reinspection is 
appropriate, it will arrange for a complete reinspection of the 
project(s) in question, not just the deficiencies previously 
identified. The reinspection will constitute the final inspection for 
the project, and HUD will issue a new inspection report (the final 
inspection report).
    (7) Deficiencies. If any of the previously identified SHS 
deficiencies that the owner certified were corrected, remedied, or 
acted upon to abate are found during the reinspection not to have been 
corrected, remedied, or acted upon to abate, the score in the final 
inspection report will reflect a point deduction of triple the value of 
the original deduction, up to the maximum possible points for the unit 
or area, and the owner must reimburse HUD for the cost of the 
reinspection.
    (e) Independent HUD review. Under certain circumstances, HUD may 
find it appropriate absent a PHA request for technical review to review 
the results of an inspection which are anomalous or have an incorrect 
result due to facts and circumstances affecting the inspected property 
which are not reflected in the inspection or reflected inappropriately 
in the inspection. These circumstances include, but are not necessarily 
limited to, inconsistencies between local code requirements and the 
inspection standards in paragraph (a); conditions which are permitted 
by variance or license or which are preexisting physical features non-
conformities and are inconsistent with the inspection standards in 
paragraph (a); or cases where the owner has been scored for elements 
(e.g., roads, sidewalks, mail boxes, resident owned appliances, etc.) 
that it does not own and is not responsible for maintaining.
    (f) Responsibility for the cost of a new inspection. If a new 
inspection is undertaken by the inspecting party and the new inspection 
score results in a significant improvement in the property's overall 
score, then the entity responsible for the inspection shall bear the 
expense of the new inspection. If no significant improvement occurs, 
then the owner or PHA responsible for the property must bear the 
expense of the new inspection. The inspection cost of a new inspection, 
if paid by the owner, is not a valid project operating expense. The new 
inspection score will be considered the final score.
    (g) Issuance of final score and publication of score. (1) The score 
of the property is the final score if the owner or PHA files no request 
for technical review, as provided in paragraph (d) of this section, or 
for other adjustment of the physical condition score, as provided in 
paragraph (c) of this section. If the owner or PHA files a request for 
technical review or score adjustments in accordance with paragraphs (c) 
and (d) of this section, the final inspection score is the score issued 
by HUD after any adjustments are determined necessary and made by HUD 
at the conclusion of these processes.
    (2) HUD will make public the final scores of the owners through 
posting on HUD's internet site, or other appropriate means.
    (h) Responsibility to notify residents of inspection; and 
availability of documents to residents--(1) Notification to residents. 
An owner must notify its residents of any planned inspections of their 
units or the housing development generally.
    (2) Availability of documents for review. (i) Once a final score 
has been issued the owner must make the physical inspection report and 
all related documents available to residents during regular business 
hours upon reasonable request for review and copying. Related documents 
include the owner's survey plan, plan of correction, certification, and 
related correspondence.
    (ii) Once the owner's final inspection score is issued and 
published, the owner must make any additional information, such as the 
results of any reinspection, appeal requests, available for review and 
copying by its residents upon reasonable request during regular 
business hours.
    (iii) The owner must maintain the documents related to the 
inspection of the property, as described paragraphs (i) and (ii) above, 
for review by residents for a period of 60 days from the date of 
submission to the owner of the inspection score for the property in 
which the residents reside.
    (3) The owner must post a notice to the residents in the owner's 
management office and on any bulletin boards in all common areas that 
advises residents of the availability of the materials described in 
this section. The notice should include, where applicable, the name, 
address, and telephone number of the HUD Project Manager.
    (4) Residents are encouraged to comment on this information 
provided by the owner and submit any comments directly to the 
applicable HUD Field Office or responsible entity. Should residents 
discover the owner provided HUD with a false certification during the 
review they are encouraged to notify the applicable HUD Field Office 
where appropriate inquiry and action will be taken.
    (i) Administrative review of properties. The file of a property 
that receives a score of 30 points or less on its inspection will be 
referred to HUD's Departmental Enforcement Center (DEC) for evaluation.
    (1) Notification to owner of submission of property file to the 
DEC. The Department will provide for notification to the owner that the 
file on the owner's property is being submitted to the DEC for 
evaluation. The notification will be provided at the time the REAC 
issues the inspection report to the owner or at such other time as a 
referral occurs.
    (2) Evaluation of the property. During the evaluation period, the 
DEC will perform an analysis of the property, which may include input 
from tenants, HUD officials, elected officials, and others as may be 
appropriate. Although program offices will assist with the evaluation, 
the DEC will have primary responsibility for the conclusion of the 
evaluation of the property after taking into consideration the input of 
interested parties as described in this paragraph (h)(2). The DEC's 
evaluation may include a site visit to the owner's property.
    (3) Continuing responsibilities of Housing Program Offices and 
Mortgagee. During the period of DEC evaluation, HUD's Housing offices 
continue to be responsible for routine asset management tasks on 
properties and all servicing actions (e.g., rent increase decisions, 
releases from reserve account approvals). In addition, during this 
period of evaluation, the mortgagee shall continue to carry out its 
duties and responsibilities with respect to the mortgage.
    (4) Enforcement action. Except as otherwise provided by statute, 
if, based on the DEC's evaluation and in consultation with Housing, the 
DEC determines that enforcement actions are appropriate, it may take 
those actions for which the DEC has delegated authority and/or make 
recommendations to Housing with respect to resolving identified 
physical deficiencies and owner noncompliance.
    (j) No limitation on existing enforcement authority. The 
administrative process provided in this section does not prohibit HUD, 
to take whatever action may be necessary when necessary 
(notwithstanding the commencement of this process), as

[[Page 2599]]

authorized under existing statutes, regulations, contracts or other 
documents, to protect HUD's financial interests in HUD housing 
properties and to protect the residents of these properties.


Sec.  5.713   Second- and Third-Party Rights.

    Nothing in this subpart is intended to create any right of the 
family residing in HUD Housing or any party, other than HUD or a Public 
Housing Authority, to require enforcement of the standards required by 
this subpart or to assert any claim against HUD or the Public Housing 
Authority for damages, injunction, or other relief for alleged failure 
to enforce the standards.

PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM

0
3. The authority for 24 CFR part 92 continues to read as follows:

    Authority:  42 U.S.C. 3535(d), 12 U.S.C. 1701x and 4568.


Sec.  92.2   [Amended]

0
4. Amend Sec.  92.2 by removing the definition of ``Uniform Physical 
Condition Standards''.
0
5. In Sec.  92.209, revise paragraph (i) to read as follows:


Sec.  92.209   Tenant-based rental assistance: Eligible costs and 
requirements.

* * * * *
    (i) Housing quality standards. Housing occupied by a family 
receiving tenant-based assistance under this section must meet the 
participating jurisdiction's property standards under Sec.  92.251. The 
participating jurisdiction must inspect the housing initially and re-
inspect it annually.
* * * * *
0
6. Revise Sec.  92.251 by:
0
a. Revising paragraphs (b)(1)(viii) and (c)(3);
0
b. Removing and reserving paragraph (d); and
0
c. Revising paragraph (f)(1) introductory text, and paragraph 
(f)(1)(i).
    The revisions read as follows:


Sec.  92.251   Property standards.

* * * * *
    (b) * * *
    (1) * * *
    (viii) HUD housing standards. The standards of the participating 
jurisdiction must be such that, upon completion, the HOME-assisted 
project and units will be decent, safe, sanitary, as referenced in 24 
CFR 5.703. The requirements of 24 CFR 5.705-5.713 do not apply. At 
minimum, the specific deficiencies proscribed by HUD and published in 
the Federal Register must be corrected under the participating 
jurisdiction's rehabilitation standards. HUD will establish the minimum 
deficiencies based on the applicable standards for the condition of HUD 
housing set out by the Secretary and published in the Federal Register 
pursuant to 24 CFR 5.705.
* * * * *
    (c) * * *
    (3) Existing housing that is acquired for homeownership (e.g., 
downpayment assistance) must be decent, safe, sanitary, and in good 
repair as referenced in 24 CFR 5.703. The participating jurisdiction 
must establish standards to determine that the housing is decent, safe, 
sanitary, and in good repair. At minimum, the standards must provide 
that the housing meets all applicable State and local housing quality 
standards and code requirements and the housing does not contain the 
specific deficiencies proscribed by HUD and published in the Federal 
Register. HUD will establish the minimum deficiencies based on the 
applicable standards for the condition of HUD housing (National 
Standards for the Physical Inspection of Real Estate (NSPIRE)) set out 
by the Secretary and published in the Federal Register pursuant to 24 
CFR 5.705. The participating jurisdiction must inspect the housing and 
document this compliance based upon an inspection that is conducted no 
earlier than 90 days before the commitment of HOME assistance. If the 
housing does not meet these standards, the housing must be 
rehabilitated to meet the standards of this paragraph (c)(3) or it 
cannot be acquired with HOME funds.
* * * * *
    (f) Ongoing property condition standards: Rental housing and 
housing occupied by tenants receiving HOME tenant-based rental 
assistance--(1) Ongoing property standards. The participating 
jurisdiction must establish property standards for rental housing 
(including manufactured housing) that apply throughout the 
affordability period and for housing occupied by tenants receiving HOME 
tenant-based rental assistance. The standards must ensure that owners 
maintain the housing as decent, safe, and sanitary housing in good 
repair. The participating jurisdiction's description of its property 
standards must be in sufficient detail to establish the basis for a 
uniform inspection of HOME rental projects and housing occupied by 
tenants receiving HOME tenant-based rental assistance. The 
participating jurisdiction's ongoing property standards must address 
each of the following:
    (i) Compliance with State and local codes, ordinances, and 
requirements. The participating jurisdiction's standards must require 
the housing to meet all applicable State and local code requirements 
and ordinances. In the absence of existing applicable State or local 
code requirements and ordinances, at a minimum, the participating 
jurisdiction's ongoing property standards must provide that the 
property does not contain the specific minimum deficiencies proscribed 
by HUD and published in the Federal Register for rental housing 
(including manufactured housing) and housing occupied by tenants 
receiving HOME tenant-based rental assistance. HUD will establish the 
minimum deficiencies based on the applicable standards for the 
condition of HUD housing set out by the Secretary and published in the 
Federal Register pursuant to 24 CFR 5.705. The participating 
jurisdiction's property standards are not required to use any 
inspection procedures, including scoring, item weight, or level of 
criticality required in 24 CFR 5.705-5.713.
* * * * *
0
7. In Sec.  92.504, revise paragraph (d)(1)(iii) to read as follows:


Sec.  92.504   Participating jurisdiction responsibilities; written 
agreements; on-site inspections.

* * * * *
    (d) * * *
    (1) * * *
    (iii) Annual inspections. Tenant- based rental assistance (TBRA). 
All housing occupied by tenants receiving HOME tenant-based rental 
assistance must meet the property standards of Sec.  92.251. The 
participating jurisdiction must perform annual on-site inspections of 
rental housing occupied by tenants receiving HOME-assisted TBRA to 
determine compliance with these standards.
* * * * *

PART 93--HOUSING TRUST FUND

0
8. The authority for 24 CFR part 93 continues to read as follows:

    Authority:  42 U.S.C. 3535(d), 12 U.S.C. 4568.

0
9. In Sec.  93.301, revise paragraphs (b)(1)(viii), (c)(3), and 
(e)(1)(i) to read as follows:


Sec.  93.301   Property standards.

* * * * *
    (b) * * *
    (1) * * *

[[Page 2600]]

    (viii) HUD housing standards. The standards of the grantee must be 
such that, upon completion, the HTF-assisted project and units will be 
decent, safe, sanitary, and in good repair and meet the standards in 24 
CFR 5.703. The requirements of 24 CFR 5.705-5.713 do not apply. At 
minimum, the specific deficiencies proscribed by HUD and published in 
the Federal Register must be corrected under the grantee's 
rehabilitation standards. HUD will establish the minimum deficiencies 
based on the applicable standards for the condition of HUD housing set 
out by the Secretary and published in the Federal Register pursuant to 
24 CFR 5.705.
* * * * *
    (c) * * *
    (3) Existing housing that is acquired for homeownership (e.g., down 
payment assistance) must be decent, safe, sanitary, and in good repair. 
The grantee must establish standards to determine that the housing is 
decent, safe, sanitary, and in good repair. At minimum, the standards 
must provide that the housing meets all applicable State and local 
standards and code requirements, and the housing does not contain the 
specific deficiencies proscribed by HUD and published in the Federal 
Register. HUD will establish the minimum deficiencies based on the 
applicable standards for the condition of HUD housing set out by the 
Secretary and published in the Federal Register pursuant to 24 CFR 
5.705. The grantee must inspect the housing and document this 
compliance based upon an inspection that is conducted no earlier than 
90 calendar days before the date of commitment of HTF assistance. If 
the housing does not meet these standards, the housing must be 
rehabilitated to meet the standards of this paragraph or it cannot be 
assisted with HTF funds.
* * * * *
    (e) * * *
    (1) * * *
    (i) At a minimum, the grantee's ongoing property standards must 
provide that the property does not contain the specific minimum 
deficiencies proscribed by HUD and published in the Federal Register. 
HUD will establish the minimum deficiencies based on the applicable 
standards for the condition of HUD housing set out by the Secretary and 
published in the Federal Register pursuant to Sec.  5.705 of this 
title. The grantee's property standards are not required to use any 
inspection procedures, including scoring, item weight, or level of 
criticality required in Sec. Sec.  5.705-5.713 of this title.
* * * * *

PART 200--INTRODUCTION TO FHA PROGRAMS

0
10. The authority for 24 CFR part 200 continues to read as follows:

    Authority:  12 U.S.C. 1702-1715z-21; 42 U.S.C. 3535(d).

0
11. Revise Sec.  200.850 to read as follows:


Sec.  200.850  Physical condition standards and physical inspection 
requirements.

    The requirements in part 5, subpart G of this title are applicable 
to the multifamily properties assisted or insured that are listed in 
Sec.  5.701 of this title.


Sec. Sec.  200.853, 200.855, and 200.857   [Removed and Reserved]

0
12. Remove and reserve Sec. Sec.  200.853, 200.855, and 200.857.

PART 574--HOUSING OPPORTUNITIES FOR PERSONS WITH AIDS, SUBPART D--
USES OF GRANT FUNDS

0
13. The authority for 24 CFR part 574 continues to read as follows:

    Authority:  12 U.S.C. 1701x, 1701x-1; 42 U.S.C. 3535(d) and 
5301-5320.

0
14. In Sec.  574.310, revise paragraph (b) introductory text and 
paragraph (b)(2), and add paragraph (b)(3) to read as follows:


Sec.  574.310   General standards for eligible housing activities.

* * * * *
    (b) * * *. The following standards apply for all housing for which 
HOPWA funds that are used under Sec.  574.300(b)(3), (4), (5), and (8), 
and when HOPWA funds are used under Sec.  574.300(b)(7) to pay an 
eligible person's security deposit, utility hookup and processing 
costs, or other move-in costs, except rental application and credit 
check fees.
* * * * *
    (2) HUD housing standards. Except for such variations as are 
proposed by the grantee and approved by HUD, the housing must meet the 
standards for HUD housing in 24 CFR 5.703, except that:
    (i) As applied to HOPWA, ``HUD housing'' in 24 CFR 5.703 means the 
units eligible persons occupy or will occupy, systems equipment that 
directly services those units, items and components within the primary 
and secondary means of egress from those units' doors to the public 
way, and common features related to the residential use of the building 
(e.g., the laundry room, community room, mail room).
    (ii) Housing that continues to meet the HOPWA housing quality 
standards that applied when the eligible person(s) moved into that 
housing shall not be required to meet new or different standards under 
24 CFR 5.703.
    (3) The requirements of 24 CFR 5.705-5.713 do not apply.
* * * * *

PART 576--EMERGENCY SOLUTIONS GRANTS PROGRAM

0
15. The authority for 24 CFR part 576 continues to read as follows:

    Authority:  12 U.S.C. 1701x, 1701x-1; 42 U.S.C. 11371 et seq., 
42 U.S.C. 3535(d).

Subpart E--Program Requirements

0
16. In Sec.  576.403, revise paragraph (c) and add paragraphs (d) 
through (f) to read as follows:


Sec.  576.403   Shelter and housing standards.

* * * * *
    (c) Minimum standards for permanent housing. When ESG funds are 
used for permanent housing under 24 CFR 576.105 or 576.106, the minimum 
standards in 24 CFR 5.703 apply to the program participant's unit, 
systems equipment that directly services those units, items and 
components within the primary and secondary means of egress from those 
units' doors to the public way, and common features related to the 
program participant's use of the building (e.g., the laundry room, 
community room, mail room). The recipient may also add standards that 
exceed these minimum standards. The requirements in 24 CFR 5.705-5.713 
do not apply.
    (d) Housing inspections. For the first 30 days in which a program 
participant receives homelessness prevention assistance, the recipient 
or subrecipient may provide services under 576.105(b) to help the 
program participant remain in their unit without inspecting the unit or 
determining it meets the requirement in this section. Before otherwise 
using ESG funds under 24 CFR 576.105 or 576.106 to help a program 
participant remain in or move into specific housing, however, the 
recipient or subrecipient must inspect that housing to confirm that it 
meets the requirements in this section. In addition, recipient or 
subrecipient must inspect the housing at least once every 12 months 
during the period of assistance to confirm the housing continues to 
meet the minimum standards in paragraph (c) of this section.

[[Page 2601]]

    (e) Correction of deficiencies. If an inspection reveals one or 
more deficiencies that prevent the housing from meeting the 
requirements in this section, ESG funds must not be used under 24 CFR 
576.105 or 576.106 with respect to that housing unless the owner 
corrects the deficiencies within 30 days from the date of the initial 
inspection and the recipient or subrecipient verifies that all 
deficiencies have been corrected.
    (f) Rental arrears. Housing for which rental arrears are paid is 
only subject to the requirements in this section, if a program 
participant is seeking to stay in that housing.

PART 578--PROGRAM REQUIREMENTS

0
17. The authority for 24 CFR part 578 continues to read as follows:


    Authority:  12 U.S.C. 1701x, 1701x-1; 42 U.S.C. 11381 et seq., 
42 U.S.C. 3535(d).

0
18. In Sec.  578.75, revise paragraph (b) to read as follows:


Sec.  578.75   General operations.

* * * * *
    (b) Housing standards. Housing leased with Continuum of Care 
program funds, or for which rental assistance payments are made with 
Continuum of Care program funds, must meet the applicable standards 
under 5.703 of this title. For housing that is occupied by program 
participants receiving tenant-based rental assistance, 24 CFR part 35, 
subparts A, B, M, and R apply. For housing rehabilitated with funds 
under this part, the lead-based paint requirements in 24 CFR part 35, 
subparts A, B, J, and R apply. For housing that receives project-based 
or sponsor-based rental assistance, 24 CFR part 35, subparts A, B, H, 
and R apply. For residential property for which funds under this part 
are used for acquisition, leasing, services, or operating costs, 24 CFR 
part 35, subparts A, B, K, and R apply. Additionally, for tenant-based 
rental assistance, for leasing of individual units, and for sponsor 
based rental assistance where not all units in a structure are or will 
be assisted, the standards apply only to the unit itself, and to the 
means of ingress and egress from the unit to the public way and to the 
building's common areas.
    (1) Before any assistance will be provided on behalf of a program 
participant, the recipient, or subrecipient, must physically inspect 
each unit to assure that the unit meets 24 CFR 5.703. Assistance will 
not be provided for units that fail to meet 24 CFR 5.703, unless the 
owner corrects any deficiencies within 30 days from the date of the 
initial inspection and the recipient or subrecipient verifies that all 
deficiencies have been corrected.
    (2) Recipients or subrecipients must inspect all units at least 
annually during the grant period to ensure that the units continue to 
meet 24 CFR 5.703.
    (3) The requirements in 24 CFR 5.705-5.713 do not apply.
* * * * *

PART 880--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM FOR NEW 
CONSTRUCTION

0
19. The authority for 24 CFR part 880 continues to read as follows:

    Authority:  42 U.S.C. 1437a, 1437c, 1437f, 3535(d), 12701, and 
13611-13619.

0
20. In Sec.  880.612, revise paragraph (a) to read as follows:


Sec.  880.612  Reviews during management period.

    (a) After the effective date of the Contract, the contract 
administrator will inspect the project and review its operation at 
least annually to determine whether the owner is in compliance with the 
Contract and the assisted units comply with the standards under part 5, 
subpart G of this title.
* * * * *

PART 882--SECTION 8 MODERATE REHABILITATION PROGRAMS

0
21. The authority for 24 CFR part 882 continues to read as follows:

    Authority:  42 U.S.C. 1437f and 3535(d).


Sec.  882.404   [Amended]

0
22. In Sec.  882.404, remove paragraph (d).
0
23. In Sec.  882.516, revise paragraphs (b), (c) and (e) to read as 
follows:


Sec.  882.516   Maintenance, operation and inspections.

* * * * *
    (b) Periodic inspection. In addition to the inspections required 
prior to execution of the Contract, the PHA must inspect or cause to be 
inspected each unit under Contract in accordance with the standards 
under part 5, subpart G of this title at least annually and at such 
other times as may be necessary to assure that the Owner is meeting the 
obligations to maintain the units so they are compliant with part 5, 
subpart G of this title, and to provide the agreed upon utilities and 
other services. The PHA must take into account complaints and any other 
information coming to its attention in scheduling inspections.
    (c) Units with health and safety hazards. If the PHA notifies the 
Owner that the unit(s) under Contract are not being maintained in 
compliance with the standards under part 5, subpart G of this title and 
the Owner fails to take corrective action (including corrective action 
with respect to the Family where the condition of the unit is the fault 
of the Family) within the time prescribed in the notice, the PHA may 
exercise any of its rights or remedies under the Contract, including 
abatement of housing assistance payments (even if the Family continues 
in occupancy), termination of the Contract on the affected unit(s) and 
assistance to the Family in accordance with Sec.  882.514(e).
* * * * *
    (e) Periodic reviews. Periodic PHA audits must be conducted as 
required by HUD, in accordance with 2 CFR part 200, subpart F.

PART 884--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM, NEW 
CONSTRUCTION SET-ASIDE FOR SECTION 515 RURAL RENTAL HOUSING 
PROJECTS

0
24. The authority for 24 CFR part 884 continues to read as follows:

    Authority:  42 U.S.C. 1437a, 1437c, 1437f, 3535(d), and 13611-
13619.

0
25. Revise Sec.  884.217 to read as follows:


Sec.  884.217   Maintenance, operation and inspections.

    (a) Maintenance and operation. The Owner shall maintain and operate 
the project consistent with part 5, subpart G of this title, and shall 
provide all the services, maintenance and utilities which the Owner 
agrees to provide under the Contract, subject to abatement of housing 
assistance payments or other applicable remedies if he fails to meet 
these obligations.
    (b) Inspection prior to occupancy. Prior to occupancy of any unit 
by a Family, the Owner and the Family shall inspect the unit and both 
shall certify, on forms prescribed by HUD, that they have inspected the 
unit and have determined it to be compliant with part 5, subpart G of 
this title and the criteria provided in the prescribed forms. Copies of 
these reports shall be kept on file by the Owner for at least 3 years, 
and may be required to be electronically submitted to HUD.
    (c) Periodic inspections. HUD (or the PHA, as appropriate) will 
inspect or cause to be inspected each Contract unit and related 
facilities in accordance with the physical inspection requirements in 
part 5, subpart G of this title, and at such other times (including 
prior to initial occupancy and renting of any unit) as HUD (or the PHA) 
may

[[Page 2602]]

determine to be necessary to assure that the Owner is meeting his 
obligation to maintain the units in accordance with part 5, subpart G 
of this title and to provide the agreed upon utilities and other 
services.
    (d) Units with health and safety hazards. If HUD (or the PHA, as 
appropriate) notifies the Owner that the Owner has failed to maintain a 
unit that in accordance with part 5, subpart G of this title and the 
Owner fails to take corrective action within the time prescribed by 
notice, HUD (or the PHA) may exercise any of its rights or remedies 
under the Contract, including abatement of housing assistance payments, 
even if the Family continues to occupy the unit. If, however, the 
Family wishes to be rehoused in another unit with Section 8 assistance 
and HUD (or the PHA) does not have other Section 8 funds for such 
purposes, HUD (or the PHA) may use the abated housing assistance 
payments for the purpose of rehousing the Family in another unit. Where 
this is done, the Owner shall be notified that the Owner will be 
entitled to resumption of housing assistance payments for the vacated 
unit if:
    (1) The unit is restored to in accordance with part 5, subpart G of 
this title;
    (2) The Family is willing to and does move back to the restored 
dwelling unit; and
    (3) A deduction is made for the expenses incurred by the Family for 
both moves.

PART 886--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--SPECIAL 
ALLOCATIONS

0
26. The authority for 24 CFR part 886 continues to read as follows:

    Authority:  42 U.S.C. 1437a, 1437c, 1437f, 3535(d), and 13611-
13619.


Sec.  886.113   [Amended]

0
27. In Sec.  886.113, remove and reserve paragraphs (b) and (i).
0
28. Revise Sec.  886.123 to read as follows:


Sec.  886.123  Maintenance, operation, and inspections.

    (a) Maintenance and operation. The Owner shall maintain and operate 
the project so as to provide housing that is compliant with part 5, 
subpart G of this title, and the Owner shall provide all the services, 
maintenance and utilities which the Owner agrees to provide under the 
Contract, subject to abatement of housing assistance payments or other 
applicable remedies if the Owner fails to meet these obligations.
    (b) Inspection prior to occupancy. Prior to occupancy of any unit 
by a Family, the Owner and the Family shall inspect the unit and both 
shall certify, on forms prescribed by HUD that they have inspected the 
unit and have determined it to be compliant with part 5, subpart G of 
this title and with the criteria provided in the prescribed forms. 
Copies of these reports shall be kept on file by the Owner for at least 
three years.
    (c) Periodic inspections. HUD will inspect or cause to be inspected 
a reasonable sample of contract units according to the requirements in 
part 5, subpart G of this title and at such other times as may be 
necessary to assure that the owner is meeting contractual obligations.
    (d) Units not free of health and safety hazards. If HUD notifies 
the Owner that the Owner has failed to maintain a unit that is 
compliant with the requirements in part 5, subpart G of this title and 
the Owner fails to take corrective action within the time prescribed by 
notice, HUD may exercise any of its rights or remedies under the 
Contract, including abatement of housing assistance payments, even if 
the Family continues to occupy the unit.


Sec.  886.307   [Amended].

0
29. In Sec.  886.307, remove and reserve paragraphs (b), (i), and (m).
0
30. Revise Sec.  886.323 to read as follows:


Sec.  886.323   Maintenance, operation, and inspections.

    (a) Maintain housing free of health and safety hazards. The owner 
shall maintain and operate the project so as to be compliant with part 
5, subpart G of this title, and the owner shall provide all the 
services, maintenance, and utilities which the Owner agrees to provide 
under the contract and the lease. Failure to do so shall be considered 
a material default under the contract and Regulatory Agreement, if any.
    (b) HUD inspection. Prior to execution of the contract, HUD shall 
inspect (or cause to be inspected) each proposed contract unit and 
related facilities to ensure that they comply with the requirements at 
part 5, subpart G of this title.
    (c) Owner and family inspection. Prior to occupancy of any vacant 
unit by a family, the owner and the family shall inspect the unit, and 
both shall certify that they have inspected the unit and have 
determined it to be compliant with part 5, subpart G of this title. 
Copies of these reports shall be kept on file by the owner for at least 
3 years.
    (d) Periodic inspections. HUD will inspect the project (or cause it 
to be inspected) in accordance with the requirements in part 5, subpart 
G of this title and at such other times as HUD may determine to be 
necessary to assure that the owner is meeting the Owner's obligation to 
maintain the units and the related facilities in accordance with part 
5, subpart G of this title and to provide the agreed-upon utilities and 
other services.
    (e) Failure to maintain housing. If HUD notifies the owner that he/
she has failed to maintain a unit that is compliant with part 5, 
subpart G of this title, and the owner fails to take corrective action 
within the time prescribed in the notice, HUD may exercise any of its 
rights or remedies under the contract, or Regulatory Agreement, if any, 
including abatement of housing assistance payments (even if the family 
continues to occupy the unit) and rescission of the sale. If the family 
wishes to be rehoused in another unit, HUD shall provide assistance in 
finding such a unit for the family.

PART 902--PUBLIC HOUSING ASSESSMENT SYSTEM

0
31. The authority for 24 CFR part 902 is revised to read as follows:

    Authority:  42 U.S.C. 1437d(j), 42 U.S.C. 3535(d), 1437z-10.

0
32. Amend Sec.  902.3 by:
0
a. Removing the definition of ``Criticality'';
0
b. Revising the definitions of ``Dictionary of Deficiency Definitions'' 
and ``Inspectable areas (or area)''; and
0
c. Removing the definitions of ``Item Weights and Criticality Levels 
document'', ``Normalized weights'', ``Score'', ``Severity'', 
``Statistically valid sample'', and ``Unit-weighted average''.
    The revisions read as follows:


Sec.  902.3   Definitions.

* * * * *
    Dictionary of Deficiency Definitions means the document published 
in the Federal Register that contains the inspection standards and 
scoring values pursuant to part 5, subpart G of this title.
* * * * *
    Inspectable areas (or area) mean any of the three major components 
of public housing that are inspected, which are: Inside, outside, unit.
* * * * *


Sec.  902.20   [Removed and Reserved]

0
33. Remove and reserve Sec.  902.20.
0
34. Revise Sec.  902.21 to read as follows:

[[Page 2603]]

Sec.  902.21   Physical condition standards for public housing.

    Public housing must be maintained in a manner that meets the 
physical condition standards set forth in part 5, subpart G of this 
title.
0
35. Revise Sec.  902.22 to read as follows:


Sec.  902.22   Inspection of PHA projects.

    The PHA's score for the physical condition indicator is based on an 
independent inspection of a PHA's project(s) provided by HUD and using 
the requirements and timelines laid out in part 5, subpart G of this 
title, to ensure projects meet acceptable basic housing conditions. 
Mixed-finance projects will be subject to the physical condition 
inspections.


Sec. Sec.  902.24, 902.26, and 902.68   [REMOVED AND RESERVED]

0
36. Remove and reserve Sec. Sec.  902.24, 902.26, and 902.68.
0
37. Add subpart H to read as follows:

Subpart H--Assessment of small rural Public Housing Agencies

Sec.
902.101 Definitions of small rural PHAs.
902.103 Public Housing assessment of small rural PHAs.
902.105 Troubled Small rural PHAs.
902.107 Withholding, denying, and rescinding troubled designation.
902.109 Right to petition and appeal troubled designation.
902.111 Sanctions for troubled small rural PHAs.
902.113 Incentives for small rural PHAs high-performers.

    Authority:  42 U.S.C. 1437d(j), 42 U.S.C. 3535(d), 1437z-10.


Sec.  902.101   Definition of small rural PHAs.

    (a) Definition. A PHA is a small rural PHA if it administers 550 or 
fewer combined public housing units and vouchers under section 8(o), 
and either:
    (1) Has a primary administrative building as determined with a 
physical address in a rural area as described in 12 CFR Sec.  
1026.35(b)(2)(iv)(A); or
    (2) More than 50 percent of its combined public housing units and 
voucher units under section 8(o) are in rural areas as described in 12 
CFR Sec.  1026.35(b)(2)(iv)(A).
    (b) Determination. (1) HUD will make the initial determination of 
PHAs that qualify as small rural as defined in Sec.  902.101 of this 
title no later than [insert 120 days after the effective date of the 
final rule].
    (2) HUD will determine if a PHA qualifies as a small rural PHA 
under paragraph (a) every 3 years.
    (c) Appeals. A PHA may challenge HUD's determination concerning 
whether the PHA qualifies as small rural PHA by presenting an 
objectively verifiable material error which resulted in the incorrect 
determination, or by presenting information showing that the status of 
the PHA has changed to justify a redetermination.


Sec.  902.103   Public housing assessment of small rural PHAs.

    (a) Small rural Public Housing Assessment. The public housing 
program of small rural PHAs as defined in Sec.  902.101 shall be 
assessed and scored based only on the physical condition of their 
public housing properties in accordance with part 5, subpart G of this 
title. Such agencies shall not be subject to PHAS except as noted 
below.
    (b) Triennial assessment. Public Housing programs operated by small 
rural Public Housing Authorities will be assessed no more than once 
every three years, except that a small rural Public Housing Authority 
shall be subject to annual inspection if it is designated by the 
Secretary as troubled as defined in Sec.  902.105.
    (c) Initial Public Housing assessment. (1) For PHAs subject to 
small PHA deregulation, the first assessment and inspections will be 
determined based on the PHA's next scheduled PHAS assessment (e.g., a 
higher performing PHA would receive the first inspection 3 years after 
the most recent PHAS assessment, a standard or substandard performer 
would receive the first inspection 2 years after the most recent PHAS 
assessment, etc.).
    (2) For PHAs not subject to small PHA deregulation, the first 
inspection is based on the PHA's overall weighted project PASS score 
(e.g., a PHA with a PASS score of 90 or greater would receive the first 
inspection three years after most recent PHAS assessment, a PHA with a 
PASS score of 80-89 would receive the first inspection two years after 
most recent PHAS assessment, etc.).


Sec.  902.105  Troubled small rural PHAs.

    (a) Definition of Troubled Small rural PHA. A small rural PHA will 
be determined to be troubled under the public housing program if the 
weighted average score of all property inspections is below 70 percent 
of the total available points, or if a small rural PHA has a weighted 
average score of between 70 and 80 percent of the total available 
points, and has at least one property that receives fewer than 70 
percent of the total available points.
    (b) Referral to the Local Field Office. Upon a PHA's designation as 
a troubled performer HUD must notify the PHA and shall refer the 
troubled performer PHA to the PHA's field office, or other designated 
office(s) at HUD, for remedial action, oversight, and monitoring. The 
actions to be taken by HUD and the PHA will include statutorily 
required actions, and such other actions as may be determined 
appropriate by HUD.
    (c) Corrective Action Agreement (CAA). Within 30 days of 
notification of a PHA's designation as a troubled performer, HUD will 
initiate activities to negotiate and develop an CAA. A CAA is required 
for a troubled performer. The final CAA is a binding contractual 
agreement between HUD and a PHA. The scope of the CAA may vary 
depending upon the extent of the problems present in the PHA. The term 
of the CAA will not exceed one year, and is subject to renewal at the 
discretion of HUD if HUD determines that the circumstances requiring 
the CAA still exist at the expiration of the term of the CAA based on 
the annual assessment frequency as included in Sec.  902.103. It shall 
include, but not be limited to:
    (1) Baseline data, which should be data without adjustments or 
weighting but may be the PHA's score identified as a deficiency;
    (2) Performance targets for such periods specified by HUD (e.g., 
annual, semiannual, quarterly, monthly), which may be the attainment of 
a higher score or the description of a goal to be achieved; however, 
safety, health, and environmental performance targets and deadlines 
otherwise specified by regulation, including the lead safety 
regulations at 24 CFR 35, are not superseded by the CAA performance 
targets;
    (3) Strategies to be used by the PHA in achieving the performance 
targets within the time period of the CAA, including the identification 
of the party responsible for the completion of each task and for 
reporting progress;
    (4) Technical assistance to the PHA provided or facilitated by HUD;
    (5) The PHA's commitment to take all actions within its control to 
achieve the targets;
    (6) The consequences of failing to meet the targets; and
    (7) A description of the involvement of local public and private 
entities, including PHA resident leaders, in carrying out the agreement 
and rectifying the PHA's problems. A PHA shall have primary 
responsibility for obtaining active local public and private entity 
participation, including the involvement of public housing resident 
leaders, in assisting PHA improvement efforts. Local public and private 
entity participation should be premised upon

[[Page 2604]]

the participant's knowledge of the PHA, ability to contribute technical 
expertise with regard to the PHA's specific problem areas, and 
authority to make preliminary commitments of support, financial or 
otherwise.
    (d) PHA review of the CAA. The PHA will have 10 days to review the 
CAA. During this 10-day period, the PHA shall resolve any claimed 
discrepancies in the CAA with HUD, and discuss any recommended changes 
and target dates for improvement to be incorporated in the final CAA. 
Unless the time period is extended by HUD, the CAA is to be executed 30 
days following issuance of the draft CAA.
    (e) Maximum recovery period. (1) Upon the expiration of the one-
year period that started on the date on which the PHA receives initial 
notice of a troubled performer designation, the PHA shall improve its 
performance in order to no longer be considered troubled under the 
assessment.
    (2) [Reserved].
    (f) Parties to the CAA. A CAA shall be executed by:
    (1) The PHA Board Chairperson (supported by a Board resolution), or 
a receiver (pursuant to a court-ordered receivership agreement, if 
applicable) or other AME acting in lieu of the PHA Board;
    (2) The PHA Executive Director, or a designated receiver (pursuant 
to a court-ordered receivership agreement, if applicable), or other 
AME-designated Chief Executive Officer; and
    (3) The field office.
    (g) Involvement of resident leadership in the CAA. HUD encourages 
the inclusion of the resident leadership in the execution of the CAA.
    (h) Failure to execute CAA or make substantial improvement under 
CAA. (1) If a troubled performer PHA fails or refuses to execute an CAA 
within the period provided in paragraph (d) of this section, or a 
troubled performer PHA operating under an executed CAA does not achieve 
a passing physical inspection score, as provided in paragraph (e) of 
this section, the field office shall refer the PHA to the Assistant 
Secretary to determine such remedial actions, consistent with the 
provisions of the ACC and other HUD regulations, including, but not 
limited to, remedies available for substantial default.
    (i) Continuation of services to residents. To the extent feasible, 
while a PHA is in a troubled performer status, all services to 
residents will continue uninterrupted.


Sec.  902.107   Withholding, denying, and rescinding troubled 
designation.

    (a) Withholding designation. In exceptional circumstances, even 
though a PHA has satisfied the requirements for high performer or non-
troubled designations, HUD may conduct any review as it may determine 
necessary, and may deny or rescind incentives or high performer 
designation or non-troubled performer designation, in the case of a PHA 
that:
    (1) Is operating under a special agreement with HUD (e.g., a civil 
rights compliance agreement);
    (2) Is involved in litigation that bears directly upon the physical 
performance of a PHA;
    (3) Is operating under a court order;
    (4) Demonstrates substantial evidence of fraud or misconduct, 
including evidence that the PHA's certifications, submitted in 
accordance with this part, are not supported by the facts, as evidenced 
by such sources as a HUD review, routine reports, an Office of 
Inspector General investigation/audit, an independent auditor's audit, 
or an investigation by any appropriate legal authority; or
    (5) Demonstrates substantial noncompliance in one or more areas of 
a PHA's required compliance with applicable laws and regulations, 
including areas not assessed under the small rural assessment. Areas of 
substantial noncompliance include, but are not limited to, 
noncompliance with civil rights, nondiscrimination and fair housing 
laws and regulations, or the ACC. Substantial noncompliance casts doubt 
on the capacity of a PHA to preserve and protect its public housing 
projects and operate them consistent with federal laws and regulations.
    (b) High performer and standard designations. If a high performer 
designation is denied or rescinded, the PHA shall be designated either 
a non-troubled performer, or troubled performer, depending on the 
nature and seriousness of the matter or matters constituting the basis 
for HUD's action. If a non-troubled performer designation is denied or 
rescinded, the PHA shall be designated as a troubled performer.
    (c) Effect on score. The denial or rescission of a designation of 
high performer or non-troubled performer shall not affect the PHA's 
numerical small rural assessment score, except where the denial or 
rescission is under paragraph (a)(4) of this section.


Sec.  902.109   Right to petition and appeal troubled designation.

    (a) Appeal of troubled performer designation and petition for 
removal of troubled performer designation. A PHA may take any of the 
following actions:
    (1) Appeal its troubled performer designation;
    (2) Petition for removal of troubled performer designation; and
    (3) Appeal any refusal of a petition to remove troubled performer 
designation.
    (b) Appeal of small rural Assessment score. (1) If a PHA believes 
that an objectively verifiable and material error(s) exists in its 
small rural assessment score, which, if corrected, will result in a 
significant change in the PHA's score and its designation, the PHA may 
appeal its score in accordance with the procedures of paragraphs (c), 
(d), and (e) of this section. A significant change in a score is a 
change that would cause the PHA's score to increase, resulting in a 
higher designation for the PHA (i.e., from troubled performer to non-
troubled performer, or from non-troubled to high performer).
    (2) A PHA may not appeal its score or designation based on the 
subsequent correction of deficiencies identified as a result of a 
project's physical inspection.
    (c) Appeal and petition procedures.
    (1) To appeal a troubled performer designation or petition for the 
removal of a troubled performer designation, a PHA must submit a 
request in writing to the Deputy Assistant Secretary of the Real Estate 
Assessment Center, which must be received by HUD no later than 30 days 
following the issuance of the score to the PHA.
    (2) To appeal the denial of a petition to remove a troubled 
performer designation, a PHA must submit a written request to the 
Deputy Assistant Secretary of the Real Estate Assessment Center, which 
must be received by HUD no later than 30 days after HUD's decision to 
refuse to remove the PHA's troubled performer designation.
    (3) An appeal of a troubled performer designation or an appeal of 
the denial of a petition for removal of a troubled performer 
designation must include the PHA's supporting documentation and reasons 
for the appeal or petition. An appeal of an assessment score must be 
accompanied by the PHA's evidence that a material error occurred. An 
appeal or petition submitted to HUD without supporting documentation 
will not be considered and will be returned to the PHA.
    (d) Denial, withholding, or rescission. A PHA that disagrees with 
the basis for denial, withholding, or rescission of its designation 
under Sec.  902.66 may make a written request for reinstatement within 
30 days of notification by HUD of the denial or rescission of the 
designation to the Assistant Secretary, and the request

[[Page 2605]]

shall include reasons for the reinstatement.
    (e) Consideration of petitions and appeals. (1) Consideration of a 
petition or the appeal of a final overall assessment score, of a 
troubled performer designation, or of a petition to remove troubled 
performer designation. Upon receipt of such an appeal or a petition 
from a PHA, HUD will evaluate the appeal and its merits for purposes of 
determining whether a reassessment of the PHA is warranted. HUD will 
review the PHA's file and the evidence submitted by the PHA to 
determine whether an error occurred.
    (2) Consideration of an appeal of refusal to remove a troubled 
performer designation. Upon receipt of an appeal of refusal to remove a 
troubled performer designation, HUD will evaluate the appeal and its 
merits for the purposes of determining whether a reassessment of the 
PHA is warranted. The HUD staff initially evaluating an appeal of 
refusal to remove a troubled performer designation will not be the same 
HUD staff who evaluated the PHA's petition to remove the troubled 
performer designation. The Assistant Secretary will render the final 
determination of such an appeal.
    (f) Notice and finality of decisions. (1) If HUD determines that 
one or more objectively verifiable and material error has occurred, HUD 
will undertake a new inspection of the project, adjust the PHA's score, 
or perform other reexamination of information, as appropriate in light 
of the nature of the error that occurred. A new score will be issued 
and an appropriate performance designation made by HUD. HUD's decision 
on appeal of an assessment score, issuance of a troubled performer 
designation, or refusal to remove a troubled performer designation will 
be final agency action. No reconsideration will be given by HUD of such 
decisions.
    (2) HUD will issue a written decision on all appeals and petitions 
made under this section.


Sec.  902.111   Sanctions for troubled small rural PHAs.

    The sanctions for small rural PHAs with troubled public housing 
programs that remain troubled as required by Sec.  902.108 will be the 
same as those sanctions for PHAs assessed under PHAs as described in 
Sec.  902.83.


Sec.  902.113  Incentives for small rural PHAs high performers.

    (a) High performer. PHAs with a weighted average score for all 
inspections of at least 90 percent of all available points will be 
considered high performers and will be eligible for benefits as 
described in Sec.  902.110(b) and Sec.  905.400(l) of this title.
    (b) Incentives. High performer small rural PHAs under the public 
housing program will be eligible for the same incentives as high 
performer PHAs under PHAS as described in Sec.  902.71.

PART 982--SECTION 8 TENANT-BASED ASSISTANCE: HOUSING CHOICE VOUCHER 
PROGRAM

0
38. The authority for 24 CFR part 982 continues to read as follows:


    Authority:  42 U.S.C. 1437f and 3535(d).

0
39. In Sec.  982.4, amend paragraph (b) by revising the definition of 
``Housing quality standards (HQS)'' to read as follows:


Sec.  982.4   Definitions.

* * * * *
    (b) * * *
    Housing quality standards (HQS). ``The minimum quality standards 
developed by HUD in accordance with Sec.  5.703 of this title for the 
PBV program or the HUD approved alternative standard for the PHA under 
Sec.  5.703(g) of this title.''
* * * * *
0
40. In Sec.  982.352, revise paragraph (b)(1)(iv)(A)(3) to read as 
follows:


Sec.  982.352   Eligible housing.

* * * * *
    (b) * * *
    (1) * * *
    (iv) * * *
    (A) * * *
    (3) To inspect the unit for compliance with the HQS in accordance 
with Sec.  982.305(a) and Sec.  982.405. The independent agency shall 
communicate the results of each such inspection to the family and the 
PHA.
* * * * *
0
41. Revise Sec.  982.401 to read as follows:


Sec.  982.401   Housing quality standards.

    As defined in Sec.  982.4, housing quality standards (HQS) refers 
to the minimum quality standards developed by HUD in accordance with 
Sec.  5.703 of this title for housing assisted under the HCV program or 
a HUD approved alternative standard for the PHA under Sec.  5.703(g).
0
42. In Sec.  982.405, revise paragraph (a) to read as follows:


Sec.  982.405   PHA initial and periodic unit inspection.

    (a)(1) General Requirements. The PHA must inspect the unit leased 
to a family prior to the initial term of the lease, at least biennially 
during assisted occupancy, and at other times as needed, to determine 
if the unit meets the HQS. (See Sec.  982.305(b)(2) concerning timing 
of initial inspection by the PHA.)
    (2) Small rural PHAs. Instead of biennially, a small rural PHA as 
defined in Sec.  902.101 of this chapter must inspect a unit during 
occupancy at least once every three years.
* * * * *

PART 983--PROJECT-BASED VOUCHER (PBV) PROGRAM

0
43. The authority for 24 CFR part 983 continues to read as follows:

    Authority:  42 U.S.C. 1437f and 3535(d).

0
44. In Sec.  983.3, amend paragraph (b) by revising the definition of 
``Housing Quality Standards (HQS)'' to read as follows:


Sec.  983.3   PBV definitions.

* * * * *
    (b) * * *
    Housing quality standards (HQS). ``The minimum quality standards 
developed by HUD in accordance with Sec.  5.703 of this title for the 
PBV program or the HUD approved alternative standard for the PHA under 
Sec.  5.703(g) of this title.''
* * * * *
0
45. In Sec.  983.10, revise paragraph (b)(2)(ii) to read as follows:


Sec.  983.10   Project-based certificate (PBC) program.

* * * * *
    (b) * * *
    (2) * * *
    (ii) Lead-based paint requirements. The Lead-based Paint Poisoning 
Prevention Act (42 U.S.C. 4821-4846), the Residential Lead-based Paint 
Hazard Reduction Act of 1992 (42 U.S.C. 4851-4856), and implementing 
regulations at part 35, subparts A, B, H, and R of this title, apply to 
the PBC program.
* * * * *
0
46. Revise Sec.  983.101 to read as follows:


Sec.  983.101   Housing quality standards.

    As defined in Sec.  983.3, housing quality standards (HQS) refers 
to the minimum quality standards developed by HUD in accordance with 
Sec.  5.703 of this title for housing assisted under the HCV program or 
a HUD approved alternative standard for the PHA under Sec.  5.703(g) of 
this title.
0
47. In Sec.  983.103, revise the heading of paragraph (d) and add 
paragraph (d)(4) to read as follows:


Sec.  983.103   Inspecting units.

* * * * *
    (d) Periodic inspections. * * *
    (4) Instead of biennially, a small rural PHA as defined in Sec.  
902.101 of this title

[[Page 2606]]

must inspect the random sample of units in accordance with paragraph 
(d)(1) at least once every three years.
* * * * *

PART 985--SECTION 8 MANAGEMENT ASSESSMENT PROGRAM (SEMAP) AND SMALL 
RURAL PHA ASSESSMENTS

0
48. The authority citation for 24 CFR part 985 is revised to read as 
follows:

    Authority:  42 U.S.C. 1437a, 1437c, 1437f, 1437z-10, and 
3535(d).

0
49. Revise the heading of Part 985 to read as set forth above.
0
50. In Sec.  985.1, revise paragraph (b) and add paragraph (c) to read 
as follows:


Sec.  985.1   Purpose and applicability.

* * * * *
    (b) Applicability. This rule applies to PHA administration of the 
tenant-based Section 8 rental program (part 982 of this title), the 
project-based voucher program (part 983 of this title) to the extent 
that PBV family and unit data are reported and measured under the 
stated HUD verification method, and enrollment levels and contributions 
to escrow accounts for Section 8 participants under the family self-
sufficiency program (FSS) (part 984 of this title).
    (c) Small rural PHA assessments. Subpart D covers the HCV and PBV 
assessment for a small rural PHA as defined in Sec.  902.101 of this 
title. Section 985.3 and subparts B and C of this part do not apply to 
small rural PHAs.
0
51. Add subpart D to read as follows:

Subpart D--Small rural PHA Assessment

Sec.
985.201 Applicability.
985.203 Assessment indicators and HUD verification methods.
985.205 Determination of assessment rating.
985.207 Frequency of assessments.
985.209 Troubled small rural PHAs.
985.211 Small rural PHAs assessment records.

    Authority:  42 U.S.C. 1437a, 1437c, 1437f, 1437z-10, and 
3535(d).


Sec.  985.201   Applicability.

    (a) This subpart applies to small rural PHAs as defined in Sec.  
902.101 of this title.
    (b) Small rural PHAs shall be assessed and rated on the indicators 
and methodology of this subpart and shall not be subject to the SEMAP 
requirements.


Sec.  985.203   Assessment indicators and HUD verification methods.

    (a) This section describes the performance indicators used to 
assess a PHA's designation as troubled resulting from the small rural 
PHA assessment. HUD will use the verification method identified for 
each indicator. The four indicators are determined on a pass or fail 
basis.
    (b)(1) Inspection standards. This indicator shows whether the PHA 
applies the correct inspection standards to HCV and PBV unit 
inspections
    (2) HUD verification method. The PHA's assessment certification and 
on-site HUD review when applicable.
    (3) Rating. The PHA passes the indicator if it applied the correct 
inspection standards for all unit HCV and PBV unit inspections 
conducted during the assessment period. If the PHA applied the 
incorrect inspection standards for any HCV or PBV unit inspection 
during the assessment period, the PHA fails the indicator.
    (c)(1) Initial unit inspections. This indicator determines if the 
PHA conducted the initial HQS inspections within the required time 
period.
    (2) HUD verification method. HUD systems show percent of newly 
leased units where the beginning date of the assistance contract is 
before the date the unit passed the initial unit inspection or, if the 
PHA employed the PHA initial inspection option for non-life threatening 
deficiencies or alternative inspections, the timing requirements for 
the applicable PHA initial inspection option.
    (3) Rating. The PHA passes the indicator if at least 98 percent of 
units placed under HAP contract during the assessment period passed the 
initial PHA HQS inspection within the required time period. If fewer 
than 98 percent of units placed under HAP contract during the 
assessment period passed the HQS inspection within the required time 
periods, the PHA fails the indicator.
    (d)(1) Frequency of HQS inspections. This indicator determines, for 
units that have been under HAP contract for at least three years, 
whether the PHA re-inspected tenant-based units under HAP contract and 
the required sample of PBV units at least once during the three year 
period from the last PHA inspection.
    (2) HUD verification method. HUD systems show that the percentage 
of units above that have been re-inspected within the required three-
year period from the last inspection.
    (3) Rating. The PHA passes the indicator if at least 98 percent of 
the units described above have been re-inspected within the required 
three-year period from the last inspection. The PHA fails the indicator 
if fewer than 98 percent of the units described above have been re-
inspected within the required three-year period.
    (e)(1) Unit condition enforcement. This indicator shows whether, 
following the inspection of a unit under contract where the unit fails 
to meet the required standards, any cited life-threatening and non-life 
threatening deficiencies are corrected within the required cure period 
in accordance with Sec. Sec.  982.404 and 983.103 of this title. In 
addition, if HQS deficiencies are not corrected timely, the indicator 
shows whether the PHA stops (abates) housing assistance payments 
beginning no later than the first of the month following the specified 
correction period or terminates the HAP contract or, for family-caused 
defects, takes prompt and vigorous action to enforce the family 
obligations. (Sec.  982.404 of this title)
    (2) HUD verification method. The PHA certification and on-site HUD 
review (if performed), and HUD system data.
    (3) Rating. In order to pass the indicator, the applicable 
verification method, which may include sampling, determines that the 
PHA took corrective action within the required timeframes for at least 
98% of inspections with identified life-threatening or other HQS 
deficiencies.
    (f)(1) PHA submission of certifications. The PHA must submit its 
certifications for the applicable indicators within the designated 
timeframe required by HUD, and in the form and manner as required by 
HUD. HUD will issue instructions on the submission of PHA 
certifications by Federal Register notice, which will be subject to 
public comment.
    (2) Failure to submit. Failure of the PHA to submit any 
certification in accordance with this paragraph will result in the PHA 
failing the indicator and the PHA will be designated as troubled under 
the small rural PHA assessment.


Sec.  985.205   Determination of assessment rating.

    (a) High performer designation. (1) A PHA is designated a high 
performer under the small rural PHA assessment if the PHA has passed 
all four indicators identified in Sec.  985.203 and the PHA has:
    (i) Utilized at least 98 percent of its HCV budget authority based 
on the most recent calendar year data or the percent of HCV units 
leased by renters or occupied by homeowners for the most recent 
calendar year was at least 98 percent;
    (ii) Did not end that calendar year with excess HAP reserves; and

[[Page 2607]]

    (iii) Did not end that calendar year in a funding shortfall or 
receive shortfall prevention funding from HUD.
    (2) HUD shall publish the calculation for determining excess HAP 
reserve in the Federal Register, and such notice shall provide for 
public comment before becoming effective.
    (b) Standard performer designation. A PHA that passed all for 
indicators but did not meet the funding utilization criteria for a high 
performer designation in paragraph (a) is designated as a standard 
performer.
    (c) Troubled PHA designation. A PHA that failed any of the four 
indicators under Sec.  985.201 is designated as troubled PHA under the 
small rural PHA assessment.


Sec.  985.207   Frequency of assessments.

    (a) Frequency of small rural PHA assessments. (1) Initial 
Assessment. The initial small rural PHA assessment will be effective 
when the PHA's next SEMAP assessment would have been applied. For PHAs 
that under SEMAP qualify for biennial review as a small PHA (less than 
250 assisted units), the transition to the small rural PHA assessment 
will occur when the PHA's next biennial SEMAP assessment is required.
    (2) Triennial assessments. HUD shall assess small rural PHAs no 
more than once every three years, except that a troubled small rural 
PHA shall be subject to an annual assessment in accordance with Sec.  
985.204.


Sec.  985.209   Troubled small rural PHAs.

    (a) Appeals--(1) HUD action. HUD must review, consider, and provide 
a final written determination to a small rural PHA that appeals its 
designation as a troubled PHA.
    (2) Deciding HUD official. The HUD decision on the PHA appeal shall 
be made by a HUD official who has not been involved in and is not 
subordinate to any person who has been involved in the original 
determination to designate the PHA as a troubled PHA under the small 
rural PHA assessment.
    (b) Corrective action agreement. No later than 60 days after the 
date on which the PHA is designated a troubled PHA, the PHA and HUD 
will enter into a corrective action agreement (CAA) under which he PHA 
shall take actions to correct the deficiencies upon which the troubled 
PHA designation is based. The PHA must comply with HUD requirements for 
the submission of the CAA, including but not limited to the date by 
which the CAA must be submitted to HUD. The CAA must:
    (1) Have a term of one year, and shall be renewable at the option 
of HUD;
    (2) Specify goals to be achieved;
    (3) Identify obstacles to goal achievement and ways to eliminate or 
avoid them;
    (4) Identify resources that will be used or sought to achieve 
goals;
    (5) Provide, where feasible, for technical assistance to assist the 
PHA in curing its deficiencies;
    (6) Identify an PHA staff person with lead responsibility for 
completing each goal;
    (7) Identify key tasks to reach each goal;
    (8) Specify time frames for achievement of each goal, including 
intermediate time frames to complete each key task;
    (9) Provide for regular evaluation of progress toward improvement;
    (10) Provide for the reconsideration of the PHA's designation as a 
troubled PHA no less than annually, and provide for the termination of 
the agreement when HUD determines the PHA is no longer troubled;
    (11) Provide that in the event of substantial noncompliance by the 
PHA under the agreement, HUD may (i) contract with another PHA or a 
private entity to administer the HCV program; and (ii) withhold funds 
otherwise distributable to the troubled PHA;
    (12) Be signed by the PHA board of commissioners chairperson and by 
the PHA executive director. If the PHA is a unit of local government or 
a state, the corrective action plan must be signed by the Section 8 
program director and by the chief executive officer of the unit of 
government or his or her designee.
    (c) Monitoring. The PHA and HUD must monitor the PHA's 
implementation of its CAA to ensure performance targets are met.
    (d) Annual small rural assessment. A troubled PHA shall be subject 
to the small rural assessment on an annual basis.
    (e) Use of administrative fee reserve prohibited. Any PHA assigned 
designated troubled may not use any part of the administrative fee 
reserve for other housing purposes (see Sec.  982.155(b) of this 
title).
    (f) Upgrading poor performance rating. HUD shall change an PHA's 
overall performance rating from troubled to standard or high performer 
if HUD determines that a change in the rating is warranted because of 
improved PHA performance and a standard or high designation on a 
subsequent small rural PHA assessment.
    (g) Default under the Annual Contributions Contract (ACC). HUD may 
determine that a PHA's failure to correct identified deficiencies 
resulting from its small rural PHA assessment or to execute and 
implement a corrective action agreement as required by HUD constitutes 
a default under the ACC.


Sec.  985.211   Small rural PHA assessment records.

    HUD shall maintain small rural PHA assessment files, including 
designations, notifications, appeals, corrective action agreements, and 
related correspondence for at least 3 years.

Brian D. Montgomery,
Deputy Secretary.
[FR Doc. 2021-00098 Filed 1-12-21; 8:45 am]
BILLING CODE 4210-67-P