[Federal Register Volume 62, Number 163 (Friday, August 22, 1997)]
[Rules and Regulations]
[Pages 44838-44840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-22296]



[[Page 44837]]

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Part V





Department of Housing and Urban Development





_______________________________________________________________________



24 CFR Part 92



Home Investment Partnerships Program; Additional Streamlining; Final 
Rule

Federal Register / Vol. 62, No. 163 / Friday, August 22, 1997 / Rules 
and Regulations

[[Page 44838]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 92

[Docket No. FR-4111-F-02]
RIN 2501-AC30


Home Investment Partnerships Program--Additional Streamlining

AGENCY: Office of the Secretary, HUD.

ACTION: Final rule; request for comment.

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SUMMARY: This rule implements the proposed rule published December 11, 
1996 and amends the existing Home Program final rule by: replacing the 
hearing procedures of the current Home rule with the Department-wide 
streamlined hearing procedures; removing the closeout requirements and 
instead providing that Home funds will be closed out in accordance with 
procedures established by HUD; replacing the extensive requirements for 
the competitive reallocation of Home funds with a citation to the 
selection factors in the Home statute and a statement of the maximum 
number of points that may be awarded for each factor; and establishing 
separate market interest rate formula for rehabilitation loans. This 
rule also promulgates an amendment to, and requests public comment on, 
Sec. 92.252(i)(2) to limit the rents charged to tenants of Home-
assisted units whose income rises above 80 percent of area median 
income in Home projects in which the Home-assisted units ``float.''

DATES: Effective Date: September 22, 1997.
    Comment Due Date: Comments on Sec. 92.252(i)(2) are due on October 
21, 1997.

ADDRESSES: Interested persons are invited to submit comments regarding 
Sec. 92.252(i)(2) to the Rules Docket Clerk, Office of General Counsel, 
Room 10278, Department of Housing and Urban Development, 451 Seventh 
Street, S.W., Washington, D.C. 20410. Communications should refer to 
the above docket number and title. A copy of each communication 
submitted will be available for public inspection and copying between 
7:30 a.m. and 5:30 p.m. weekdays at the above address. Faxed comments 
will not be accepted.

FOR FURTHER INFORMATION CONTACT: Mary Kolesar, Director, Program Policy 
Division, Office of Affordable Housing Programs, Room 7162, 451 Seventh 
Street, S.W., Washington, D.C. 20410, telephone (202) 708-2470 (this is 
not a toll-free number). A telecommunications device for hearing-and 
speech-impaired persons (TTY) is available at 1-800-877-8339 (Federal 
Information Relay Service).

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    The Home Investment Partnerships Act (the HOME Act) (Title II of 
the Cranston-Gonzalez National Affordable Housing Act) was signed into 
law on November 28, 1990 (Pub. L. 101-625), and created the Home 
Investment Partnerships Program that provides funds to expand the 
supply of affordable housing for very low-income and low-income 
persons. Interim regulations for the Home Investment Partnerships 
Program were first published on December 16, 1991 (56 FR 65313) and are 
codified at 24 CFR part 92.
    The original statute has been amended three times since enactment. 
The Housing and Community Development Act of 1992 (HCDA 1992) (Pub. L. 
102-550, approved October 28, 1992) included a substantial number of 
amendments to the Home Program. These amendments were implemented in 
rules published on December 22, 1992 (57 FR 60960), June 23, 1993 (58 
FR 34130), and April 19, 1994 (59 FR 18626). The HUD Demonstration Act 
(Pub. L. 103-120, approved October 27, 1993) provided additional 
authorization for Home Program technical assistance. The Multifamily 
Housing Property Disposition Reform Act of 1994 (MHPDRA) (Pub. L. 103-
233, approved April 11, 1994) included an additional number of 
amendments to the Home Program. These amendments were implemented in a 
rule published on August 26, 1994 (59 FR 44258).
    A proposed rule (60 FR 36012) to modify the Home allocation formula 
and an interim rule (60 FR 36020) with clarifying changes to the Home 
regulation and a request for additional comments before the issuance of 
a final rule were published on July 12, 1995. The proposed rule was 
issued as an interim rule on January 23, 1996 (61 FR 1824). On March 6, 
1996 (61 FR 9036), an interim rule that made a number of streamlining 
amendments to the Home regulation was published. On September 16, 1996 
(61 FR 48736), the Department published a final rule for the Home 
Investment Partnerships Program (the Home program). Finally, a proposed 
rule to make a number of additional streamlining changes was published 
on December 11, 1996 (61 FR 65298). This rule implements the changes 
proposed in the December 11, 1996 rule. This rule also implements, and 
solicits public comment on, an amendment to Sec. 92.252(i)(2) that 
would provide relief, in circumstances explained below in this 
preamble, from the requirement that tenants who no longer qualify as 
low-income pay 30 percent of their adjusted income as rent.
    The purpose of this rule is two-fold: (1) To respond to a 
memorandum that President Clinton issued to all Federal departments and 
agencies regarding regulatory reinvention; and (2) to provide 
additional flexibility to Home participating jurisdictions by more 
accurately measuring the match value of below-market interest rate 
rehabilitation loans.
    In response to the President's memorandum, the Department of 
Housing and Urban Development conducted a page-by-page review of its 
regulations to determine which could be eliminated, consolidated, or 
otherwise improved. HUD determined that the regulations for the Home 
Investment Partnerships Program would be improved and streamlined by 
eliminating unnecessary provisions.
    For the first streamlining change, HUD replaces the requirements 
for the competitive reallocation of Home funds in Sec. 92.453, which 
largely repeat the Home statute at section 217(c) of the Cranston-
Gonzalez National Affordable Housing Act (42 U.S.C. 12747(c)), with a 
citation to the selection criteria in the statute; the maximum number 
of points that may be awarded for each category of criteria (policies, 
actions, commitment), as was done in the regulation; and a statement 
that such requirements will be published in a Notice of Funding 
Availability (NOFA) in accordance with the requirements of the HUD 
Reform Act as funds become available.
    Second, this rule removes the closeout requirements specified in 
Sec. 92.507 and instead provides that, ``Home funds will be closed out 
in accordance with procedures established by HUD.''
     Third and last of the streamlining changes, this rule replaces the 
hearing procedures in Sec. 92.552 of the current HOME rule with the 
Department-wide, streamlined, hearing procedures of 24 CFR part 26 
published as a final rule on September 24, 1996 (61 FR 50208).
    The changes described above are consistent with the general 
reinvention goals of streamlining the requirements of HUD's funding 
programs and maximizing their administrative flexibility. For example, 
removing the current rigid and burdensome closeout requirements permits 
the Department to simplify the closeout process and administer it on 
the basis of the reports and other monitoring information it receives. 
In addition, every recipient of

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HUD funding and the Department itself will benefit from the adoption of 
uniform hearings procedures that apply to all HUD programs.
    This rule also establishes a separate formula for calculating the 
match value of below-market interest rate rehabilitation loans for both 
owner-occupied and rental housing. This change to the Home program 
responds to comments that this methodology, which involves calculating 
the yield foregone based upon the difference between the actual 
interest rate charged and the market interest rate established at 
Sec. 92.220(a)(1)(iii)(B), understated the actual value of these 
contributions. Because the formula for determining the market interest 
rate for various types of projects was based on assumptions involving 
first mortgage financing, participating jurisdictions claimed that the 
methodology understated the match value of below-market interest rate 
rehabilitation loans, which typically carry higher market interest 
rates than first mortgage financing for comparable projects.
    Finally, this rule amends Sec. 92.252(i)(2) to address, to the 
extent permissible, an unintended inequity that may arise with respect 
to the rent for a Home-assisted unit. This section is amended to limit 
the rents charged to tenants of Home-assisted units whose income rises 
above 80 percent of area median income in Home projects in which the 
Home-assisted units ``float.'' The Home statute requires that the 
tenants of Home-assisted units who no longer qualify as low-income pay 
30 percent of their adjusted income as rent, except that tenants of 
units assisted with both Home funds and Low-Income Housing Tax Credits 
(LIHTC) are subject to the rules of the LIHTC program. The Department 
has determined that there is legal precedent that enables it, in 
projects with floating Home units, to limit the rent charged to over-
income tenants in Home-assisted units to the market rent for comparable 
units in the neighborhood. This precedent does not apply to rents in 
projects where Home units are fixed. Thus, extending this rent 
limitation provision to such units was not an option available to HUD.
    In Home projects in which the Home-assisted units are fixed, the 
requirement that the over-income tenant pay 30 percent of adjusted 
income as rent may provide that tenant with an incentive to move 
because the Home rent might eventually exceed the market rent on an 
unassisted unit. In such instances, the Home project could be brought 
back into compliance with the requirements of Sec. 92.252 (a) and (b) 
more quickly because the over-income tenant is likely to move from the 
Home-assisted unit. However, in projects where the Home units are 
designated as floating and a tenant's income rises above 80% of area 
median income, the next available, comparable unit can be designated as 
a Home-assisted unit. In these instances, the project can be brought 
back into compliance without the over-income tenant moving to avoid 
paying an excessive rent. Recognizing that individual tenants may have 
reasons for remaining in Home-assisted units even at a higher rent 
(e.g., proximity to work or schools, the cost of moving, or 
unavailability of unassisted units in the neighborhood), the Department 
is exercising the flexibility afforded by legal precedent to limit the 
rents for over-income tenants in floating Home units. In projects 
receiving both Home and LIHTC, the rent requirements of the tax credit 
program will continue to supersede Home rental requirements.

II. Summary of Comments and Responses

    The Department received four comments on the proposed rule 
published December 11, 1996. Two comments were received from a State 
Home participating jurisdiction. Two comments were received from public 
interest groups representing public agencies administering the Home 
Program.

Streamlining Provisions

    One commenter, a public interest group, supported the three 
proposed changes to streamline the program regulations. The commenter 
suggested that HUD seek the input of Home program administrators in 
developing requirements for Home grant closeouts.

Matching Requirements

    All four commenters supported HUD's proposal to establish a 
separate market interest rate formula for determining the match value 
of below-market interest rate rehabilitation loans made to single-
family and multifamily housing, whether owner-occupied or rental. One 
commenter recommended that each participating jurisdiction be permitted 
to establish the market rate for rehabilitation loans made in its 
jurisdiction by conducting weekly surveys of lenders in its area to 
determine the rates being offered for rehabilitation loans. Two 
commenters preferred that the Department use the same methodology for 
determining the match value of below-market interest rate 
rehabilitation loans as it did for acquisition loans, establishing a 
rate based on the interest rate for a 10-year Treasury note plus a 
specified number of basis points. One of the commenters recommended 
that the market rate be equal to the interest rate for a 10-year 
Treasury note plus 400 basis points. The other commenter recommended 
that 200 basis points be added to each of the three existing market 
interest rates for single-family fixed financing (200 basis points), 
single-family adjustable rate financing (250 basis points), and 
multifamily financing (300 basis points).
    One commenter suggested that HUD establish separate market rates 
for single-family homeownership and multifamily rental loans made for 
rehabilitation. Another commenter recommended that the formula 
established by HUD be as simple as possible.
    The Department agrees that the methodology for calculating the 
value of rehabilitation loans should be simple and has adopted the 
suggestion that the market interest rate for these loans be set at a 
rate equal to the interest rate on a 10-year note plus 400 basis 
points. In the interest of simplicity, this single rate shall apply to 
rehabilitation loans made to housing of all types and tenures. This 
standard should provide for a generous valuation of match contributions 
in most participating jurisdictions, is consistent with the methodology 
for other types of loans, is simple to calculate, and avoids the 
additional burden and recordkeeping that would be necessary if each 
participating jurisdiction were to conduct periodic surveys of lenders.

Findings and Certifications

Justification for Implementation of Sec. 92.252(i)(2)

    The Department has determined that the amendment made by this rule 
to Sec. 92.252(i)(2) should be adopted without the delay occasioned by 
requiring prior notice and comment. The amendment only removes, to the 
extent permissible, a requirement that could result in an 
unintentionally inequitable result and provides more flexibility for 
administering the program. As such, prior notice and comment are 
unnecessary under 24 CFR Part 10. The Department, however, is 
soliciting comments on this change, and will consider whether changes 
should be made to this section as a result of the comments.

Paperwork Reduction Act

    The information collection requirements for the Home Investment 
Partnerships Program have been approved by the Office of Management and 
Budget, under section 3504(h) of the Paperwork Reduction Act of 1980

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(44 U.S.C. 3501-3520), and assigned OMB control number 2501-0013. This 
rule does not contain additional information collection requirements. 
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 valid control number.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 establishes 
requirements for Federal agencies to assess the effects of their 
regulatory actions on State, local, and tribal governments and the 
private sector. This rule does not impose any Federal mandates on any 
State, local or tribal governments or the private sector within the 
meaning of the Unfunded Mandates Reform Act of 1995.

Environmental Impact

    At the time of publication of the proposed rule, a Finding of No 
Significant Impact with respect to the environment was made in 
accordance with HUD regulations in 24 CFR part 50 that implement 
section 102(2)(C) of the National Environmental Policy Act of 1969 (42 
U.S.C. 4332). The proposed rule is adopted by this final rule without 
significant change. Accordingly, the initial Finding of No Significant 
Impact remains applicable, and is available for public inspection 
between 7:30 a.m. and 5:30 p.m. weekdays in the office of the Rules 
Docket Clerk at the above address.

Impact on Small Entities

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)) has reviewed and approved this rule, and in so doing 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities, because jurisdictions that are 
statutorily eligible to receive formula allocations are relatively 
larger cities, counties or States. The rule will have no adverse or 
disproportionate economic impact on small businesses.

Federalism Impact

    The General Counsel has determined, as the Designated Official for 
HUD under section 6(a) of Executive Order 12612, Federalism, that this 
rule does not have federalism implications concerning the division of 
local, State, and federal responsibilities. This rule only streamlines 
the Home regulations by removing provisions determined to be 
unnecessary or overly restrictive.
    The Catalog of Federal Domestic Assistance Number for the Home 
Program is 14.239.

List of Subjects in 24 CFR Part 92

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

    Accordingly, part 92 of title 24 of the Code of Federal Regulations 
is amended to read as follows:

PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM

    1. The authority citation for part 92 continues to read as follows:

    Authority: Title II, Cranston-Gonzalez National Affordable 
Housing Act (42 U.S.C. 12701-12839); sec. 7(d), Department of 
Housing and Urban Development Act (42 U.S.C. 3535(d)).

    2. In Sec. 92.220, paragraphs (a)(1)(iii)(B)(2) and 
(a)(1)(iii)(B)(3) are revised, and a new paragraph (a)(1)(iii)(B)(4) is 
added, to read as follows:


Sec. 92.220  Form of matching contribution.

    (a) * * *
    (1) * * *
    (iii) * * *
    (B) * * *
    (2) With respect to one- to four-unit housing financed with an 
adjustable interest rate mortgage, a rate equal to the one-year 
Treasury bill rate plus 250 basis points;
    (3) With respect to a multifamily project, a rate equal to the 10-
year Treasury note rate plus 300 basis points; or
    (4) With respect to housing receiving financing for rehabilitation, 
a rate equal to the 10-year Treasury note rate plus 400 basis points.
* * * * *
    3. In Sec. 92.252, a new sentence is added to the end of paragraph 
(i)(2), to read as follows:


Sec. 92.252  Qualification as affordable housing: Rental housing.

* * * * *
    (i) * * *
    (2) * * * In addition, in projects in which the Home units are 
designated as floating pursuant to paragraph (j) of this section, 
tenants who no longer qualify as low-income are not required to pay as 
rent an amount that exceeds the market rent for comparable, unassisted 
units in the neighborhood.
* * * * *
    4. Section 92.453 is revised to read as follows:


Sec. 92.453  Competitive reallocations.

    (a) HUD will invite applications through Federal Register 
publication of a Notice of Funding Availability (NOFA), in accordance 
with section 102 of the Department of Housing and Urban Development 
Reform Act of 1989 (42 U.S.C. 3545) and the requirements of sec. 217(c) 
of the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 
12747(c)), for HOME funds that become available for competitive 
reallocation under Sec. 92.451 or Sec. 92.452, or both. The NOFA will 
describe the application requirements and procedures, including the 
total funding available for the competition and any maximum amount of 
individual awards. The NOFA will also describe the selection criteria 
and any special factors to be evaluated in awarding points under the 
selection criteria.
    (b) The NOFA will include the selection criteria at sec. 217(c) of 
the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 
12747(c)), with the following maximum number of points awarded for each 
category of criteria:
    (1) Commitment. Up to 25 points for the criteria at sec. 217(c)(1) 
of the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 
12747(c)(1));
    (2) Actions. Up to 50 points for the criteria at sec. 217(c)(2) of 
the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 
12747(c)(2)); and
    (3) Policies. Up to 25 points for the criteria at sec. 217(c)(3) of 
the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 
12747(c)(3)).
    5. Section 92.507 is revised to read as follows:


Sec. 92.507  Closeout.

    Home funds will be closed out in accordance with procedures 
established by HUD.
    6. In Sec. 92.552, paragraph (b) is revised to read as follows:


Sec. 92.552  Notice and opportunity for hearing; sanctions.

* * * * *
    (b) Proceedings. When HUD proposes to take action pursuant to this 
section, the respondent in the proceedings will be the participating 
jurisdiction or, at HUD's option, the State recipient. Proceedings will 
be conducted in accordance with 24 CFR part 26, subpart B.

    Dated: July 23, 1997.
Andrew Cuomo,
Secretary.
[FR Doc. 97-22296 Filed 8-21-97; 8:45 am]
BILLING CODE 4210-32-P