II

104TH CONGRESS

2D SESSION S. 2042

To reform the multifamily rental assisted housing programs of the Federal

Government, maintain the affordability and availability of low-income

housing, and for other purposes.

IN THE SENATE OF THE UNITED STATES

AUGUST 2, 1996

Mr. MACK (for himself, Mr. BOND, Mr. D’AMATO, and Mr. BENNETT) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

To reform the multifamily rental assisted housing programs

of the Federal Government, maintain the affordability

and availability of low-income housing, and for other

purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Multifamily Assisted Housing Reform and Affordability

6 Act of 1996’’.

7 (b) TABLE OF CONTENTS.—The table of contents for

8 this Act is as follows:
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Sec. 1. Short title; table of contents.

TITLE I—FHA-INSURED MULTIFAMILY HOUSING MORTGAGE AND

HOUSING ASSISTANCE RESTRUCTURING

Sec. 101. Findings and purposes.

Sec. 102. Definitions.

Sec. 103. Authority of participating administrative entities.

Sec. 104. Mortgage restructuring and rental assistance sufficiency plan.

Sec. 105. Section 8 renewals and long-term affordability commitment by owner

of project.

Sec. 106. Prohibition on restructuring.

Sec. 107. Restructuring tools.

Sec. 108. Shared savings incentive.

Sec. 109. Management standards.

Sec. 110. Monitoring of compliance.

Sec. 111. Review.

Sec. 112. GAO audit and review.

Sec. 113. Regulations.

Sec. 114. Technical and conforming amendments.

Sec. 115. Termination of authority.

TITLE II—ENFORCEMENT PROVISIONS

Sec. 201. Implementation.

Subtitle A—FHA Single Family and Multifamily Housing

Sec. 211. Authorization to immediately suspend mortgagees.

Sec. 212. Extension of equity skimming to other single family and multifamily

housing programs.

Sec. 213. Civil money penalties against mortgagees, lenders, and other participants in FHA programs.

Subtitle B—FHA Multifamily

Sec. 220. Civil money penalties against general partners, officers, directors, and

certain managing agents of multifamily projects.

Sec. 221. Civil money penalties for noncompliance with section 8 HAP contracts.

Sec. 222. Extension of double damages remedy.

Sec. 223. Obstruction of Federal audits.

1 TITLE I—FHA-INSURED MULTI2 FAMILY HOUSING MORTGAGE

3 AND HOUSING ASSISTANCE

4 RESTRUCTURING

5 SEC. 101. FINDINGS AND PURPOSES.

6 (a) FINDINGS.—The Congress finds that—
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1 (1) there exists throughout the Nation a need

2 for decent, safe, and affordable housing;

3 (2) as of the date of enactment of this Act, it

4 is estimated that—

5 (A) the insured multifamily housing port6 folio of the Federal Housing Administration

7 consists of 14,000 rental properties, with an ag8 gregate unpaid principal mortgage balance of

9 $38,000,000,000; and

10 (B) approximately 10,000 of these prop11 erties contain housing units that are assisted

12 with project-based rental assistance under sec13 tion 8 of the United States Housing Act of

14 1937;

15 (3) FHA-insured multifamily rental properties

16 are a major Federal investment, providing affordable

17 rental housing to an estimated 2,000,000 low- and

18 very low-income families;

19 (4) approximately 1,600,000 of these families

20 live in dwelling units that are assisted with project21 based rental assistance under section 8 of the Unit22 ed States Housing Act of 1937;

23 (5) a substantial number of housing units re24 ceiving project-based assistance have rents that are
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1 higher than the rents of comparable, unassisted

2 rental units in the same housing rental market;

3 (6) many of the contracts for project-based as4 sistance will expire during the several years following

5 the date of enactment of this Act;

6 (7) it is estimated that—

7 (A) if no changes in the terms and condi8 tions of the contracts for project-based assist9 ance are made before fiscal year 2000, the cost

10 of renewing all expiring rental assistance con11 tracts under section 8 of the United States

12 Housing Act of 1937 for both project-based and

13 tenant-based rental assistance will increase

14 from approximately $4,000,000,000 in fiscal

15 year 1997 to over $17,000,000,000 by fiscal

16 year 2000 and some $23,000,000,000 in fiscal

17 year 2006;

18 (B) of those renewal amounts, the cost of

19 renewing project-based assistance will increase

20 from $1,200,000,000 in fiscal year 1997 to al21 most $8,000,000,000 by fiscal year 2006; and

22 (C) without changes in the manner in

23 which project-based rental assistance is pro24 vided, renewals of expiring contracts for

25 project-based rental assistance will require an
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1 increasingly larger portion of the discretionary

2 budget authority of the Department of Housing

3 and Urban Development in each subsequent fis4 cal year for the foreseeable future;

5 (8) absent new budget authority for the renewal

6 of expiring rental contracts for project-based assist7 ance, many of the FHA-insured multifamily housing

8 projects that are assisted with project-based assist9 ance will likely default on their FHA-insured mort10 gage payments, resulting in substantial claims to the

11 FHA General Insurance Fund and Special Risk In12 surance Funds;

13 (9) more than 15 percent of federally assisted

14 multifamily housing projects are physically or finan15 cially distressed, including a number which suffer

16 from mismanagement;

17 (10) due to Federal budget constraints, the

18 downsizing of the Department of Housing and

19 Urban Development, and diminished administrative

20 capacity, the Department lacks the ability to ensure

21 the continued economic and physical well-being of

22 the stock of federally insured and assisted multifam23 ily housing projects; and

24 (11) the economic, physical, and management

25 problems facing the stock of federally insured and
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1 assisted multifamily housing projects will be best

2 served by reforms that—

3 (A) reduce the cost of Federal rental as4 sistance, including project-based assistance, to

5 these projects by reducing the debt service and

6 operating costs of these projects while retaining

7 the low-income affordability and availability of

8 this housing;

9 (B) address physical and economic distress

10 of this housing and the failure of some project

11 managers and owners of projects to comply

12 with management and ownership rules and re13 quirements; and

14 (C) transfer and share many of the loan

15 and contract administration functions and re16 sponsibilities of the Secretary with capable

17 State, local, and other entities.

18 (b) PURPOSES.—The purposes of this title are—

19 (1) to preserve low-income rental housing af20 fordability and availability while reducing the long21 term costs of project-based assistance;

22 (2) to reform the design and operation of Fed23 eral rental housing assistance programs, adminis24 tered by the Secretary, to promote greater multifam25 ily housing project operating and cost efficiencies;
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1 (3) to encourage owners of eligible multifamily

2 housing projects to restructure their FHA-insured

3 mortgages and project-based assistance contracts in

4 a manner which is consistent with this title before

5 the year in which the contract expires;

6 (4) to streamline and improve federally insured

7 and assisted multifamily housing project oversight

8 and administration;

9 (5) to resolve the problems affecting financially

10 and physically troubled federally insured and as11 sisted multifamily housing projects through coopera12 tion with residents, owners, State and local govern13 ments, and other interested entities and individuals;

14 and

15 (6) to grant additional enforcement tools to use

16 against those who violate agreements and program

17 requirements, in order to ensure that the public in18 terest is safeguarded and that Federal multifamily

19 housing programs serve their intended purposes.

20 SEC. 102. DEFINITIONS.

21 For purposes of this title, the following definitions

22 shall apply:

23 (1) COMPARABLE PROPERTIES.—The term

24 ‘‘comparable properties’’ means properties that

25 are—
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1 (A) similar to the eligible multifamily

2 housing project in neighborhood (including risk

3 of crime), location, access, street appeal, age,

4 property size, apartment mix, physical configu5 ration, property amenities, inapartment rental

6 amenities, and utilities;

7 (B) unregulated by contractual encum8 brances or local rent-control laws; and

9 (C) occupied predominantly by renters who

10 receive no rent supplements or rental assist11 ance.

12 (2) ELIGIBLE MULTIFAMILY HOUSING

13 PROJECT.—The term ‘‘eligible multifamily housing

14 project’’ means a property consisting of more than

15 4 dwelling units—

16 (A) with rents which, on an average per

17 unit or per room basis, exceed the fair market

18 rent of the same market area, as determined by

19 the Secretary;

20 (B) that is covered in whole or in part by

21 a contract for project-based assistance under—

22 (i) the new construction and substan23 tial rehabilitation program under section

24 8(b)(2) of the United States Housing Act
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1 of 1937 (as in effect before October 1,

2 1983);

3 (ii) the property disposition program

4 under section 8(b) of the United States

5 Housing Act of 1937;

6 (iii) the moderate rehabilitation pro7 gram under section 8(e)(2) of the United

8 States Housing Act of 1937;

9 (iv) the project-based certificate pro10 gram under section 8 of the United States

11 Housing Act of 1937;

12 (v) section 23 of the United States

13 Housing Act of 1937 (as in effect before

14 January 1, 1975);

15 (vi) the rent supplement program

16 under section 101 of the Housing and

17 Urban Development Act of 1965; or

18 (vii) section 8 of the United States

19 Housing Act of 1937, following conversion

20 from assistance under section 101 of the

21 Housing and Urban Development Act of

22 1965; and

23 (C) financed by a mortgage insured under

24 the National Housing Act.
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1 (3) EXPIRING CONTRACT.—The term ‘‘expiring

2 contract’’ means a project-based assistance contract

3 attached to an eligible multifamily housing project

4 which, under the terms of the contract, will expire.

5 (4) EXPIRATION DATE.—The term ‘‘expiration

6 date’’ means the date on which an expiring contract

7 expires.

8 (5) FAIR MARKET RENT.—The term ‘‘fair mar9 ket rent’’ means the fair market rental established

10 under section 8(c) of the United States Housing Act

11 of 1937.

12 (6) KNOWING OR KNOWINGLY.—The term

13 ‘‘knowing’’ or ‘‘knowingly’’ means having actual

14 knowledge of or acting with deliberate ignorance or

15 reckless disregard.

16 (7) LOW-INCOME FAMILIES.—The term ‘‘low-in17 come families’’ has the same meaning as provided

18 under section 3(b)(2) of the United States Housing

19 Act of 1937.

20 (8) MULTIFAMILY HOUSING MANAGEMENT

21 AGREEMENT.—The term ‘‘multifamily housing man22 agement agreement’’ means the agreement entered

23 into between the Secretary and a participating ad24 ministrative entity, as provided under section 103 of

25 the title.
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1 (9) PARTICIPATING ADMINISTRATIVE ENTITY.—

2 The term ‘‘participating administrative entity’’

3 means a public agency, including a State housing fi4 nance agency or local housing agency, which meets

5 the requirements under section 103(b).

6 (10) PROJECT-BASED ASSISTANCE.—The term

7 ‘‘project-based assistance’’ means rental assistance

8 under section 8 of the United States Housing Act of

9 1937 that is attached to a multifamily housing

10 project.

11 (11) RENEWAL.—The term ‘‘renewal’’ means

12 the replacement of an expiring Federal rental con13 tract with a new contract under section 8 of the

14 United States Housing Act of 1937, consistent with

15 the requirements of this title.

16 (12) SECRETARY.—The term ‘‘Secretary’’

17 means the Secretary of Housing and Urban Develop18 ment.

19 (13) STATE.—The term ‘‘State’’ has the same

20 meaning as in section 104 of the Cranston-Gonzalez

21 National Affordable Housing Act.

22 (14) TENANT-BASED ASSISTANCE.—The term

23 ‘‘tenant-based assistance’’ has the same meaning as

24 in section 8(f) of the United States Housing Act of

25 1937.
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1 (15) UNIT OF GENERAL LOCAL GOVERN2 MENT.—The term ‘‘unit of general local govern3 ment’’ has the same meaning as in section 104 of

4 the Cranston-Gonzalez National Affordable Housing

5 Act.

6 (16) VERY LOW-INCOME FAMILY.—The term

7 ‘‘very low-income family’’ has the same meaning as

8 in section 3(b) of the United States Housing Act of

9 1937.

10 SEC. 103. AUTHORITY OF PARTICIPATING ADMINISTRATIVE

11 ENTITIES.

12 (a) PARTICIPATING ADMINISTRATIVE ENTITIES.—

13 (1) IN GENERAL.—The Secretary shall enter

14 into multifamily housing management agreements

15 with participating administrative entities for the im16 plementation of mortgage restructuring and rental

17 assistance sufficiency plans to restructure FHA-in18 sured multifamily housing mortgages, in order to—

19 (A) reduce the costs of current and expir20 ing contracts for assistance under section 8 of

21 the United States Housing Act of 1937;

22 (B) address financially and physically trou23 bled projects; and

24 (C) correct management and ownership de25 ficiencies.
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1 (2) MULTIFAMILY HOUSING MANAGEMENT

2 AGREEMENTS.—Each multifamily housing manage3 ment agreement entered into under this subsection

4 shall—

5 (A) be a cooperative agreement to establish

6 the obligations and requirements between the

7 Secretary and the participating administrative

8 entity;

9 (B) identify the eligible multifamily hous10 ing projects or groups of projects for which the

11 participating administrative entity is responsible

12 for assisting in developing and implementing

13 approved mortgage workout and rental assist14 ance sufficiency plans under section 104;

15 (C) require the participating administrative

16 entity to review and certify to the accuracy and

17 completeness of a comprehensive needs assess18 ment submitted by the owner of an eligible mul19 tifamily housing project, in accordance with the

20 information and data requirements of section

21 403 of the Housing and Community Develop22 ment Act of 1992, including such other data,

23 information, and requirements as the Secretary

24 may require to be included as part of the com25 prehensive needs assessment;
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1 (D) identify the responsibilities of both the

2 participating administrative entity and the Sec3 retary in implementing a mortgage restructur4 ing and rental assistance sufficiency plan, in5 cluding any actions proposed to be taken under

6 section 106 or 107;

7 (E) require each mortgage restructuring

8 and rental assistance sufficiency plan prepared

9 in accordance with the requirements of section

10 104 for each eligible multifamily housing

11 project;

12 (F) indemnify the participating adminis13 trative entity against lawsuits and penalties for

14 actions taken pursuant to the agreement, ex15 cluding actions involving gross negligence or

16 willful misconduct; and

17 (G) include compensation for all reasonable

18 expenses incurred by the participating adminis19 trative entity necessary to perform its duties

20 under this Act, including such incentives as

21 may be authorized under section 108.

22 (b) SELECTION OF PARTICIPATING ADMINISTRATIVE

23 ENTITY.—
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1 (1) SELECTION CRITERIA.—The Secretary shall

2 select a participating administrative entity based on

3 the following criteria—

4 (A) is located in the State or local jurisdic5 tion in which the eligible multifamily housing

6 project or projects are located;

7 (B) has demonstrated expertise in the de8 velopment or management of low-income afford9 able rental housing;

10 (C) has a history of stable, financially

11 sound, and responsible administrative perform12 ance;

13 (D) has demonstrated financial strength in

14 terms of asset quality, capital adequacy, and li15 quidity; and

16 (E) is otherwise qualified, as determined

17 by the Secretary, to carry out the requirements

18 of this title.

19 (2) SELECTION OF MORTGAGE RISK-SHARING

20 ENTITIES.—Any State housing finance agency or

21 local housing agency which is designated as a quali22 fied participating entity under section 542 of the

23 Housing and Community Development Act of 1992

24 shall automatically qualify as a participating admin25 istrative entity under this section.
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1 (3) ALTERNATIVE ADMINISTRATORS.—With re2 spect to any eligible multifamily housing project that

3 is located in a State or local jurisdiction in which the

4 Secretary determines that a participating adminis5 trative entity is not located, is unavailable, or does

6 not qualify, the Secretary shall either—

7 (A) carry out the requirements of this title

8 with respect to that eligible multifamily housing

9 project; or

10 (B) contract with other qualified entities

11 that meet the requirements of subsection (b),

12 with the exception of subsection (b)(1)(A), the

13 authority to carry out all or a portion of the re14 quirements of this title with respect to that eli15 gible multifamily housing project.

16 (4) PREFERENCE FOR STATE HOUSING FI17 NANCE AGENCIES AS PARTICIPATING ADMINISTRA18 TIVE ENTITIES.—For each State in which eligible

19 multifamily housing projects are located, the Sec20 retary shall give preference to the housing finance

21 agency of that State or, if a State housing finance

22 agency is unqualified or has declined to participate,

23 a local housing agency to act as the participating ad24 ministrative entity for that State or for the jurisdic25 tion in which the agency located.
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1 (5) STATE PORTFOLIO REQUIREMENTS.—

2 (A) IN GENERAL.—If the housing finance

3 agency of a State is selected as the participat4 ing administrative entity, that agency shall be

5 responsible for all eligible multifamily housing

6 projects in that State, except that a local hous7 ing agency selected as a participating adminis8 trative entity shall be responsible for all eligible

9 multifamily housing projects in the jurisdiction

10 of the agency.

11 (B) DELEGATION.—A participating admin12 istrative entity may delegate or transfer respon13 sibilities and functions under this title to one or

14 more interested and qualified public entities.

15 (C) WAIVER.—A State housing finance

16 agency or local housing agency may request a

17 waiver from the Secretary from the require18 ments of this paragraph for good cause.

19 SEC. 104. MORTGAGE RESTRUCTURING AND RENTAL AS20 SISTANCE SUFFICIENCY PLAN.

21 (a) IN GENERAL.—

22 (1) DEVELOPMENT OF PROCEDURES AND RE23 QUIREMENTS.—The Secretary shall develop proce24 dures and requirements for the submission of a

25 mortgage restructuring and rental assistance suffi-
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1 ciency plan for each eligible multifamily housing

2 project with an expiring contract.

3 (2) TERMS AND CONDITIONS.—Each mortgage

4 restructuring and rental assistance sufficiency plan

5 submitted under this subsection shall be developed

6 at the initiative of an owner of an eligible multifam7 ily housing project with a participating administra8 tive entity, under such terms and conditions as the

9 Secretary shall require.

10 (3) CONSOLIDATION.—Mortgage restructuring

11 and rental assistance sufficiency plans submitted

12 under this subsection may be consolidated as part of

13 an overall strategy for more than one property.

14 (b) NOTICE REQUIREMENTS.—

15 (1) ESTABLISHMENT.—

16 (A) IN GENERAL.—The Secretary shall es17 tablish notice procedures and hearing require18 ments for tenants and owners concerning the

19 dates for the expiration of project-based assist20 ance contracts for any eligible multifamily hous21 ing project.

22 (B) 12-MONTH NOTICE.—Under the hear23 ing requirements established under this para24 graph, the owner shall provide 12 months notice

25 in writing before the expiration of the initial
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1 project-based assistance contract to tenants of

2 any eligible multifamily housing project.

3 (2) EXTENSION OF CONTRACT TERM.—Subject

4 to agreement by a project owner, the Secretary may

5 extend the term of any expiring contract or provide

6 a section 8 contract with rent levels set in accord7 ance with subsection (f)(2) for a period sufficient to

8 facilitate the implementation of a mortgage restruc9 turing and rental assistance sufficiency plan, as de10 termined by the Secretary.

11 (c) TENANT RENT PROTECTION.—If the owner of a

12 project with an expiring Federal rental assistance contract

13 does not agree to extend the contract, the Secretary shall

14 make tenant-based assistance available to tenants residing

15 in units assisted under the expiring contract at the time

16 of expiration.

17 (d) MORTGAGE RESTRUCTURING AND RENTAL AS18 SISTANCE SUFFICIENCY PLAN.—Each mortgage restruc19 turing and rental assistance sufficiency plan shall—

20 (1) except as otherwise provided, restructure

21 the project-based assistance rents for the eligible

22 multifamily housing property in a manner consistent

23 with subsection (e);

24 (2) require the owner or purchaser of an eligible

25 multifamily mortgage housing project with an expir-
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1 ing contract to submit to the participating adminis2 trative entity a comprehensive housing needs assess3 ment, in accordance with the information and data

4 requirements of section 403 of the Housing and

5 Community Development Act of 1992, including

6 such other data, information, and requirements as

7 the Secretary may require to be included as part of

8 the comprehensive needs assessment;

9 (3) require the owner or purchaser of the

10 project to provide or contract for competent manage11 ment of the project;

12 (4) require the owner or purchaser of the

13 project to take such actions as may be necessary to

14 rehabilitate, maintain adequate reserves, and to

15 maintain the project in decent and safe condition,

16 based on housing quality standards established by—

17 (A) the Secretary; or

18 (B) local housing codes or codes adopted

19 by public housing agencies that—

20 (i) meet or exceed housing quality

21 standards established by the Secretary;

22 and

23 (ii) do not severely restrict housing

24 choice;
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1 (5) require the owner or purchaser of the

2 project to maintain affordability and use restrictions

3 for 20 years, as the participating administrative en4 tity determines to be appropriate, which restrictions

5 shall be consistent with the long-term physical and

6 financial viability character of the project as afford7 able housing;

8 (6) meet subsidy layering requirements under

9 guidelines established by the Secretary; and

10 (7) require the owner or purchaser of the

11 project to meet such other requirements as the Sec12 retary determines to be appropriate.

13 (e) TENANT AND COMMUNITY PARTICIPATION AND

14 CAPACITY BUILDING.—

15 (1) PROCEDURES.—

16 (A) IN GENERAL.—The Secretary shall es17 tablish procedures to provide an opportunity for

18 tenants of the project and other affected par19 ties, including local government and the com20 munity in which the project is located, to par21 ticipate effectively in the restructuring process

22 established by this title.

23 (B) CRITERIA.—These procedures shall in24 clude—
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1 (i) the rights to timely and adequate

2 written notice of the proposed decisions of

3 the owner or the Secretary or participating

4 administrative entity;

5 (ii) timely access to all relevant infor6 mation (except for information determined

7 to be proprietary under standards estab8 lished by the Secretary);

9 (iii) an adequate period to analyze

10 this information and provide comments to

11 the Secretary or participating administra12 tive entity (which comments shall be taken

13 into consideration by the Administrator);

14 and

15 (iv) if requested, a meeting with a

16 representative of the Administrator and

17 other affected parties.

18 (2) PROCEDURES REQUIRED.—The procedures

19 established under paragraph (1) shall permit tenant,

20 local government, and community participation in at

21 least the following decisions or plans specified in this

22 title:

23 (A) The Multifamily Housing Management

24 Agreement.
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1 (B) Any proposed expiration of the section

2 8 contract.

3 (C) The project’s eligibility for restructur4 ing pursuant to section 106 and the mortgage

5 restructuring and rental assistance sufficiency

6 plan pursuant to section 104.

7 (D) Physical inspections.

8 (E) Capital needs and management assess9 ments, whether before or after restructuring.

10 (F) Any proposed transfer of the project.

11 (3) FUNDING.—

12 (A) IN GENERAL.—The Secretary may

13 provide not more than $10,000,000 annually in

14 funding to tenant groups, nonprofit organiza15 tions, and public entities for building the capac16 ity of tenant organizations, for technical assist17 ance in furthering any of the purposes of this

18 title (including transfer of developments to new

19 owners) and for tenant services, from those

20 amounts made available under appropriations

21 Acts for implementing this title.

22 (B) ALLOCATION.—The Secretary may al23 locate any funds made available under subpara24 graph (A) through existing technical assistance

25 programs and procedures developed pursuant to
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1 any other Federal law, including the Low-In2 come Housing Preservation and Resident

3 Homeownership Act of 1990 and the Multifam4 ily Property Disposition Reform Act of 1994.

5 (C) PROHIBITION.—None of the funds

6 made available under subparagraph (A) may be

7 used directly or indirectly to pay for any per8 sonal service, advertisement, telegram, tele9 phone, letter, printed or written matter, or

10 other device, intended or designed to influence

11 in any manner a Member of Congress, to favor

12 or oppose, by vote or otherwise, any legislation

13 or appropriation by the Congress, whether be14 fore or after the introduction of any bill or reso15 lution proposing such legislation or appropria16 tion.

17 (f) RENT LEVELS.—

18 (1) IN GENERAL.—Except as provided in para19 graph (2), each mortgage restructuring and rental

20 assistance sufficiency plan pursuant to the terms,

21 conditions, and requirements of this title shall estab22 lish for units assisted with project-based assistance

23 in eligible multifamily housing projects adjusted rent

24 levels that—
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1 (A) are equivalent to rents derived from

2 comparable properties, if—

3 (i) the participating administrative en4 tity makes the rent determination not later

5 than 60 days after the owner submits a

6 mortgage restructuring and rental assist7 ance sufficiency plan; and

8 (ii) the market rent determination is

9 based on not less than 2 comparable prop10 erties; or

11 (B) if those rents cannot be determined,

12 are equal to 90 percent of the fair market rents

13 for the relevant market area.

14 (2) EXCEPTIONS.—

15 (A) IN GENERAL.—A contract under this

16 section may include rent levels that exceed the

17 rent level described in paragraph (1) at rent

18 levels that do not exceed 120 percent of the

19 local fair market rent if the participating ad20 ministrative entity—

21 (i) determines, that the housing needs

22 of the tenants and the community cannot

23 be adequately addressed through imple24 mentation of the rent limitation required

25 to be established through a mortgage re-
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1 structuring and rental assistance suffi2 ciency plan under paragraph (1); and

3 (ii) follows the procedures under para4 graph (3).

5 (B) EXCEPTION RENTS.—In any fiscal

6 year, a participating administrative entity may

7 approve exception rents on not more than 20

8 percent of all units in the geographic jurisdic9 tion of the entity with expiring contracts in that

10 fiscal year, except that the Secretary may waive

11 this ceiling upon a finding of special need in the

12 geographic area served by the participating ad13 ministrative entity.

14 (3) RENT LEVELS FOR EXCEPTION

15 PROJECTS.—For purposes of this section, a project

16 eligible for an exception rent shall receive a rent cal17 culation on the actual and projected costs of operat18 ing the project, at a level that provides income suffi19 cient to support a budget-based rent that consists

20 of—

21 (A) the debt service of the project;

22 (B) the operating expenses of the project,

23 as determined by the participating administra24 tive entity, including—

25 (i) contributions to adequate reserves;
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1 (ii) the costs of maintenance and nec2 essary rehabilitation; and

3 (iii) other eligible costs permitted

4 under section 8 of the United States Hous5 ing Act of 1937;

6 (C) an adequate allowance for potential op7 erating losses due to vacancies and failure to

8 collect rents, as determined by the participating

9 administrative entity;

10 (D) an allowance for a reasonable rate of

11 return to the owner or purchaser of the project,

12 as determined by the participating administra13 tive entity, which shall not exceed 7 percent of

14 the return on equity; and

15 (E) other expenses determined by the par16 ticipating administrative entity to be necessary

17 for the operation of the project.

18 (g) EXEMPTIONS FROM RESTRUCTURING.—Subject

19 to section 106, the Secretary shall renew project-based as20 sistance contracts at existing rents if—

21 (1) the project was financed through obligations

22 such that the implementation of a mortgage restruc23 turing and rental assistance plan under this section

24 is inconsistent with applicable law or agreements

25 governing such financing;
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1 (2) in the determination of the Secretary or the

2 participating administrative entity, the refinancing

3 would not result in significant savings to the Sec4 retary; or

5 (3) the project has an expiring contract under

6 section 8 of the United States Housing Act of 1937

7 but does not qualify as an eligible multifamily

8 project pursuant to section 102(6) of this title.

9 SEC. 105. SECTION 8 RENEWALS AND LONG-TERM AFFORD10 ABILITY COMMITMENT BY OWNER OF

11 PROJECT.

12 (a) SECTION 8 RENEWALS OF RESTRUCTURED

13 PROJECTS.—Subject to the availability of amounts pro14 vided in advance in appropriations Acts, the Secretary

15 shall enter into contracts with participating administrative

16 entities pursuant to which the participating administrative

17 entity shall offer to renew or extend an expiring section

18 8 contract on an eligible multifamily project, and the

19 owner of the project shall accept the offer, provided the

20 initial renewal is in accordance with the terms and condi21 tions specified in the mortgage restructuring and rental

22 sufficiency plan.

23 (b) REQUIRED COMMITMENT.—After the initial re24 newal of a section 8 contract pursuant to this section, the

25 owner shall accept each offer made pursuant to subsection
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1 (a) to renew the contract, for a period of 20 years from

2 the date of the initial renewal, if the offer to renew is on

3 terms and conditions specified in the mortgage restoration

4 and rental sufficiency plan.

5 SEC. 106. PROHIBITION ON RESTRUCTURING.

6 (a) PROHIBITION ON RESTRUCTURING.—The Sec7 retary shall not consider any mortgage restructuring and

8 rental assistance sufficiency plan or request for contract

9 renewal if the participating administrative entity deter10 mines that—

11 (1) the owner or purchaser of the project has

12 engaged in material adverse financial or managerial

13 actions or omissions with regard to this project (or

14 with regard to other similar projects if the Secretary

15 determines that those actions or omissions constitute

16 a pattern of mismanagement that would warrant

17 suspension or debarment by the Secretary), includ18 ing—

19 (A) knowingly and materially violating any

20 Federal, State, or local law or regulation with

21 regard to this project or any other federally as22 sisted project;

23 (B) knowingly and materially breaching a

24 contract for assistance under section 8 of the

25 United States Housing Act of 1937;
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1 (C) knowingly and materially violating any

2 applicable regulatory or other agreement with

3 the Secretary or a participating administrative

4 entity;

5 (D) repeatedly failing to make mortgage

6 payments at times when project income was

7 sufficient to maintain and operate the property;

8 (E) materially failing to maintain the prop9 erty according to housing quality standards

10 after receipt of notice and a reasonable oppor11 tunity to cure; or

12 (F) committing any actions or omissions

13 that would warrant suspension or debarment by

14 the Secretary;

15 (2) the owner or purchaser of the property ma16 terially failed to follow the procedures and require17 ments of this title, after receipt of notice and an op18 portunity to cure; or

19 (3) the poor condition of the project cannot be

20 remedied in a cost effective manner, as determined

21 by the participating administrative entity.

22 (b) OPPORTUNITY TO DISPUTE FINDINGS.—

23 (1) IN GENERAL.—During the 30-day period

24 beginning on the date on which the owner or pur25 chaser of an eligible multifamily housing project re-
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1 ceives notice of a rejection under subsection (a) or

2 of a mortgage restructuring and rental assistance

3 sufficiency plan under section 104, the Secretary or

4 participating administrative entity shall provide that

5 owner or purchaser with an opportunity to dispute

6 the basis for the rejection and an opportunity to

7 cure.

8 (2) AFFIRMATION, MODIFICATION, OR REVER9 SAL.—

10 (A) IN GENERAL.—After providing an op11 portunity to dispute under paragraph (1), the

12 Secretary or the participating administrative

13 entity may affirm, modify, or reverse any rejec14 tion under subsection (a) or rejection of a mort15 gage restructuring and rental assistance suffi16 ciency plan under section 104.

17 (B) REASONS FOR DECISION.—The Sec18 retary or the participating administrative en19 tity, as applicable, shall identify the reasons for

20 any final decision under this paragraph.

21 (C) REVIEW PROCESS.—The Secretary

22 shall establish an administrative review process

23 to appeal any final decision under this para24 graph.
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1 (c) FINAL DETERMINATION.—Any final determina2 tion under this section shall not be subject to judicial re3 view.

4 (d) DISPLACED TENANTS.—Subject to the availabil5 ity of amounts provided in advance in appropriations Acts,

6 for any low-income tenant that is residing in a project or

7 receiving assistance under section 8 of the United States

8 Housing Act of 1937 at the time of rejection under this

9 section, that tenant shall be provided with tenant-based

10 assistance and reasonable moving expenses, as determined

11 by the Secretary.

12 (e) TRANSFER OF PROPERTY.—For properties dis13 qualified from the consideration of a mortgage restructur14 ing and rental assistance sufficiency plan under this sec15 tion because of actions by an owner or purchaser in ac16 cordance with paragraph (1) or (2) of subsection (a), the

17 Secretary shall establish procedures to facilitate the vol18 untary sale or transfer of a property as part of a mortgage

19 restructuring and rental assistance sufficiency plan, with

20 a preference for tenant organizations and tenant-endorsed

21 community-based nonprofit and public agency purchasers

22 meeting such reasonable qualifications as may be estab23 lished by the Secretary.
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1 SEC. 107. RESTRUCTURING TOOLS.

2 (a) RESTRUCTURING TOOLS.—For purposes of this

3 title, and to the extent these actions are consistent with

4 this section, an approved mortgage restructuring and as5 sistance sufficiency plan may include one or more of the

6 following:

7 (1) FULL OR PARTIAL PAYMENT OF CLAIM.—

8 Making a full payment of claim or partial payment

9 of claim under section 541(b) of the National Hous10 ing Act.

11 (2) REFINANCING OF DEBT.—Refinancing of all

12 or part of the debt on a project, if the refinancing

13 would result in significant subsidy savings under

14 section 8 of the United States Housing Act of 1937.

15 (3) MORTGAGE INSURANCE.—Providing FHA

16 multifamily mortgage insurance, reinsurance or

17 other credit enhancement alternatives, including

18 multifamily risk-sharing mortgage programs, as pro19 vided under section 542 of the Housing and Commu20 nity Development Act of 1992. Any limitations on

21 the number of units available for mortgage insur22 ance under section 542 shall not apply to eligible

23 multifamily housing projects. Any credit subsidy

24 costs of providing mortgage insurance shall be paid

25 from the General Insurance Fund and the Special

26 Risk Insurance Fund.
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1 (4) CREDIT ENHANCEMENT.—Any additional

2 State or local mortgage credit enhancements and

3 risk-sharing arrangements may be established with

4 State or local housing finance agencies, the Federal

5 Housing Finance Board, the Federal National Mort6 gage Association, and the Federal Home Loan Mort7 gage Corporation, to a modified first mortgage.

8 (5) COMPENSATION OF THIRD PARTIES.—En9 tering into agreements, incurring costs, or making

10 payments, as may be reasonably necessary, to com11 pensate the participation of participating adminis12 trative entities and other parties in undertaking ac13 tions authorized by this title. Upon request, partici14 pating administrative entities shall be considered to

15 be contract administrators under section 8 of the

16 United States Housing Act of 1937 for purposes of

17 any contracts entered into as part of an approved

18 mortgage restructuring and rental assistance suffi19 ciency plan.

20 (6) RESIDUAL RECEIPTS.—Applying any ac21 quired residual receipts to maintain the long-term

22 affordability and physical condition of the property.

23 The participating administrative entity may expedite

24 the acquisition of residual receipts by entering into

25 agreements with owners of housing covered by an
35

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1 expiring contract to provide an owner with a share

2 of the receipts, not to exceed 10 percent.

3 (7) REHABILITATION NEEDS.—Assisting in ad4 dressing the necessary rehabilitation needs of the

5 project, except that assistance under this paragraph

6 shall not exceed the equivalent of $5,000 per unit

7 for those units covered with project-based assistance.

8 Rehabilitation may be paid from the provision of

9 grants from residual receipts or, as provided in ap10 propriations Acts, from budget authority provided

11 for increases in the budget authority for assistance

12 contracts under section 8 of the United States

13 Housing Act of 1937, or through the debt restruc14 turing transaction. Each owner that receives reha15 bilitation assistance shall contribute not less than 25

16 percent of the amount of rehabilitation assistance re17 ceived.

18 (8) MORTGAGE RESTRUCTURING.—Restructur19 ing mortgages to provide a structured first mortgage

20 to cover rents at levels that are established in sec21 tion 104(f) and a second mortgage equal to the dif22 ference between the restructured first mortgage and

23 the mortgage balance of the eligible multifamily

24 housing project at the time of restructuring. The

25 second mortgage shall bear interest at a rate not to
36

•S 2042 IS

1 exceed the applicable Federal rate for a term not to

2 exceed 40 years. If the first mortgage remains out3 standing, payments of interest and principal on the

4 second mortgage shall be made from all excess

5 project income only after the payment of all reason6 able and necessary operating expenses (including de7 posits in a reserve for replacement), debt service on

8 the first mortgage, and such other expenditures as

9 may be approved by the Secretary. Except as re10 quired by the preceding sentence, during the period

11 in which the first mortgage remains outstanding, no

12 payments of interest or principal shall be required

13 on the second mortgage. The second mortgage shall

14 be assumable by any subsequent purchaser of any

15 multifamily housing project, pursuant to guidelines

16 established by the Secretary. The principal and ac17 crued interest due under the second mortgage shall

18 be fully payable upon disposition of the property, un19 less the mortgage is assumed under the preceding

20 sentence. The owner shall begin repayment of the

21 second mortgage upon full payment of the first

22 mortgage in equal monthly installments in an

23 amount equal to the monthly principal and interest

24 payments formerly paid under the first mortgage.

25 The principal and interest of a second mortgage
37

•S 2042 IS

1 shall be immediately due and payable upon a finding

2 by the Secretary that an owner has failed to materi3 ally comply with this title or any requirements of the

4 United States Housing Act of 1937 as those require5 ments apply to the applicable project. Any credit

6 subsidy costs of providing a second mortgage shall

7 be paid from the General Insurance Fund and the

8 Special Risk Insurance Fund.

9 (b) ROLE OF FNMA AND FHLMC.—Section 1335

10 of the Federal Housing Enterprises Financial Safety and

11 Soundness Act of 1992 (12 U.S.C. 4565) is amended—

12 (1) in paragraph (3), by striking ‘‘and’’ at the

13 end;

14 (2) paragraph (4), by striking the period at the

15 end and inserting ‘‘; and’’;

16 (3) by striking ‘‘To meet’’ and inserting the fol17 lowing:

18 ‘‘(a) IN GENERAL.—To meet’’; and

19 (4) by adding at the end the following:

20 ‘‘(5) assist in maintaining the affordability of

21 assisted units in eligible multifamily housing projects

22 with expiring contracts, as defined under the Multi23 family Assisted Housing Reform and Affordability

24 Act of 1996.
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1 ‘‘(b) AFFORDABLE HOUSING GOALS.—Actions taken

2 under subsection (a)(5) shall constitute part of the con3 tribution of each entity in meeting their affordable hous4 ing goals under sections 1332, 1333, and 1334 for any

5 fiscal year, as determined by the Secretary.’’.

6 (c) PROHIBITION ON EQUITY SHARING BY THE SEC7 RETARY.—The Secretary is prohibited from participating

8 in any equity agreement or profit-sharing agreement in

9 conjunction with any eligible multifamily housing project.

10 SEC. 108. SHARED SAVINGS INCENTIVE.

11 (a) IN GENERAL.—At the time a participating ad12 ministrative entity is designated, the Secretary shall nego13 tiate an incentive agreement with the participating admin14 istrative entity, which agreement may provide such entity

15 with a share of savings from any restructured mortgage

16 and reduced subsidies resulting from actions under section

17 107. The Secretary shall negotiate with participating ad18 ministrative entities a savings incentive formula that pro19 vides for periodic payments over a 5-year period, which

20 is allocated as incentives to participating administrative

21 entities and to project owners.

22 (b) USE OF SAVINGS.—Notwithstanding any other

23 provision of law, the incentive agreement under subsection

24 (a) shall require any savings provided to a participating

25 administrative entity under that agreement to be used only
39

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1 for providing decent, safe, and affordable housing for very

2 low-income families and persons with a priority for eligible

3 multifamily housing projects; and

4 SEC. 109. MANAGEMENT STANDARDS.

5 Each participating administrative entity shall estab6 lish and implement management standards, including re7 quirements governing conflicts of interest between owners,

8 managers, contractors with an identity of interest, pursu9 ant to guidelines established by the Secretary and consist10 ent with industry standards.

11 SEC. 110. MONITORING OF COMPLIANCE.

12 (a) COMPLIANCE AGREEMENTS.—Pursuant to regu13 lations issued by the Secretary after public notice and

14 comment, each participating administrative entity,

15 through binding contractual agreements with owners and

16 otherwise, shall ensure long-term compliance with the pro17 visions of this title. Each agreements shall, at a minimum,

18 provide for—

19 (1) enforcement of the provisions of this title;

20 and

21 (2) remedies for the breach of those provisions.

22 (b) PERIODIC MONITORING.—

23 (1) IN GENERAL.—Not less than annually, each

24 participating administrative entity shall review the

25 status of all multifamily housing projects for which
40

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1 a mortgage restructuring and rental assistance suffi2 ciency plan has been implemented.

3 (2) INSPECTIONS.—Each review under this sub4 section shall include onsite inspection to determine

5 compliance with housing codes and other require6 ments as provided in this title and the multifamily

7 housing management agreements.

8 (c) AUDIT BY THE SECRETARY.—The Comptroller

9 General of the United States, the Secretary, and the In10 spector General of the Department of Housing and Urban

11 Development may conduct an audit at any time of any

12 multifamily housing project for which a mortgage restruc13 turing and rental assistance sufficiency plan has been im14 plemented.

15 SEC. 111. REVIEW.

16 (a) ANNUAL REVIEW.—In order to ensure compliance

17 with this title, the Secretary shall conduct an annual re18 view and report to the Congress on actions taken under

19 this title and the status of eligible multifamily housing

20 projects.

21 (b) SUBSIDY LAYERING REVIEW.—The participating

22 administrative entity shall certify, pursuant to guidelines

23 issued by the Secretary, that the requirements of section

24 102(d) of the Department of Housing and Urban Develop25 ment Reform Act of 1989 are satisfied so that the com-
41

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1 bination of assistance provided in connection with a prop2 erty for which a mortgage is to be restructured shall not

3 be any greater than is necessary to provide affordable

4 housing.

5 SEC. 112. GAO AUDIT AND REVIEW.

6 (a) INITIAL AUDIT.—Not later than 18 months after

7 the effective date of interim or final regulations promul8 gated under this title, the Comptroller General of the

9 United States shall conduct an audit to evaluate a rep10 resentative sample of all eligible multifamily housing

11 projects and the implementation of all mortgage restruc12 turing and rental assistance sufficiency plans.

13 (b) REPORT.—

14 (1) IN GENERAL.—Not later than 18 months

15 after the audit conducted under subsection (a), the

16 Comptroller General of the United States shall sub17 mit to the Congress a report on the status of all eli18 gible multifamily housing projects and the imple19 mentation of all mortgage restructuring and rental

20 assistance sufficiency plans.

21 (2) CONTENTS.—The report submitted under

22 paragraph (1) shall include—

23 (A) a description of the initial audit con24 ducted under subsection (a); and
42

•S 2042 IS

1 (B) recommendations for any legislative

2 action to increase the financial savings to the

3 Federal Government of the restructuring of eli4 gible multifamily housing projects balanced with

5 the continued availability of the maximum num6 ber of affordable low-income housing units.

7 SEC. 113. REGULATIONS.

8 (a) RULEMAKING AND IMPLEMENTATION.—The Sec9 retary shall issue interim regulations necessary to imple10 ment this title not later than the expiration of the 6-month

11 period beginning on the date of enactment of this Act. Not

12 later than 1 year after the date of enactment of this Act,

13 in accordance with the negotiated rulemaking procedures

14 set forth in subchapter III of chapter 5 of title 5, United

15 States Code, the Secretary shall implement final regula16 tions implementing this title.

17 (b) REPEAL OF FHA MULTIFAMILY HOUSING DEM18 ONSTRATION AUTHORITY.—

19 (1) IN GENERAL.—Beginning upon the expira20 tion of the 6-month period beginning on the date of

21 enactment of this Act, the Secretary may not exer22 cise any authority or take any action under section

23 210 of the Balanced Budget Down Payment Act, II.

24 (2) UNUSED BUDGET AUTHORITY.—Any un25 used budget authority under section 210(f) of the
43

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1 Balanced Budget Down Payment Act, II, shall be

2 available for taking actions under the requirements

3 established through regulations issued under sub4 section (a).

5 SEC. 114. TECHNICAL AND CONFORMING AMENDMENTS.

6 (a) CALCULATION OF LIMIT ON PROJECT-BASED AS7 SISTANCE.—Section 8(d) of the United States Housing

8 Act of 1937 (42 U.S.C. 1437f(d)) is amended by adding

9 at the end the following new paragraph:

10 ‘‘(5) CALCULATION OF LIMIT.—Any contract

11 entered into under section 104 of the Multifamily

12 Assisted Housing Reform and Affordability Act of

13 1996 shall be excluded in computing the limit on

14 project-based assistance under this subsection.’’.

15 (b) PARTIAL PAYMENT OF CLAIMS ON MULTIFAMILY

16 HOUSING PROJECTS.—Section 541 of the National Hous17 ing Act (12 U.S.C. 1735f–19) is amended—

18 (1) in subsection (a), in the subsection heading,

19 by striking ‘‘AUTHORITY’’ and inserting ‘‘DE20 FAULTED MORTGAGES’’;

21 (2) by redesignating subsection (b) as sub22 section (c); and

23 (3) by inserting after subsection (a) the follow24 ing new subsection:
44

•S 2042 IS

1 ‘‘(b) EXISTING MORTGAGES.—Notwithstanding any

2 other provision of law, the Secretary, in connection with

3 a mortgage restructuring under section 104 of the Multi4 family Assisted Housing Reform and Affordability Act of

5 1996, may make a one time, nondefault partial payment

6 of the claim under the mortgage insurance contract, which

7 shall include a determination by the Secretary or the par8 ticipating administrative entity, in accordance with the

9 Multifamily Assisted Housing Reform and Affordability

10 Act of 1996, of the market value of the project and a re11 structuring of the mortgage, under such terms and condi12 tions as the Secretary may establish.’’.

13 SEC. 115. TERMINATION OF AUTHORITY.

14 (a) IN GENERAL.—Except as provided in subsection

15 (b), this title is repealed effective October 1, 2001.

16 (b) EXCEPTION.—The repeal under this section does

17 not apply with respect to projects and programs for which

18 binding commitments have been entered into before Octo19 ber 1, 2001.

20 TITLE II—ENFORCEMENT

21 PROVISIONS

22 SEC. 201. IMPLEMENTATION.

23 (a) ISSUANCE OF NECESSARY REGULATIONS.—Not24 withstanding section 7(o) of the Department of Housing

25 and Urban Development Act or part 10 of title 24, Code
45

•S 2042 IS

1 of Federal Regulations (as in existence on the date of en2 actment of this Act), the Secretary shall issue such regula3 tions as the Secretary determines to be necessary to imple4 ment this title and the amendments made by this title in

5 accordance with section 552 or 553 of title 5, United

6 States Code, as determined by the Secretary.

7 (b) USE OF EXISTING REGULATIONS.—In imple8 menting any provision of this title, the Secretary may, in

9 the discretion of the Secretary, provide for the use of exist10 ing regulations to the extent appropriate, without rule11 making.

12 Subtitle A—FHA Single Family and

13 Multifamily Housing

14 SEC. 211. AUTHORIZATION TO IMMEDIATELY SUSPEND

15 MORTGAGEES.

16 Section 202(c)(3)(C) of the National Housing Act

17 (12 U.S.C. 1708(c)(3)(C)) is amended by inserting after

18 the first sentence the following new sentence: ‘‘Notwith19 standing paragraph (4)(A), a suspension shall be effective

20 upon issuance by the Board if the Board determines that

21 there exists adequate evidence that immediate action is re22 quired to protect the financial interests of the Department

23 or the public.’’.
46

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1 SEC. 212. EXTENSION OF EQUITY SKIMMING TO OTHER SIN2 GLE FAMILY AND MULTIFAMILY HOUSING

3 PROGRAMS.

4 Section 254 of the National Housing Act (12 U.S.C.

5 1715z–19) is amended to read as follows:

6 ‘‘SEC. 254. EQUITY SKIMMING PENALTY.

7 ‘‘(a) IN GENERAL.—Whoever, as an owner, agent, or

8 manager, or who is otherwise in custody, control, or pos9 session of a multifamily project or a 1- to 4-family resi10 dence that is security for a mortgage note that is described

11 in subsection (b), willfully uses or authorizes the use of

12 any part of the rents, assets, proceeds, income, or other

13 funds derived from property covered by that mortgage

14 note for any purpose other than to meet reasonable and

15 necessary expenses that include expenses approved by the

16 Secretary if such approval is required, in a period during

17 which the mortgage note is in default or the project is

18 in a nonsurplus cash position, as defined by the regulatory

19 agreement covering the property, or the mortgagor has

20 failed to comply with the provisions of such other form

21 of regulatory control imposed by the Secretary, shall be

22 fined not more than $500,000, imprisoned not more than

23 5 years, or both.

24 ‘‘(b) MORTGAGE NOTES DESCRIBED.—For purposes

25 of subsection (a), a mortgage note is described in this sub26 section if it—
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1 ‘‘(1) is insured, acquired, or held by the Sec2 retary pursuant to this Act;

3 ‘‘(2) is made pursuant to section 202 of the

4 Housing Act of 1959 (including property still subject

5 to section 202 program requirements that existed

6 before the date of enactment of the Cranston-Gon7 zalez National Affordable Housing Act); or

8 ‘‘(3) is insured or held pursuant to section 542

9 of the Housing and Community Development Act of

10 1992, but is not reinsured under section 542 of the

11 Housing and Community Development Act of

12 1992.’’.

13 SEC. 213. CIVIL MONEY PENALTIES AGAINST MORTGAGEES,

14 LENDERS, AND OTHER PARTICIPANTS IN FHA

15 PROGRAMS.

16 (a) CHANGE TO SECTION TITLE.—Section 536 of the

17 National Housing Act (12 U.S.C. 1735f–14) is amended

18 by striking the section heading and the section designation

19 and inserting the following:

20 ‘‘SEC. 536. CIVIL MONEY PENALTIES AGAINST MORTGA21 GEES, LENDERS, AND OTHER PARTICIPANTS

22 IN FHA PROGRAMS.’’.

23 (b) EXPANSION OF PERSONS ELIGIBLE FOR PEN24 ALTY.—Section 536(a) of the National Housing Act (12

25 U.S.C. 1735f–14(a)) is amended—
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1 (1) in paragraph (1), by striking the first sen2 tence and inserting the following: ‘‘If a mortgagee

3 approved under the Act, a lender holding a contract

4 of insurance under title I of this Act, or a principal,

5 officer, or employee of such mortgagee or lender, or

6 other person or entity participating in either an in7 sured mortgage or title I loan transaction under this

8 Act or providing assistance to the borrower in con9 nection with any such loan, including sellers of the

10 real estate involved, borrowers, closing agents, title

11 companies, real estate agents, mortgage brokers, ap12 praisers, loan correspondents and dealers, knowingly

13 and materially violates any applicable provision of

14 subsection (b), the Secretary may impose a civil

15 money penalty on the mortgagee or lender, or such

16 other person or entity, in accordance with this sec17 tion. The penalty under this paragraph shall be in

18 addition to any other available civil remedy or any

19 available criminal penalty, and may be imposed

20 whether or not the Secretary imposes other adminis21 trative sanctions.’’; and

22 (2) in paragraph (2)—

23 (A) in the first sentence, by inserting ‘‘or

24 such other person or entity’’ after ‘‘lender’’; and
49

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1 (B) in the second sentence, by striking

2 ‘‘provision’’ and inserting ‘‘the provisions’’.

3 (c) ADDITIONAL VIOLATIONS FOR MORTGAGEES,

4 LENDERS, AND OTHER PARTICIPANTS IN FHA PRO5 GRAMS.—Section 536(b) of the National Housing Act (12

6 U.S.C. 1735f–14(b)) is amended—

7 (1) by redesignating paragraph (2) as para8 graph (3);

9 (2) by inserting after paragraph (1) the follow10 ing new paragraph:

11 ‘‘(2) The Secretary may impose a civil money

12 penalty under subsection (a) for any knowing and

13 material violation by a principal, officer, or employee

14 of a mortgagee or lender, or other participants in ei15 ther an insured mortgage or title I loan transaction

16 under this Act or provision of assistance to the bor17 rower in connection with any such loan, including

18 sellers of the real estate involved, borrowers, closing

19 agents, title companies, real estate agents, mortgage

20 brokers, appraisers, loan correspondents, and dealers

21 for—

22 ‘‘(A) submission to the Secretary of infor23 mation that was false, in connection with any

24 mortgage insured under this Act, or any loan
50

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1 that is covered by a contract of insurance under

2 title I of this Act;

3 ‘‘(B) falsely certifying to the Secretary or

4 submitting to the Secretary a false certification

5 by another person or entity; or

6 ‘‘(C) failure by a loan correspondent or

7 dealer to submit to the Secretary information

8 which is required by regulations or directives in

9 connection with any loan that is covered by a

10 contract of insurance under title I of this Act.’’;

11 and

12 (3) in paragraph (3), as redesignated, by strik13 ing ‘‘or paragraph (1)(F)’’ and inserting ‘‘or (F), or

14 paragraph (2)(A), (B), or (C)’’.

15 (d) CONFORMING AND TECHNICAL AMENDMENTS.—

16 Section 536 of the National Housing Act (12 U.S.C.

17 1735f–14) is amended—

18 (1) in subsection (c)(1)(B), by inserting after

19 ‘‘lender’’ the following: ‘‘or such other person or en20 tity’’;

21 (2) in subsection (d)(1)—

22 (A) by inserting ‘‘or such other person or

23 entity’’ after ‘‘lender’’; and

24 (B) by striking ‘‘part 25’’ and inserting

25 ‘‘parts 24 and 25’’; and
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1 (3) in subsection (e), by inserting ‘‘or such

2 other person or entity’’ after ‘‘lender’’ each place

3 that term appears.

4 Subtitle B—FHA Multifamily

5 SEC. 220. CIVIL MONEY PENALTIES AGAINST GENERAL

6 PARTNERS, OFFICERS, DIRECTORS, AND CER7 TAIN MANAGING AGENTS OF MULTIFAMILY

8 PROJECTS.

9 (a) CIVIL MONEY PENALTIES AGAINST MULTIFAM10 ILY MORTGAGORS.—Section 537 of the National Housing

11 Act (12 U.S.C. 1735f–15) is amended—

12 (1) in subsection (b)(1), by striking ‘‘on that

13 mortgagor’’ and inserting the following: ‘‘on that

14 mortgagor, on a general partner of a partnership

15 mortgagor, or on any officer or director of a cor16 porate mortgagor’’;

17 (2) in subsection (c)—

18 (A) by striking the subsection heading and

19 inserting the following:

20 ‘‘(c) OTHER VIOLATIONS.—’’; and

21 (B) in paragraph (1)—

22 (i) by striking ‘‘VIOLATIONS.—The

23 Secretary may’’ and all that follows

24 through the colon and inserting the follow25 ing:
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1 ‘‘(A) LIABLE PARTIES.—The Secretary

2 may also impose a civil money penalty under

3 this section on—

4 ‘‘(i) any mortgagor of a property that

5 includes five or more living units and that

6 has a mortgage insured, coinsured, or held

7 pursuant to this Act;

8 ‘‘(ii) any general partner of a partner9 ship mortgagor of such property;

10 ‘‘(iii) any officer or director of a cor11 porate mortgagor;

12 ‘‘(iv) any agent employed to manage

13 the property that has an identity of inter14 est with the mortgagor, with the general

15 partner of a partnership mortgagor, or

16 with any officer or director of a corporate

17 mortgagor of such property; or

18 ‘‘(v) any member of a limited liability

19 company that is the mortgagor of such

20 property or is the general partner of a lim21 ited partnership mortgagor or is a partner

22 of a general partnership mortgagor.

23 ‘‘(B) VIOLATIONS.—A penalty may be im24 posed under this section upon any liable party
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1 under subparagraph (A) that knowingly and

2 materially takes any of the following actions:’’;

3 (ii) in subparagraph (B), as des4 ignated by clause (i), by redesignating the

5 subparagraph designations (A) through

6 (L) as clauses (i) through (xii), respec7 tively;

8 (iii) by adding after clause (xii), as re9 designated by clause (ii), the following new

10 clauses:

11 ‘‘(xiii) Failure to maintain the prem12 ises, accommodations, any living unit in

13 the project, and the grounds and equip14 ment appurtenant thereto in good repair

15 and condition in accordance with regula16 tions and requirements of the Secretary,

17 except that nothing in this clause shall

18 have the effect of altering the provisions of

19 an existing regulatory agreement or feder20 ally insured mortgage on the property.

21 ‘‘(xiv) Failure, by a mortgagor, a gen22 eral partner of a partnership mortgagor, or

23 an officer or director of a corporate mort24 gagor, to provide management for the

25 project that is acceptable to the Secretary
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1 pursuant to regulations and requirements

2 of the Secretary.’’; and

3 (iv) in the last sentence, by deleting

4 ‘‘of such agreement’’ and inserting ‘‘of this

5 subsection’’;

6 (3) in subsection (d)—

7 (A) in paragraph (1)(B), by inserting after

8 ‘‘mortgagor’’ the following: ‘‘, general partner

9 of a partnership mortgagor, officer or director

10 of a corporate mortgagor, or identity of interest

11 agent employed to manage the property’’; and

12 (B) by adding at the end the following new

13 paragraph:

14 ‘‘(5) PAYMENT OF PENALTY.—No payment of a

15 civil money penalty levied under this section shall be

16 payable out of project income.’’;

17 (4) in subsection (e)(1), by deleting ‘‘a mortga18 gor’’ and inserting ‘‘an entity or person’’;

19 (5) in subsection (f), by inserting after ‘‘mort20 gagor’’ each place such term appears the following:

21 ‘‘, general partner of a partnership mortgagor, offi22 cer or director of a corporate mortgagor, or identity

23 of interest agent employed to manage the property’’;

24 (6) by striking the heading of subsection (f)

25 and inserting the following: ‘‘CIVIL MONEY PEN-
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1 ALTIES AGAINST MULTIFAMILY MORTGAGORS, GEN2 ERAL PARTNERS OF PARTNERSHIP MORTGAGORS,

3 OFFICERS AND DIRECTORS OF CORPORATE MORT4 GAGORS, AND CERTAIN MANAGING AGENTS’’; and

5 (7) by adding at the end the following new sub6 section:

7 ‘‘(k) IDENTITY OF INTEREST MANAGING AGENT.—

8 For purposes of this section, the terms ‘agent employed

9 to manage the property that has an identity of interest’

10 and ‘identity of interest agent’ mean an entity—

11 ‘‘(1) that has management responsibility for a

12 project;

13 ‘‘(2) in which the ownership entity, including its

14 general partner or partners (if applicable) and its of15 ficers or directors (if applicable), has an ownership

16 interest; and

17 ‘‘(3) over which the ownership entity exerts ef18 fective control.’’.

19 (b) IMPLEMENTATION.—

20 (1) PUBLIC COMMENT.—The Secretary shall

21 implement the amendments made by this section by

22 regulation issued after notice and opportunity for

23 public comment. The notice shall seek comments pri24 marily as to the definitions of the terms ‘‘ownership

25 interest in’’ and ‘‘effective control’’, as those terms
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1 are used in the definition of the terms ‘‘agent em2 ployed to manage the property that has an identity

3 of interest’’ and ‘‘identity of interest agent’’.

4 (2) TIMING.—A proposed rule implementing the

5 amendments made by this section shall be published

6 not later than one year after the date of enactment

7 of this Act.

8 (c) APPLICABILITY OF AMENDMENTS.—The amend9 ments made by subsection (a) shall apply only with respect

10 to—

11 (1) violations that occur on or after the effec12 tive date of the final regulations implementing the

13 amendments made by this section; and

14 (2) in the case of a continuing violation (as de15 termined by the Secretary of Housing and Urban

16 Development), any portion of a violation that occurs

17 on or after that date.

18 SEC. 221. CIVIL MONEY PENALTIES FOR NONCOMPLIANCE

19 WITH SECTION 8 HAP CONTRACTS.

20 (a) BASIC AUTHORITY.—Title I of the United States

21 Housing Act of 1937 is amended by adding at the end

22 the following new section:

23 ‘‘SEC. 27. CIVIL MONEY PENALTIES AGAINST SECTION 8

24 OWNERS.

25 ‘‘(a) IN GENERAL.—
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1 ‘‘(1) EFFECT ON OTHER REMEDIES.—The pen2 alties set forth in this section shall be in addition to

3 any other available civil remedy or any available

4 criminal penalty, and may be imposed regardless of

5 whether the Secretary imposes other administrative

6 sanctions.

7 ‘‘(2) FAILURE OF SECRETARY.—The Secretary

8 may not impose penalties under this section for a

9 violation, if a material cause of the violation is the

10 failure of the Secretary, an agent of the Secretary,

11 or a public housing agency to comply with an exist12 ing agreement.

13 ‘‘(b) VIOLATIONS OF HOUSING ASSISTANCE PAY14 MENT CONTRACTS FOR WHICH PENALTY MAY BE IM15 POSED.—

16 ‘‘(1) LIABLE PARTIES.—The Secretary may im17 pose a civil money penalty under this section on—

18 ‘‘(A) any owner of a property receiving

19 project-based assistance under section 8;

20 ‘‘(B) any general partner of a partnership

21 owner of that property; and

22 ‘‘(C) any agent employed to manage the

23 property that has an identity of interest with

24 the owner or the general partner of a partner25 ship owner of the property.
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1 ‘‘(2) VIOLATIONS.—A penalty may be imposed

2 under this section for a knowing and material

3 breach of a housing assistance payments contract,

4 including the following—

5 ‘‘(A) failure to provide decent, safe, and

6 sanitary housing pursuant to section 8; or

7 ‘‘(B) knowing or willful submission of

8 false, fictitious, or fraudulent statements or re9 quests for housing assistance payments to the

10 Secretary or to any department or agency of

11 the United States.

12 ‘‘(3) AMOUNT OF PENALTY.—The amount of a

13 penalty imposed for a violation under this sub14 section, as determined by the Secretary, may not ex15 ceed $25,000 per violation.

16 ‘‘(c) AGENCY PROCEDURES.—

17 ‘‘(1) ESTABLISHMENT.—The Secretary shall

18 issue regulations establishing standards and proce19 dures governing the imposition of civil money pen20 alties under subsection (b). These standards and

21 procedures—

22 ‘‘(A) shall provide for the Secretary or

23 other department official to make the deter24 mination to impose the penalty;
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1 ‘‘(B) shall provide for the imposition of a

2 penalty only after the liable party has received

3 notice and the opportunity for a hearing on the

4 record; and

5 ‘‘(C) may provide for review by the Sec6 retary of any determination or order, or inter7 locutory ruling, arising from a hearing and ju8 dicial review, as provided under subsection (d).

9 ‘‘(2) FINAL ORDERS.—

10 ‘‘(A) IN GENERAL.—If a hearing is not re11 quested before the expiration of the 15-day pe12 riod beginning on the date on which the notice

13 of opportunity for hearing is received, the impo14 sition of a penalty under subsection (b) shall

15 constitute a final and unappealable determina16 tion.

17 ‘‘(B) EFFECT OF REVIEW.—If the Sec18 retary reviews the determination or order, the

19 Secretary may affirm, modify, or reverse that

20 determination or order.

21 ‘‘(C) FAILURE TO REVIEW.—If the Sec22 retary does not review that determination or

23 order before the expiration of the 90-day period

24 beginning on the date on which the determina-
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1 tion or order is issued, the determination or

2 order shall be final.

3 ‘‘(3) FACTORS IN DETERMINING AMOUNT OF

4 PENALTY.—In determining the amount of a penalty

5 under subsection (b), the Secretary shall take into

6 consideration—

7 ‘‘(A) the gravity of the offense;

8 ‘‘(B) any history of prior offenses by the

9 violator (including offenses occurring before the

10 enactment of this section);

11 ‘‘(C) the ability of the violator to pay the

12 penalty;

13 ‘‘(D) any injury to tenants;

14 ‘‘(E) any injury to the public;

15 ‘‘(F) any benefits received by the violator

16 as a result of the violation;

17 ‘‘(G) deterrence of future violations; and

18 ‘‘(H) such other factors as the Secretary

19 may establish by regulation.

20 ‘‘(4) PAYMENT OF PENALTY.—No payment of a

21 civil money penalty levied under this section shall be

22 payable out of project income.

23 ‘‘(d) JUDICIAL REVIEW OF AGENCY DETERMINA24 TION.—Judicial review of determinations made under this
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1 section shall be carried out in accordance with section

2 537(e) of the National Housing Act.

3 ‘‘(e) REMEDIES FOR NONCOMPLIANCE.—

4 ‘‘(1) JUDICIAL INTERVENTION.—

5 ‘‘(A) IN GENERAL.—If a person or entity

6 fails to comply with the determination or order

7 of the Secretary imposing a civil money penalty

8 under subsection (b), after the determination or

9 order is no longer subject to review as provided

10 by subsections (c) and (d), the Secretary may

11 request the Attorney General of the United

12 States to bring an action in an appropriate

13 United States district court to obtain a mone14 tary judgment against that person or entity and

15 such other relief as may be available.

16 ‘‘(B) FEES AND EXPENSES.—Any mone17 tary judgment awarded in an action brought

18 under this paragraph may, in the discretion of

19 the court, include the attorney’s fees and other

20 expenses incurred by the United States in con21 nection with the action.

22 ‘‘(2) NONREVIEWABILITY OF DETERMINATION

23 OR ORDER.—In an action under this subsection, the

24 validity and appropriateness of the determination or
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1 order of the Secretary imposing the penalty shall not

2 be subject to review.

3 ‘‘(f) SETTLEMENT BY SECRETARY.—The Secretary

4 may compromise, modify, or remit any civil money penalty

5 which may be, or has been, imposed under this section.

6 ‘‘(g) DEPOSIT OF PENALTIES.—

7 ‘‘(1) IN GENERAL.—Notwithstanding any other

8 provision of law, if the mortgage covering the prop9 erty receiving assistance under section 8 is insured

10 or formerly insured by the Secretary, the Secretary

11 shall apply all civil money penalties collected under

12 this section to the appropriate insurance fund or

13 funds established under this Act, as determined by

14 the Secretary.

15 ‘‘(2) EXCEPTION.—Notwithstanding any other

16 provision of law, if the mortgage covering the prop17 erty receiving assistance under section 8 is neither

18 insured nor formerly insured by the Secretary, the

19 Secretary shall make all civil money penalties col20 lected under this section available for use by the ap21 propriate office within the Department for adminis22 trative costs related to enforcement of the require23 ments of the various programs administered by the

24 Secretary.
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1 ‘‘(h) DEFINITIONS.—For the purposes of this sec2 tion—

3 ‘‘(1) the term ‘agent employed to manage the

4 property that has an identity of interest’ means an

5 entity—

6 ‘‘(A) that has management responsibility

7 for a project;

8 ‘‘(B) in which the ownership entity, includ9 ing its general partner or partners (if applica10 ble), has an ownership interest; and

11 ‘‘(C) over which such ownership entity ex12 erts effective control; and

13 ‘‘(2) the term ‘knowing’ means having actual

14 knowledge of or acting with deliberate ignorance of

15 or reckless disregard for the prohibitions under this

16 section.’’.

17 (b) APPLICABILITY.—The amendments made by sub18 section (a) shall apply only with respect to—

19 (1) violations that occur on or after the effec20 tive date of final regulations implementing the

21 amendments made by this section; and

22 (2) in the case of a continuing violation (as de23 termined by the Secretary of Housing and Urban

24 Development), any portion of a violation that occurs

25 on or after such date.
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1 (c) IMPLEMENTATION.—

2 (1) REGULATIONS.—

3 (A) IN GENERAL.—The Secretary shall im4 plement the amendments made by this section

5 by regulation issued after notice and oppor6 tunity for public comment.

7 (B) COMMENTS SOUGHT.—The notice

8 under subparagraph (A) shall seek comments as

9 to the definitions of the terms ‘‘ownership inter10 est in’’ and ‘‘effective control’’, as such terms

11 are used in the definition of the term ‘‘agent

12 employed to manage such property that has an

13 identity of interest’’.

14 (2) TIMING.—A proposed rule implementing the

15 amendments made by this section shall be published

16 not later than one year after the date of enactment

17 of this Act.

18 SEC. 222. EXTENSION OF DOUBLE DAMAGES REMEDY.

19 Section 421 of the Housing and Community Develop20 ment Act of 1987 (12 U.S.C. 1715z–4a) is amended—

21 (1) in subsection (a)(1)—

22 (A) in the first sentence, by striking ‘‘Act;

23 or (B)’’ and inserting the following: ‘‘Act; (B)

24 a regulatory agreement that applies to a multi25 family project whose mortgage is insured or
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1 held by the Secretary under section 202 of the

2 Housing Act of 1959 (including property sub3 ject to section 202 of such Act as it existed be4 fore enactment of the Cranston-Gonzalez Na5 tional Affordable Housing Act of 1990); (C) a

6 regulatory agreement or such other form of reg7 ulatory control as may be imposed by the Sec8 retary that applies to mortgages insured or held

9 by the Secretary under section 542 of the

10 Housing and Community Development Act of

11 1992, but not reinsured under section 542 of

12 the Housing and Community Development Act

13 of 1992; or (D)’’; and

14 (B) in the second sentence, by inserting

15 after ‘‘agreement’’ the following: ‘‘, or such

16 other form of regulatory control as may be im17 posed by the Secretary,’’;

18 (2) in subsection (a)(2), by inserting after

19 ‘‘Act,’’ the following: ‘‘under section 202 of the

20 Housing Act of 1959 (including section 202 of such

21 Act as it existed before enactment of the Cranston22 Gonzalez National Affordable Housing Act of 1990)

23 and under section 542 of the Housing and Commu24 nity Development Act of 1992,’’;
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1 (3) in subsection (b), by inserting after ‘‘agree2 ment’’ the following: ‘‘, or such other form of regu3 latory control as may be imposed by the Secretary,’’;

4 (4) in subsection (c)—

5 (A) in the first sentence, by inserting after

6 ‘‘agreement’’ the following: ‘‘, or such other

7 form of regulatory control as may be imposed

8 by the Secretary,’’; and

9 (B) in the second sentence, by inserting

10 before the period the following: ‘‘or under the

11 Housing Act of 1959, as appropriate’’; and

12 (5) in subsection (d), by inserting after ‘‘agree13 ment’’ the following: ‘‘, or such other form of regu14 latory control as may be imposed by the Secretary,’’.

15 SEC. 223. OBSTRUCTION OF FEDERAL AUDITS.

16 Section 1516(a) of title 18, United States Code, is

17 amended by inserting after ‘‘under a contract or sub18 contract,’’ the following: ‘‘or relating to any property that

19 is security for a mortgage note that is insured, guaran20 teed, acquired, or held by the Secretary of Housing and

21 Urban Development pursuant to any Act administered by

22 the Secretary,’’.

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