14588 Federal Register / Vol. 89, No. 40 / Wednesday, February 28, 2024 / Rules and Regulations 

manufactured home loan in paragraph 

(b)(1) and the lot loan limit in paragraph 

(c) of this section, except that the loan 

limit shall not be lowered. 

Julia R. Gordon, 

Assistant Secretary for Housing—FHA 

Commissioner. 

[FR Doc. 2024–04138 Filed 2–27–24; 8:45 am] 

BILLING CODE 4210–67–P 

DEPARTMENT OF HOUSING AND 

URBAN DEVELOPMENT 

24 CFR Part 401 

[Docket No. FR–6122–F–02] 

RIN 2502–AJ48 

Rent Adjustments in the Mark-toMarket Program 

AGENCY: Office of the Assistant 

Secretary for Housing—Federal Housing 

Commissioner, HUD. 

ACTION: Final rule. 

SUMMARY: The Mark-to-Market program 

preserves affordability and availability 

of affordable rental multifamily 

properties with federally insured 

mortgages, reducing rents to market 

levels by restructuring existing debt to 

levels supportable by these rents. This 

final rule revises the Mark-to-Market 

program regulations to clarify that 

annual adjustment of restructured rents 

under the program will be based on an 

operating cost adjustment factor 

determined by HUD and to further 

clarify when HUD may approve rent 

adjustments on a budget basis. This 

final rule will bring greater clarity to the 

Mark-to-Market program and will align 

HUD’s regulations with recent 

legislative changes that specifically 

allow budget-based rent adjustments for 

the program. 

DATES: Effective: March 29, 2024. 

FOR FURTHER INFORMATION CONTACT: 

Thomas R. Davis, Director, Office of 

Recapitalization, Office of Multifamily 

Housing Programs, Department of 

Housing and Urban Development, 451 

Seventh Street SW, Room 6106, 

Washington, DC 20410; telephone 

number 202–402–7549. HUD welcomes 

and is prepared to receive calls from 

individuals who are deaf or hard of 

hearing, as well as individuals with 

speech or communication disabilities. 

To learn more about how to make an 

accessible telephone call please visit 

https://www.fcc.gov/consumers/guides/ 

telecommunications-relay-service-trs. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Multifamily Assisted Housing 

Reform and Affordability Act of 1997 

(Title V of Pub. L. 105–65, approved 

October 27, 1997, and codified at 42 

U.S.C. 1437f note) (MAHRA) authorizes 

the Mark-to-Market program, which is 

designed to preserve low-income rental 

housing affordability while reducing the 

long-term costs of federal rental 

assistance. Under the program, 

multifamily housing projects with 

above-market rents that are subject to an 

expiring contract under section 8 of the 

United States Housing Act of 1937 (42 

U.S.C. 1437f) (Section 8) undergo both 

a restructuring of the project’s HUDinsured or HUD-held debt and an initial 

renewal of its Section 8 Housing 

Assistance Payments (HAP) contract so 

that a new first loan is serviceable based 

on modified rents. 

On July 16, 2020, HUD issued a 

proposed rule in the Federal Register, at 

85 FR 43165, which proposed to revise 

the Mark-to-Market program regulations 

to clarify that all annual rent 

adjustments for projects subject to a 

restructuring plan are solely by 

application of an operating cost 

adjustment factor (OCAF) established by 

HUD. The current regulations, at 24 CFR 

401.412(b), authorize HUD to approve a 

request for a budget-based rent 

adjustment in lieu of an OCAF. HUD 

proposed to remove the budget-based 

rent adjustment provision as discussed 

in detail in the proposed rule at 85 FR 

43166–43167. 

In addition, HUD in the proposed rule 

sought to revise § 401.554 to remove the 

statement that HUD will ‘‘extend’’ 

Section 8 contracts in order to comport 

with HUD’s standard programmatic 

practice of renewing contracts rather 

than extending them and also to remove 

a parenthetical reference in § 401.554 to 

multiple renewal authorities for 

contracts subject to a Restructuring 

Plan. 

Subsequent to the publication of the 

proposed rule, Public Law 117–328, 

Consolidated Appropriations Act, 2023, 

approved on December 29, 2022, 

amended MAHRA section 515 to add a 

new subsection specifically authorizing 

budget-based rent adjustments for Markto-Market projects. As amended, the 

statute provides that HUD may, not 

more than once every 10 years, adjust 

rents in an amount equal to the lesser 

of budget-based rents or comparable 

market rents for the market area upon 

request of an owner or purchaser who 

meet certain criteria. 

This final rule implements the 

statutory change enacted by the 

Consolidated Appropriations Act, 2023, 

as well as the revisions to § 401.554 

contemplated in the proposed rule. 

II. The Public Comments 

The public comment period for the 

proposed rule closed on September 14, 

2020. HUD received five comments. The 

commenters included members of the 

public, public officials, and the assisted 

housing industry. Commenters were 

generally opposed to the contemplated 

regulatory changes removing the budgetbased rent adjustment provision; 

however, this issue has been superseded 

and obviated by the statutory change 

enacted by the Consolidated 

Appropriations Act, 2023. The statutory 

change is generally aligned with the 

views expressed by commenters on the 

rent adjustment provisions. Commenters 

expressed no opinions with respect to 

the proposed revisions to § 401.554. 

Discretion To Allow Budget-Based Rent 

Adjustments 

Commenters stated that HUD does 

retain the discretion to use a budgetbased rent adjustment at the request of 

the property owner regardless of 

whether § 401.412(b) is revised. One 

commenter noted that in enacting 

MAHRA, Congress did not prohibit the 

Secretary’s exercise of reasonable 

discretion to address extraordinary 

circumstances affecting the viability and 

condition of restructured projects over a 

30-year period. Additionally, the 

commenter stated that under section 

514(e) of MAHRA, the use of the 

mandatory ‘‘shall’’ with the permissive 

‘‘allow’’ refutes any presumption that 

Congress intended rent adjustments by 

application of an OCAF to be exclusive. 

Congress did not provide that it must be 

the only option regardless of all 

potential circumstances at the property. 

In this same vein, another commenter 

stated that although Section 514 and 

Section 515 when read together make 

clear that the Restructuring Plan must 

‘‘allow for’’ an OCAF as a required 

element of the Restructuring Plan, and 

an owner must agree to an OCAF 

renewal if offered by HUD, there is 

nothing that either prevents HUD from 

offering or an owner from accepting an 

alternate renewal option. The 

commenter noted that MAHRA at 514(e) 

uses the term ‘‘allow’’ when describing 

inclusion of an OCAF rent adjustment 

in the Restructuring Plan without the 

qualifying term ‘‘only,’’ and uses the 

term ‘‘require’’ for other aspects of the 

Restructuring Plan. One commenter 

stated that since the publication of the 

Final Rule in 2000, HUD has made a 

‘‘determination’’ that Section 515(b) is 

the appropriate legal authority for 

subsequent renewal of HAP Contracts 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 40 / Wednesday, February 28, 2024 / Rules and Regulations 14589 

for projects with Restructuring Plans. 

While conceding that HUD’s 

determination may be ‘‘legally correct,’’ 

the commenter stated a concern that 

there does not appear to have been any 

rulemaking or prior former public 

process to address how this 

determination was made. The same 

commenter opined that a plain reading 

of MAHRA reflects a requirement that 

the Restructuring Plan include an 

OCAF, and that an owner must agree to 

a subsequent OCAF renewal if offered 

by HUD but contains no language 

precluding other rent adjustment 

options. A commenter requested that 

should HUD continue to disclaim the 

discretion it once asserted, that the 

Secretary pursue and support legislation 

that would provide express authority to 

provide budget-based rent adjustments 

to restructured properties where 

necessary, i.e., where such a budgetbased increase is crucial to the 

property’s viability. 

HUD Response: The explicit provision 

of budget-based rent adjustment 

authority in section 524(c)(1), but not in 

section 514 or 515, informed HUD’s 

previous determination that budgetbased rent adjustments are not available 

for Mark-to-Market contracts. However, 

HUD believes that the explicit authority 

added to section 515 provided in the 

Consolidated Appropriations Act, 2023, 

resolves all ambiguity whether HUD has 

legal authority to approve budget-based 

rent adjustments to address 

extraordinary circumstances affecting 

the viability and condition of 

restructured projects. This final rule 

does not include the language from the 

proposed rule which elicited the 

comments described above. Instead, this 

final rule makes conforming edits to 

HUD’s regulation at 24 CFR 401.412 to 

align with the amended MAHRA 

statute. 

Effect of the Change 

One commenter opined that 

assumptions made about the ability of a 

restructuring to reposition a property for 

a 30-year period of physical and 

financial health are, anecdotally at least, 

proving to be short-sighted in many 

cases, and that, in the absence of 

options to increase the HAP Contract 

rents, these projects often lack viable 

options and provide few incentives for 

developers and investors willing to take 

on a preservation transaction. As a 

consequence, residents in projects 

restructured through the MTM program 

may soon find themselves living in 

buildings with rapidly increasing 

maintenance and repair needs with no 

viable near-term solution to reverse the 

building’s physical and financial 

decline. One commenter stated a 

concern that, in a time when many of 

the approximately 2,600 properties that 

were restructured pursuant to Mark-toMarket have health and safety concerns, 

the proposed rule would limit the 

ability of HUD to work with property 

owners to redevelop properties by 

limiting the discretionary authority of 

HUD to provide a budget-based rent 

increase for properties, especially at-risk 

low-income properties that have 

operating and financial needs greater 

than the operating cost adjustment 

factor rent increase would cover. 

HUD Response: HUD believes that the 

now explicit authority for budget-based 

rent adjustments provides the 

Department a tool to support owners or 

purchasers of restructured projects in 

their efforts to address extraordinary 

circumstances affecting the viability and 

condition of such projects. As the Markto-Market portfolio continues to age, 

HUD recognizes the need for owners of 

some projects to receive additional 

operating funds. HUD is in the process 

of drafting processing guidance for 

owners or purchasers who request a 

budget-based rent increase in 

accordance with the new authority 

under MARHA section 515. 

Other Comments 

One commenter requested that with 

respect to the programmatic practice of 

adjusting rents annually, rents should 

be dropped to $0 after three years of 

residence. Another commenter noted 

concern with how the proposed rule 

would benefit families who utilize 

section 8 and families with disabilities 

in rural and frontier communities. The 

commenter also stated that changing 

information collection methods for 

family tenants could impact initial and 

continuing eligibility for all social 

services programs, and that the 

proposed rule could impact smaller 

PHAs and landlords’ ability to collect 

consistent rents and section 8 HUD 

payment which could lead to fewer 

landlords seeing the value of Section 8 

for families. 

HUD Response: While HUD 

appreciates all feedback on its housing 

programs, the proposed rule and this 

final rule do not pertain to any rules or 

regulations related to the calculation of 

the tenant portion of rent, household 

information collection, or occupancy 

eligibility. HUD anticipates that 

residents living at properties that 

receive a budget-based rent increase will 

experience improved management 

operations and physical conditions as 

property owners will be able to address 

deferred maintenance and capital needs. 

III. This Final Rule 

This final rule responds to the public 

comments and conforms the regulations 

to the governing statutory provision, the 

terms of Mark-to-Market renewal 

contracts, and the Consolidated 

Appropriations Act, 2023. 

§ 401.412—Budget-Based Rent Increases 

Based on the statutory change to 

Section 515 of MAHRA enacted by the 

Consolidated Appropriations Act, 

2023—which is generally aligned with 

the views expressed by commenters on 

the rent adjustment provisions—this 

final rule does not delete existing 24 

CFR 401.412(b) as contemplated in the 

proposed rule. Instead, this final rule 

revises 24 CFR 401.412(b) to codify the 

conditions necessary in order to receive 

a budget-based adjustment. 

§ 401.554—Contract Renewals 

As discussed in the proposed rule, in 

this final rule HUD is revising the 

language in 24 CFR 401.554 that 

indicates that HUD will ‘‘offer to renew 

or extend’’ a Section 8 contract, as 

provided in a project’s Restructuring 

Plan. Because the programmatic practice 

is to offer to renew rather than to 

extend, HUD is deleting the words ‘‘or 

extend’’ and is also removing the 

parenthetical in § 401.554 suggesting 

that there may be more than one 

renewal authority for projects subject to 

a Restructuring Plan. 

IV. Findings and Certifications 

Regulatory Review (Executive Orders 

12866, 13563, and 14094) 

Under Executive Order 12866 

(Regulatory Planning and Review), a 

determination must be made whether a 

regulatory action is significant and, 

therefore, subject to review by the Office 

of Management and Budget (OMB) in 

accordance with the requirements of the 

order. Executive Order 13563 

(Improving Regulations and Regulatory 

Review) directs executive agencies to 

analyze regulations that are ‘‘outmoded, 

ineffective, insufficient, or excessively 

burdensome, and to modify, streamline, 

expand, or repeal them in accordance 

with what has been learned.’’ Executive 

Order 13563 also directs that, where 

relevant, feasible, and consistent with 

regulatory objectives, and to the extent 

permitted by law, agencies are to 

identify and consider regulatory 

approaches that reduce burdens and 

maintain flexibility and freedom of 

choice for the public. Executive Order 

14094 entitled ‘‘Modernizing Regulatory 

Review’’ (hereinafter referred to as the 

‘‘Modernizing E.O.’’) amends section 

3(f) of Executive Order 12866 


ddrumheller on DSK120RN23PROD with RULES1
14590 Federal Register / Vol. 89, No. 40 / Wednesday, February 28, 2024 / Rules and Regulations 

(Regulatory Planning and Review), 

among other things. 

This final rule codifies the authority 

for budget-based rent increases in the 

Mark-to-Market program enacted by the 

Consolidated Appropriations Act, 2023 

(Pub. L. 117–328, December 29, 2022) 

and conforms the regulations to 

longstanding HUD practice and the 

terms of the renewal contracts. This 

final rule does not create significant 

budgetary impact on the administration 

of Section 8 subsidy or create 

administrative costs, nor does it alter 

the underlying operation of the Mark-toMarket program. As such, this rule does 

not constitute a ‘‘significant regulatory 

action’’ as defined in Section 3(f) of 

Executive Order 12866, as amended by 

Executive Order 14094, and the rule was 

not reviewed by OMB. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) generally requires an 

agency to conduct a regulatory 

flexibility analysis of any rule subject to 

notice and comment rulemaking 

requirements, unless the agency certifies 

that the rule will not have a significant 

economic impact on a substantial 

number of small entities. This final rule 

codifies existing statutory 

interpretations of the authorities granted 

for the Mark-to-Market program. It does 

not create compliance costs, nor does it 

alter the underlying operation of the 

Mark-to-Market program. Therefore, the 

undersigned certifies that this final rule 

does not have a significant economic 

impact on a substantial number of small 

entities. 

Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. 3501– 

3520), an agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information, 

unless the collection displays a 

currently valid Office of Management 

and Budget (OMB) control number. This 

final rule does not change any 

information collection requirements. 

Executive Order 13132, Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits an agency from 

publishing any rule that has federalism 

implications if the rule either imposes 

substantial direct compliance costs on 

state and local governments and is not 

required by statute, or the rule preempts 

state law, unless the agency meets the 

consultation and funding requirements 

of section 6 of the Executive order. This 

final rule does not have federalism 

implications and does not impose 

substantial direct compliance costs on 

state and local governments or preempt 

state law within the meaning of the 

Executive order. 

Environmental Impact 

This final rule governs the statutorily 

required establishment and review of 

rent schedules and related 

administrative and fiscal requirements 

and procedures, which do not constitute 

a development decision that affects the 

physical condition of specific project 

areas or building sites. Accordingly, 

under 24 CFR 50.19(c)(6), this final rule 

is categorically excluded from 

environmental review under the 

National Environmental Policy Act of 

1969 (42 U.S.C. 4321). 

Unfunded Mandates Reform Act 

Title II of the Unfunded Mandates 

Reform Act of 1995 (Pub. L. 104–4; 

approved March 22, 1995) (UMRA) 

establishes requirements for Federal 

agencies to assess the effects of their 

regulatory actions on state, local, and 

tribal governments, and on the private 

sector. This final rule does not impose 

any Federal mandates on any state, 

local, or tribal government, or on the 

private sector, within the meaning of the 

UMRA. 

List of Subjects in 24 CFR Part 401 

Grant programs—housing and 

community development, Loan 

programs—housing and community 

development, Low and moderate 

income housing, Mortgage insurance, 

Mortgages, Rent subsidies, Reporting 

and recordkeeping requirements. 

Accordingly, for the reasons described 

in the preamble, HUD amends 24 CFR 

part 401 as follows: 

PART 401—MULTIFAMILY HOUSING 

MORTGAGE AND HOUSING 

ASSISTANCE RESTRUCTURING 

PROGRAM (MARK-TO-MARKET) 

■ 1. The authority for part 401 

continues to read as follows: 

Authority: 12 U.S.C. 1715z–1 and 1735f– 

19(b); 42 U.S.C. 1437(c)(8), 1437f(t), 1437f 

note, and 3535(d). 

■ 2. Revise and republish § 401.412 to 

read as follows: 

§ 401.412 Adjustment of rents based on 

operating cost adjustment factor (OCAF) or 

budget. 

(a) OCAF. 

(1) The Restructuring Plan must 

provide for annual adjustment of the 

restructured rents for project-based 

assistance by an OCAF determined by 

HUD. 

(2) Application of OCAF. HUD will 

apply the OCAF to the previous year’s 

contract rent less the portion of that rent 

paid for debt service. This paragraph 

applies to renewals of contracts that 

receive restructured rents under either 

section 514(g)(1) or (2) of MAHRA. 

(b) Budget-based. Rents will be 

adjusted to the lesser of budget-based 

rents or the comparable market rents for 

the market area instead of OCAF not 

more often than once every ten years 

upon request of an owner or purchaser 

who 

(1) Demonstrates that: 

(i) Project income is insufficient to 

operate and maintain the project, and no 

rehabilitation is currently needed, as 

determined by the Secretary; or 

(ii) The rent adjustment or renewal 

contract is necessary to support 

commercially reasonable financing 

(including any required debt service 

coverage and replacement reserve) for 

rehabilitation necessary to ensure the 

long-term sustainability of the project, 

as determined by the Secretary, and in 

the event the owner or purchaser fails 

to implement the rehabilitation as 

required by the Secretary, the Secretary 

may take such action against the owner 

or purchaser as allowed by law; and 

(2) Agrees to: 

(i) Extend the affordability and use 

restrictions required under 514(e)(6) for 

an additional twenty years; and 

(ii) Enter into a binding commitment 

to continue to renew such contract for 

and during such extended term, 

provided that after the affordability and 

use restrictions required under 514(e)(6) 

have been maintained for a term of 30 

years: 

(A) An owner with a contract for 

which rent levels were set at the time of 

its initial renewal under section 

514(g)(2) shall request that the Secretary 

renew such contract under section 524 

for and during such extended term; and 

(B) An owner with a contract for 

which rent levels were set at the time of 

its initial renewal under section 

514(g)(1) may request that the Secretary 

renew such contract under section 524 

for and during such extended term. 

§ 401.554 [Amended]. 

■ 3. Amend § 401.554 by deleting the 

words ‘‘or extend’’ and the parenthetical 

from the first sentence. 

Julia R. Gordon, 

Assistant Secretary for Housing—Federal 

Housing Administration Commissioner. 

[FR Doc. 2024–04081 Filed 2–27–24; 8:45 am] 

BILLING CODE 4210–67–P 


ddrumheller on DSK120RN23PROD with RULES1