`[Federal Register Volume 90, Number 3 (Monday, January 6, 2025)]
[Rules and Regulations]
[Pages 746-895]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29824]



[[Page 745]]

Vol. 90

Monday,

No. 3

January 6, 2025

Part II





Department of Housing and Urban Development





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24 CFR Parts 91, 92, 570, et al.





HOME Investment Partnerships Program: Program Updates and Streamlining; 
Final Rule

  Federal Register / Vol. 90, No. 3 / Monday, January 6, 2025 / Rules 
and Regulations  

[[Page 746]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 91, 92, 570, and 982

[Docket No. FR-6144-F-03]
RIN 2506-AC50


HOME Investment Partnerships Program: Program Updates and 
Streamlining

AGENCY: Office of the Assistant Secretary for Community Planning and 
Development, Department of Housing and Urban Development, HUD.

ACTION: Final rule.

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SUMMARY: HUD's HOME Investment Partnerships Program (HOME program or 
HOME) provides formula grants to States and units of general local 
government to fund a wide range of activities to produce and maintain 
affordable rental and homeownership housing and provides tenant-based 
rental assistance for low-income and very low-income households. This 
final rule revises the current HOME regulations to update, simplify, or 
streamline requirements, better align the program with other Federal 
housing programs, and implement recent amendments to the HOME statute. 
This final rule also includes minor revisions to the regulations for 
the Community Development Block Grant and Section 8 Housing Choice 
Voucher Programs consistent with the implementation of the changes to 
the HOME program. This final rule follows the publication of a proposed 
rule on May 29, 2024, and takes into consideration the comments 
received in response to that proposed rule.

DATES: Effective February 5, 2025.

FOR FURTHER INFORMATION CONTACT: Virginia Sardone, Director, Office of 
Affordable Housing Programs, Office of Community Planning and 
Development, Department of Housing and Urban Development, 451 7th 
Street SW, Room 7160, Washington, DC 20410; telephone number (202) 708-
2684 (this is not a toll-free number). 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 HOME program is authorized by title II of the Cranston-Gonzalez 
National Affordable Housing Act \1\ (``NAHA'' or the ``Act'') and has 
been in operation since 1992. The HOME program provides grants to 
States, local jurisdictions, and consortia of local jurisdictions 
(collectively, participating jurisdictions or PJs) and is used, often 
in partnership with local nonprofit groups, to fund a wide range of 
activities to build, buy, or rehabilitate affordable housing for rent 
or homeownership or to fund direct rental assistance to low-income 
people.\2\ HOME program funds are awarded annually as formula grants to 
PJs. After the Department obligates funds to a PJ, the Department 
establishes a HOME Investment Trust Fund \3\ for each PJ, providing a 
line of credit that a PJ may draw upon as needed.
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    \1\ 42 U.S.C. 12721 et seq.
    \2\ See HUD's HOME Investment Partnerships Program web page at 
https://www.hud.gov/program_offices/comm_planning/home.
    \3\ HUD's regulations for the HOME Investment Trust Fund can be 
found at 24 CFR 92.500.
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    The HOME program is the largest Federal block grant to States and 
local governments designed exclusively to create affordable housing for 
low-income households. Each year, the HOME program allocates 
approximately $1.5 billion among States and approximately 600 
localities nationwide. In fiscal year 2023, PJs completed 6,848 rental 
housing units and 4,051 homebuyer units, assisted 2,717 low-income 
homeowners to repair their homes, and provided tenant-based rental 
assistance to 13,016 low-income households. HOME funds are most often 
used as gap financing for rental projects, particularly for projects 
that have been awarded Low-Income Housing Credits (LIHTC).\4\ As of 
late 2024, there are 237,767 HOME-assisted rental units operating in 
their periods of affordability (i.e., subject to ongoing HOME income 
and rent requirements).
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    \4\ See 26 U.S.C. 42.
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    The HOME program is designed to reinforce several important values 
and principles of community development. First, the HOME program's 
flexibility empowers people and communities to design and implement 
strategies tailored to their own needs and priorities. Second, the HOME 
program's emphasis on consolidated planning expands and strengthens 
partnerships among all levels of government and the relationship with 
the private sector in the development of affordable housing. Third, the 
HOME program's technical assistance activities and set-aside for 
qualified Community Housing Development Organizations (CHDOs) help to 
build the capacity of, and partnerships, with these community-based 
nonprofit organizations. Fourth, the HOME program's requirement that 
PJs match 25 cents of every dollar in program funds helps mobilize 
community resources in support of affordable housing.

II. The Proposed Rule

    On May 29, 2024, HUD published the ``HOME Investment Partnerships 
Program: Program Updates and Streamlining'' proposed rule (the proposed 
rule) in the Federal Register, available at 89 FR 46618. In the 
proposed rule, HUD proposed numerous changes to 24 CFR part 92. The 
proposed changes included significant revisions to the CHDO 
requirements, a change in the approach to HOME rents, simplified 
requirements for small-scale rental projects, enhanced flexibility in 
HOME tenant-based rental assistance (TBRA) programs, and simplified 
provisions and new flexibilities for community land trusts (CLTs). The 
proposed rule also proposed to significantly strengthen and expand 
tenant protections by requiring that a HOME tenancy addendum with a set 
of uniform tenant protections be appended to the leases of all tenants 
of HOME-assisted rental housing units. HUD also proposed requiring that 
a HOME tenancy addendum with a streamlined set of uniform tenant 
protections be appended to the leases of all tenants receiving TBRA. 
Additionally, HUD proposed to create incentives for meeting a more 
advanced property standard that incorporates green building standards, 
higher levels of energy efficiency, and innovative building techniques 
in new construction, reconstruction, and rehabilitation of housing. The 
proposed rule also sought to clarify the resale requirements for 
homeownership housing and proposed technical amendments and 
simplifications to conform provisions to certain changes made in the 
2013 HOME Final Rule.\5\
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    \5\ HOME Investment Partnerships Program: Improving Performance 
and Accountability; Updating Property Standards, (78 FR 44628, July 
24, 2013).
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    The proposed rule also included changes made by the Housing 
Opportunity Through Modernization Act of 2016: Implementation of 
Sections 102, 103, and 104 final rule, published in the Federal 
Register on February 14, 2023 (88 FR 9600) (the HOTMA Final Rule) and 
the Economic Growth Regulatory Relief and Consumer Protection Act: 
Implementation of National Standards for the Physical Inspection of 
Real Estate (NSPIRE) final rule, published in the Federal Register

[[Page 747]]

on May 11, 2023 (88 FR 30442) (the NSPIRE Final Rule). The proposed 
rule also proposed further revisions to the changes made to 24 CFR part 
92 by the HOTMA and NSPIRE Final Rules. In addition, the proposed rule 
proposed updates to citations, in paragraphs where other changes are 
being made, to conform with recent changes to the Office of Management 
and Budget (OMB) regulations at 2 CFR part 200.
    See the proposed rule for a full description of all the HOME 
program proposed regulation changes associated with this rulemaking.

III. This Final Rule

    HUD reviewed and considered all public comments submitted in 
response to the proposed rule, which are summarized and addressed in 
the next section of this final rule. After considering the public 
comments received in response to the proposed rule, this final rule 
incorporates a majority of the proposed regulatory changes described in 
the proposed rule; however, in response to public comments received, 
HUD is making certain revisions to the HOME program regulations from 
those described in the proposed rule at this final rule stage. HUD is 
also making certain non-substantive revisions to the proposed 
regulatory text at this final rule stage.
    In response to comments received during the proposed rule stage of 
this rulemaking, HUD is making the following revisions to the final 
rule:

24 CFR Part 91--Technical Revisions

    HUD is making certain technical revisions in 24 CFR part 91 to 
replace the term ``affordability period'' with ``period of 
affordability.'' These revisions are consistent with the technical 
revision proposed in 24 CFR part 92 to make the same terminology 
replacement. Further, these revisions are consistent with public 
comments HUD received noting that these revisions are appropriate.

24 CFR Part 92--Technical Revisions

    HUD is making certain technical revisions in 24 CFR part 92 to 
improve clarity and readability of certain language throughout the 
part. While HUD is not summarizing each of these technical changes 
because the changes are minor and non-substantive, a sampling of these 
revisions are described in the paragraphs that follow.
    The Department received comments indicating that it had not fully 
revised all references from ``downpayment assistance'' to 
``homeownership assistance.'' The Department is revising Sec. Sec.  
92.203(d), 92.209(c)(2)(iv), 92.250(b)(4), 92.251(c)(3), 
92.254(b)(1)(ii), 92.300(a)(6)(i), 92.351(a)(1), 92.504(c)(1)(i), and 
92.504(c)(2)(i) accordingly. The Department declined to revise certain 
references in the regulation that were specific to the downpayment 
provided by a homebuyer (e.g., for purposes of the resale or recapture 
methods used in Sec.  92.254).
    Commenters noted that there were a number of areas where the term 
``dwelling'' had not been replaced by ``housing.'' Accordingly, the 
Department is revising Sec. Sec.  92.219(a)(4), 92.254(a)(5)(ii)(A), 
and 92.258(a) to standardize the use of ``housing.''
    The Department noted several instances where it had not corrected 
the term ``single-family'' to read ``single family.'' Accordingly, the 
Department is revising Sec. Sec.  92.220(a)(5)(ii), 92.254(a)(6), 
92.504(c)(1)(i), and 92.504(c)(2)(i) to include the standardized term 
``single family.''
    Several commenters noted that the Department failed to change all 
the references from ``affordability period'' to ``period of 
affordability.'' The Department has further revised the term for 
consistency in Sec. Sec.  92.251(f), 92.252(d)(3), 
92.254(a)(5)(ii)(B)(2), 92.258(c) and (d)(3), 92.359(f), and 
92.508(c)(1) and (2).
    The Department is also revising the first sentence of Sec.  
92.201(b)(3)(i) to clarify that States must require that State 
recipients use HOME funds in accordance with 24 CFR part 92. This is 
also stated in the written agreement section in Sec.  92.504 and is a 
revision for consistency.

24 CFR 92.2 Definitions

A. Commitment
    As explained in greater detail in the preamble describing the 
revisions in Sec.  92.209, the rental assistance contract requirements 
in the HOME tenant-based rental assistance program are being revised to 
require that the PJ enter into a rental assistance contract with the 
owner and the tenant, either as separate agreements or a single tri-
party agreement. The Department is therefore revising the definition of 
Commit to a specific local project in paragraph (2)(iii) of the 
definition of Commitment to accurately state that the rental assistance 
contract, which is the committing document for HOME tenant-based rental 
assistance, is the contract with the ``owner and the tenant'' instead 
of the contract with the ``owner or the tenant.''
    A new paragraph (2)(ii)(C) was added under Commit to a specific 
local project in the definition of Commitment to provide the 
requirements for commitments to a family to acquire single family 
housing for homeownership that does not meet the PJ's property 
standards, as described in Sec.  92.251(c)(3). The requirements include 
the same requirements for standard housing, i.e., that the PJ (or State 
recipient or subrecipient) and the family must have executed a written 
agreement under which HOME assistance will be provided for the purchase 
of the single family housing, which requires the property title to be 
transferred to the family within six months of the agreement date. In 
addition, the paragraph will also require that the written agreement 
require the property to meet the standards in accordance with Sec.  
92.251(c)(3). This revision is being made because the current 
definition of Commit to a specific local project only contemplates that 
the homebuyer will be purchasing housing in standard condition and not 
housing that requires rehabilitation. This allows the written agreement 
to count as a commitment when it complies with the requirements in 
Sec.  92.251(c)(3), thereby providing consistent application of the new 
rules permitting homebuyers to rehabilitate their units to meet 
property standards post-acquisition.
B. Community Housing Development Organizations
    In response to public comments received, HUD is making multiple 
changes to paragraph (8)(i) of the definition of community housing 
development organization in Sec.  92.2. Paragraph (8)(i) of the CHDO 
definition describes board membership requirements to maintain 
accountability to low-income community residents. Many commenters were 
concerned that the language of the proposed rule would reduce the 
accountability of CHDO boards. As described further in the following 
paragraphs, HUD is addressing the concerns expressed in the comments by 
strengthening the accountability structures.
    HUD is revising paragraph (8)(i) of the CHDO definition to add 
``low-income beneficiaries of HUD programs'' as an explicitly named 
group of eligible board members to meet the accountability to low-
income community residents board requirement. HUD recognizes that 42 
U.S.C. 12704(6)(B) requires that a CHDO ``maintain[], through 
significant representation on the organization's governing board and 
otherwise, accountability to low-income community residents and, to the 
extent practicable, low-income beneficiaries with regard to decisions 
on the design, siting, development, and management of

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affordable housing . . . .'' By adding ``low-income beneficiaries of 
HUD programs'' to the regulation, HUD believes it is more closely 
matching the intent of the statute and emphasizing that, whenever 
possible, board members of CHDOs should include low-income 
beneficiaries of HUD programs.
    HUD is also revising paragraph (8)(i) of the CHDO definition to use 
the term ``designees of nonprofit organizations'' instead of 
``authorized representatives of nonprofit organizations.'' This 
revision of the term ``designee'' is being made because of confusion 
expressed by commenters regarding when a person is considered an 
``authorized representative.'' HUD recognizes that the inconsistent 
terminology is confusing and believes that using a consistent term to 
describe individuals representing ``low-income neighborhood 
organizations'' and the ``nonprofit organizations'' described in 
paragraph (8)(i) brings additional clarity to paragraph (8)(i) of the 
CHDO definition.
    HUD is further revising paragraph (8)(i) of the CHDO definition to 
specifically reference the designees of nonprofit organizations in the 
community that address the housing or supportive service needs of 
``low-income residents or residents of low-income neighborhoods.'' This 
revision is in response to commenters who stated that HUD had not 
sufficiently connected the term ``nonprofit organizations'' to low-
income residents of the community in paragraph (8)(i) of the CHDO 
definition. The commenters urged HUD to use clearer language to show 
that individuals representing organizations serving low-income persons, 
even if those persons do not live in low-income neighborhoods, should 
be able to meet the requirement that the CHDO board is accountable to 
low-income community residents. HUD believes this revision will better 
enable designees that directly serve low-income residents to be CHDO 
board members. In response to significant comment from the public, the 
Department is revising paragraph (8)(i) to prohibit an organization 
from being considered a CHDO if its service area is the entire State. 
Though the Department had proposed removing this restriction from the 
current regulation to better enable rural PJs and states to use their 
CHDO set-aside funds, the public comments were quite clear that 
allowing an organization to have a statewide service area was not the 
solution to addressing the shortage of CHDOs with capacity in rural 
areas.
    In response to public comments received, HUD is also making 
multiple changes to paragraph (9) of the definition of community 
housing development organization in Sec.  92.2. These specific changes 
are described in the paragraphs that follow.
    HUD is revising the introductory text of paragraph (9) of the CHDO 
definition to add ``Federal Home Loan Bank Affordable Housing Program 
(12 U.S.C. 1430) funds'' to the list of housing programs that 
demonstrate a CHDO's capacity to carry out a housing project. This 
change is made in response to public comments to provide clarity 
because these grant funds are frequently layered with HOME funds in 
housing development projects.
    HUD is revising paragraph (9)(i) of the CHDO definition by changing 
the first sentence of the paragraph to require that a CHDO have ``paid 
employees'' with housing development experience who will work directly 
on the HOME-assisted project. HUD is making this revision in response 
to public comments that correctly noted that the way the proposed rule 
phrased this portion of paragraph (9)(i) of the CHDO definition allowed 
a CHDO to have no paid employees at all and still meet the capacity 
requirement. HUD's intent with the proposed rule was to allow 
volunteers to supplement the capacity of paid employees, not to allow a 
CHDO to meet the capacity requirements while having no paid employees. 
HUD is making a similar revision in the last sentence of paragraph 
(9)(i) of the CHDO definition to read as ``key, paid staff of the 
organization'' for the same reasons.
    HUD is further revising paragraph (9)(i) of the CHDO definition to 
add an additional sentence to clarify that where the paid employees of 
a CHDO alone do not demonstrate capacity, that experience can be 
supplemented with volunteer board members or officers. For additional 
clarity, HUD is also making minor revisions to paragraph (9)(i) of the 
CHDO definition to more directly state the requirement that a volunteer 
board member or officer may not be compensated by or have their 
services donated by another organization.
C. Community Land Trust
    In response to public comments received, HUD is making multiple 
changes from the proposed rule to the definition of CLT in Sec.  92.2. 
These specific changes are described in the paragraphs that follow.
    HUD is revising paragraph (1) of the CLT definition to read ``[h]as 
as its primary purposes acquiring, developing, or holding land to 
provide housing that is permanently affordable to low-income persons.'' 
Commenters noted that CLT ownership models vary nationwide and, while 
some CLTs do develop and maintain their properties, other CLTs acquire 
and hold properties as affordable housing in perpetuity but are not 
otherwise involved in maintenance or development work. HUD recognizes 
that its proposed definition was too narrow to consider many of these 
organizations as CLTs and is revising it accordingly. In addition, 
HUD's proposed rule stated that a CLT must have a primary purpose of 
serving both low- and moderate-income persons. After reviewing the 
comments and the various CLT models provided by commenters, HUD is 
revising the CLT definition to recognize that the primary purpose of a 
CLT participating in the HOME program must be to serve low-income 
persons. HUD is also making a similar change to remove ``moderate-
income'' from paragraph (3) of the CLT definition.
D. Homeownership
    In response to public comments received, HUD is making certain 
changes to the definition of homeownership in Sec.  92.2. Public 
commenters noted that the Department had not changed the term 
``dwelling'' in the definition of homeownership in Sec.  92.2. After 
considering the best way to clarify the requirement, the Department 
determined that it would be easier to replace to term ``1-4 unit 
dwelling or in a condominium unit'' with the term ``single family 
housing,'' which is defined as ``a one-to four- unit residence, 
condominium unit, cooperative unit, combination of manufactured housing 
and lot, or manufactured housing lot.'' The final rule text is clearer 
and uses a common term that is also defined in the regulation. It also 
provides additional clarity for homeownership projects involving 
manufactured homes, which are more explicitly referenced in the 
definition of single family housing. HUD believes that this clarifying 
change is therefore also responsive to comments requesting that HUD 
clarify the treatment of manufactured homes in HOME homeownership 
projects.
    HUD notes that in its review of the public comments, the Department 
identified significant confusion by some commenters about the time 
periods in the definition of CLT and homeownership in Sec.  92.2 and 
the housing education and organizational support requirements in Sec.  
92.302. HUD is committed to better addressing the needs of CLTs and its 
revisions to the homeownership definition in Sec.  92.2 clarify the 
intent of the definition and how it is meant to apply to HOME 
homeownership projects. The specific changes to the definition of

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homeownership are described in the paragraphs that follow.
    HUD is revising paragraph (1) of the definition of homeownership to 
further clarify the explanatory text to state that the land upon which 
housing is located may be owned in fee simple or through a ground lease 
if the housing was owned in fee simple. The paragraph was also revised 
to give a rule of construction so that PJs and homeowners understand 
that the minimum term of a ground lease is the lowest time period if 
more than one condition applies. For example, if a ground lease was 
part of a CLT-developed project, the minimum term for the ground lease 
to be considered homeownership is 50 years, but if that CLT-developed 
project was in an insular area, the minimum term for the ground lease 
to be considered homeownership would be 40 years because the minimum 
term for a ground lease to be considered homeownership in insular areas 
is 40 years (See Sec.  92.2(1)(ii)).
    HUD is further revising paragraph (1) of the definition of 
homeownership to remove the latter portion of the introductory text of 
paragraph (1) that addressed 99-year ground leases. Paragraph (1) is 
instead being revised to create a new paragraph (1)(i) to make clear 
that a 99-year ground lease is one of multiple options for ground lease 
length. The original paragraphs (1)(i), (1)(ii), and (1)(iii) are being 
redesignated as (1)(ii), (1)(iii), (1)(iv), respectively.
    HUD is also making other minor, non-substantive revisions to the 
introductory text and paragraph (1) to the definition of homeownership 
to improve the readability of the text.
E. Housing
    HUD is revising the definition of housing in Sec.  92.2 to replace 
the term ``dwellings'' with ``housing units.'' Commenters noted that 
there were certain areas in the proposed rule where ``dwelling'' had 
not been replaced with the updated term. HUD is updating the housing 
definition to correct this issue.
F. Single Room Occupancy (SRO) Housing
    HUD is revising the definition of single room occupancy (SRO) 
housing in Sec.  92.2 to replace the term ``dwelling'' with 
``housing.'' Commenters noted that there were certain areas in the 
proposed rule where ``dwelling'' had not been replaced with the updated 
term. HUD is updating the SRO housing definition to correct this issue.
G. American Dream Downpayment Initiative References
    The Department intended to remove all American Dream Downpayment 
Initiative (ADDI) regulations as part of this rulemaking. 
Unfortunately, the Department inadvertently retained language in the 
definition of ``State'' that described deviations between the term 
``State'' in the HOME program and in the ADDI program. The Department 
is revising the definition of ``State'' to remove all ADDI-related 
language in this final rule.

24 CFR 92.3--Applicability of 2025 Regulatory Changes

    In response to the proposed rule, HUD received comments requesting 
that the Department specify the effective date of the regulatory 
changes associated with this final rule. To address these comments, HUD 
is revising Sec.  92.3 to provide the applicable effective dates for 
the regulatory changes associated with this final rule instead of the 
applicable effective dates associated with the 2013 regulatory 
revisions. The header is being revised to describe the applicability of 
2025 regulatory changes.
    The introductory language of Sec.  92.3 is being replaced by a 
provision explaining that the regulations in 24 CFR part 92 apply based 
on when an income determination is made or when the HOME funds for the 
project were committed. The provision goes on to explain that projects 
where the HOME funds were committed before a certain date may be 
subject to previous versions of these regulations. The provision also 
explains that the intent of Sec.  92.3 is to provide instruction 
regarding which version of these regulations applies to which project 
based on when the funds were committed.
    Paragraph Sec.  92.3(a) is being replaced with a new paragraph (a). 
Paragraph (a) establishes the effective date for the 2025 final rule. 
The paragraph explains that the final rule is applicable to projects 
for which HOME funds are committed on or after February 5, 2025. The 
paragraph goes on to state that a PJ must perform income determinations 
in accordance with Sec.  92.203 after February 5, 2025.
    Paragraph Sec.  92.3(b) is being revised to explain that while the 
effective date of the rule is 30 days after publication, PJs are 
permitted to continue to comply with the HOME regulations as they 
existed immediately before the effective date for commitments made up 
to one year after the rule's effective date. This allows PJs time to 
change their policies and procedures, forms, and systems, so that they 
can effectively implement the provisions of the final rule.
    Paragraph (c) describes how the income regulations will be 
implemented for existing tenants and new projects that are coming 
online. This is because the income requirements of Sec.  92.203 are 
applied to tenants of existing projects pursuant to their written 
agreements. The Department wants to clarify that for up to one year 
after the effective date of the rule, PJs may calculate income in 
accordance the income requirements that the PJs was implementing 
immediately prior to the publication of the final rule. This allows PJs 
to transition to determining income in accordance with the new 
requirements, as many income reexaminations may be underway when the 
rule becomes effective.
    In some cases, PJs may wish to amend existing written agreements to 
take advantage of certain flexibilities or impose new requirements. 
While most of the rule may be applied immediately on the effective 
date, the Department is clarifying that certain provisions may not be 
implemented when a commitment has already been issued for a project. 
These relevant provisions are listed in Sec.  92.3(d)(1) through (5).
    Section 92.3(d)(1) explains that the written agreement cannot be 
revised to allow for certain predevelopment costs as well as certain 
project related soft costs currently contained in Sec.  92.206(d)(2) to 
be reimbursed in accordance with the newly revised Sec.  92.206(d)(1) 
if the HOME funds were committed to the project prior to the effective 
date of the final rule. Commitments were made after underwriting the 
project with assumptions that these costs were not going to be paid 
with HOME funds and the Department determined that the written 
agreements should not be amended to include those costs as payable from 
HOME when it was not the source that had already been identified to pay 
for the cost.
    Similarly, Sec.  92.3(d)(2) states that the new flexibility to 
obtain a higher maximum per-unit subsidy increase should only be 
included for projects where funds were committed to the project after 
the effective date of the final rule. While the Department fully 
supports green building requirements, the Department determined that 
projects with current commitments should not undergo additional 
underwriting and cost allocation. When a PJ committed HOME funds to 
projects before the effective date of the rule, they underwrote and 
sized the assistance based on the assumption that the maximum per-unit 
subsidy was the

[[Page 750]]

limit in effect. The Department believes that this should continue to 
be the case and that current projects should not be amended. If a PJ 
were to amend its written agreement with an owner to add the new 
requirements at a later time, it can be disruptive, cause delays in 
production of badly needed affordable housing units and is not the 
behavior that the Department is attempting to incentivize by providing 
the increase in maximum per-unit subsidy.
    Section 92.3(d)(3) states that the revised dollar thresholds for 
periods of affordability in Sec.  92.252 and Sec.  92.254 will not 
apply to projects where the PJs had already committed HOME funds. 
Similar to paragraphs (d)(1) and (2), a PJ already agreed with an owner 
on the applicable periods of affordability, just like they had agreed 
to a maximum per-unit subsidy, or which type of funds were used to pay 
which costs. To allow the owner and PJ the ability to reduce the period 
of affordability for a project that has already been agreed upon 
through amending the written agreement would be perverse and counter to 
the purposes of the Act.
    Section 92.3(d)(4) states that the new tenant protection provisions 
cannot be imposed upon owners that are already under a current written 
agreement or tenants and owners under a current rental assistance 
contract or receiving security deposit assistance. Owners should have 
appropriate notice before imposing substantial changes in landlord-
tenant relations. The HOME program provides development subsidies to 
owners to build affordable housing but does not provide ongoing 
operations assistance. Owners must consider the costs of compliance in 
determining whether to participate in the HOME program. This includes 
the costs of complying with tenant protections. Moreover, the 
Department received numerous comments indicating that imposing the 
tenant protections on current owners would amount to a regulatory 
taking. While the Department does not believe that this is the case and 
would strenuously object to any characterization of improving tenant 
protections as a form of taking or violation of an owner's due process 
rights, the Department does believe it is important to establish clear 
compliance requirements within the written agreement between the PJ and 
the owner, and to allow those requirements to remain consistent for the 
life of the agreement. To prevent potential litigation and loss of 
affordable housing, the Department is requiring that the new and 
revised tenant protections provided in Sec.  92.253 only be effective 
for projects with commitments of up to one year after the effective 
date of the rule and not be applied to projects with commitments prior 
to the effective date of the rule.
    Finally, Sec.  92.3(d)(5) was added to state that the revisions to 
the role of CHDOs in owning, developing, and sponsoring affordable 
housing in Sec.  92.300 only apply to projects where the PJ committed 
CHDO set-aside funds on or after the effective date of the final rule. 
The new flexibilities in Sec.  92.300 should be used for new projects. 
If a PJ has already entered into an agreement with a CHDO to own, 
develop, or sponsor a project, then it is inappropriate for the PJ to 
amend the agreement and enter into an agreement with a new party 
because of the new flexibilities provided in Sec.  92.300. The 
Department is expanding the way in which CHDOs can be involved in a 
HOME project but is not encouraging PJs to terminate or significantly 
restructure existing CHDO projects.
    The Department also believes that it may be helpful to place the 
date and the triggering action into a chart to better assist PJs, 
owners, and the public in understanding when the 2025 final rule's 
requirements are applicable.

24 CFR 92.201 Distribution of Assistance

    The Department is also revising the first sentence of Sec.  
92.201(b)(3)(i) to clarify that States must require State recipients 
use HOME funds in accordance with part 92. This is also stated in the 
written agreement section in Sec.  92.504 and is a revision for 
consistency.

24 CFR 92.203 Income Determinations

    The Department is making a technical revision to the first sentence 
of Sec.  92.203(a) to remove the dash between ``income'' and 
``eligible'' to maintain consistent usage of the term. The Department 
is revising the ``must'' to a ``may'' in Sec.  92.203(a)(1) in response 
to public comments recommending that HUD allow PJs to always retain the 
right to determine annual income in accordance with the process 
described in paragraphs (b)-(e). This change will allow PJs the choice 
of accepting the income determinations made in Federal or State 
project-based rental subsidy programs instead of requiring PJs to 
accept those determinations.
    In response to public comments, the Department is revising the 
language in Sec.  92.203(a) to create a new paragraph (a)(3) and 
redesignate the current paragraph (a)(3) as paragraph (a)(4). The new 
paragraph (a)(3) provides additional burden relief for PJs and owners 
by expanding a safe harbor that is currently located in Sec.  
92.203(b)(1)(iii). The current safe harbor in Sec.  92.203(b)(1)(iii) 
is limited to government programs and not forms of public assistance, 
which is a broader term that encompasses tax credits and other forms of 
assistance that are not ``programs.'' The Department uses this broader 
term ``public assistance'' in the safe harbor provisions in 24 CFR 
5.609(c)(3) for 1937 Act programs but does not use this term in the 
current HOME regulations. The current safe harbor in HOME regulations 
cannot be used for initial annual income and eligibility 
determinations, or in calculating annual income for a family in years 
6, 12, and 18 of a HOME rental housing project's period of 
affordability. The safe harbor also cannot be used for individuals 
applying for or renewing tenant-based rental assistance.
    Public commenters recommended that PJs be able to accept income 
determinations made under other forms of public assistance, including 
LIHTC income determinations for families living in tax credit units. 
The Department recognizes the utility in expanding the safe harbor to 
include other forms of government assistance and allowing its use for 
initial annual income determinations or annual income determinations 
made in years 6, 12, and 18 of a HOME rental housing project's period 
of affordability as well as for individuals entering into or renewing a 
new rental assistance contract for tenant-based rental assistance. 
Therefore, the Department is moving the safe harbor into paragraph (a) 
as a new paragraph (a)(3) to enable a PJ to use the information for 
initial annual income and subsequent income determinations for HOME 
rental housing tenants as well as for tenant-based rental assistance. 
The Department is also expanding the applicability of the safe harbor 
to include an annual income determination made under another form of 
Federal, State, or local public assistance. Accordingly, the Department 
is also removing Sec.  92.203(b)(1)(iii) and revising the last sentence 
in paragraph (b)(1) to indicate that there are only two methods of 
determining income under paragraph (b)(1).
    The Department provides several examples to enhance the public's 
understanding of the types of assistance that could be accepted under 
the new paragraph (a)(3). These examples include TANF, Medicaid, LIHTC, 
and local rental subsidy programs. These programs all calculate annual 
income but do not make the adjustments that are made in HUD programs 
that are subject to 24 CFR 5.611.

[[Page 751]]

    To obtain the relief of the safe harbor under new Sec.  
92.203(a)(3), the PJ must be able to obtain a statement that indicates 
the family size and income. This can be provided by an administrator of 
a Federal, State, or local form of public assistance, even if that 
administrator is not the administrator at the Federal or State level. 
The Department considered whether to allow, as the current safe harbor 
provision in Sec.  92.203(b)(1)(iii) does, a government administrator 
to provide a PJ with a statement indicating that the family's income 
does not exceed the current dollar limit for very low-income or low-
income families for the family size of the tenant. The Department 
decided against including this language.
    The Department drafted this safe harbor partly in response to 
public comments requesting that the Department accept a statement made 
by an administrator of public assistance without further review of 
income documentation for the tenant. The Department agrees that it is 
possible to use a statement from a government administrator to 
determine income, though verification is left to PJ policies and 
procedures. However, the Department decided that if it was expanding 
the safe harbor to enable PJs to accept a statement, then the statement 
must contain a statement of family size and income and not just a 
statement that the family was below the applicable income limit for the 
family's size. This is especially true because, in many cases, the PJ 
must still calculate adjusted income in accordance with paragraph (f). 
To provide the maximum amount of burden relief to both the PJs and 
tenant, and best address the concerns of the commenter, the statement 
must have the family's annual income on it so that the PJ need only 
adjust the income (if applicable) from a known amount of annual income. 
Accordingly, the Department is also removing Sec.  92.203(b)(1)(iii) 
and revising the last sentence in paragraph (b)(1) to indicate that 
there are only two methods of determining income under paragraph 
(b)(1).
    The Department is requiring in the new Sec.  92.203(a)(3) that the 
statement accepted by the PJ must be for an income determination made 
within the previous 12-month period. This aligns with how similar safe 
harbor provisions are used in other HUD programs, such as the safe 
harbor in 24 CFR 5.609(c)(3) that is used for certain programs governed 
under the U.S. Housing Act of 1937. The Department considered whether 
to provide a shorter period, such as the 6-month requirement under 
Sec.  92.203(e)(2) for income determinations made prior to providing 
homeownership or tenant-based rental assistance to a family. However, 
after consideration of the comment and how to align this safe harbor 
with other safe harbors in HUD regulations, HUD has determined that 6 
months is inappropriate. When a family applies to a PJ for assistance 
and the PJ determines the family's income, there is a reasonable 
expectation that this income examination is close in time to when the 
family will receive the HOME assistance from the PJ. When a person was 
determined income eligible with these other forms of public assistance, 
it may not be at the same time as when the PJ's tenant-based rental 
assistance program waiting list opens up for the public to apply or 
when a person is next up on an owner's waiting list. To establish a 
shorter period in which the income determination will remain valid for 
purposes of the new safe harbor would therefore disadvantage those 
families and PJs and so the Department chose to allow income 
determinations made within a 12-month period to qualify for purposes of 
the safe harbor at Sec.  92.203(a)(3).
    As part of the revisions made to lift and expand the safe harbor in 
Sec.  92.203(a)(3), the Department is making conforming changes to 
paragraph (b)(2) and adding paragraph (b)(3) to explain that only 
families applying for homeownership activities must calculate income 
using 2 months of source documents. Before paragraph (a)(3) was added, 
both families applying for homeownership assistance and families 
applying for or receiving tenant-based rental assistance were required 
to solely use source documents. However, with the expansion of the safe 
harbor to tenants applying for, renewing, or for assisted families 
required to enter into a new rental assistance contract, the Department 
had to make conforming changes to explain how income is calculated for 
tenant-based rental assistance. The new paragraph (b)(3) does this by 
explaining that, for families applying for or receiving tenant-based 
rental assistance, the PJ may determine annual income in accordance 
with the new safe harbor provision or through the use of source 
documents. The paragraph also clarifies that income will be calculated 
at the times specified in Sec.  92.209(e)(3), which provides explicit 
instructions on when income must be determined for a family applying 
for or receiving tenant-based rental assistance.
    The Department received negative comments on Sec.  92.203(e)(2). 
While the Department is declining to revise the six-month limit on when 
income is valid, the Department recognizes that the provision itself 
could be clearer. The Department is therefore clarifying that a PJ is 
not required to redetermine income for a family unless 6 months have 
elapsed since the PJ determined the family is income eligible. The term 
``re-examine'' is confusing given that the provision is about 
determining a family's income eligibility in advance of being provided 
assistance. This is different than when income is reexamined for 
families living in a rental housing project or families entering into 
or renewing a rental assistance contract. As the Department is revising 
income reexamination provisions for small-scale rental housing and in 
the context of tenant-based rental assistance, the Department believes 
it is important to remain consistent and is therefore revising this 
provision as well.
    Paragraph 92.203(e)(2) is also being clarified to explain that when 
the regulation refers to ``HOME assistance,'' the regulation means 
homeownership assistance and tenant-based rental assistance. In the 
HOME regulations, the term ``HOME assistance'' is used in a variety of 
contexts. The term means the assistance provided to a subrecipient, 
State recipient, or contractor to run all or a portion of a PJ's HOME 
program; the assistance provided to a developer, owner, or sponsor to 
develop a HOME rental or homeownership project; assistance provided to 
a family for tenant-based rental assistance; homeownership assistance 
provided to a family to purchase and/or rehabilitate a home; or 
assistance provided to a CHDO. The Department believed it was important 
to clarify which type of assistance is meant in the provision given the 
various ways in which the term is used. Paragraph (e)(2) was also 
revised with a clarifying edit to say that a family ``is income 
eligible'' instead of ``qualifying as income eligible.'' This is a non-
substantive revision for readability.
    The Department is revising Sec.  92.203(f)(1)(ii) to remove two 
references to Sec.  92.252(a)(2)(iii), which is being removed by this 
rulemaking. The Department is also revising Sec.  92.203(f)(2) to make 
corresponding revisions now that PJs are given the option of accepting 
a public housing agency, owner, or rental subsidy provider's 
determination of the family's adjusted income under that program's 
rules instead of being required to do so under Sec.  92.203(a)(1). This 
change is in response to public comments, as described earlier in this 
preamble.

[[Page 752]]

24 CFR 92.206 Eligible Project Costs

    In response to public comments, HUD is making certain changes to 
Sec.  92.206(d) regarding related soft costs that may be considered 
eligible project costs. The Department proposed and received comments 
requesting that HUD allow environmental reviews or other environmental 
studies or assessments to be reimbursable costs incurred prior to the 
commitment of funds to a project. Commenters requested that the 
provision be expanded to also include environmental fees, which the 
Department agrees can be included in the provision. The comments urged 
the Department to also consider expanding the types of costs that would 
be allowed to be incurred to include ``pre-development'' and other 
related soft costs.
    In response to the comments, HUD is making changes to paragraph 
(d)(1) to expand the project soft costs that may be incurred prior to a 
commitment. The final rule moves certain soft costs from paragraph 
(d)(2) into paragraph (d)(1), including costs to process and settle 
financing for the project, such as private lender origination fees, 
credit reports, fees for title evidence, legal fees, private appraisal 
fees, and fees for independent cost estimates. By moving these soft 
costs into paragraph (d)(1), HUD is allowing the costs to be paid so 
long as they were incurred no more than 24 months before the date of 
commitment and included in the written agreement committing the funds. 
Note that ``legal fees'' is a more expansive term than the current term 
``attorney's fees'' and the Department is intentionally expanding the 
term to be more inclusive of the different legal costs that are 
associated with a project in response to public comment.
    The Department determined that soft costs contained in the other 
provisions in paragraph (d) could not be moved into paragraph (d)(1) as 
there is no reasonable expectation that such costs would occur prior to 
commitment of HOME funds. Those provisions include building permits, 
which can only be obtained after completion of the HUD environmental 
review; fees for recordation and filing of legal documents, as 
recordation of documents related to an acquisition, rehabilitation, or 
new construction contract should occur after commitment of HOME funds; 
and building or developer fees, as those fees should not be earned or 
chargeable to the HOME grant for work performed prior to the 
environmental review and commitment of the HOME funds to a project.
    In response to public comment, HUD is also revising Sec.  92.206 to 
add ``accounting fees'', ``filing fees for zoning or planning review 
and approval'', and ``other lender-required third-party reporting 
fees'' to paragraph (d)(1). The Department added these fees, as 
recommended by the commenter, because the Department agrees that these 
fees, which are generally incurred prior to applying to a PJ for HOME 
assistance, are directly related to meeting underwriting and 
construction feasibility criteria that are required in the definition 
of Sec.  92.2 Commitment. They may be payable with HOME funds if a PJ 
agrees to pay these costs in the written agreement.

24 CFR 92.208 Eligible Community Housing Development Organization 
(CHDO) Operating Expense and Capacity Building Costs

    The public comments indicated confusion over the proposed use of 
capacity building funds for CHDOs. The new Sec.  92.208(c) describes 
how PJs may provide HOME assistance to CHDOs for operating costs under 
Sec.  92.300(a). The paragraph is not intended to describe the use of 
capacity building funds, which is described in the previous paragraph 
at Sec.  92.208(b). HUD inadvertently included reference to ``capacity 
building costs'' in the proposed Sec.  92.208(c) and understands that 
this may have led to confusion for commenters. Consequently, HUD is 
removing the reference to ``capacity building costs'' in Sec.  
92.208(c) to eliminate this confusion.

24 CFR 92.209 Tenant-Based Rental Assistance: Eligible Costs and 
Requirements

    The Department revised Sec.  92.209(c)(3) to correct the term 
``tenant-based rental assistance'' in the third sentence of the 
paragraph. The regulation had previously read ``tenant-based 
assistance.'' This is a non-substantive change.
    The Department made several revisions to Sec.  92.209(e) in 
response to public comment. The Department redesignated Sec.  92.209(e) 
as Sec.  92.209(e)(2) and revised the provision as described below. The 
Department also revised the header for paragraph (e) to describe the 
rental assistance contract more broadly and not just the term rental 
assistance contract. The Department then made four new subsections.
    The first subsection, Sec.  92.209(e)(1), defines the parties to 
the rental assistance contract, which is also the header for this 
provision. Based on public comment to specific solicitation of comment 
#10, the Department is requiring the PJ to have a rental assistance 
contract with both the owner and the tenant. This can take the form of 
a single tri-party agreement or two separate agreements. There is 
precedent for this model in HUD programs. In the Housing Choice Voucher 
program, the tenant has an agreement with the public housing agency 
where the tenant agrees to the rules of the program (See Form HUD-
52646), and the owner has an agreement with the public housing where 
the owner agrees to the terms of the housing assistance payments agency 
(See Form HUD-52641). The Department also believes that this is the 
best method for the PJ to enforce HOME requirements on tenant and owner 
alike.
    The Department revised the redesignated Sec.  92.209(e)(2) to 
provide that a rental assistance contract does not need to start on the 
first day of the lease so long as the contract commences at the 
beginning of the first month in which tenant-based rental assistance is 
provided. The Department revised the provision to decouple the 
execution of the rental assistance contract from the tenant lease 
because with the imposition of the tenancy addendum, which must be 
executed and attached to the tenant lease, the need for the rental 
assistance contract to begin on the first day of the lease is 
significantly lessened. This is because the terms of the HOME tenant-
based rental assistance tenancy addendum will control in the event of a 
conflict between the preexisting lease and the tenancy addendum, and 
therefore the risk that the lease would contain prohibited lease terms 
or would otherwise not comply with the HOME program requirements is 
eliminated. The Department is also revising this requirement in 
response to public comments that stated that it disadvantages families 
to require that the rental assistance contract begin on the first day 
of the lease because current very low-income tenants would have to 
break their lease to obtain rental assistance, which is not always 
possible. The Department does not wish to disadvantage tenants that are 
housing insecure or rent burdened by requiring they enter a new lease 
in order to receive tenant-based rental assistance under HOME.
    The Department also revised the redesignated Sec.  92.209(e)(2) to 
explain that a rental assistance contract can be amended subject to the 
availability of funds. This revision is made in response to a public 
commenter that requested HUD explain whether an amendment to a rental 
assistance contract would require a new income determination. The 
Department is drawing a distinction

[[Page 753]]

between new contracts, amendments, and renewals of rental assistance 
contracts first in paragraph (e)(2) and then further in the new 
paragraphs (e)(3) and (e)(4).
    The new Sec.  92.209(e)(3) explains under what conditions a 
contract may be amended or renewed. The new Sec.  92.209(e)(3)(i) 
explains that all parties must consent to an amendment to the rental 
assistance contract. The new Sec.  92.209(e)(3)(i)(A) explains that a 
rental assistance contract may be amended because the lease between the 
family and owner has been amended or renewed, as long as the lease term 
or amount charged under the lease are the only terms of the contract 
being changed. The new Sec.  92.209(e)(3)(i)(B) explains that 
amendments to the rental assistance contract may extend the original 
term of the rental assistance contract up to 24 months from the 
original date of execution, which is the maximum term allowable under 
Sec.  92.209(e)(2). The new Sec.  92.209(e)(3)(i)(C) also allows for 
the amendment of the rental assistance contract when a family is moving 
within the same building or development, but the parties to the lease, 
family size, and the number of bedrooms are all the same. With respect 
to Sec.  92.209(e)(3)(i)(C), the Department believes these are 
reasonable restrictions on tenants and owners, as changes to the 
parties to a lease, family size, and the number of bedrooms in a unit 
are all significant enough such that allowing a PJ to amend an existing 
rental assistance contract is not appropriate, and the PJ should 
instead be required to enter into a new rental assistance contract with 
the family and owner.
    The new Sec.  92.209(e)(3)(ii) explains that, subject to the 
availability of HOME funds, a rental assistance contract may be renewed 
after the expiration of its initial term. The new Sec.  
92.209(e)(3)(iii) explains that in all other instances, the PJ must 
enter a new rental assistance contract with the family and owner in 
accordance with Sec.  92.209(e). This includes when family size 
changes, when the family moves to a different address with a different 
owner, or when the number of bedrooms in the unit changes.
    The Department explains the differences between when a new contract 
must be entered, when a contract can be amended, or when a contract can 
be renewed primarily to provide greater clarity in tenant-based rental 
assistance requirements as well as to explain when an income 
determination must be performed. The new paragraph (e)(4) whose header 
is ``initial and subsequent income determinations'' explains that a PJ 
must perform an income examination each time a new rental assistance 
contract is entered into (see Sec.  92.209(e)(4)(i)) or renewed (see 
Sec.  92.209(e)(4)(iii)). The Department believes that this change is 
appropriate because it permits PJs to amend current rental assistance 
contracts to extend their term to the maximum 24-month period without 
requiring additional income examination, providing burden relief to 
tenants receiving tenant-based rental assistance. The Department 
declines to extend this burden relief to new rental assistance 
contracts or renewals as material terms of the lease or the number of 
persons in the housing are changing (in the case of new rental 
assistance contracts) or the rental assistance contract is being 
extended for more than twenty-four months (in the case of renewals). In 
these situations, income should be redetermined because it factors so 
heavily into the sizing of the rental assistance.
    The Department is adding a new Sec.  92.209(e)(4)(iv) to explain 
that if a family is participating in a HOME lease-purchase program and 
receiving tenant-based rental assistance, then the family's income will 
only be determined at the time of execution of the lease purchase 
agreement. This is because the statute states that a family must be 
income-eligible at the time the lease-purchase agreement is signed,\6\ 
and because this will better enable tenants to save up for the purchase 
of the housing in accordance with the lease-purchase agreement and the 
HOME lease-purchase program. This type of treatment is only when the 
family is participating in a HOME lease-purchase program and not for 
other non-HOME lease-purchase programs because those programs may have 
different rules and restrictions, and their program design may vary 
significantly from HOME requirements. In those instances where a family 
is receiving tenant-based rental assistance and participating in a 
lease-purchase program, the family's income will be examined when the 
family enters into the rental assistance contract and again if the 
family's assistance is renewed.
---------------------------------------------------------------------------

    \6\ See 42 U.S.C. 12745(b)(2)(B).
---------------------------------------------------------------------------

    The Department is revising Sec.  92.209(g) to refer to Sec.  92.253 
instead of specific paragraphs within Sec.  92.253. This is because 
Sec.  92.253 has been revised to directly state its applicability to 
tenant-based rental assistance and the requirements of the HOME tenant-
based rental assistance tenancy addendum. The Department is also 
revising Sec.  92.209(h)(3)(ii) to better identify the Section 8 
Housing Choice Voucher Program payment standard that may be used by a 
PJ, which is the payment standard established in 24 CFR 982.503(a) 
through (c) and not the exception payment standard established in 24 
CFR 982.503(d). The exception payment standard is, by its nature, an 
exception to the rule and the Department has not allowed its use in 
HOME in the past. This change is therefore just a clarification of 
HUD's existing interpretation of the HOME and Section 8 regulations.
    The Department also made clarifying revisions to Sec.  92.209(j)(6) 
to use the language ``[s]urety bonds, security deposit insurance, or 
instruments similar to surety bonds or security deposit insurance . . 
.'' instead of the proposed phrasing of ``[s]urety bonds or security 
deposit insurance and similar instruments . . . .'' HUD believes that 
this revision improves the clarity and readability of the paragraph.
    Consistent with changes made throughout the section, the Department 
is revising the last two sentences of paragraph (k) to reference 
paragraph (e) and making technical revisions. The current provision 
requires that a PJ enter into an agreement with either the owner or the 
family. The final rule will require that the PJ enter into an agreement 
with the owner and the family.

24 CFR 92.210 Troubled HOME-Assisted Rental Housing Projects

    In response to public comment that suggested the Department was 
establishing an unreasonably high bar to evidence that a HOME project 
is no longer financially viable and able to obtain the relief in Sec.  
92.210, the Department has revised and reorganized Sec.  92.210(a).
    The first sentence in the paragraph remains unchanged from the 
proposed rule. Revised Sec.  92.210(a)(1) now states that a project is 
not financially viable through the period of affordability if one of 
the conditions in Sec.  92.210(a)(1)(i)-(iii) exists.
    In response to public comments, the Department provides in Sec.  
92.210(a)(1)(i) that a project is no longer financially viable through 
the period of affordability if the project's operating costs exceed its 
operating revenue considering project reserves. The Department has 
revised this sentence to remove the term ``significantly'' and to make 
this and the other conditions listed in Sec.  92.210(a)(1)(i)-(iii) be 
independent conditions. In Sec.  92.210(a)(1)(ii), the Department is 
creating a new condition that the project is no longer financially 
viable through the period of affordability if an owner is

[[Page 754]]

unable to pay for necessary capital repair costs or ongoing expenses 
for the project. In the proposed rule, the owner being unable to pay 
for necessary capital repair costs was another condition that needed to 
be satisfied instead of an independent condition. However, given the 
comments, the Department believed it was best to expand the ground to 
include inability to pay operating expenses and to make the ground an 
independent ground for demonstrating that a project is no longer 
financially viable through the period of affordability.
    Lastly, if project reserves are insufficient to operate the 
project, then the Department also believes that the project is no 
longer financially viable through the period of affordability and is 
therefore making that a separate ground for relief under Sec.  
92.210(a)(1)(iii). The Department also revised Sec.  92.210(a)(3) to 
clarify that HUD may approve the actions in Sec.  92.210(b) and (c) to 
``strategically preserve the affordability of a rental project.'' The 
Department had proposed to add the modifier ``in preserving 
affordability'' at the end of the sentence in the proposed rule but 
believes it is better for readability to move the language to describe 
the type of preservation action that is occurring for troubled housing 
rental housing projects under Sec.  92.210. Similarly, the Department 
is revising Sec.  92.210 to explain that the PJ may be permitted to 
reduce the ``total'' number of HOME-assisted units or change the 
designation of the units. This is a non-substantive clarifying change.

24 CFR 92.212 Pre-Award Costs

    The Department revised Sec.  92.212(b)(2) to clarify the provision. 
The provision, as proposed, had initially stated that, if a given 
year's appropriation were not timely, then a PJ may incur 
administrative and planning costs as of the earlier of the beginning of 
their program year or the date that HUD receives the PJ's consolidated 
plan. The provision then defined when an appropriation was not timely 
as when it occurs less than ninety days before a PJ's program year 
start date.
    After further consideration, the Department decided that it is 
inappropriate to characterize appropriations as timely or not timely in 
a regulation. The Department also believed this language detracted from 
the overall clarity of the provision. Instead, the last sentence is 
being deleted and the first sentence is being revised to state that in 
any year in which an appropriation is less than 90 days from a PJ's 
program start date, the PJ may incur administrative and planning costs 
as of the earlier of the beginning of their program year or the date 
that HUD receives the PJ's consolidated plan. This is a clearer 
sentence that doesn't characterize the timeliness of appropriations and 
it aligns with the related final rule text in Sec.  570.200(h)(3).

24 CFR 92.214 Prohibited Activities and Fees

    For certain paragraphs in Sec.  92.214, HUD made clarifying 
revisions to use the language ``[s]urety bonds, security deposit 
insurance, or instruments similar to surety bonds or security deposit 
insurance . . .'' instead of the proposed phrasing of ``[s]urety bonds 
or security deposit insurance and similar instruments . . . .'' HUD 
believes that this revision improves the clarity and readability of the 
paragraph. In response to public comment, HUD also clarified that HOME 
rental housing project owners may not charge tenants fees for normal 
wear and tear.

24 CFR 92.219 Recognition of Matching Contribution

    HUD is revising Sec.  92.219(a)(4) to replace the term ``dwelling'' 
with the term ``housing.'' HUD is making this revision to standardize 
the use of the term ``housing'' in part 92 and in response to 
commenters that noted that the Department failed to make this 
terminology replacement in the proposed rule. The Department also made 
technical revisions to Sec.  92.221(b)(1) to remove a dash, add section 
symbols, and add the word ``through'' when citing Sec. Sec.  92.218 
through 92.221.
    The Department is making conforming regulatory revisions to Sec.  
92.219(b)(2)(ii) and (iii) to remove the pinpoint citations to Sec.  
92.253(a)-(c) and (d)(2) and replace them with more general citations 
to the tenant protection provisions, as the provisions have moved and 
are now contained in the applicable tenancy addendum (HOME rental 
housing tenancy addendum, HOME TBRA tenancy addendum, and HOME security 
deposit assistance tenancy addendum). The Department also made non-
substantive revisions to Sec.  92.253(b)(2)(ii) for readability and to 
reduce confusion. The revised provision explains that the written 
agreement must impose and enumerate all requirements applicable to the 
project, including affordability requirements in Sec. Sec.  92.252 or 
92.254 (as applicable based on the type of project being carried out), 
any applicable tenant protections due to operation of a rental housing 
project (or lease-purchase project), any applicable property standards 
based on the type of project (e.g., new construction, rehabilitation, 
acquisition, etc.), and income determination requirements that apply to 
the family through Sec.  92.203. The revisions of the section should 
make it easier for PJs to know what items are necessary for the written 
agreement, but no substantive changes were made from the current 
requirements.

24 CFR 92.250 Maximum Per-Unit Subsidy Amount, Underwriting, and 
Subsidy Layering

    The Department received comments stating that a five percent 
increase in the maximum per-unit subsidy was insufficient to cover the 
associated costs with meeting nationally recognized green building 
standards. In response, the Department is increasing the percentage in 
the final rule up to ten percent in Sec.  92.250(c). The Department 
understands that many commenters requested increases that were 
significantly higher, especially in the context of rehabilitation. The 
estimates provided by commenters ranged significantly from ten percent 
to well over twenty-five percent depending upon the market, the 
standard the project owner is attempting to meet, and whether the 
project was new construction or rehabilitation. The Department 
understands that rehabilitation of existing housing units and meeting 
significantly higher energy efficiency thresholds than what is required 
under section 212(e) of the Act can add significantly higher costs. 
However, the Department must balance the benefits from more 
sustainable, energy-efficient housing against the potential that fewer 
units will be created or fewer families served if the subsidy increased 
beyond ten percent. Given the level of annual appropriations that the 
HOME program receives, the Department believes it can only move to ten 
percent at this time but will reevaluate in the future.

24 CFR 92.251 Property Standards and Inspections

A. Carbon Monoxide and Smoke Detection
    In response to public comments on carbon monoxide and smoke 
detection, including comments received in response to specific 
solicitation of comment #3, which requested comment from the public on 
new requirements for smoke alarms, the Department is making revisions 
to Sec.  92.251(a)(3)(vi), Sec.  92.251(b)(1)(xi), Sec.  92.251(c)(3), 
and Sec.  92.251(f)(1)(iv).

[[Page 755]]

    First, the Department is adding the carbon monoxide requirement 
applicable to the Section 8 voucher program as a new requirement for 
the HOME program at Sec.  92.251(a)(3)(vi)(A), Sec.  
92.251(b)(1)(xi)(A), and Sec.  92.251(f)(1)(iv)(A), which HUD will more 
fully describe through a publication in the Federal Register. The 
Department is also revising Sec.  92.251(c)(3) to reference the 
requirement at Sec.  92.251(b)(1)(xi)(A) and revising Sec.  
92.251(f)(1)(i) to clarify that the carbon monoxide requirements in 24 
CFR 5.703 do not apply because the ones in Sec.  92.251(f)(1)(iv)(A) 
apply instead.
    Second, the Department is adding smoke detection requirements to 
Sec.  92.251(a)(3)(vi)(B), Sec.  92.251(b)(1)(xi)(B), and Sec.  
92.251(f)(1)(iv)(B). The Department is also revising Sec.  92.251(c)(3) 
to reference the requirement in Sec.  92.251(b)(1)(xi)(B). The revised 
smoke detection requirements are tailored to the type of HOME activity 
and work being performed, based on public comments and informed by 
implementation considerations.
    For new construction projects under Sec.  92.251(a)(3)(vi)(B)(1), a 
hardwired smoke detector must be installed on each level of each 
housing unit, in or near each sleeping area in each housing unit, in 
the basement of each housing unit, and in each common area of a 
project. However, a hardwired smoke alarm is not required in crawl 
spaces or unfinished attics of housing units. In addition, a hardwired 
smoke detector must also be installed within 21 feet of any door to a 
sleeping area measured along a path of travel and, where a smoke alarm 
installed outside a sleeping area is separated from an adjacent living 
area by a door, a smoke alarm must also be installed on the living area 
side of the door. The Department believes that it is appropriate to 
require that the smoke alarm be hardwired, as HOME funds are being used 
in the new construction of the projects and therefore the building 
designs and electrical systems can be tailored to meet the HOME 
requirements.
    In response to HUD's consideration of public comments, the 
Department added Sec.  92.251(a)(3)(vi)(B)(4) to establish that 
following the relevant specifications of either the International Code 
Council (ICC) or the National Fire Protection Association (NFPA) 
Standard 72 satisfies the requirements of Sec.  92.251(a)(3)(vi)(B). 
Originally, the Department considered only codifying installation in 
accordance with the NFPA Standard 72 but received comments urging the 
Department to make its revisions consistent with the U.S. Housing Act 
of 1937, as amended by the Consolidated Appropriations Act, 2023 (Pub. 
L. 117-328, div. AA, title VI, Sec.  601)). The Consolidated 
Appropriations Act, 2023 requires that units occupied by tenants living 
in public housing, living in units and receiving Section 8 Housing 
Choice Vouchers, or living in unit that receives project-based 
assistance comply with the applicable codes and standards published by 
the International Code Council or the National Fire Protection 
Association and the requirements of the National Fire Protection 
Association Standard 72 or any successor standard. Therefore, the 
Department is codifying Sec.  92.251(a)(3)(vi)(B)(4) to allow property 
compliance with either standard for new construction in the HOME 
program which is consistent with other HUD programs.
    The Department also added paragraph (a)(3)(vi)(B)(2) to require 
that smoke alarms have an alarm system designed for hearing-impaired 
persons. The Department is adding this language to ensure that 
individuals with hearing impairments are adequately warned in the event 
of smoke or a fire. The addition of this paragraph also makes the 
requirements of this section more consistent with the requirements 
contained in the Consolidated Appropriations Act, 2023.
    The Department also added paragraph (a)(3)(vi)(B)(3) to describe 
that the Secretary may establish additional standards related to Sec.  
92.251(a)(3)(vi)(B) through a publication in the Federal Register.
    Additionally, the Department considered requiring hardwired smoke 
detectors for rehabilitation projects but understood that 
rehabilitation projects may require different considerations. As a 
result, while the Department is adopting the same requirements from 
Sec.  92.251(a)(3)(vi)(B) for Sec.  92.251(b)(1)(xi)(B). In addition, 
the Department is also adding Sec.  92.251(b)(1)(xi)(B)(4), which will 
allow a PJ to provide a written exception to an owner to allow the 
owner to install a smoke detector that uses 10-year non rechargeable, 
nonreplaceable primary batteries as long as the smoke detector is 
sealed, tamper-resistant, contains a means to silence the alarm, and 
otherwise complies with the requirements of this section. This relief 
may only be provided where the use of hardwired smoke detectors places 
an undue financial burden on the owner or is infeasible. It is the PJ's 
responsibility for making and documenting this determination for their 
records. The Department is declining to define the terms ``undue 
financial burden'' or ``infeasible'' because it believes that PJs 
should have the flexibility to develop their own standards and to make 
their own determinations based on the fact-specific circumstances.
    For homeownership activities, the Department is revising Sec.  
92.251(c)(3) to require that housing acquired for homeownership meet 
the same carbon monoxide and smoke detection requirements required 
under Sec.  92.251(b)(1)(xi). And, similar to the exception that the 
Department is allowing at Sec.  92.251(b)(1)(xi)(B), the Department is 
allowing a PJ to provide a written exception to an owner to allow the 
owner to install a smoke detector that uses 10-year non rechargeable, 
nonreplaceable primary batteries as long as the smoke detector is 
sealed, tamper-resistant, contains a means to silence the alarm, and 
otherwise complies with the requirements of this section. The 
Department is also requiring that the same grounds which justify an 
exemption from being required to use hardwired smoke detectors, i.e., 
undue financial burden, be the applicable grounds in Sec.  
92.251(c)(3).
    Finally, as for the ongoing property standards for existing rental 
housing projects and the property standards for tenant-based rental 
assistance, the Department is creating new requirements in Sec.  
92.251(f)(1)(iv)(B), which will mandate that smoke detectors meet the 
standards in 24 CFR 5.703(b) and (d). These are the NSPIRE smoke 
detection standards that apply to the Section 8 program and elsewhere. 
The Department believes it is appropriate to treat existing rental 
housing and units with tenants receiving tenant-based rental assistance 
the same as those receiving Section 8 HCV assistance or project-based 
Section 8 assistance, as these programs are sufficiently similar.
    For these existing rental housing units and units with tenants 
receiving tenant-based rental assistance, the inside area must include 
at least one battery-operated or hard-wired smoke detector, in proper 
working condition, on each level of the property. For the unit, there 
must be at least one battery-operated or hard-wired smoke detector, in 
proper working condition on each level of the unit, inside each 
bedroom, within 21 feet of any door to a bedroom measured along a path 
of travel, and where a smoke detector installed outside a bedroom is 
separated from an adjacent living area by a door, a smoke detector must 
also be installed on the living area side of the door. Additionally, if 
the unit is occupied by any hearing-

[[Page 756]]

impaired person, the smoke detectors must have an alarm system designed 
for hearing-impaired persons. For both the inside area of the building 
and the unit, the Secretary is able to establish additional standards 
through Federal Register publication.
B. Accepting NSPIRE Inspections
    The Department is revising Sec.  92.251(b)(1)(viii)(A), Sec.  
92.251(f)(3)(i)(B), and Sec.  92.251(f)(4)(ii) in response to 
commenters that stated HUD should not restrict the acceptance of NSPIRE 
inspections to only those made under another HUD program. The 
Department understands that there are other projects using non-HUD 
funding, such as LIHTC projects, that may use inspections to the NSPIRE 
standards to demonstrate compliance with the requirements for those 
funding sources. The Department will allow a PJ to accept inspections 
to the NSPIRE standards or another alternative inspection standard HUD 
may establish through Federal Register publication. The inspections 
must be in satisfaction of another funding source's requirements and 
conducted within the timeframes established for the applicable 
regulations.
C. Meeting Property Standards After Acquisition of Homeownership 
Housing
    In response to comment, the Department is revising Sec.  
92.251(c)(3)(ii)(C) and adding Sec.  92.251(c)(3)(ii)(D) to give PJs 
the ability to provide homebuyers an extension of the six-month 
deadline for bringing a substandard homeownership unit into compliance 
with the PJ's property standards.
    While the Department strongly encourages PJs to provide 
homeownership assistance to homebuyers purchasing housing that already 
meets their property standards, this is not always possible. Because 
there will be times where homebuyers wish to purchase properties that 
do not meet the PJ's property standards, the Department is revising its 
regulations to be flexible enough to allow PJs and homebuyers to bring 
a unit up to the PJ's property standards after purchase.
    The Department continues to believe that six months is the 
appropriate amount of time to provide a homebuyer to comply with a PJ's 
property standards. However, every construction project is different, 
and each jurisdiction has local requirements for permitting. In the 
past, due to national emergencies or disasters, homebuyers have also 
been affected by materials shortages. Therefore, in light of the 
variety of factors that can affect even minor repairs needed to bring a 
unit up to a PJ's property standards, the Department's revisions to 
Sec.  92.251(c)(3)(ii)(C) and addition of Sec.  92.251(c)(3)(ii)(D) 
will allow PJs to provide homebuyers an extension lasting up to 12 
months from the date of acquisition with HOME funds to bring their unit 
up to the PJ's property standards. If an extension is granted, the PJ 
must inspect the unit within 12 months of acquisition and determine 
that it meets the PJ's property standards.
D. Clarifying the Application of Property Standards
    In response to public comments requesting clear requirements for 
when a unit must be inspected under the new construction property 
standards and when a unit must be inspected under the PJ's 
rehabilitation standards, the Department is adding a new Sec.  
92.251(d) that explains that if a project includes both rehabilitation 
of housing units and either new construction or reconstruction of 
housing units, then the PJ must apply the rehabilitation standards to 
the housing units that are rehabilitated and the new construction 
requirements to housing that is either newly constructed or 
reconstructed.
E. Sample Size for Property Inspections
    The Department solicited comment on the correct sample size for 
HOME project inspections in specific solicitation #4 of the proposed 
rule. After considering the comments received in response to this 
solicitation, the Department developed a chart that will provide 
greater clarity on how many units must be inspected in a project based 
on the number of HOME-assisted units within the project. Accordingly, 
the Department is revising Sec.  92.251(f)(3)(iii) to require that 
inspections be performed in accordance with the chart. The Department 
is also adding clarifying text to indicate that the PJ must inspect the 
inspectable areas for each building containing HOME-assisted units and 
not just the units themselves.
    To determine the appropriate sample size for each project, the 
Department started with its minimum requirement that four units be 
inspected for all projects that have up to twenty units. This is 
because all units in small-scale housing (1-4 unit projects) must be 
inspected once every three years, and projects of a larger size should 
not be required to inspect fewer units than a small-scale housing 
project. This is counter to the statutory intent of the monitoring 
flexibilities provided for small-scale housing projects.\7\ 
Additionally, the Department examined other sampling techniques in 
response to public comment, including the LIHTC and NSPIRE sampling 
methods (see 26 CFR 1.42-5 for LIHTC and 88 FR 43379 and 43380 for 
NSPIRE). The Department found that even with the four-unit minimum 
sample size requirement for projects with up to twenty units, HOME was 
still less burdensome than other programs and required fewer units to 
be inspected than did other programs.
---------------------------------------------------------------------------

    \7\ See 42 U.S.C. 12756(c).
---------------------------------------------------------------------------

    The Department has therefore adopted its proposal for a 20 percent 
sample for projects containing between twenty and one hundred and 
thirty HOME units. Then, in response to comments requesting that the 
Department provide burden relief similar to that provided in LIHTC or 
HUD programs subject to NSPIRE, the Department adopted the sampling 
method that it uses under NSPIRE for projects containing greater than 
one hundred and thirty units. The Department believes that this 
approach strikes the correct balance by providing burden relief for 
smaller and larger projects while still requiring an appropriate amount 
of unit inspections occur. It also provides a clearer standard for PJs 
because the unit sampling for the inspection is not required to be 
based on a statistically valid sample.
F. Miscellaneous Revisions to Sec.  92.251
    The Department is adding State and local requirements back into 
Sec.  92.251(a)(3)(iii), which lists the various standards that housing 
must, where relevant, meet with respect to disaster mitigation. The 
Department believed it had provided clarifying technical revisions to 
this section, but did not mean to remove any additional requirements 
not contained in State and local codes or ordinances from the list of 
applicable standards. The Department also did not intend to change the 
meaning of that provision in any other way.
    The Department is revising paragraph (a)(3)(iv) to make the 
requirement described in that paragraph more consistent with the 
requirements in Sec.  92.504(c). Instead of requiring that a PJ ensure 
construction contracts and documents describe the work to be 
undertaken, the PJ must require this to be the case. This non-
substantive change will increase clarity and will make the language in 
paragraph (a)(3)(iv) consistent with that of the monitoring 
requirements provided in the written agreement provisions in

[[Page 757]]

Sec.  92.504 and of the cost principles contained in 2 CFR part 200, 
subpart E.
    The Department is revising Sec.  92.251(a)(3)(vii) to state that 
the green building standards will be published through a Federal 
Register publication.
    Similar to how the Department is revising Sec.  92.251(a)(3)(iv) to 
make the requirements in this section more consistent with the 
requirements in Sec.  92.504(c), the Department is also revising Sec.  
92.251(b)(2). Instead of requiring a PJ to ``ensure'' that construction 
meet the PJ's rehabilitation standards, the PJ must ``require'' this to 
be the case. This is already required in other regulations including 
the monitoring requirements provided in the written agreement 
provisions in Sec.  92.504 and the cost principles contained in 2 CFR 
part 200, subpart E, and so is a non-substantive change made to 
increase clarity. Sec.  92.251(b)(1)(vi) is being revised to align the 
language with the same language contained in Sec.  92.251(a)(2)(iii).

24 CFR 92.252 Qualification as Affordable Housing: Rental Housing

    In response to public comment, the Department has determined that 
the rent limits do not apply to Federal, State, or local rental 
assistance or subsidy payments and is revising the third sentence of 
Sec.  92.252(a) accordingly. The Department also revised the first 
sentence of Sec.  92.252(a)(1) to state that if a family is 
participating in a program where the person pays thirty percent of 
their monthly adjusted income or ten percent of their monthly income as 
a contribution to rent, then the maximum rent due from the family is 
the family's contribution under that program. Commenters requested 
clarity on whether an owner could accept the full contract rent for a 
tenant in a HOME-assisted rental housing unit that was also receiving 
Section 8 or other forms of rental assistance even if the tenant was 
low-income and governed by the High HOME Rent provisions of Sec.  
92.252(a)(1).
    After careful consideration, the Department determined that the 
changes in the Housing and Economic Recovery Act of 2008 (HERA) (Pub. 
L. 110-289, 122 Stat. 2654, approved July 30, 2008) not only revised 
the Section 8 statute, but fundamentally changed the relationship 
between the two programs. It is clear from HERA that the HOME Rent 
Limits were not meant to apply to recipients of Section 8 assistance or 
similar recipients of rental assistance or living in subsidized units. 
Prior to the passage of HERA, the only way that the Secretary was 
permitted to increase the rent limits was provided by 42 U.S.C. 
12745(a)(1)(A). After passage of HERA, HUD determined the Secretary 
could also make such determination based upon misalignment between HOME 
rent requirements and the rent requirements of Section 8 and other 
similar rental assistance or subsidy programs. The Secretary determined 
that this change is appropriate and promotes greater alignment between 
the HOME program and HUD's other rental assistance programs and is 
revising Sec.  92.252(a)(1) and Sec.  92.252(a)(2) accordingly. Where a 
family is participating in a program where the family pays as a 
contribution toward rent no more than thirty percent of the family's 
monthly adjusted income or ten percent of the family's monthly income, 
then the maximum rent due from the family is the family's contribution, 
regardless of whether the family is occupying a High or Low HOME Rent 
unit. Thus, under the HOME program as changed by HERA, the HOME-
assisted rental housing project owner may now accept the rent due from 
the tenant and the assistance or subsidy payment made under the 
applicable assistance or subsidy program.
    The Department is revising Sec.  92.252(a)(2)(i) to clearly 
reference the fair market rent being described in Sec.  92.252(a)(1)(i) 
and to revise the term ``fair market value'' to ``fair market rent'' to 
more accurately describe the rent. Sec.  92.252(a)(2)(ii) is also being 
revised to more accurately state that the rent contribution of the 
family in a Low HOME rent unit is 30 percent of the family's adjusted 
income. This is not a substantive change from the proposed rule or the 
current regulatory text, but it is a more accurate description of the 
Low HOME rent applicable to a family.
    In response to comments about aligning with LIHTC on income and 
rents, the Department is adding the statutory language contained in 42 
U.S.C. 12745(a)(1)(B)(ii) into the new Sec.  92.252(a)(2)(iii). The 
provision will state that if a HOME-assisted unit ``is a LIHTC unit and 
has rents not greater than the gross rent for rent-restricted 
residential units as determined under section 42(g)(2) of title 26'' 
then it shall be a Low HOME Rent unit.
    The Department is revising Sec.  92.252(a)(3)(i) and (ii) to add 
explicit reference to how the zero-bedroom fair market rent is 
determined. This rent is established under 24 CFR part 888. In revising 
the rent limits, the Department also realized the requirement in Sec.  
92.252(a)(3)(ii), which currently requires that SRO units without 
sanitary or food preparation facilities meet the occupancy requirements 
of Low HOME rent units, could be identified in plain language. Instead 
of referring to the occupancy requirements, the provision is being 
revised to explain that the units are to be occupied by very low-income 
tenants. This is a non-substantive change to provide a clearer 
regulation.
    In response to public comments received, HUD is clarifying in Sec.  
92.252(b) that ``cable and broadband'' are not included in utility 
allowances. Commentors asked for clarity regarding whether broadband is 
a utility and whether tenants can be required to pay for cable and 
broadband as a condition of occupying a HOME-assisted rental housing 
unit. The Department agrees the regulation could be clearer and 
included language in Sec.  92.252(b) to clarify that in addition to 
telephone, ``cable and broadband'' are not included in utility 
allowances.
    Paragraph Sec.  92.252(b) was also revised to add the term 
``applicable'' when describing local public housing authority utility 
allowances. The Department understands multiple public housing 
authorities may serve a particular geographic location (e.g., State, 
county, city, etc.) and the Department believes that the public housing 
authority providing Section 8 project-based voucher assistance (if the 
project is assisted) or the one serving the jurisdiction that the PJ 
believes is most reflective of the utility consumption in the community 
in which the project is located should be the one used for the HOME 
project.
    The Department is making a non-substantive change to replace the 
word ``ensure'' with ``require'' in Sec.  92.252(c). This change better 
explains the requirement that PJs must not allow owners to charge 
tenants in excess of the rents in Sec.  92.252.
    The Department is revising the dollar thresholds that define the 
periods of affordability in Sec.  92.252(d) in response to public 
comments. Commenters stated that the thresholds had not been adjusted 
for inflation and the increase in the cost of construction. The 
Department agrees that the thresholds have not been revised since 1991 
and must be revised to account for the increase in costs.\8\ See 42 
U.S.C. 12745(a)(1)(E) of the Act. requires that HOME projects ``will 
remain affordable, according to binding commitments satisfactory to the 
Secretary, for the remaining useful life of the property, as determined 
by the Secretary, without regard to the term of the mortgage or to 
transfer of ownership, or for such other period that the Secretary 
determines is the longest feasible period of time

[[Page 758]]

consistent with sound economics and the purposes of this Act . . .'' 
The Department cannot adjust the thresholds to fully account for the 
differences in inflation \9\ because the Department must balance the 
need for adjusting the periods of affordability to account for the 
increase in costs (i.e., sound economics) with the purposes of the Act, 
which are to produce and maintain affordable housing units.\10\ Given 
the significant decrease in appropriations that the HOME program has 
had in both real and inflation-adjusted dollars since the inception of 
the current dollar thresholds, the Department can only revise the 
thresholds to partially account for the increase of costs.\11\
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    \8\ The HOME thresholds came into effect in 1991 (see 56 FR 
65312-01).
    \9\ By one measure, the Consumer Price Index, the dollar has 
increased by over 200% since the establishment of the dollar 
thresholds used to determine the period of affordability for the 
HOME program. See the CPI Inflation Calculator at https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1%2C000%2C000.00&year1=199201&year2=202310.
    \10\ See 42 U.S.C. 12722(1) and (7).
    \11\ In 1992, the Department was appropriated $1,500,000,000 for 
HOME, the first year of annual appropriations for the program. (See 
105 STAT. 744 for Pub. L. 102-139). For Fiscal Year 2024, the 
Department received $1,250,000,000 for HOME. In current dollars, 
this is a decrease in investment in affordable housing of only 
$250,000,000 but when using the Consumer Price Index to calculate 
the inflation-adjusted decrease, it is a decrease of over 50% of the 
initial investment made in affordable housing.
---------------------------------------------------------------------------

    Accordingly, the Department will revise the initial threshold for 
rehabilitation or acquisition of existing housing per-unit amount of 
HOME funds from $15,000 to $25,000. If the per-unit cost of 
rehabilitation and/or acquisition of existing housing is below $25,000, 
then the minimum period of affordability for each HOME-assisted housing 
unit is five years. The Department is revising the second threshold 
from $40,000 to $50,000. If the per-unit cost of rehabilitation and/or 
acquisition of existing housing is from $25,000 to $50,000, then the 
minimum period of affordability shall be ten years for each HOME-
assisted rental housing unit. For rehabilitation and/or acquisition of 
existing housing, if the per-unit cost is over $50,000 for each HOME-
assisted rental housing unit, then the minimum period of affordability 
is fifteen years.
    While the Department is revising the dollar thresholds for the 
periods of affordability involving rehabilitation and/or acquisition, 
the Department has chosen to maintain the period of affordability for 
new construction and for rehabilitation involving refinancing. The 
Department believes that the useful life of the property or the longest 
feasible period of time is consistent with sound economics and the 
purposes of this Act is still twenty years for HOME rental housing 
projects involving new construction. Similarly, the Department believes 
that properties where rehabilitation involves refinancing should also 
continue to be subject to a period of affordability of fifteen years, 
as the refinancing and rehabilitation of the property to the PJ's 
rehabilitation standards should adequately extend its useful life to a 
period of fifteen years. If the rehabilitation and refinancing action 
cannot ensure that the property remains capable of operating as 
affordable housing for a period of fifteen years, then the project is 
not feasible or furthering the purposes of the Act.
    The Department is revising the first sentence of Sec.  92.252(g) 
and Sec.  92.252(g)(3) to include reference to the new safe harbor in 
Sec.  92.203(a)(3). This revision allows a PJ to use the safe harbor in 
Sec.  92.203(a)(3) in the calculation of both initial and annual income 
determinations instead of using source documents, as required in Sec.  
92.203(b)(1)(i). The Department is also revising the first sentence of 
Sec.  92.252(g) to reference income provisions for HOME tenant-based 
rental assistance tenants, which have been moved to Sec.  92.203(b)(3) 
from Sec.  92.203(b)(2).
    The Department is revising Sec.  92.252(g)(1) to provide a chart 
clarifying the alternative income reexamination cycle for small-scale 
rental projects that a PJ may permit. The Department is also revising 
Sec.  92.252(g)(2) to specify that rental projects, including small-
scale projects, must reexamine tenant income using source documentation 
every sixth year of the period of affordability.
    The Department is revising Sec.  92.252(h)(2)(i) for readability by 
striking ``section 42'' and instead stating that over-income tenants 
subject to the rent restrictions under section 42 of the Internal 
Revenue Code of 1986 must pay a rent that complies ``with that 
section.'' This is clearer and less wordy. The Department is adding a 
new paragraph Sec.  92.252(h)(2)(iii) that will explain that rent 
limits do not apply to rental assistance or subsidy payments under any 
Federal, State, or local rental assistance or subsidy program. This is 
because when tenants become over-income in certain rental assistance 
programs, such as the Housing Choice Voucher program, the tenant still 
pays a percentage of their rent, such as thirty percent of their rent, 
up to the contract rent for the housing unit. This means that there may 
still be subsidy or assistance from the rental assistance provider 
until the tenant is paying the full contract rent. If owners were 
unable to accept this rent, then it would undermine the purposes of 
HERA, as explained earlier for High and Low HOME Rents. As such, the 
Department providing the same clarification it did in paragraph Sec.  
92.252(a), which is that the rent does not include the rental 
assistance provided by the rental assistance or subsidy provider.
    Paragraph Sec.  92.252(i) was revised similar to other provisions 
to state that surety bonds, security deposit insurance, or instruments 
similar to surety bonds and security deposit insurance may not be used 
in lieu of or in addition to a security deposit in HOME-assisted units. 
This is a clarifying change for readability and not a substantive 
change from the proposed rule.

24 CFR 92.253 Tenant Protections and Selection

    The Department is making significant changes to its tenant 
protection provisions in response to public comment. Based on comments 
received as part of the specific solicitation of comment #10, the 
Department has chosen to create three tenancy addenda for the HOME 
program, one for each type of HOME rental activity (rental housing, 
tenant-based rental assistance, security deposit assistance only). The 
requirements for each addendum shall be provided in paragraphs (b)-(d) 
accordingly. The Department is also reorganizing the tenant protections 
regulations by removing the current security deposit and termination of 
tenancy provisions found in paragraphs (c) and (d) and instead placing 
them directly into the applicable tenancy addendum. The Department 
believes these changes allow HUD to tailor the protections to the form 
of assistance being received under the HOME program and should decrease 
any potential chilling effects that an addendum may have on private 
owners accepting tenants with HOME tenant-based rental or security 
deposit assistance.
    The Department also believes reorganizing the tenant protections to 
include the security deposit requirements and termination of tenancy 
provisions into the applicable tenancy addenda for rental housing and 
tenant-based rental assistance is more legally supportable and 
consistent with other HUD programs. Section 42 U.S.C. 12755(a)(1) 
provides an explicit congressional delegation of authority to the 
Secretary to determine the terms and conditions of leases in the HOME 
program. Security deposit requirements and termination of tenancy 
provisions are material terms to a lease and other

[[Page 759]]

HUD programs include specific provisions addressing each in their 
tenancy addenda, including in the Section 8 voucher programs.\12\ The 
Department believes this is the most legally sound way of requiring PJs 
and owners to comply with the tenant protections and that it will 
better enable beneficiaries of HUD programs to assert their legal 
rights and defenses. Commenters had also specifically requested that 
the Department add the security deposit provisions within the tenancy 
addendum, as those are traditionally contained in a lease, and the 
Department agrees.
---------------------------------------------------------------------------

    \12\ See HUD Form 52641A for the Housing Choice Voucher Program 
Tenancy Addendum and Form HUD 52530.c for the Section 8 Project-
based Voucher Program Tenancy Addendum.
---------------------------------------------------------------------------

    Accordingly, the Department is revising paragraph Sec.  92.253(a) 
by adding a ``(1)'' after lease contents and redesignating Sec.  
92.253(a)(1)-(4) as Sec.  92.253(a)(1)(i)-(iv). Paragraph Sec.  
92.253(a)(1)(iv)(A) shall also be revised to require that a lease of a 
tenant in HOME rental housing include the HOME rental housing tenancy 
addendum described in Sec.  92.253(b). Paragraph Sec.  
92.253(a)(1)(iv)(B) is being added and shall require that a lease of a 
tenant in HOME tenant-based rental assistance include the HOME tenant-
based rental assistance tenancy addendum described in paragraph Sec.  
92.253(c).
    A separate paragraph Sec.  92.253(a)(2) is being added and shall 
provide the lease requirements for security deposit assistance only 
recipients. After reviewing the comments received as part of the 
solicitation of public comment, the Department determined that it was 
not appropriate to require that tenants and owners use the HOME tenant-
based rental assistance tenancy addendum. Security deposit assistance 
is fundamentally different than other forms of assistance under the 
HOME program. It is a one-time form of assistance that is inherently 
short-term in nature. The assistance is primarily intended as a form of 
emergency assistance for families whose primary barrier to obtaining 
housing is the security deposit. Many times, this assistance is also 
paired with long-term assistance in other programs that comes with 
their own protections. The HOME tenant-based rental assistance tenancy 
addendum contemplates a contractual relationship between the PJ and the 
owner because of the updated rental assistance contract requirements 
contained in Sec.  92.209(e). Security deposit assistance, in contrast, 
is of limited duration, lasting only the issuance of the initial 
assistance.
    Instead of requiring the HOME tenant-based rental assistance 
tenancy addendum, the Department is requiring a security deposit 
assistance tenancy addendum. Paragraph Sec.  92.253(a)(2) shall require 
a written lease between the tenant and the owner that is for a period 
of not less than 1 year, unless by mutual agreement between the tenant 
and the owner, a shorter period is specified. This mirrors the 
requirements for both rental housing and tenant-based rental 
assistance. Likewise, to determine that the HOME security deposit 
assistance tenancy addendum is included in the lease, the owner must 
also provide the PJ with a written lease before security deposit 
assistance is provided. This mirrors the new requirements for both 
rental housing and tenant-based rental assistance. Then, the paragraph 
requires that the lease contain the HOME security deposit assistance 
tenancy addendum in paragraph (d) of this section.
    The Department received a significant amount of comment on its 
proposed tenant protections that represented a spectrum of participants 
in the HOME program including PJs, owners, CHDOs, tenant rights and 
advocacy organizations, fair housing and civil rights organizations, 
and associations. These comments ranged from unqualified support to 
complete opposition. The Department considered the comments and 
determined that the vast majority of its proposed text was appropriate 
for a rental housing tenancy addendum. However, based on public comment 
and the reorganization of the regulation, the Department did make a 
number of revisions since the proposed rule stage.
    The introductory text in Sec.  92.253(b) has been clarified to 
indicate that the tenancy addendum being described is the HOME ``rental 
housing'' tenancy addendum. The second sentence was also revised to 
include addenda from local affordable housing programs in addition to 
other Federal or State affordable housing programs. The Department did 
not intend to inadvertently exclude HOME-assisted tenants from 
receiving other forms of local affordable housing assistance and 
believes this revision is responsive to public comments that warned HUD 
not to create conflicts with local programs. Paragraph (b)(1)(ii)(A) is 
being revised to clarify that with respect to maintenance and repairs 
to a housing unit, the owner shall provide tenants with written 
expected timeframes for maintaining or repairing units as soon as 
practicable. A written record is more protective of a participating 
jurisdiction, owner, and tenant alike, as it provides each clear 
evidence of when work is expected to occur.
    The Department is revising paragraph (b)(2)(i) because while it is 
true that a family may reside in the unit with a foster child, foster 
adult, or live-in aide, the family must still comply with all 
applicable occupancy requirements when living in HOME-assisted rental 
housing. The Department did not intend to preempt or override State or 
local occupancy laws or HUD's own occupancy restrictions in other 
programs whose assistance may be combined with HOME assistance, such as 
Section 8 project-based rental assistance. The Department notes that 
any reasonable accommodations must still be made in accordance with all 
applicable laws regarding nondiscrimination and accessibility. In Sec.  
92.253(b)(5), the owner is separately agreeing not to interfere with or 
retaliate against the tenant for asserting their rights, which include 
the right to request a reasonable accommodation for a live-in aide. In 
Sec.  92.253(b)(8), the owner is also agreeing to operate HOME rental 
housing in accordance with all applicable nondiscrimination and equal 
opportunity requirements pursuant to Sec.  92.350. As a result, the 
Department does not believe that this revision will negatively impact 
tenant protections. This revision was made in response to public 
comments that requested HUD reexamine the tenant protections to 
determine that they did not conflict with State or local law or with 
other Federal programs.
    The Department is revising the term ``dwelling'' to ``housing'' in 
Sec.  92.253(b)(2)(iii), (b)(2)(iii)(A), and (b)(2)(iii)(C). The 
Department is also revising Sec.  92.253(b)(2)(iii)(C) in response to 
public comment urging HUD to require that owners provide tenants with 
written notice of the date, time, and purpose of the owner's entry if 
the owner must enter the housing without advance notification when 
there is reasonable cause to believe that an emergency requiring entry 
to the unit exists. The commenter was supportive of this approach and 
believed it would be protective for the tenant. The Department agrees 
and believes this provision will improve communication between owners 
and tenants of HOME-rental housing.
    In response to public comment, the Department is revising Sec.  
92.253(b)(3)(i) to require that owners provide tenants with written 
accessible notice of the specific grounds for proposed adverse actions 
by the owner against the tenant before taking such actions. The

[[Page 760]]

Department had proposed to provide this as simply a notification 
requirement. One commenter recommended that instead, the Department 
revise the provision to make the adverse action itself contingent upon 
providing the tenant notice. The Department believes this is a sensible 
approach and that it may enable tenants to assert any rights or 
protections prior to the imposition of any charges or other adverse 
actions. In revising Sec.  92.253(b)(3)(i), the Department is also 
clarifying that the notification of the adverse action must be 
translated if required for the tenant to understand the notice. Tenants 
and owners have an existing landlord-tenant relationship and so it 
should not be overly burdensome to ensure that tenants are able to read 
the written notice in a language they can understand. Similar changes 
were made to Sec.  92.253(c)(3)(i).
    The Department is also revising Sec.  92.253(b)(3)(ii) to more 
clearly state when tenants must be notified of changes in the ownership 
and management of the rental housing project. Paragraph Sec.  
92.253(b)(3)(ii)(A) will specify that an owner must notify tenants 
within 30 calendar days of the impending sale or foreclosure of a 
rental housing project. Paragraph Sec.  92.253(b)(3)(ii)(B) specifies 
that owners must notify tenants within five business days of a change 
in ownership. These requirements were both in the proposed rule. The 
Department added as a new requirement that owners not only notify 
tenants within five business days of any changes in ownership but also 
any changes in property management companies managing the property as 
Sec.  92.253(b)(3)(ii)(C). This change, being made to was in response 
to public comments that believed that such notification should include 
property managers and not just owners. Property managers have 
significant involvement in the operation of the property and are agents 
or employees acting on behalf of HOME rental housing owners. When an 
owner obtains a different property management company, it can have 
significant impacts on the daily life of tenants. The Department 
believes it is important to keep tenants informed in advance of such 
impacts and that this improved communication may help both owners and 
tenants. Similar additions are made to Sec.  92.253(c)(3)(ii).
    The Department is revising Sec.  92.253(b)(4)(v) to narrow the 
instances in which a tenant must pay an owner's attorney fees or other 
legal costs as part of a court proceeding. In the proposed rule, the 
Department proposed language to allow payment of such costs if the 
tenant loses the court proceeding. In response to public comment 
stating that the Department should examine local and State laws to 
determine that the tenant protections in Sec.  92.253 are not in 
conflict with such requirements, the Department determined that this 
provision may conflict with State or local laws that would not permit 
payment of attorney's fees or other legal costs, even if the tenant 
were to lose the matter. Moreover, as courts hearing landlord-tenant 
disputes are making findings of fact and law based on the individual 
circumstances of each case, it should be up to those courts to 
determine whether tenants should pay these costs. Therefore, the 
revised requirement will state that a tenant is only required to pay 
the owner's attorney fees or other legal costs if the tenant loses the 
court proceeding and the court orders the tenant to pay those costs.
    The Department is significantly revising Sec.  92.253(b)(5) to 
address a number of comments received about the effectiveness of the 
provisions in protecting tenants. First, the heading for the section is 
being revised to explicitly include ``unreasonable interference'' to be 
clear that unreasonable interference with the tenant's safety or 
peaceful enjoyment of their property is a subject of the provision and 
that the provision is not only prohibiting retaliation. Commenters 
reasonably believed that the section was only describing retaliation 
because the heading did not specify otherwise. Similarly, unreasonable 
interference is now being separately prohibited in Sec.  
92.253(b)(5)(i). The terminology is also being revised from the 
proposed rule to remove the term ``comfort'' and instead state 
``tenant's safety or peaceful enjoyment of a rental unit or the common 
areas of the rental housing project.'' The Department recognizes that 
there is significant landlord-tenant case law on the term ``peaceful 
enjoyment'' and that it is a far more recognized term than 
``enjoyment.'' The Department believes this change will improve the 
ability for courts to determine the meaning of the provision in 
relation to their jurisdictions and governing law. The revision to 
address common areas also reflects consistency with protections in 
Sec.  92.253 that allow tenants reasonable access to and use of the 
common areas of the project (see Sec.  92.253(b)(2)(iv)).
    The Department then revised Sec.  92.253(b)(5)(ii) to prohibit an 
owner from retaliating against a tenant for taking any action allowable 
under the lease and applicable law. The rule provides a variety of 
actions that a tenant may take under a lease and the Department 
believes that retaliating against a tenant for using any of these 
protections is a breach of the lease and of the owner's written 
agreement with the participating jurisdiction. Section 
92.253(b)(5)(iii) provides a list of actions that evidence unreasonable 
interference or retaliation against a tenant. The Department stresses 
that this language is providing examples and that it is not a limited 
list. The actions taken are the same actions that were prohibited in 
the proposed rule, but the list has been redesignated Sec.  
92.253(b)(5)(iii)(A)-(E), and Sec.  92.253(b)(5)(iii)(B) has been 
revised to add a parenthetical to give an example of what it means to 
be increasing obligations of a tenant in a manner that is not in 
accordance with 24 CFR part 92. The example given is of new or 
increased monetary obligations, such as the addition of new or 
increased fees. This is just an example of monetary obligations but 
nonmonetary obligations like new property rules could also be 
considered retaliatory acts under this regulation under the right 
circumstances.
    In response to public comments requesting that the Department 
specify the consequences of unreasonably interfering with a tenant's 
safety or peaceful enjoyment or retaliating against a tenant for 
exercising a right under their lease or the law, the Department has 
added a new Sec.  92.253(b)(5)(iv). This new provision explains that if 
an owner unreasonably interferes or retaliates against a tenant, then 
the owner is violating the lease, the HOME program requirements, and 
their written agreement with the participating jurisdiction. While the 
Department has no authority to require that a participating 
jurisdiction establish a grievance process, the participating 
jurisdiction is required to address any regulatory violations in 
accordance with the applicable provisions contained in Sec.  92.504(a) 
and (c). This applicability is made clearer by adding explicit cross 
references.
    The Department is also revising Sec.  92.253(b)(5)(ii) of the 
proposed rule, which is being revised and redesignated as Sec.  
92.253(b)(6). The new Sec.  92.253(b)(6) has a revised header that 
explains that the section is describing the exercise of rights under 
tenancy. The revised first sentence explains that the tenant can 
exercise any right of tenancy or protection under their lease and other 
applicable Federal, State, or local tenant protections. Then the 
Department redesignated Sec.  92.253(b)(5)(ii)(A)(C) as Sec.  
92.253(b)(6)(i) through (iii) and revised Sec.  92.253(b)(6)(ii) to 
also allow for a tenant to report lease violations in

[[Page 761]]

addition to requesting enforcement of the lease or any tenant 
protections. The Department believes that reporting such lease 
violations are inherent in requesting enforcement but believes that it 
is best to be explicit, given that the provision is also contained in 
the lease addendum.
    The Department redesignated the proposed Sec.  92.253(b)(6) and (7) 
as Sec.  92.253(b)(7) and (8). In response to public comments, the 
Department also redesignated Sec.  92.253(c) as Sec.  92.253(b)(9). The 
same provision will also be included in Sec.  92.253(c)(9). This 
provision, which provides the requirements for security deposits, 
should be contained in the tenancy addenda and not contained in a 
standalone regulation. As explained earlier in this preamble, the 
Department has clear authority to specify the terms and conditions of 
the lease under 42 U.S.C. 12755 and security deposits are a material 
term of the lease. Therefore, the Department is moving the security 
deposit provisions from a standalone section of the regulation and 
instead making the language a part of each HOME tenancy addendum. The 
Department is also revising Sec.  92.253(b)(9) to state that ``Surety 
bonds, security deposit insurance, and instruments similar to surety 
bonds or security deposit insurance may not be used in lieu of or in 
addition to a security deposit.'' This is a non-substantive 
clarification of the text.
    Similarly, one of the most important provisions of a lease concerns 
termination of tenancy. The Department understands how central these 
terms are to a lease and is also including termination of tenancy 
provisions in the lease addendum. Section 92.253(d)(1) of the proposed 
rule and all its contents are being redesignated as Sec.  
92.523(b)(10)(i)-(v) and being revised.
    Section 92.253(b)(10)(i) is being revised from the proposed rule to 
clarify that good cause includes serious or repeated violation of the 
``material'' terms and conditions of the lease. The Department adds the 
word ``material'' because good cause is a higher standard and minor 
lease violations, especially when easily curable or already cured, 
should not provide the basis for a termination of tenancy or refusal to 
renew tenancy in a HOME rental housing project. The Department still 
believes that serious or repeated violations of the material terms of 
the lease, such as nonpayment of rent or intentionally damaging the 
project, can form the basis of a termination of tenancy or refusal to 
renew.
    Section 92.253(b)(10)(i) is also being revised to add a provision 
that states that an owner is permitted to terminate the tenancy of any 
tenant or household member or refuse to renew the lease of a tenant of 
rental housing assisted with HOME funds if the owner is permitted to do 
so pursuant to the provisions contained in 24 CFR part 5, subpart I; 24 
CFR 882.511; or 24 CFR 982.310. This change is in response to public 
comments and to maintain consistency across HUD programs. Owners with 
tenants assisted under programs that are subject to these lease 
provisions must be allowed to terminate tenancy in accordance with the 
U.S. Housing Act of 1937 (42 U.S.C. 1437f) and the Department is 
allowing for a consistent approach for termination of tenancy under the 
HOME program for those assisted tenants.
    Section 92.253(b)(10)(i)(A) is being revised from the proposed 
rule. The provision will state that refusal to purchase a HOME rental 
housing unit is not good cause to terminate a tenancy. The provision 
will provide an exception for when a family fails to purchase housing 
pursuant to a lease-purchase agreement. This was in response to public 
comment, which pointed out that owners must be able to sell units when 
the tenant fails to purchase the home in accordance with their lease-
purchase agreement. The Department agrees and allows for this to be 
good cause to terminate a tenancy.
    Section 92.253(b)(10)(i)(B) is being restructured to specify other 
good cause and then list each ground individually. This was done to 
improve readability of this section. Two grounds for good cause were 
added and one was significantly revised.
    The first form of good cause being added to Sec.  
92.253(b)(10)(i)(B)(1) is when a tenant or household member is a direct 
threat to the safety of the tenants or employees of the housing or an 
imminent and serious threat to the property, which is a statutory 
ground that commenters requested be considered in the termination of 
tenancy or refusal to renew.\13\ The Department agrees that owners 
should be able to terminate tenancy for this reason and is adding this 
as a specific ground. The Department requires owners to maintain 
records to demonstrate that they complied with the tenant protections 
provisions, including records demonstrating there is a reasonable basis 
to determine that a person constituted a direct threat to safety of the 
tenants or employees of the housing or an imminent and serious threat 
to the property. This could include specific threats or acts that took 
place on the project site, against other families living in the 
project, or against any employees or staff of the owner. The Department 
believes that posing a direct threat to the safety of tenants or 
employees is a high bar and not satisfied easily. Similarly, forming 
the basis for an imminent and serious threat to the property is a 
higher bar than just describing past negligent acts alone, and brings 
with it an expectation that there is a specific or credible threat or 
act made by the tenant or household member against the property.
---------------------------------------------------------------------------

    \13\ 42 U.S.C. 12755(b) states: ``An owner shall not terminate 
the tenancy or refuse to renew the lease of a tenant of rental 
housing assisted under this subchapter except for serious or 
repeated violation of the terms and conditions of the lease, for 
violation of applicable Federal, State, or local law, or for other 
good cause. Any termination or refusal to renew must be preceded by 
not less than 30 days by the owner's service upon the tenant of a 
written notice specifying the grounds for the action. Such 30-day 
waiting period is not required if the grounds for the termination or 
refusal to renew involve a direct threat to the safety of the 
tenants or employees of the housing, or an imminent and serious 
threat to the property (and the termination or refusal to renew is 
in accordance with the requirements of State or local law).''
---------------------------------------------------------------------------

    The second form of good cause added to Sec.  92.253(b)(10)(i)(B)(5) 
allows an owner to terminate a tenant's tenancy terminated if the 
tenant fails to purchase the housing within the timeframes listed in 
the tenant's lease-purchase agreement. The intent of a lease-purchase 
program is for the tenant to purchase the unit. If the unit cannot be 
purchased pursuant to the lease-purchase agreement within 36 months, 
then the owner must be able to sell the unit to an eligible homebuyer 
to effectuate the intent of the homeownership development project. The 
Department has revised Sec.  92.254(a)(7) to further enable owners to 
sell homeownership units that fail to be purchased pursuant to their 
lease-purchase agreement and though those changes are not 
interdependent with the tenant protections provisions contained in 
Sec.  92.253, the Department is maintaining consistency between the 
requirements.
    One form of good cause was substantively revised since the proposed 
rule is contained in the newly redesignated Sec.  
92.253(b)(10)(i)(B)(2). This form of good cause was revised to state 
that other good cause includes when a tenant unreasonably refuses to 
provide the owner access to the unit to allow the owner to repair the 
unit. The provision originally contained language permitting 
termination of tenancy or refusal to renew tenancy if the tenant 
creates a documented nuisance under applicable State or local law. The 
comments received for that provision were decidedly negative and there 
were significant concerns that this provision

[[Page 762]]

was not only inconsistent with the rest of the tenant protections but 
counterproductive to the overall tenant protection scheme by providing 
an often-used avenue for discrimination. The Department agrees with 
commenters and is removing the provision, thereby clarifying that 
owners may not justify termination of tenancy on outdated or 
discriminatory concepts of nuisance but instead must rely upon good 
cause.
    Section 92.253(d)(1)(i)(D) is being redesignated and revised as 
Sec.  92.253(b)(10)(i)(C). The provision is also being revised directly 
in response to public comment. The public was concerned that the 
meaning of a record of conviction of a crime that bears directly on the 
tenant's continued tenancy was too vague to be an appropriate legal 
standard to apply to landlord-tenant relationships. The commenters 
believed that the Department should be more specific to ensure the 
regulation and protections are applied correctly. The Department 
agrees. Based on the public comment, the Department is revising the 
language to specify that the violations of applicable Federal, State, 
or local law must be for convictions of a crime that directly threatens 
the health, safety, or right to peaceful enjoyment of the premises by 
other tenants in the project. The Department continues to believe that 
termination of tenancy is a fact-specific matter and that it is 
impossible to provide an exhaustive list of all the grounds or 
considerations that one must consider prior to termination. Criminal 
convictions may impact continued tenancy but only to the extent that 
such convictions interfere with the rights of others who live in the 
project. Minor violations of law that do not impact people living in 
the housing should not form the basis for terminating tenancy or 
refusing to renew a lease in the HOME program.
    Paragraph Sec.  92.253(d)(1)(ii) is being redesignated as Sec.  
92.253(b)(10)(ii) and revised. The first and second sentence are 
revised to only provide 30 days' notice prior to termination of tenancy 
or refusal to renew, and to specify that the 30-day requirement does 
not apply to the statutory grounds for termination relating to tenants 
that are a direct threat to the safety of the tenants or employees of 
the housing or an imminent and serious threat to the property. The 
Department received overwhelmingly negative comments from the public on 
the negative effects of requiring a longer notice period before 
termination or refusal to renew. Some commenters explained the 
variation of eviction timeframes across the country. Others explained 
how adding an additional 30 days to the notice period impacted the 
average eviction process and the average owner in their jurisdiction. 
Organizations that represented owners and affordable housing managers 
described how these changes negatively impact the financial feasibility 
of current and future HOME projects. There were commenters who 
supported the change, and most indicated that it would better assist 
tenants in curing or preventing termination of tenancy. The Department 
also considered what it had done in other programs and the effort to 
make a consistent 30 day notice standard. On the whole, when the 
Department considered the potential negative ramifications and how the 
extension to 60 days was inconsistent with other Departmental efforts, 
the Department decided to withdraw the proposal to extend the notice 
period to 60 days and is revising the paragraph accordingly. Paragraphs 
Sec.  92.253(d)(1)(iii) through (v) are redesignated as Sec.  
92.253(b)(10)(iii) through (v). Paragraph Sec.  92.253(d)(1)(v) is also 
being revised to specify that an owner may not create a hostile living 
environment or refuse to provide a reasonable accommodation to cause a 
tenant to terminate their tenancy. The proposed rule had initially just 
stated that the owner cannot refuse to make a reasonable accommodation, 
but changes are now being made to cover situations where an owner 
refuses to permit a lawful reasonable accommodation with the intent of 
constructively evicting a person.
    A new paragraph (c) is being added to Sec.  92.253. This section 
will provide the tenancy addendum requirements for the HOME tenant-
based rental assistance program. The opening paragraph mirrors the 
opening paragraph for Sec.  92.253(b) and specifies that the terms of 
the HOME tenant-based rental assistance tenancy addendum shall prevail 
over any conflicting provisions of the lease. The terms and conditions 
of the written lease, the HOME tenant-based rental assistance tenancy 
addendum, the VAWA addendum listed in Sec.  92.253(a), and any addendum 
required by another Federal, State, or local affordable housing program 
are the sole and entire agreement between the owner and the tenant and 
no prior or contemporaneous oral or written representation or agreement 
between the owner or tenant shall have legal effect. This is the same 
as the new rental housing requirements and provides sufficient 
protections to ensure that the owner does not later claim that the 
tenant agreed to something that would be prohibited under the tenant 
protections or applicable law. Paragraph Sec.  92.253(c) also states 
that the HOME tenant-based rental assistance tenancy addendum shall 
terminate upon termination of the rental assistance contract. 
Initially, the Department had proposed that the lease terminate upon 
termination of the rental assistance contract but determined that it 
was best left to the owner and tenant as to when the lease shall 
terminate. Instead, the tenancy addendum shall terminate, as the tenant 
is no longer being assisted with HOME tenant-based rental assistance. 
Then the paragraph provides the same list of tenant protections 
contained in the HOME rental housing tenancy addendum paragraph (b) 
except for:
    1. The provision in Sec.  92.253(b)(1)(iii) which requires an owner 
to repair a life-threatening deficiency impacting the tenant, and 
requires, if the repairs cannot be completed on the day the life-
threatening deficiency is identified, the owner to promptly relocate 
the tenant into housing that is decent, safe, sanitary, and in good 
repair and that provides the same or a greater level of accessibility, 
or other physically suitable lodging, at no additional cost to the 
tenant, until the repairs are completed. The Department recognizes that 
this type of provision may have a chilling effect on owner 
participation in the tenant-based rental assistance program and is 
removing the requirement. If participating jurisdictions wish to 
provide this requirement as part of the rental assistance contract, 
then they still retain discretion to do so.
    2. Section 92.253(b)(2)(v) allowing tenants to organize, create 
tenant associations, convene meetings, distribute literature, and post 
information. This provision may have a chilling effect on owners and 
may deter participation in the tenant-based rental assistance program. 
Though the Department believes that tenants should have the right to 
organize tenant associations, rental assistance provided through HOME 
tenant-based rental assistance is not of the same durable nature as 
development subsidies provided to owners and developers producing HOME 
rental housing. Requiring that owners allow organizing activities when 
the participating jurisdiction has far fewer incentives to encourage 
owners to comply disadvantages tenants and participating jurisdictions 
who are already contending with source of income discrimination in many 
jurisdictions.
    3. Paragraph Sec.  92.253(c)(9)(iii) will permit tenants that are 
already in a lease

[[Page 763]]

before they enter into a rental assistance contract to have fulfilled 
the security deposit requirements of paragraph Sec.  92.253(c)(9) even 
if the family used an instrument prohibited under paragraph (c)(9)(i). 
This was due to comment that rightly explained that tenants under a 
lease may have already used surety bonds, security deposit insurance, 
or instruments similar to surety bonds and security deposit insurance 
before they ever received HOME tenant-based rental assistance. While 
the Department does not encourage the use of these instruments and has 
determined that they are neither legally security deposits nor is their 
use advantageous to either owners or tenants, the Department does not 
want to penalize tenants or place obstacles in the way of tenants 
attempting to use tenant-based rental assistance.
    Other than the above-described protections, Sec.  92.253(c)(1)-(9) 
is substantively the same as Sec.  92.253(b)(1)-(9). The Department 
believes that this is appropriate. Recipients of tenant-based rental 
assistance should have substantively the same protections as tenants in 
HOME-assisted rental housing.
    The Department did want to highlight that for the retaliation 
provision contained in Sec.  92.253(c)(5)(iv), the Department 
understands that participating jurisdictions may have limited leverage 
to require that owners unreasonably interfering with or retaliating 
against individuals with HOME tenant-based rental assistance stop their 
actions. The participating jurisdiction must use their best judgment 
about how to address such circumstances, including balancing the needs 
of the tenant to the continued tenant-based rental assistance and the 
participating jurisdiction's obligation to enforce compliance with the 
owner's rental assistance contract with the participating jurisdiction. 
However, the Department is declining to remove this protection, as it 
is a meaningful and necessary tenant protection for all the reasons 
given in the proposed rule.
    The termination of tenancy provisions that were contained in 
paragraph Sec.  92.253(d)(2) are being revised and redesignated from 
the proposed rule to be included in Sec.  92.253(c)(10). First, just as 
in the HOME rental housing termination provisions in Sec.  
92.253(b)(10)(i), the tenant-based rental assistance provisions are 
being included in a new paragraph Sec.  92.253(c)(10)(i) that states 
that an owner may not terminate the tenancy of any tenant or household 
member or refuse to renew the lease of a tenant with tenant-based 
rental assistance, except for serious or repeated violation of the 
material terms and conditions of the lease; for violation of applicable 
Federal, State, or local law; for completion of the tenancy period for 
transitional housing or failure to follow any required transitional 
housing supportive services plan; or for other good cause. This mirrors 
the HOME rental housing section but does not include the additional 
specific grounds that allows owners to terminate the tenancy of any 
tenant or household member or refuse to renew the lease of a tenant of 
rental housing assisted with HOME funds if the owner is permitted to do 
so pursuant to the provisions contained in 24 CFR part 5, subpart I; 24 
CFR 882.511; or 24 CFR 982.310. This is because the Department has 
determined that this is not applicable to the recipients of HOME 
tenant-based rental assistance, who would not be living in units 
receiving subsidy or assistance under the Section 8 program.
    Similar to Sec.  92.253(b)(10)(i)(A), Sec.  92.253(c)(10)(i)(A) 
also states that an increase in the tenant's income or assets, the 
amount or type of income or assets the tenant possesses does not 
constitute good cause. The section also states that except in the case 
of a lease-purchase agreement, other good cause also does not include 
refusal of the tenant to purchase the housing. These protections are 
substantively the same as the HOME rental housing protections.
    The provisions on good cause in Sec.  92.253(c)(10)(i)(B) differ 
from the proposed rule in several respects. Section 92.253(d)(2)(i)(A) 
and (B) of the proposed rule are being redesignated as Sec.  
92.253(c)(10)(i)(B)(2) and (3). Section 92.253(c)(10)(i)(B)(1) is added 
and is substantively the same as the statutory grounds for termination 
of tenancy and refusal to renew that were added to Sec.  
92.253(b)(10)(i)(B)(1). If a tenant or household member constitutes a 
direct threat to the safety of tenants or employees of the housing or 
an imminent and serious threat to the property, an owner must have the 
ability to terminate the tenancy or refuse to renew the lease. For the 
reasons given earlier in this preamble, this is a high standard to 
meet, and the owner must be able to document how they arrived at this 
determination. Section 92.253(d)(2)(i)(C) is being revised and 
redesignated as Sec.  92.253(c)(10)(i)(B)(4). The sentence shall now 
only describe when a tenant unreasonably refuses to provide an owner 
with access to repair the unit. Section 92.253(d)(2)(i)(D) of the 
proposed rule is being redesignated as Sec.  92.253(c)(10)(i)(B)(5). 
Section 92.253(d)(2)(i)(E) of the proposed rule, which provided the 
termination of the rental assistance contract as grounds for 
termination of the tenant lease is being removed. The Department 
received negative comments on this provision and recognizes that this 
is a decision best left to the owner and the tenant. After the rental 
assistance contract expires, the tenancy addendum will also terminate. 
The owner may continue to lease the unit to the tenant under the terms 
of the tenant lease. Section 92.253(d)(2)(i)(F) introductory text and 
(d)(2)(i)(F)(1) of the proposed rule are being combined and 
redesignated as Sec.  92.253(c)(10)(i)(B)(6). Section 
92.253(d)(2)(i)(F)(2) is likewise being revised for readability and 
redesignated as Sec.  92.253(c)(10)(i)(B)(7).
    The Department added a new ground for good cause in response to 
public comment. Section 92.253(c)(10)(i)(B)(8) states that if a tenant 
fails to purchase a housing unit within the timeframes of a tenant's 
lease purchase agreement, then this shall be good cause to terminate 
the tenancy. Commenters requested that this be a ground for termination 
because otherwise, the owner would be required to continue to rent to 
the family, even though the family would be in breach of their lease 
purchase agreement. This would disadvantage owners who wished to sell 
the homeownership units after a tenant fails to purchase the housing 
and would disincentivize lease-purchases.
    Section 92.253(d)(2)(ii) is being redesignated as Sec.  
92.253(c)(10)(ii) and revised to remove the 5-business day requirement 
for the owner to notify the participating jurisdiction that it has 
served a notice to vacate to a tenant. This is because the new tenant-
based rental assistance rental assistance requirements require the 
owner and participating jurisdiction to have a rental assistance 
contract (see Sec.  92.209(e)). Therefore, instead of requiring a time 
period in the regulation, the regulation will defer to the rental 
assistance contract or the participating jurisdiction's policies and 
procedures to govern the issuance of notice to the participating 
jurisdiction. The citation in the last sentence was also revised 
because of the redesignation of the paragraph.
    Paragraphs Sec.  92.253(d)(2)(iii) and (iv) are being redesignated 
as Sec.  92.253(c)(10)(iii) and (iv) without change. Paragraph Sec.  
92.253(d) is being added to add security deposit assistance tenancy 
addendum requirements. The addendum shall prevail over conflicting 
terms of the lease. The terms and conditions of the written lease, the 
HOME security deposit assistance tenancy addendum, and any addendum 
required by another Federal, State, or

[[Page 764]]

local affordable housing program shall constitute and contain the sole 
and entire agreement between the owner and the tenant. The security 
deposit assistance tenancy addendum shall prohibit the prohibited lease 
terms that are currently contained in Sec.  92.253(b)(1)-(9), except 
that Sec.  92.253(d)(8) shall be revised to state that a tenant is only 
obligated to pay costs if the tenant loses and the court so orders, 
consistent with the revisions made in Sec.  92.253(b)(4)(v) and Sec.  
92.253(c)(4)(v).
    Paragraph Sec.  92.253(e)(4) is being revised to specify that 
participating jurisdictions must not exclude an applicant with Federal, 
State, or local tenant-based rental assistance. The proposed rule did 
not prohibit discriminating against a person because they were 
receiving local rental assistance, just State and Federal tenant-based 
rental assistance. In response to comment and consistent with HUD's 
position that source of income discrimination must end, the Department 
is adding this prohibition to the tenant selection regulations.
    Paragraph Sec.  92.253(e)(5) is being revised to remove the 
requirement that HUD approve alternative waiting list procedures for 
small-scale housing projects. The Department believes that this is best 
left to participating jurisdictions. The Department reminds 
participating jurisdictions and owners that all Federal, State, and 
local nondiscrimination requirements, including the Violence Against 
Women Act (VAWA), continue to apply to tenant selection, and any 
approved waiting list procedures must comply with all applicable 
requirements.
    Paragraph Sec.  92.253(f) is being revised to require that the 
notification of an environmental, health, or safety hazard be in 
writing. The paragraph is also being revised to require that when an 
owner becomes aware of such hazards, the owner must notify both the 
participating jurisdiction and the tenants instead of just the tenants. 
This was requested by commenters and will allow tenants to find out as 
quickly as possible if a hazard is affecting their unit or project. The 
paragraph is also being revised to add a sentence to explain that when 
an owner or participating jurisdiction has notified the tenants, this 
satisfies the requirement for the other party.

24 CFR 92.254 Qualification as Affordable Housing: Homeownership

A. Allowing Over-Income In-Place Tenants To Purchase Their Homes
    The Department has determined that the Secretary may permit the 
period of affordability for a project to be terminated earlier than the 
time periods specified in Sec.  92.252 under the circumstances 
described in detail below. The Department is revising Sec.  92.254, 
which currently prohibits over-income in-place tenants from purchasing 
their units. This is in response to public comment requesting that in-
place HOME tenants who are no longer income eligible be permitted to 
purchase their housing units, including when former tax credit projects 
are converting to homeownership housing units.
    It is consistent with the statutory language of the Act, as well as 
the purposes of the Act, to allow in-place HOME tenants who have saved 
up for a downpayment to use that downpayment to purchase the unit that 
they are currently occupying. Developing stable homeownership models 
where tenants can live in a housing unit, work towards increasing their 
income from very-low income to moderate-income, and eventually purchase 
their unit is not only consistent with the intent of the drafter of the 
Act but in furtherance of it. As such, the Department is revising Sec.  
92.254(a)(3) to add a sentence s allowing HOME-assisted housing to be 
purchased by an in-place tenant pursuant to Sec.  92.255 if the 
homebuyer's family was low-income at the time the homebuyer's family 
began occupying the HOME rental housing unit. This is similar to how 
families that entered into lease-purchase agreements may purchase their 
housing so long as they were income-eligible when they entered into 
their lease-purchase agreement. The Department believes this is in 
furtherance of the purposes of the Act and will increase homeownership 
opportunities for HOME-assisted tenants.
B. Meeting Property Standards Post-Acquisition
    The Department is revising Sec.  92.254(a)(3) to provide clearer 
language that explicitly authorizes a participating jurisdiction to 
assist a family even if the homeownership unit does not meet the 
property standards at acquisition, provided that the written agreement 
between the participating jurisdiction and the homebuyer requires the 
property to meet the standards within the period specified in Sec.  
92.251(c)(3)(ii) and funding is secured to complete the rehabilitation 
necessary to comply with the standards. This ensures consistency 
between the requirements in Sec.  92.251(c)(3) and Sec.  92.254.
C. Change in Start of Period of Affordability
    The Department revised Sec.  92.254(a)(4) in response to public 
comments. Commenters had objected to beginning the period of 
affordability upon project completion. For homeownership projects, 
project completion means that all necessary title transfer requirements 
and construction work have been performed; the project complies with 
the requirements of this part (including the property standards under 
Sec.  92.251); the final drawdown of HOME funds has been disbursed for 
the project; and the project completion information has been entered 
into the disbursement and information system established by HUD.\14\
---------------------------------------------------------------------------

    \14\ See 24 CFR 92.2 project completion.
---------------------------------------------------------------------------

    The Department understands that requiring that a homebuyer's resale 
or recapture period only begin to run after the participating 
jurisdiction completes all the information in the disbursement and 
information system can disadvantage homebuyers, especially for multiple 
address projects where completion of the information in the 
disbursement and information system can only occur after all housing 
units in the project meet the requirements in 24 CFR part 92. The 
Department is changing the provision to instead require the period of 
affordability begin after execution of the instrument that requires 
recapture of the HOME investment or recordation of the resale 
restrictions against the property. The Department is further 
conditioning the execution of the instrument that requires recapture of 
the HOME investment or recordation of the resale restrictions against 
the property upon both meeting the property standards in Sec.  
92.251(c)(3) and the transfer of the property title to the homebuyer. 
The Department believes these are reasonable restrictions because the 
property must meet the property standards at the time of purchase, or 
within 6 months after purchase, if permitted by the participating 
jurisdiction (with the ability to extend up to 12 months after 
purchase). If the property does not meet the standards within the 
required time period under Sec.  92.251(c)(3), then the participating 
jurisdiction would have to repay the investment, and the housing would 
not be a HOME-assisted homeownership

[[Page 765]]

unit (and thus should not have resale or recapture provisions applied 
to it).
D. Change in Period of Affordability for Homeownership
    The Department revised the threshold for the periods of 
affordability in the table Sec.  92.254(a)(4) consistent with the 
periods of affordability in Sec.  92.252(d)(4). When the homeownership 
assistance provided on a per-unit basis is under $25,000, the period of 
affordability shall be for a minimum of 5 years. When the homeownership 
assistance is $25,000 to $50,000, then the minimum period of 
affordability shall be 10 years. If the amount of homeownership 
assistance is above $50,000, the minimum period of affordability shall 
be 15 years.
    The Department believes that it is important to increase the 
thresholds for the periods of affordability for the reasons given 
earlier. The Department considered that since 1990, the House Price 
Index has increased by over 300%.\15\ The need for HOME homeownership 
assistance outpaced inflation, as measured by the Consumer Price Index, 
and has been a driver in increasing the amount of HOME homeownership 
assistance that is provided per family assisted over the course of the 
HOME program's history. However, given that the appropriations for the 
HOME program have decreased by over 50% in inflation-adjusted dollars 
since the 1992 HOME appropriation of $1,500,000,000,\16\ and the need 
to maintain affordable homeownership units in accordance with the 
purposes of the Act,\17\ the Department adjusted the thresholds to be 
consistent with the revisions made in Sec.  92.252.
---------------------------------------------------------------------------

    \15\ See U.S. Developmental Index; Not Seasonally Adjusted, 
which is an excel sheet within the Federal Housing Finance Agency 
Housing Price Index Datasets: https://www.fhfa.gov/data/hpi/datasets?tab=additional-data.
    \16\ By one measure, the Consumer Price Index, the dollar has 
increased by over 200% since the establishment of the dollar 
thresholds used to determine the period of affordability for the 
HOME program. See the CPI Inflation Calculator at https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=1%2C000%2C000.00&year1=199201&year2=202310.
    \17\ See 42 U.S.C. 12722(1) and (7).
---------------------------------------------------------------------------

E. Edit for Consistency in 92.504
    Consistent with Sec.  92.504, the Department is revising the first 
sentence of Sec.  92.254(a)(5)(ii)(A) to state that recapture 
provisions must ``require'' that the PJ recoups all or a portion of the 
HOME assistance to the homebuyers if the housing does not continue to 
be the principal residence of the family for the duration of the period 
of affordability. The Department states this as a requirement in other 
parts of the rule and is clarifying the provision here for consistency. 
A similar revision is made in Sec.  92.254(g)(3).
F. Revising Lease-Purchase Provisions of 24 CFR 92.254(a)(7)
    The Department considered a variety of comments on its revisions to 
lease-purchase regulations in Sec.  92.254(a)(7). After careful 
consideration of the challenges owners encounter when the family fails 
to purchase the property pursuant to the lease-purchase agreement, the 
Department is substantially revising Sec.  92.254(a)(7). The Department 
is revising the introductory sentence of the provision to explain that 
acquisition, rehabilitation or new construction of housing to be sold 
to eligible low-income homebuyers for lease-purchase is allowable.
    The next provision Sec.  92.254(a)(7)(i) explains the statutory 
requirement of 42 U.S.C. 12745(b)(2)(B) that a homebuyer must qualify 
as a low-income family at the time the lease-purchase agreement is 
signed. The regulation is being revised to provide standalone 
requirements for lease-purchases within the section. As a result, HUD 
revised the regulation to clarify that the current regulation's 
requirements that income determinations be made based on the income of 
all people living in the homeownership unit are applicable to lease-
purchases.\18\ The Department is also clarifying in Sec.  
92.254(a)(7)(i) that if a family is also receiving HOME tenant-based 
rental assistance, the PJ is not required to reexamine the family's 
income during the term of the lease-purchase agreement. The Department 
has received comments that it should reduce income examination when it 
is not necessary, and that the Department should move to triennial 
income examination. While the Department declined to move to such an 
income cycle for the reasons given in the preamble to Sec.  92.209 and 
in the applicable responses to public comment, the Department realized 
that HOME lease-purchase programs are different. The Act clearly states 
that a family's income is to be determined at the signing of the HOME 
lease-purchase agreement \19\ and does not require that income be 
reexamined prior to the purchase. When a PJ pairs their tenant-based 
rental assistance with a HOME-assisted lease-purchase program, the aim 
is to allow the family to accumulate money for a downpayment and to 
better position themselves for sustainable homeownership when they 
acquire the housing. By eliminating the requirement that the family's 
income be reexamined during the term of the lease-purchase agreement, 
the requirement is more consistent with the Act, the rule better 
enables families to save up for the purchase of the home, and it 
provides burden relief to PJs that would otherwise be required to 
reexamine the tenant's income after 24 months from the date of 
execution of the rental assistance contract.
---------------------------------------------------------------------------

    \18\ See 24 CFR 92.254(a)(3).
    \19\ See 42 U.S.C. 12745(b)(1)(B).
---------------------------------------------------------------------------

    Paragraph Sec.  92.254(a)(7)(ii) explains that the owner and 
homebuyer must execute a lease-purchase agreement prior to the family 
occupying the unit and that the lease-purchase program must require the 
family to purchase the housing within 36 months of the execution of the 
lease-purchase agreement. The provision also retains language from the 
proposed rule explaining that owners and homebuyers that have entered 
into a lease-purchase agreement are subject to the affordability 
requirements in the homeownership section unless the housing is not 
purchased within the timeframes described in Sec.  92.254(a)(7) in 
accordance with the lease-purchase agreement.
    The Department is adding Sec.  92.254(a)(7)(iii) in response to 
public comments that requested that owners be able to sell units to an 
eligible homebuyer if the family that entered into the lease-purchase 
agreement fails to purchase the housing pursuant to the agreement. The 
new Sec.  92.254(a)(7)(iii) provides that if the first homebuyer does 
not acquire the housing, then the owner may sell the housing to an 
eligible low-income homebuyer within 48 months of execution of the 
lease-purchase agreement. This provides owners 12 months from the 
expiration of a 36-month lease-purchase agreement to find another 
eligible low-income homebuyer and sell the homeownership unit. The 
regulation also permits the PJ to provide homeownership assistance to 
the next homebuyer identified for the unit but prohibits the owner from 
entering into another lease-purchase agreement for the housing.
    The Department has concluded that owners should have another chance 
to sell the unit as a homeownership unit instead of being required to 
operate the housing as rental housing if the lease-purchase agreement 
fails to end in the sale of the housing. However, since the lease-
purchase did not succeed the first time, the Department is prohibiting 
owners from using the lease-purchase model on a second attempt to sell 
the housing. The owner must default to the rules that apply in a 
typical homeownership development project.

[[Page 766]]

    Section 92.254(a)(7)(iv) has been amended accordingly to provide 
owners with additional time to sell the housing once it has failed to 
be sold through a lease-purchase agreement by allowing owners 48 months 
to complete the sale and transfer the title to an eligible low-income 
homebuyer (i.e., 36 months for lease-purchase under a lease-purchase 
agreement and 12 months to sell the housing from the expiration of the 
36-month lease-purchase agreement). This change to allow 12 months to 
sell the housing from the expiration of the 36-month lease-purchase 
agreement is consistent with the Department's extension of the period 
in which an owner may sell homeownership housing from 9 months to 12 
months (see Sec.  92.254(a)(3)).
    The Department inadvertently omitted paragraph (a)(8) in the 
publication of the proposed rule. It was not the Department's intent to 
delete paragraph (a)(8), and the Department noted some confusion over 
the use of this provision in the public comments. In the final rule, 
the Department is retaining the language from Sec.  92.254(a)(8) from 
the current rule without change.
    In response to public comment explaining that it is very difficult 
to purchase housing with a right of first refusal, bring the property 
into compliance with the PJ's property standards, and resell it to an 
eligible homebuyer within 6 months, the Department is revising Sec.  
92.254(b)(1)(i) and Sec.  92.254(b)(3)(ii) to allow PJs and CLTs with 
up to 12 months to sell the housing to the next eligible low-income 
homebuyer.

G. Preserving Affordability of HOME Projects

    The Department is adding an additional clarifying sentence to Sec.  
92.254(b)(2)(v) to explain that while sales proceeds can be used to 
reimburse up to one-hundred percent of the administrative funds used by 
a PJ to preserve the affordability, any sales proceeds exceeding that 
amount shall be program income for the PJ.

H. Assisting Homebuyers in Projects Developed by Community Land Trusts

    In response to public comments requesting that CLTs or PJs be 
allowed to assist homebuyers when a CLT exercises a right of first 
refusal or preemptive purchase rights in accordance with Sec.  
92.254(b)(3), the Department is revising Sec.  92.254(b)(3)(iv) to 
explicitly permit the PJ to provide homeownership assistance to the 
next eligible homebuyer. PJ always has the flexibility to assist a 
homebuyer through a homeownership assistance program, regardless of 
whether the unit the homebuyer wishes to purchase was originally 
purchased by another HOME-assisted homebuyer. Since the Department is 
revising Sec.  92.254(b)(3)(iv) to explicitly permit PJs to assist the 
next homebuyer, the Department is also clarifying both Sec.  
92.254(b)(3)(iii) and (iv) to state that if a homebuyer is provided 
assistance by the PJ, the period of affordability shall be calculated 
in accordance with Sec.  92.254(b)(1)(iii) and Sec.  92.254(b)(1)(iv), 
and if no additional assistance is provided to the homebuyer, then the 
period of affordability shall be equal to remaining period of 
affordability on the property.
    However, the Department does not believe the statute permits the PJ 
to award HOME funds to the CLT to provide homeownership assistance to 
the next eligible homebuyer. The statute specifically states that when 
HOME ``funds provided in prior and subsequent appropriations acts that 
were or are used by community land trusts for the development of 
affordable homeownership housing pursuant to section 215(b) of such 
Act,'' then the community land trusts could retain the right to 
purchase the housing without violating the period of affordability 
requirements contained in section 215(b)(3)(A). This type of relief was 
to allow for a unit to temporarily cease to be used as affordable 
housing, as long as the housing was rededicated to that purpose shortly 
thereafter. It did not establish a new eligible activity or new 
eligible costs but gave CLTs the ability to exercise their purchase 
rights without violating the affordability requirements and triggering 
repayment of the HOME investment by the PJ. As such, the Department is 
revising the regulation to allow the PJ to assist the next eligible 
homebuyer.

24 CFR 92.255 Purchase of HOME Units by In-Place Tenants

    The Department received public comments requesting that in-place 
HOME tenants who are no longer income eligible still be permitted to 
purchase their housing units. While regulations currently do not permit 
over-income in-place tenants to purchase their units, the Department 
has determined that the Secretary may permit the period of 
affordability for a project to be terminated earlier under certain 
circumstances. See 42 U.S.C. 12742(a)(1)(E) (noting that rental housing 
qualifies as affordable housing under this subchapter only if the 
housing will remain affordable, according to binding commitments 
satisfactory to the Secretary, for the remaining useful life of the 
property).
    The Department believes that it is consistent with the purposes of 
the Act to allow in-place HOME tenants who have saved up for a 
downpayment to use that downpayment to purchase the unit that they are 
currently occupying. Developing stable homeownership models where 
tenants can live in a housing unit, work towards increasing their 
income from very-low income to moderate-income, and eventually purchase 
their unit is not only consistent with the intent of the Act but in 
furtherance of it.
    As such, the Department is revising Sec.  92.255(b) to state that 
if the tenant's family is no longer low-income at the time of the 
purchase, then the family may still purchase the home. The provision is 
also being revised to state that the family must occupy the housing as 
their principal residence in accordance with Sec.  92.254(a)(3) and 
must agree to the imposition of resale restrictions on the housing, in 
accordance with Sec.  92.254(a)(5), for the remaining period of 
affordability of the housing unit. By adding these requirements, it 
ensures that the intent of the Act is fulfilled because the family, 
which began their participation in the HOME program as low- or very 
low-income, must own and occupy the housing for the full period of 
affordability or be subject to the very same resale restrictions that 
all other income-eligible families must comply with in the event that 
the family sells or transfers the property within the housing's 
original period of affordability.
    Paragraph Sec.  92.255(c) is similarly revised to explain that 
though an in-place HOME tenant may purchase their unit even if the 
tenant's family is no longer low-income, additional HOME funds cannot 
be provided to assist that family because the family is not income 
eligible for homeownership assistance.

24 CFR 92.300 Set-Aside for Community Housing Development Organizations 
(CHDOs)

    In the proposed rule, HUD proposed to revise the text of Sec.  
92.300. The Department is making further revisions to Sec.  
92.300(a)(2) to clarify that rental housing owned by a CHDO is rental 
housing if it is ``leased'' to low-income tenants. The Department had 
inadvertently removed necessary words from the provision in the 
proposed rule and is clarifying text. HUD also determined that it is 
necessary to further revise the text of Sec.  92.300(a)(2) and (3) in 
order to clarify when a community housing development organization is

[[Page 767]]

considered to be an owner of rental housing. The Department is 
clarifying that if a community housing development organization has 
site control of a project through a long-term ground lease, such lease 
must run for the full period of affordability in Sec.  92.252. If an 
owner does not have site control for the entire period of 
affordability, then they do not really own the housing for the full 
period of affordability and cannot enforce 24 CFR part 92 requirements 
in accordance with this section. Accordingly, Sec.  92.300(a)(2) and 
(3) are being revised to more clearly explain the ground lease 
requirements that must be met for a community housing development 
organization to be considered an owner of rental housing.
    In response to public comments, HUD is also making additional 
changes to Sec.  92.300(a)(3). HUD received public comments requesting 
that 92.300(a)(3) more clearly describe how a community housing 
development organization is intended to be in charge of the development 
process when it acts as a ``developer'' under that provision. The 
Department is adding a clarifying sentence that explains that the 
requirement that a CHDO be in charge of all aspects of the development 
must be evidenced by an enforceable written agreement between the CHDO 
and the other entities sharing responsibility in the development of the 
housing. The Department also provided examples of different types of 
written agreements that may meet the requirements, including joint 
venture agreements and master development agreements.
    Additionally, multiple commenters questioned whether the 
Department's removal of the requirement that rental housing developed 
by a CHDO be owned by the CHDO during development and for the full 
period of the affordability would allow a loophole for CHDOs to sell 
CHDO developed units to for-profit organizations. The Department 
recognized that this provision could inadvertently be used for that 
purpose. As a result, the Department revised Sec.  92.300(a)(3) to 
require that the housing be owned by a CHDO unless the PJ documents 
that that the CHDO no longer has the capacity to own and manage the 
housing for the full period of affordability and there are no other 
CHDOs with capacity to own and manage the project for the full period 
of affordability. If the PJ authorizes the transfer of the housing, 
then it may only be sold to a nonprofit. By requiring that the PJ 
attempt to find another CHDO to own the housing unless the PJ cannot 
identify a CHDO that is capable of owning and managing the housing in 
accordance with the requirements of part 92 for the full period of 
affordability, the regulation is more consistent with the purposes of 
the Act and the intent of the CHDO set-aside. It also provides adequate 
safeguards to ensure that the CHDO set-aside is not being used for the 
enrichment of private for-profit businesses.
    The Department is withdrawing its proposed language for the first 
sentence of Sec.  92.300(a)(4)(i), which would have barred wholly-owned 
for-profit CHDO subsidiaries from being considered a CHDO or valid CHDO 
subsidiary for purposes of meeting the CHDO project set-aside 
requirements. The Department recognizes that this is a model that CHDOs 
may be using and does not wish to reduce the ways CHDOs can participate 
in HOME projects.
    Commenters welcomed changing the term ``downpayment assistance'' to 
``homeownership assistance'' in Sec.  92.300(a)(6)(i) and elsewhere. 
Many commenters noted that the new term is broader and could include 
assistance for closing costs and mortgage rate buy-downs. The 
Department believes that it in addition to changing the term 
``downpayment assistance'' to ``homeownership assistance,'' it will 
also be helpful to revise Sec.  92.300(a)(6)(i) to provide additional 
examples of the kinds of homeownership assistance that CHDOs can 
provide.

24 CFR 92.353 Displacement, Relocation, and Acquisition

    The Department is revising the reference to Sec.  92.253(d) in 
Sec.  92.353(c)(2)(ii)(A) to remove the pinpoint citation, as the 
termination of tenancy provisions are now contained in Sec.  
92.253(b)(10) and Sec.  92.253(c)(10).

24 CFR 92.356 Conflict of Interest

    HUD is clarifying language in Sec.  92.356(d)(1). The Department 
recognizes that there may be some confusion over what constitutes a 
``combination'' of conflict of interest disclosure methods provided in 
the proposed rule. The Department is clarifying in the final rule that 
a disclosure of a conflict of interest is a combination of ``at least 
two'' of the communication methods provided in paragraph (d)(1).

24 CFR 92.504 Participating Jurisdiction Responsibilities; Written 
Agreements

    The Department made revisions to Sec.  92.504(c)(1)(v) and Sec.  
92.504(c)(2)(xii) to revise the written agreement requirements to 
require that for projects involving rental housing, tenant-based rental 
assistance, or security deposit assistance, the written agreement 
between the PJ and the State Recipient or Subrecipient, as applicable, 
must require that the HOME tenancy addendum that applies to the type of 
project is used for all HOME-assisted units or tenants. The Department 
is also making technical revisions to Sec.  92.504(c)(3)(ii)(A) to 
revise the first sentence to read in the singular instead of the 
plural. This was done to be consistent with the rest of the surrounding 
provisions.
    The Department is revising Sec.  92.504(c)(3)(i) to add the 
requirement contained in Sec.  92.206(d)(1) into the written agreement 
between the PJ and the owner of HOME rental housing. Paragraph Sec.  
92.206(d)(1) requires that if HOME funds will be reimbursing expenses 
that were incurred no more than twenty-four months before the date of 
the commitment, the written agreement must explicitly permit the use of 
the funds for those purposes.
    The Department is making technical corrections to Sec.  
92.504(c)(3)(ii)(A) to read in the singular instead of the plural, 
consistent with how the rest of Sec.  92.504(c)(3) is written. The 
Department is also adding a new sentence to the end of the paragraph 
that explicitly requires that the written agreement contain the option 
the PJ selected for calculating income in accordance with Sec.  
92.203(b)(1). This information should already have been included in the 
written agreement pursuant to Sec.  92.203 but the Department is now 
including this language in the written agreement provisions for 
consistency.
    The Department is making technical edits to Sec.  
92.504(c)(5)(i)(A) to add parenthesis around examples of allowable 
forms of assistance that a PJ may provide a homebuyer, homeowner, or 
tenant or owner receiving tenant-based rental assistance.
    The Department made technical revisions to Sec.  92.504(c)(5)(iii) 
to add the word ``assistance'' after ``security deposit'' to align with 
provisions in Sec.  9.253(d) that describe security deposit assistance. 
The Department is also making a minor technical edit to Sec.  
92.504(c)(6)(i)(A) to add a comma after the regulatory citation to 
Sec.  92.300(a)(2)-(5).
    The Department is revising Sec.  92.504(c)(6)(i)(B) in response to 
public comments questioning whether the Department was proposing to 
change the treatment of recaptured funds in CHDO homeownership 
projects. The Department is clarifying that PJs may permit CHDOs to 
retain recaptured funds for additional HOME projects pursuant to the 
written agreement. The Department is also adding a descriptive

[[Page 768]]

header to the section Retaining proceeds and recaptured funds.
    The Department recognized that it permits CHDOs to provide 
homeownership assistance to families as part of HOME homeownership 
housing developed by the CHDO. This amount of assistance is limited to 
10 percent of the overall amount of HOME funds provided to the project. 
The Department is adding Sec.  92.504(c)(6)(i)(B)(2) to more clearly 
establish the written agreement requirements for the provision of this 
assistance. The agreement must provide the amount of funds for 
homeownership assistance, the number of homebuyers to receive the 
assistance, any matching contributions, and the period of the 
agreement. The 10 percent limitation is also added, as is the 
requirement that the CHDO's agreement with the homebuyer meet the 
written agreement requirements in Sec.  92.504(c)(5)(i) that apply to 
agreements providing HOME homeownership assistance to eligible 
homebuyers.

24 CFR 92.505 Applicability of Uniform Administrative Requirements

    The Department revised Sec.  92.505 to explain that 2 CFR 200.344 
is applicable to HOME as provided in Sec.  92.507. Originally, the 
Department had said that 2 CFR 200.344 was not applicable to HOME PJs, 
State recipients, and subrecipients but this is confusing because Sec.  
92.507 does make most of 2 CFR 200.344 applicable to them. By adding 
the caveat that 2 CFR 200.344 is not applicable, except as provided in 
Sec.  92.507, this clarifies that it is applicable and that Sec.  
92.507 will explain how.

24 CFR 92.507 Closeout

    In the proposed rule, HUD proposed to revise Sec.  92.507 in order 
to specify the procedures and actions that must be completed by a PJ 
and HUD to close out a grant. In this final rule, the Department is 
further revising Sec.  92.507 for clarity and consistency with 2 CFR 
part 200. The Department is adding a second sentence to the 
introductory provision in Sec.  92.507. This explains that the 
requirements of 2 CFR 200.344 apply to closeouts in the HOME program, 
with the exception where such requirements conflict with the 
requirements in Sec.  92.507. The Department was concerned that its 
language was confusing because in various parts of Sec.  92.507, such 
as in Sec.  92.507(b)(10)(v) and (vi), the regulation requires that PJs 
comply with 2 CFR 200.344. By adding this sentence, the Department is 
clarifying that PJs must follow 2 CFR 200.344 unless it conflicts with 
the HOME regulations.
    The Department is revising Sec.  92.507(a)(1) to clarify that HUD 
will close out a grant after the period of performance has ended 
instead of when HUD determines that PJ has completed all required 
activities and closeout actions. HUD is not limiting its discretion 
here, given under separate legal authorities (including the Act, 
individual appropriations laws, and provisions within 2 CFR part 200) 
to close out a HOME grant. Additional clarification is also being added 
to specify that the PJ must complete all required activities and 
closeout activities for the grant, as required by HUD. The revised 
provision directly states the PJ's closeout responsibilities under the 
HOME program.
    The Department is revising Sec.  92.507(a)(2) to explain that to 
prepare for closeout, before the end of the budget period of the grant, 
the PJ shall review all eligible activities under the grant and 
reconcile its accounts by drawing funds down in a timely manner and 
refunding the proper accounts of any previously disbursed balances of 
unobligated cash paid in advance. This is clearer language that is more 
legally accurate than the proposed rule, which did not explain that 
these actions were to prepare for closeout, did not condition each 
provision on being taken during the budget period, and did not specify 
how refunds would be performed in sufficient detail.
    The Department is redesignating Sec.  92.507(a)(2)(ii) of the 
proposed rule by redesignating it as paragraph (a)(3) and by explaining 
that after the end of the grant budget period, no additional activities 
may be undertaken with that particular HOME grant and that there are no 
additional eligible costs incurred after the budget period. The 
provision also explains that unused funds shall be returned to the U.S. 
Treasury by HUD, and that the PJ must promptly refund any unused grant 
funds not authorized to be retained in accordance with HUD's 
instructions. These clarifications more directly state the requirements 
and the conditions without using problematic terminology like 
``recapture'' which has a different statutory meaning in the HOME 
program than in appropriations law.
    The Department is revising Sec.  92.507(a)(4)(ii) in order to 
remove a reference to FAPIIS and instead add a reference to SAM.gov, 
the current system being used for reporting. The Department is revising 
Sec.  92.507(b)(2) to state that a PJ must demonstrate that it has 
fulfilled all programmatic and administrative requirements for the 
project (i.e., property inspections, obtaining certificates of 
occupancy, etc.) within the period of performance in accordance with 2 
CFR 200.344(a). The proposed rule's provision stated that the PJ must 
complete all activities for which the funds were expended. This may 
have been confusing to the PJs as HOME funds are not to be used after 
the budget period. As such, HUD revised the language to appropriately 
characterize the PJ's actions as providing HUD with information 
demonstrating it has completed all the programmatic and administrative 
requirements within the period of performance and not that HUD was 
allowing for completion of activities after the budget period had 
expired.
    The Department is revising Sec.  92.507(b)(3) to remove the word 
``remaining'' when characterizing the data to be entered into the 
computerized disbursement and information system established by HUD. 
This was for clarity. Similarly, the Department is revising both 
paragraph (b)(5) and (b)(10) to improve the grammatical structure of 
each provision by removing ``the participating jurisdiction must.'' 
This is because the lead-in sentence in Sec.  92.507(b) already states 
that the PJ must take the following actions to close out a grant and 
therefore it is unnecessary to repeat the words in those provisions.
    The Department is revising Sec.  92.507(b)(10)(i) to specify that 
instead of cancelling the unused grant funds, those funds shall be 
returned to the U.S. Treasury. This is clearer language and more 
directly states the mechanics of what is occurring during closeout. 
Paragraph Sec.  92.507(b)(10)(iv) and Sec.  92.507(c)(6) are both being 
revised to include both a State and a consortium in the list of 
entities that qualify as a PJ. If a jurisdiction is not a PJ as a 
metropolitan city, urban county, State, consortium, or consortium 
member when it receives program income, recaptured funds, or repayments 
in accordance with Sec.  92.503, then the funds are not subject to the 
requirements of 24 CFR part 92. The proposed rule inadvertently 
excluded States and consortia, both of which are types of PJs. The 
Department is also revising Sec.  92.507(c)(8) to remove the 
parenthetical citation at the end because it was unnecessary and 
confusing.
    The Department is making a technical revision to Sec.  
92.507(b)(10)(viii) to specify that the PJ's certification acknowledges 
that future monitoring by HUD will occur, ``including'' that findings 
of noncompliance may be taken into account by HUD as unsatisfactory 
performance of the PJ and in any risk-based assessment of any future 
grant

[[Page 769]]

award under the HOME program in the future.
    The Department also revised the reference to recordkeeping 
requirements in 2 CFR part 200 that are applicable to PJs to ``2 CFR 
200.345, as applicable.'' The provision references applicable 
provisions in 2 CFR 200.337 through 2 CFR 200.345, as had been provided 
in the proposed rule, and therefore is a non-substantive change.

24 CFR 92.508 Recordkeeping

    The Department is revising the first sentence to Sec.  
92.508(a)(3)(vii) to state that PJs must maintain records demonstrating 
that each rental housing project met the affordability and income 
targeting requirements of Sec.  92.252 for the required period or met 
the requirements in Sec.  92.255 for conversion to homeownership for 
in-place tenants. This aligns with changes made to Sec.  92.254(a) and 
Sec.  92.255(b) and provides a recordkeeping requirement that 
contemplates conversion of rental housing units to homeownership units 
for in-place tenants in accordance with Sec.  92.255.
    Consistent with changes made by the Department to other sections 
requiring that there be a minimum level of tenant protections for 
families receiving security deposit assistance, HUD is adding 
``security deposit assistance'' to Sec.  92.508(a)(3)(ix) to require 
that the PJ maintain records demonstrating that each family receiving 
such assistance had a lease that included a HOME security deposit 
assistance addendum in accordance with Sec.  92.253(d).

24 CFR 570.200 General Policies

    In the proposed rule, HUD proposed to revise the introductory text 
of Sec.  570.200(h). However, HUD's proposed revisions would have 
decoupled the effective date of a grant agreement from a grantee's 
program year start date and would have subjected many grantees to pre-
award costs on an annual basis. After considering public comments, HUD 
has determined the need to maintain the connection between the grant 
agreement effective date and program year start dates to reserve pre-
award costs to those incurred before a program year start date and, 
therefore, is retaining the existing introductory text to Sec.  
570.200(h). Instead, HUD is adding a new Sec.  570.200(h)(3) to make 
the effective date of the grant agreement, in a year when an annual 
appropriation occurs less than ninety days before a grant recipient's 
program year start date, the earlier of either the program year start 
date or the date that the consolidated plan is received by HUD. This 
change better aligns CDBG with the new HOME program regulation at Sec.  
91.212(b)(2) and continues practices implemented through annual 
waivers.

IV. Public Comments

General Comments

A. Comments in Support for the Proposed Rule
    Multiple commenters expressed general support for the regulatory 
proposals described in the proposed rule. Commenters stated that they 
support the regulatory proposals described in the proposed rule because 
they will simplify and align programs to create more affordable housing 
for persons needing housing assistance. One commenter stated that the 
proposed rule's changes would improve housing stability of low-income 
households. Another said it would promote program flexibility, HUD's 
mission, and clarity and alignment with other Federal programs. One 
commenter expressed support for the proposed rule because it will make 
the HOME program more accessible and user-friendly in rural places. One 
commenter stated that they support the proposed changes because they 
may lead to shorter waiting periods to receive housing. Another 
commenter stated that the proposed rule would help to more effectively 
use resources to narrow the racial homeownership and wealth gaps.
    HUD Response: HUD thanks the commenters for reviewing and is moving 
forward with a final rule.
B. The Rule Increases Program Alignment
    Commenters supported HUD's proposed changes to streamline HOME 
program requirements to align with the CDBG and Section 8 programs 
because the commenter believes it would ensure consistency with the 
implementation of changes to the HOME program.
    HUD Response: HUD thanks the commenters for reviewing the proposed 
rule. The Department further aligned the HOME regulations with the CDBG 
and Section 8 programs in this final rule.
C. The Rule Should Be Revised To Account for Manufactured Housing
    One commenter urged HUD to explicitly address manufactured homes 
and manufactured home communities in the rule and guidance. The 
commenter's suggestions included explicitly clarifying that 
manufactured homes are a permissible HOME housing type, that 
manufactured housing titled as real property or personal property are 
eligible for HOME assistance, that permissible land tenure types 
include manufactured home on land that is owned by the homeowner or 
leased in manufactured home communities, that manufactured home 
communities are explicitly named as permissible for affordable housing 
preservation, that non-profit shared-equity cooperatives are explicitly 
named as being eligible for HOME funding as is the water and sewer 
infrastructure they own.
    HUD Response: Manufactured homes and lots are explicitly included 
in the definition of ``housing'' in Sec.  92.2. To be considered a 
homeowner for purposes of the HOME program, a manufactured homeowner 
must only have a ground lease as long as the period of affordability 
required in accordance with Sec.  92.254.\20\ This is more flexible 
than the 50-year ground lease required to constitute homeownership on 
Indian trust lands and land held by CLTs, and is the most flexible 
definition of homeownership in the HOME program.
---------------------------------------------------------------------------

    \20\ See paragraph (1) of the definition of homeownership in 24 
CFR 92.2.
---------------------------------------------------------------------------

    While the Department is not explicitly revising its regulations to 
change the definition of homeownership for manufactured homeowners, HUD 
notes that if manufactured home communities structure their ground 
leases or ownership in accordance with the HOME homeownership 
requirements, then purchasers may be eligible under the HOME 
regulations. When designing their HOME programs, participating 
jurisdictions are required to consider the housing needs within their 
jurisdiction, including the needs of those who own or wish to purchase 
a manufactured home.
D. The Rule Is More Burdensome
    Another commenter stated that, while supportive of some of the 
rule's proposed changes, the proposed rule would increase 
administrative burden and that this adds to other administrative costs 
from Section 3, BABA, and VAWA.
    HUD Response: The Department believes that the requirements 
contained in this final rule will reduce burden and compliance will be 
less costly than the current requirements. The Department understands 
that Section 3; Build America, Buy America; and Violence Against Women 
Act requirements each may add different requirements on HUD grantees. 
These requirements may change the way that the participating 
jurisdiction contracts for goods and services, or how the participating 
jurisdiction assist survivors of domestic violence, dating violence, 
sexual assault, stalking, or human trafficking. However, these 
requirements are not within the scope of this rulemaking. The

[[Page 770]]

Department will continue to assess ways to further reduce the burdens 
of compliance with various independent statutory requirements.
E. HUD Should Further Streamline the Requirements of the HOME Program
    A commenter stated that HUD's rulemaking should seek to further 
streamline the HOME program and reduce regulatory and compliance 
burdens because these burdens detract from the value of limited 
resources provided to HOME-assisted projects.
    HUD Response: The Department agrees with the commenter and engaged 
in further streamlining of HOME requirements including but not limited 
to income examinations, physical condition inspections, and rent 
determinations.
F. Legislative Reform Necessary
    Commenters supported legislative reform of modernization of the 
HOME program overall or particular statutory provisions. One commenter 
recommended that HUD continue to work with Congress to develop and pass 
legislation to reauthorize and further modernize the HOME program.
    HUD Response: The Department thanks the commenters for sharing 
their view and notes that it also has called for legislative reform of 
HOME in recent HUD Budget Requests.
G. Technical Assistance, Training, and Guidance
    Several commenters requested technical assistance, guidance, or 
training on various topics in the regulation.
    HUD Response: The Department agrees with commenters that it must 
provide significant training, guidance, and technical assistance on 
this final rule to assist participating jurisdictions and other program 
participants comply with new requirements and exercise new 
flexibilities.

Streamlining Terminology

A. Replacing ``Downpayment Assistance'' With ``Homeownership 
Assistance''
    Commenters supported HUD's proposal to change the definition of 
``downpayment assistance'' to ``homeownership assistance.'' Two 
commenters said this change would provide participating jurisdictions 
and HUD regional offices with the clarity needed to understand the full 
breadth of homeownership-related activities that are allowable using 
HOME funding in addition to downpayment assistance. One commenter said 
that this change would increase affordable housing supply by 
facilitating the use of HOME funds by developers to construct or 
rehabilitate owner-occupied housing. One commenter suggested that a 
clear assertion that HOME covers more than downpayment assistance alone 
will more easily allow affordable housing developers to use these funds 
to construct or rehabilitate more owner-occupied housing, adding more 
units to a dwindling affordable supply.
    One commenter stated that HUD has several instances where the term 
``downpayment assistance'' is used instead of ``homeowner assistance'' 
despite the noted substitution, which has resulted in confusion. The 
commenter noted the following instances of ``downpayment assistance'' 
appearing in several other locations within the text of the rule 
including Sec. Sec.  92.203(d); 92.209(c)(2)(iv); 92.250(b)(4); Sec.  
92.251(c)(3); 92.300(a)(6)(i); 92.351(a)(1); 92.504(c)(1)(i); 
92.504(c)(2)(i).
    HUD Response: HUD thanks the commenters for reviewing and is moving 
forward with this change. In examining the regulation and comments, the 
Department determined that there were numerous instances where the term 
``downpayment assistance'' persisted and has made revisions to the term 
in Sec. Sec.  92.203, 92.209, 92.250, 92.251, 92.300, 92.351, and 
92.504.
B. Replacing ``Dwelling'' With ``Housing''
    A commenter stated that they support the proposed change of 
replacing the term ``dwelling'' with ``housing'' for the HOME program, 
TBRA program, and income targeting for homeownership.
    HUD Response: HUD thanks the commenters for reviewing. HUD will 
move forward with replacing the term ``dwelling'' with ``housing'' 
where the Department determines that this is accurate terminology. The 
Department did note that in relation to HOME regulations implementing 
the Uniform Relocation Assistance and Real Property Acquisition 
Policies Act (URA) (42 U.S.C. 4601 et seq.), and its regulations at 49 
CFR part 24, as amended, and Section 104(d) of the Housing and 
Community Development Act (42 U.S.C. 5304(d)) and its regulations at 24 
CFR part 42, the term ``dwelling'' is more consistent with the 
underlying statutory and regulatory terminology and will be maintaining 
the usage of the term in that area of the HOME regulations. Similarly, 
the Department will be retaining the use of this terminology in 
relation to accessibility requirements, which refer to applicable 
definitions outside of 24 CFR part 92. In performing its review, the 
Department determined there were additional areas whether the term 
``housing'' was more appropriate than ``dwelling'' including in 
Sec. Sec.  92.2, 92.219, 92.253, 92.254, and 92.258. The Department is 
revising these regulations accordingly.
C. Replacing ``Affordability Period'' With ``Period of Affordability''
    Commenters supported HUD's proposed definition of ``period of 
affordability.'' One commenter supported the consistent use of the term 
but noted that the old term persists in certain places in the 
regulation.
    HUD Response: HUD thanks the commenters for reviewing and is moving 
forward with the revised term ``period of affordability.'' The 
Department has also revised the remaining references to ``affordability 
period'' to read as ``period of affordability'' to maintain consistent 
terminology.
D. Replacing ``Single-Family'' With ``Single Family''
    One commenter thanked the Department for streamlining the term 
single family while another commenter noted places where certain 
terminology was not corrected.
    HUD Response: The Department noted that there were instances in 
which the term was not corrected and is making changes to Sec.  92.2. 
and Sec.  92.220.

Sec.  92.2--Commitment Definition

A. General Support
    One commenter supported changing the language of the definition of 
``commitment'' from ``official'' to ``officials'' And from 
``downpayment assistance'' to homeownership assistance.
    HUD Response: HUD appreciates the commenter's support and will move 
forward with these changes.
B. Paragraph (2) of the Commitment Definition--Commit to a Specific 
Local Project--Opposition to Requirement To Secure All Project 
Financing Before Commitment
    One commenter stated that HUD should consider revising paragraph 
(2)(i) of the definition of ``commitment'' in Sec.  92.2 because 
requiring applicants to secure all project funding before receiving a 
commitment of HOME funds is overly burdensome, particularly for 
nonprofit developers. The commenter explained that this upfront secured 
funding requirement could result in fewer applications for HOME funding 
and should be removed. The commenter also suggested expanding the 
meaning

[[Page 771]]

of construction to include incurring typical pre-development costs such 
as architectural and engineering costs.
    HUD Response: Commenters urged HUD to revise the definition of 
commit to a specific local project by removing the requirement that all 
project financing be secured before commitment. The Department did not 
propose a change to these requirements and declines to make these 
proposed changes at the final rule stage. HUD believes these 
requirements to be essential to ensuring that HOME funds are not 
committed to and used for projects that have not secured all the 
financing necessary to enable the project to be successfully and timely 
completed. The Department is not defining construction or expanding the 
meaning of construction to include pre-development activities such as 
architectural and engineering costs. The type of costs that the 
commenter is describing are project-related soft costs.
    Under the current regulation, project related soft costs, which 
include architectural and engineering costs, may be reimbursed if they 
are incurred not more than 24 months before the date that HOME funds 
are committed to the project and the participating jurisdiction 
expressly permits HOME funds to be used to pay these costs in the 
written agreement committing the funds to the project. The proposed 
rule added the cost of environmental reviews and studies to this 
provision.
    The Department received several comments on HUD's revision to Sec.  
92.206(d)(1) to allow HUD environmental review or other environmental 
studies or assessments to be reimbursable costs incurred prior to when 
funds were committed to a project. Those commenters urged the 
Department to consider expanding the types of costs that would be 
allowed to be incurred to include ``pre-development'' or other related 
soft costs. The Department agrees with the commenters and is expanding 
the project soft costs that may be incurred prior to a commitment to 
include costs to process and settle financing for the project, 
including private lender origination fees, credit reports, fees for 
title evidence, legal fees, private appraisal fees, and fees for 
independent cost estimates. These were all contained in paragraph 
(d)(2) but will now be deleted from paragraph (d)(2) and added to 
paragraph (d)(1). While the Department is moving these provisions to 
paragraph (d)(2), the Department determined that several provisions 
could not be moved because there is no reasonable expectation that they 
should occur prior to commitment. These provisions include obtaining 
building permits, which require HUD environmental review; fees for 
recordation and filing of legal documents, as recorded documents 
relating to an acquisition, rehabilitation, or new construction project 
should occur after commitment of HOME funds; and builders or developers 
fees, as those fees should not be earned and chargeable to the HOME 
grant for work performed prior to the environmental review and 
commitment of the HOME funds to the project.
    Additionally, because of specific public comment, the Department 
also added ``accounting fees'', ``filing fees for zoning or planning 
review and approval'', and ``other lender-required third-party 
reporting fees'' to paragraph (d)(1). By moving or adding the soft 
costs into paragraph (d)(1), HUD is allowing the above-described costs 
to be paid as long as they were incurred no more than 24 months before 
the date of commitment, and they were included in the written agreement 
committing the funds.
C. Paragraph (2) of the Commitment Definition--Commit to a Specific 
Local Project--Opposition to Requirement That Construction Must Be 
Scheduled To Start Within Twelve Months of the Agreement Date
    Commenters urged HUD to lengthen the time between commitment and 
the start of construction from the current 12 months. One commenter 
proposed extending the timeframe to 24 months because of the extensive 
backlog of construction work and the loss of available and qualified 
contractors. Another commenter stated that HUD's 12-month timeline 
could be challenging if the construction cycle is tied to hard costs or 
providing additional guidance for circumstances in which the 12-month 
deadline is missed.
    HUD Response: HUD appreciates the commenter's review of the 
proposed rule and this recommendation. The Department did not propose a 
change to the 12-month time period between the date of the written 
agreement and the start of construction on a HOME-assisted project. The 
12-month requirement has been in the commitment definition since 1991 
and ensures that HOME funds are not prematurely committed to projects 
that are not ready to move to construction. HUD declines to adopt the 
suggested change. In addition, HUD notes that the 12 months is not a 
deadline; the current rule states that a participating jurisdiction 
must have a reasonable expectation that construction will begin within 
12 months when committing HOME funds to a specific local project. This 
expectation can be demonstrated by the construction schedule appended 
to the written agreement committing the funds.

Sec.  92.2--Community Housing Development Organization Definition

A. General Comments
    Many commenters supported the changes and stated that the proposed 
rule would create more opportunities for nonprofits to become CHDOs, 
expand the nonprofit affordable housing delivery system, expand the 
capacity of CHDOs, and make it easier for participating jurisdictions 
to use their CHDO set-aside funds. Other comments expressed concern 
about or opposition to HUD's proposed changes, particularly changes 
aimed at increasing eligible CHDOs in rural areas. One commenter stated 
that, despite having concerns about certain HUD proposals, it 
appreciates HUD's efforts to make CHDO designation easier to attain and 
retain particularly in areas with few or no CHDOs. Another commenter 
stated that while the commenter is supportive of the proposed changes 
that would create opportunities for organizations to participate in 
housing development and build their own capacity, HUD should consider 
additional policy safeguards to preserve the purpose of the set-aside 
and ensure that unintended consequences, such as bad actors meeting the 
letter of the requirements but ``not the spirit of the designation,'' 
do not outweigh the benefits. One commenter stated that it appreciates 
HUD's effort to expand options for meeting the low-income board 
requirement but does not believe it will make a significant difference 
in the number of organizations that will seek the CHDO designation. The 
commenter stated that meeting the 15 percent CHDO set-aside requirement 
will continue to be a challenge for many participating jurisdictions 
irrespective of the proposed changes.
    HUD Response: HUD believes that there are appropriate safeguards in 
place in the final rule because the designees of nonprofit 
organizations that may serve on the board only count towards the one-
third board representation requirement if they represent organizations 
that ``address the housing or supportive service needs of low-income 
residents or residents of low-income neighborhoods.'' This connection 
to the community, and the list of examples HUD provides to further 
elaborate on the types of groups and the role they must play within the 
community, demonstrate that the intent

[[Page 772]]

is not to water down a CHDO's ties to the community but to strengthen 
them. Promoting board representation for victim service providers, 
homeless providers, organizations involved in promoting or defending 
civil rights, disability advocates, and other organizations that 
directly serve the community will serve to strengthen CHDOs' boards and 
provide needed input from hard-to-reach groups.
B. Include Cooperatives as Eligible for CHDOs
    One commenter suggested that HUD expand CHDO eligibility to 
affordable housing cooperative corporations because affordable housing 
cooperatives, including resident owned manufactured housing community 
cooperatives, meet the goals of CHDOs to advance resident and community 
engagement as cooperative boards are made up of their resident owners 
who govern and manage the cooperative. The commenter further explained 
that cooperatives would benefit from eligibility as CHDOs by gaining 
greater access to CHDO sponsors. The commenter stated that if 
affordable housing cooperatives are not granted status as CHDOs 
directly, then it is imperative that they are granted access to work 
with a CHDO nonprofit 501(c)(3) sponsor to access set-aside funds that 
can create lasting affordable housing.
    HUD Response: HUD appreciates the comments and notes that nothing 
in the existing HOME regulations or in the proposed rule would prohibit 
a cooperative housing corporation from being designated as a CHDO as 
long as the organization can meet the definition of CHDO. The 
Department has also significantly changed the ways that CHDOs can be 
involved in a development project in Sec.  92.300 and believes that it 
provides additional opportunities for affordable housing cooperatives 
to partner with CHDOs on CHDO set-aside projects.
C. Paragraph (4) of CHDO Definition--Align Definition of CHDO in 24 CFR 
92.2 and the Definition of Community-Based Development Organization in 
24 CFR 570.204
    One commenter recommended that the regulations relating to CHDOs 
align more closely with the community-based development organization 
regulations through the CDBG program.
    HUD Response: The Department is limited by statute in how closely 
it can align the definitions of CHDO and community-based development 
organization. By regulation, a CHDO qualifies as a community-based 
development organization if it is designated as a CHDO by the 
participating jurisdiction, has a geographic area of operation of no 
more than one neighborhood, and has received HOME funds under 24 CFR 
92.300 or is expected to receive HOME funds as described in and 
documented in accordance with 24 CFR 92.300(e) (See 24 CFR 
570.204(c)(2)). This safe harbor is provided in recognition that if an 
organization meets all the requirements of community housing 
development organization in Sec.  92.2, then the organization will have 
met the statutory requirements in 42 U.S.C. 5305(a)(15). This is 
because the statutory definition of CHDO is more restrictive than the 
statutory and regulatory definition of a community-based development 
organization. It is because of these statutory and programmatic 
differences that a community-based development organization cannot 
automatically qualify as a CHDO.
    Under the HCDA statute and CDBG regulations, community-based 
development organizations include local development corporations, which 
can be for-profit entities (See 42 U.S.C. 5305(a)(15)) and 24 CFR 
570.204(c)(1)(iii)). Under NAHA, CHDOs must be nonprofit organizations 
(42 U.S.C. 12704(6)). Community-based development organizations can 
also perform economic development activities under the CDBG program, 
and thus the organizations will have more expansive purposes and scopes 
than CHDOs, which are required to have among their purposes the 
provision of affordable housing. The difference in eligible activities 
also means that community-based development organizations can have 
different types of representation on their boards, including businesses 
serving low-income communities (24 CFR 570.204(c)(1)(iv)). Thus, after 
a careful examination of the two sets of statutory and regulatory 
requirements, the Department has determined that no change to further 
align the definitions should be made at this time.
D. Paragraph (4) of CHDO Definition--Tax Exempt Status
    One commenter supported the change to the CHDO definition that 
clarifies the options for meeting the requirement that a CHDO must be 
exempt from taxation.
    HUD Response: The Department appreciates the comment and is 
adopting the language in paragraph 4 of the CHDO definition at Sec.  
92.2 without change.
E. Paragraph (5) of CHDO Definition--General Support for Changes to 
Limitations on Public Officials on a CHDO's Governing Board
    Commenters were broadly supportive of the proposed change narrowing 
the individuals who would count toward the one-third limitation on 
governing board membership from ``any governmental entity'' to 
``officials or employees of the participating jurisdiction or 
governmental entity that created the community housing development 
organization.'' Commenters stated that the proposed change would 
provide more flexibility to nonprofit organizations in meeting the 
board requirements while maintaining the freedom from governmental 
control of CHDOs intended by statute. One commenter stated that the 
change would help CHDOs create boards with expertise in the field of 
affordable housing, while appropriately addressing conflict of interest 
considerations that may arise. Another commenter stated that the change 
will facilitate resource-sharing between CHDOs and governmental 
entities such as councils of governments, Tribal entities, and regional 
planning commissions in rural communities.
    Commenters also supported the proposal to clarify that no 
governmental entity, not only the one that created the CHDO, may 
appoint more than one-third of the CHDO's board members, as well as the 
language clarifying that not only may the board members appointed by a 
government entity not appoint the remaining two-thirds of a CHDO's 
board members, the board members who are officials or employees of the 
governmental entity that created the CHDO may not appoint any of the 
remaining two-thirds board members.
    One commenter recommended that HUD emphasize that the one-third 
public official restriction on board membership does not apply to all 
CHDOs, only those CHDOs that were created by a governmental entity. The 
commenter stated that this would involve promulgating a Notice 
clarifying the new and correct interpretation of this paragraph, and an 
intense training and communication plan to educate participating 
jurisdictions across the country.
    HUD Response: HUD thanks the commenters for sharing their views. 
HUD is adopting the proposed rule language without change. The 
Department also agrees that its guidance should be clearer that, while 
all CHDOs must be free from governmental control, the one-third 
limitation on public

[[Page 773]]

officials only applies to CHDOs that were created by the participating 
jurisdiction or another governmental entity. For CHDOs not created by a 
governmental entity, the participating jurisdiction must determine that 
the CHDO is not a governmental entity and is not controlled by a 
governmental entity.
F. Paragraph (5) of CHDO Definition--Opposition to Public Officials on 
a CHDO's Governing Board
    A commenter questioned why HUD would require a CHDO to include 
elected officials on the CHDO board. The commenter stated that 
requiring CHDOs to include elected officials on the CHDO board would 
constitute a conflict of interest because elected officials approve the 
funding for HOME projects. The commenter stated that a CHDO would have 
to turn to neighboring communities to select elected officials for the 
CHDO board to avoid any conflict.
    HUD Response: The commenter incorrectly believes that HUD is 
requiring CHDOs to include elected public officials on the CHDO 
governing board. HUD revised paragraph (5) of the Community Housing 
Development Organization definition in Sec.  92.2 to make the existing 
limitation on public officials and employees of a governmental entity 
on the CHDO governing board less restrictive should a CHDO choose to 
include public officials on the governing board.
G. Paragraph (5) of CHDO Definition--Limitation on Public Officials on 
a CHDO's Governing Board--Volunteer Members Planning or Zoning 
Commissions
    One commenter recommended that HUD allow volunteer members of 
planning or zoning commissions or other local advisory boards to serve 
as CHDO board members and not count against the public sector limit.
    HUD Response: HUD is not adopting this recommendation. Whether a 
volunteer member of a planning or zoning commission or other local 
advisory board may count towards the public sector limit depends upon a 
variety of factors including whether the organization the person is 
volunteering for created the CHDO, whether the person is considered an 
employee or official, whether the entity is considered part of the 
participating jurisdiction, etc. It is likely that many volunteer 
members of planning or zoning commissions or other local advisory 
boards may not count towards the limits described in paragraph (5) of 
the definition of community housing development organization contained 
in Sec.  92.2.
H. Paragraph (5) of CHDO Definition--Statutory Basis for Limitation on 
Public Officials on a CHDO's Governing Board
    One commenter was supportive of changes to the CHDO board but also 
encouraged HUD to go further and fully address the ``public officials'' 
issue. The commenter disputed that there was a statutory basis for 
limiting participation of public officials or employees of governmental 
entities from being board members of CHDOs. The commenter believed that 
it was entirely at HUD's discretion whether to include this language in 
its regulations, or not, and how to interpret it.
    HUD Response: When the Act was created, CHDOs, which had existed 
prior to the Act, were nonprofit, private sector organizations that had 
deep ties to the community. The Congressional findings of the Act 
explicitly stated that CHDOs are nonprofit organizations acting in the 
private sector.\21\ If a governmental entity creates a CHDO, then it is 
consistent with the purposes and findings of the Act to place a 
reasonable limitation on the public sector board membership of the 
CHDO. This limitation is necessary to ensure that the CHDO is not 
simply an affiliate or an alter ego of a governmental entity but a 
robust community-based nonprofit organization with capacity to develop, 
sponsor, and own affordable housing in the jurisdiction. The Department 
is moving forward with its revisions to paragraph (5).
---------------------------------------------------------------------------

    \21\ 42 U.S.C. 12721.
---------------------------------------------------------------------------

I. Paragraph (5) of CHDO Definition--Further Narrow Limitation on 
Public Officials on a CHDO's Governing Board
    Another commenter suggested that HUD could further reduce barriers 
to meeting low-income representation and public official requirements 
by counting only elected or appointed officials toward the public 
official limitation and permit civil service employees to serve on CHDO 
boards, subject to a conflict of interest policy.
    HUD Response: The Department believes that it has struck the 
correct balance in its new final rule requirements and is not adopting 
this recommendation. The limits in paragraph (5) of the definition of 
community housing development organization only apply when the CHDO was 
created by a governmental entity and the civil service employee is 
working for the governmental entity that created the organization or 
the participating jurisdiction that is funding the organization. This 
is already a narrow subset of all cases. Even when the limit in 
paragraph (5) of the definition of community housing development 
organization applies, HUD regulations are not barring the person's 
representation but stating that the person counts towards the limit and 
cannot be an officer or employee of the organization in order to 
consider the organization a CHDO.
J. Paragraph (5) of CHDO Definition--Low-Income Public Officials on a 
CHDO's Governing Board
    Commenters suggested that HUD should revise the rule to state that 
if an appointed official or employee of a participating jurisdictions 
lives in a low-income community and is themselves low-income, they will 
be allowed to be counted toward the low-income representation on the 
board of the CHDO and not count as a public official. One commenter 
stated the regulation should explicitly state that this applies in 
rural areas or areas where significant low-income representation does 
not exist.
    HUD Response: If a person meets the definition of low-income under 
Sec.  92.2 or lives within a low-income community, then under paragraph 
(8)(i) of Sec.  92.2 Community housing development organization, the 
person would be included in the one-third representation requirement. 
If a CHDO is created by a governmental entity, no more than one-third 
of its board may be officials or employees of the participating 
jurisdiction providing HOME funds to the CHDO or the governmental 
entity that created the CHDO. In the commenter's example, if the CHDO 
was created by a governmental entity, and the person was an employee or 
official of the participating jurisdiction funding the CHDO or the 
governmental entity that created it, then the person would also count 
towards the one-third limitation under paragraph (5) of the definition 
of community housing development organization in Sec.  92.2. These are 
independent requirements and serve to prevent potential abuses. The 
Department would also note that under the commenter's recommended 
approach, the entire board of an organization created by a governmental 
entity could be employees or officials so long as they were low-income 
or lived in low-income neighborhoods. This is not the intent of the 
drafters of the Act in creating the set-aside requirement and the 
Department is declining the commenters' recommendations.

[[Page 774]]

K. Paragraph (5) of CHDO Definition--Further Limit Public Officials on 
a CHDO's Governing Board to Officials or Employees Administering HOME 
Assistance
    One commenter that is a State participating jurisdiction stated 
that it supports the proposal to narrow public officials to the 
participating jurisdiction but questioned what unit of government is 
considered the participating jurisdiction. The commenter asked whether 
all State employees would be considered part of the participating 
jurisdiction or whether the limitation would apply to the lead agency, 
the consolidated planning partners or the administrator of the HOME 
grant. The commenter recommended that the language be updated to apply 
the limitation only to employees of the entity that administers the 
HOME funding.
    HUD Response: In the scenario raised by this commenter, the 
participating jurisdiction is the State, and the limitation would apply 
to officials and employees of any State agencies, not solely officials 
and employees of the agency that administers the State's HOME grants. 
HUD declines to change the regulation so that only employees of the 
agency that administers the HOME funds for the participating 
jurisdiction count towards the one-third limitation or the prohibition 
against being an officer or employee of a CHDO. This change would be 
inconsistent with the statutory intent that CHDOs not be controlled by 
the participating jurisdiction. An official or employee of a 
participating jurisdiction, even when not affiliated with the specific 
agency administering HOME assistance, is still potentially subject to 
the influence of that participating jurisdiction. Consequently, when 
they serve on a CHDO board, HUD believes that they should count toward 
the one-third limitation on public sector participation on the board of 
a CHDO created by a participating jurisdiction.
L. Paragraph (8) of CHDO Definition--Support for Inclusion of 
``Designees'' of Low-Income Neighborhood Organizations
    Several commenters supported the proposed change to expand the CHDO 
low-income board representation requirement under paragraph (8)(i) of 
the definition of community housing development organization to include 
``designees'' of low-income neighborhood organizations rather than only 
the elected representatives of such organization, stating that the 
change is helpful and will widen the pool from which CHDOs may find 
board members. A commenter who supported the proposed changes stated 
that they would be particularly helpful for communities with rising 
incomes where board members who previously qualified as residents of a 
low-income neighborhood may now be residents of a middle-income 
neighborhood.
    HUD Response: The Department appreciates the comments and is 
adopting this change.
M. Paragraph (8) of CHDO Definition--Difference Between ``Designee'' 
and ``Authorized Representative''
    Multiple commenters asked that HUD clarify or provide examples in 
the final rule of the difference between a ``designee'' and an 
``authorized representative,'' as used in paragraph (8)(i) of its 
proposals regarding nonprofit representatives on CHDO boards because 
the proposed rule implies a difference that is not explained. Another 
commenter noted that there is some ambiguity in the term ``authorized 
representatives'' in paragraph (8)(i) and encouraged HUD to broaden the 
scope of the language as it could be construed to mean only individuals 
who have legal authority to bind the nonprofit.
    HUD Response: The Department recognizes that using two different 
terms ``designee'' and ``authorized representative'' created confusion 
because low-income neighborhood organizations and nonprofit 
organizations that address housing or supportive services needs of 
residents of low-income-neighborhoods may have similar corporate 
structures and organizational requirements. The Department believes 
that the term ``designee'' is the appropriate term. A low-income 
neighborhood organization or a nonprofit organization that addresses 
the housing or supportive service needs of low-income residents or 
residents of low-income-neighborhoods can designate one or more persons 
to serve on the board of a CHDO. Accordingly, the Department has 
revised paragraph (8)(i) of the definition of CHDO to read ``designees 
of nonprofit organizations in the community that address the housing or 
supportive service needs of low-income residents or residents of low-
income neighborhoods . . . .''
N. Paragraph (8) of CHDO Definition--Support for Inclusion of 
Authorized Representatives of Nonprofit Organizations in the Community 
That Address the Housing or Supportive Service Needs of Residents of 
Low-Income Neighborhoods
    Many commenters stated that they support the proposals to permit 
authorized representatives of local non-profit organizations and 
members of low-income neighborhood organizations to meet the CHDO board 
requirements for low-income residents. One commenter stated that 
representatives from organizations who serve low-income persons, even 
when an organization's focus is on a topic other than housing, should 
count towards the low-income representation. Other commenters objected 
to the proposed rule's addition of ``authorized representatives of 
nonprofit organizations'' to the definition of CHDOs in Sec.  92.2, 
citing concerns about accountability and connection of a CHDO board to 
the low-income neighborhood. One commenter stated that relaxing the 
requirement for direct community involvement on CHDO boards would 
dilute the intended impact of the designation as a means for 
maintaining accountability to low-income community residents because 
authorized representatives from nonprofit organizations are not 
required to reside in the neighborhood nor be low-income themselves. 
The commenter recommended that HUD remove the ``authorized 
representative'' option for meeting the CHDO board member eligibility 
requirement. Another commenter stated that the expanded definition is 
not community-centered and does not truly connect the governance of the 
CHDO to the community.
    One commenter stated that although they were not firmly opposed to 
the change, they were concerned about the potential of the proposed 
changes to water down the representation of low-income people in CHDO 
governance, which is an important source of accountability. The 
commenter urged the Department to consider the possibility of layering 
using a tandem requirement to preserve the opportunities for low-income 
people to participate in this process.
    HUD Response: The Department is moving forward with language 
allowing for designees of nonprofit organizations in the community that 
address the housing or supportive service needs of low-income community 
residents or residents of low-income neighborhoods to count towards the 
one-third board

[[Page 775]]

membership requirement in paragraph (8)(i) of the definition of 
community housing development organization in Sec.  92.2.\22\ The 
Department believes that designees of nonprofit organizations that 
house or provide supportive services to low-income residents or 
residents of low-income neighborhoods are accountable to the people 
they serve, understand the challenges they face, and are in a position 
to represent the beneficiaries of their services in making decisions on 
the design, siting, development, and management of affordable housing, 
in accordance with 42 U.S.C. 12704(6)(B).
---------------------------------------------------------------------------

    \22\ See earlier preamble discussion on why the Department is 
using the term ``designee.''
---------------------------------------------------------------------------

    Designees of nonprofit organizations that address the housing or 
supportive service needs of low-income community residents or residents 
of low-income neighborhoods may not always live in low-income 
neighborhoods or be low-income, but they directly serve those that are, 
including persons with disabilities, victims of domestic violence, 
homeless persons, people suffering from food insecurity, and victims of 
civil rights violations. Their participation strengthens the board of 
CHDOs because these organizations have deep ties to the community and 
the people they serve. Far from watering down the requirements for 
board members, the Department believes that this better enables CHDOs 
to retain subject matter experts that better understand the community 
being served by the CHDO.
O. Paragraph (8) of CHDO Definition--Building More Equity Into 
Governing Boards
    One commenter stated that it was concerned about recruitment and 
retention of low-income residents for board membership and understands 
HUD's proposal to relax board member restrictions, but would appreciate 
further consideration/guidance toward instilling equity in board member 
criteria requirements because this impacts board member 
representativeness. The commenter stated that this relaxation may 
eventually have potentially negative effects on low-income tenants 
residing in the affordable housing development. The commenter further 
stated that a board that is technically allowed per HUD requirements 
may not be representative of the community it serves.
    HUD Response: The Department appreciates the comment and recognizes 
the tension inherent in simplifying qualification requirements to 
increase the number of organizations that can qualify as CHDOs and 
maintaining accountability to the low-income neighborhood where a 
project is located. HUD believes that the requirement in paragraph 
(8)(ii) that a CHDO have a formal process for low-income program 
beneficiaries to advise the organization in its decisions regarding the 
design, siting, development, and management of affordable housing helps 
maintain accountability to low-income tenants residing in projects. HUD 
is attempting to build equity in this by including ``designees of 
nonprofit organizations in the community that address the housing or 
supportive service needs of low-income residents or residents of low-
income neighborhoods, including homeless providers, Fair Housing 
Initiatives Program (FHIP) providers, Legal Aid, disability rights 
organizations, and victim service providers.''
    HUD has determined that the entities used as examples in this 
section each assist protected classes including persons with 
disabilities; survivors of domestic violence, dating violence, 
stalking, sexual assault, and human trafficking; and persons suffering 
from various forms of discrimination. By clarifying how FHIPs, Legal 
Aid organizations, and other civil rights organizations can count 
towards representation, HUD is advancing equity in CHDO board 
composition. Moreover, the Department believes that each hold a 
connection to the community and will make CHDOs more representative of 
the community and the needs of low-income residents within the 
community.
P. Paragraph (8) of CHDO Definition--Examples of Nonprofit 
Organizations That Address the Housing or Supportive Service Needs of 
Residents of Low-Income Neighborhoods
    Commenters requested that HUD clarify in the final rule or 
supplemental guidance whether the list of community serving 
organizations included in the proposed rule is organizations from which 
authorized representatives can qualify for the low-income portion of 
the CHDO board is exhaustive or illustrative in nature. Some commenters 
urged HUD to be as expansive as possible in identifying the types of 
organizations included in this provision. Some commenters suggested 
other types of organizations that should be specifically listed in the 
regulation, including health and behavioral healthcare providers, 
healthcare organizations, food pantries, workforce development 
organizations, Native American- and Tribal-serving organizations, and 
faith-based organizations. Commenters stated that the inclusion of 
faith-based institutions could further HUD's goals of supporting CHDOs 
in rural areas. One commenter cited the historically significant 
relationship between faith-based organizations and housing development 
organizations, especially in rural areas.
    One commenter recommended against the HOME program rule listing out 
specific organizations that meet the low-income representative 
requirement for CHDO boards. The commenter stated that if HUD wishes to 
include a specific list of organizations, then HUD should make sure the 
list explicitly states that the listed organizations are just examples 
of organizations that qualify to meet the low-income representative 
requirement for CHDO boards.
    HUD Response: The Department appreciates the recommendations made 
by the commenters. The Department believes the current list of examples 
of nonprofit organizations that address housing or supportive service 
needs of low-income residents or residents of low-income-neighborhoods 
in paragraph (8)(i) of the definition of CHDO in Sec.  92.2 is 
sufficient for the public to understand what type of organizations meet 
this requirement. Some of the commenters' recommendations, like faith-
based organizations, are already explicitly mentioned in HOME 
regulations.\23\ Many of the other organizations that commenters 
mention will qualify if they meet the nonprofit requirements and 
provide needed housing or supportive services to community residents. 
The Department will provide additional implementation guidance on the 
new CHDO requirements.
---------------------------------------------------------------------------

    \23\ See paragraph (10) of the definition of community housing 
development organization in 24 CFR 92.2.
---------------------------------------------------------------------------

Q. Paragraph (8) of CHDO Definition--Reduce Low-Income Board Membership 
Requirements
    Commenters encouraged HUD to reduce the low-income board 
requirement below the current one-third or eliminate the low-income 
representation requirement altogether. One commenter stated that 
expanding low-income board eligibility to include ``designees of low-
income neighborhood organizations'' will not increase nonprofit 
interest in becoming CHDOs because nonprofit organizations do not want 
to make significant changes to their board composition. One commenter 
who supported the proposed changes also recommended reducing the low-
income board representation from

[[Page 776]]

one-third to 10 or 15 percent, stating that this would still constitute 
significant representation by low-income community residents.
    HUD Response: The Department believes that the one-third board 
representation requirement is consistent with the statutory intent in 
42 U.S.C. 12704(6)(B), which requires that CHDOs maintain 
accountability to low-income community residents through 
``significant'' representation on the organization's governing board 
and ``to the extent practicable, to low-income beneficiaries with 
regard to decisions on the design, siting, development, and management 
of affordable housing.'' Reducing the percentage or eliminating the 
requirement would not be consistent with the intent of the Act and 
would decrease the CHDO's connection with the people they serve. The 
Department is declining to change the one-third board representation 
requirement.
R. Paragraph (8) of CHDO Definition--Meeting the Low-Income 
Representation Requirement in Rural Communities
    A commenter stated that in their rural service area there are no 
low-income neighborhood organizations and that one of their board 
members works at a nonprofit as the school district's homeless liaison 
and family support specialist. The commenter stated that because there 
are no low-income neighborhoods in the school district, the noted board 
member would not count toward the one-third low-income representation. 
The commenter suggested that HUD consider using tandem requirements to 
preserve the opportunities for low-income people to participate in this 
process. Another commenter with a rural service area suggested that the 
language in paragraph (8)(i) of Sec.  92.2 be changed to ``. . . 
authorized representatives of nonprofit organizations in the community 
that address the housing or supportive service needs of low-income 
residents of the CHDO's service area . . . .''
    HUD Response: The Department recognizes the challenges in rural 
communities where nonprofit organizations may be providing supportive 
services to low-income individuals but may not be serving in a low-
income community. The Department believes that it has sufficiently 
broadened paragraph (8) to account for designees of nonprofit 
organizations that serve low-income residents within the community that 
the CHDO serves. This should address the commenter's concerns and 
better enable people who serve low-income community residents to 
represent their interests on the board of a CHDO.
S. Paragraph (8) of CHDO Definition--The Use of the Term ``Residents of 
Low-Income Neighborhoods'' Is Too Limiting
    Another commenter also suggested that HUD reconsider the phrasing 
``residents of low-income neighborhoods'' because it suggests that 
service organizations who are regional or whose clients are not defined 
by the clients' neighborhood of residence are not eligible. The 
commenter stated that agencies that are included in this criterion 
necessarily have regional footprints, and the residents they serve are 
defined by some income or other ``need'' characteristic, not the income 
level of the neighborhood in which the client lives.
    HUD Response: The Department agrees that the phrasing of 
``residents of low-income neighborhoods'' could be read as too narrow 
and does not fully capture the statutory intent of the definition 
contained in 42 U.S.C. 12704(6). 42 U.S.C. 12704(6)(B) requires that a 
CHDO be a nonprofit organization that ``maintains, through significant 
representation on the organization's governing board and otherwise, 
accountability to low-income community residents and, to the extent 
practicable, low-income beneficiaries with regard to decisions on the 
design, siting, development, and management of affordable housing . . 
.'' HUD has determined that adding ``low-income beneficiaries of HUD 
programs,'' to the list of individuals that may count towards the one-
third board membership requirement contained in paragraph (8)(i) of the 
definition of CHDO in Sec.  92.2 can partly address the commenter's 
concern while also being more consistent with the statutory 
requirement. HUD believes this will address the commenter's concerns 
because status as a low-income beneficiary of HUD programs is not 
connected to the immediate geography of the person served. HUD 
encourages CHDOs, to the greatest extent practicable, to include low-
income beneficiaries of HUD programs because their inclusion will lead 
to increased accountability. HUD recognizes that not all HOME rental 
projects and not all people served by HUD programs reside in low-income 
communities and believes that this addition will make this 
representation more inclusive. HUD encourages siting projects outside 
of areas of concentrated poverty but still wants accountability to the 
beneficiaries of the program served. Therefore, HUD believes this 
change is a meaningful revision. HUD would note that while HUD is 
proposing this revision to make it clearer that beneficiaries of HUD 
programs can count towards the representation requirements, the 
Department would like to clarify that the term ``other low-income 
community residents'' is already part of the regulation and the term 
``community'' can be considered a multi-county area. So, it is very 
possible that many of the people the commenter described may already be 
eligible to count towards the one-third board representation 
requirement contained in paragraph (8)(i) of the definition of CHDO in 
Sec.  92.2.
    The Department is also addressing the commenter's concerns by 
expanding the type of designees of nonprofit organizations to include 
nonprofit organizations that serve ``low-income residents'' instead of 
organizations serving ``residents of low-income neighborhoods.'' 
Therefore, in the example the commenter gave, if the person was a 
designee of a nonprofit organization that provided services to a low-
income resident of the CHDO's community, then the person would be able 
to count towards the one-third board representation requirement in 
paragraph (8) of the definition of CHDO.
T. Paragraph (8) of CHDO Definition--Lived Experience Should Count 
Towards Low-Income Board Representation Requirements
    Commenters stated that HUD should consider individuals who are not 
low-income but have previous lived experience as a low-income person or 
a homeless person to qualify as a low-income community resident for the 
purposes of meeting the requirement for one-third low-income 
representation on the CHDO governing board. These commenters stated 
that the changes in circumstance, such as increases in income, do not 
eliminate such a board member's lived experience, which make them a 
valuable representative of the interests of low-income people and 
places.
    Other commenters recommended that HUD revise the regulation to 
permit individuals who joined the board as a low-income community 
resident to retain that designation even if their income rises above 
the low-income level. Some commenters stated that HUD should provide a 
grace period in such cases because it is difficult for CHDOs to replace 
board members when their eligibility as a low-income representative 
unexpectedly ends. Similarly, a commenter suggested that if a board 
member moves or has their home address re-designated into a different 
census tract, HUD should allow a grace period not to exceed the lesser 
of their board term or five years

[[Page 777]]

for that board member to continue to qualify as living in a low-income 
community. Commenters suggested grace periods of varying length, 
including three years and 10 years.
    HUD Response: The Department agrees that current lived experience 
should count towards board representation requirement and has expanded 
the list of people that can count towards the one-third board 
representation requirement in paragraph (8) of the definition of CHDO 
to include low-income beneficiaries of HUD programs. HUD also 
considered whether persons with former lived experience of being low-
income or homeless should qualify towards the requirement that an 
organization's governing board maintain accountability to low-income 
community residents and low-income beneficiaries. Unfortunately, the 
Department believes that this does not satisfy the statutory 
requirement that board members be connected and answerable to low-
income community residents because they might not appropriately account 
for the present challenges impacting low-income persons in the 
community being served. The Department also considered providing a set 
time period in which a person could qualify as a low-income board 
member regardless of whether the board member's income increased. The 
Department believed that doing so could lead to a result where 
individuals who were not low-income, no longer lived in low-income 
communities, and had no ties or accountability structures to the low-
income community would be counted towards the board representation 
requirement. This is not consistent with the intent of the Act and does 
not provide accountability to the people that the CHDO serves. As a 
result, the Department has declined to make the commenters' recommended 
revisions.
U. Paragraph (8) of CHDO Definition--Expanding the Definition of 
``Community'' To Be Statewide
    Some commenters supported the proposed change to allow the 
definition of the community to include the entire State because it 
would address challenges rural communities face in meeting the 
governing board and staff capacity requirements and increase the usage 
of CHDO set-aside funds in rural areas. One commenter stated that HUD's 
proposed rule would benefit rural organizations that have experienced 
negative impacts from the existing high standards in the definition of 
CHDO in HUD's regulations.
    Many commenters raised concerns or strongly objected to expanding 
community to mean the entire State. These commenters believed it would 
weaken the connection of a CHDO to the low-income community being 
served. One commenter noted that the proposed change would 
disincentivize State participating jurisdictions from working to build 
the capacity of local groups, which is antithetical to the intent of 
the CHDO set-aside requirement. One commenter expressed concern 
regarding the change to allow Statewide CHDOs, particularly for very 
large and geographically diverse States such as California, and 
recommended HUD allow State participating jurisdictions the flexibility 
to evaluate the capacity of CHDOs to serve the entire State, especially 
rural and underserved areas of the State. Commenters stated that the 
proposed change went too far in permitting rural CHDOs to qualify based 
on board representation from the areas being served. Several commenters 
stated the proposed change would inappropriately characterize all rural 
areas as equal for purposes of low-income representation. One commenter 
stated that under the proposed regulation, a Statewide CHDO could 
develop a board with no low-income presence, accountability, or 
connection with the community served. Another commenter asked HUD to 
consider the tension between the need to drive more CHDO dollars to 
rural communities and the need to build capacity and provide 
opportunities for smaller rural-serving CHDOs when moving forward with 
the consideration of Statewide CHDOs.
    Commenters stated that while they recognized the critical need for 
more CHDOs in rural areas, they were concerned that the proposed change 
would result in small community-based organizations having to compete 
for CHDO set-aside funds with large, high-capacity Statewide 
organizations. One commenter stated that small, rural CHDOs would be 
disadvantaged by their greater need for capacity building funding. 
Commenters stated that if HUD adopts the proposed change, it should 
also implement mechanisms to ensure that Statewide CHDOs consider local 
community input and priorities in the rural communities they serve and 
consider how to ensure smaller organizations are not wholly cut out 
from accessing CHDO resources.
    Some commenters recommended that HUD allow CHDOs with Statewide 
service areas to be eligible as CHDOs but only award project dollars to 
CHDOs (located anywhere in the State) with at least three years of 
service to the community in which the project is located, as opposed to 
one year of service anywhere in the State.
    Commenters noted that the regulations already allow for rural 
communities to be defined as a multi-county area. One such commenter 
stated that 42 U.S.C. 12704 prohibits participating jurisdictions from 
requiring such a CHDO with such a community to have board 
representation from each of its counties. The commenter stated that 
there is currently no regulatory barrier for a CHDO to claim as its 
community every county in a State with the exception of areas within a 
Metropolitan Statistical Area; the barrier that exists is participating 
jurisdictions' interpretation of ``multi-county.'' The commenter 
suggested that a better proposal would be for HUD to direct the most 
expansive interpretation of ``multi-county'', and to allow individual 
Statewide participating jurisdictions to apply for waivers from the 
existing regulation to create Statewide CHDOs only if needed.
    HUD Response: The Department appreciates the many thoughtful 
comments submitted by many commenters on both sides of this difficult 
issue. While HUD remains concerned about the challenges many 
participating jurisdictions have in identifying and sustaining CHDOs 
that serve rural areas, it has decided not to adopt the change to the 
definition of community in paragraph (8) of the CHDO definition. The 
Department is persuaded by commenters that adopting this proposal would 
impair or eliminate the accountability of CHDOs to the low-income 
communities being served with CHDO set-aside funds and would negatively 
affect small rural CHDOs by putting them in competition with larger 
Statewide organizations with more capacity but less connection to the 
low-income community being served.
    HUD appreciates commenter suggestions that if the proposal were to 
be adopted, the Department should impose mechanisms to help ensure that 
Statewide CHDOs consider local community input, require a longer 
history of serving a specific rural community, or mitigate the 
disadvantage that smaller rural CHDOs would have in comparison to 
Statewide organizations in competing for CHDO set-aside funds. However, 
the Department recognizes that the qualification of nonprofit 
organizations as CHDOs is already substantially regulated and believes 
that additional regulation would be counterproductive. Instead, HUD 
considers the adoption of other proposed changes to the CHDO definition 
in paragraphs (8) and (9) of Sec.  92.2, to the developer and sponsor 
roles at Sec.  92.300(a)(2) and (3), and the elimination of the 
proposed revision of

[[Page 778]]

the definition of community in Sec.  92.2 to be a middle ground that 
will hopefully increase the availability of CHDOs to serve rural areas 
without diminishing the accountability of those CHDOs to the low-income 
communities being served.
    In response to the commenter that stated that 42 U.S.C. 12704 
prohibits a participating jurisdiction from requiring a CHDO serving 
rural areas to have board representation from each of its counties, HUD 
notes that this interpretation of the Act is incorrect. The Act 
prohibits HUD, not participating jurisdictions, from requiring that an 
organization must have representation from each county in its service 
area to be designated as a CHDO. Because HOME is a block grant program, 
participating jurisdictions have discretion to establish requirements 
for their programs and select projects as they choose through requests 
for proposals or other legally permissible methods. Consequently, 
participating jurisdictions can establish their own requirements for 
designating or awarding funds to CHDOs that are more stringent and take 
into account these types of considerations.
V. Paragraph (9) of CHDO Definition--Using Volunteers To Demonstrate 
Capacity
    Some commenters supported the proposed change in paragraph (9)(i) 
that would permit the capacity and experience of volunteers who will 
work directly on a HOME-assisted project and are officers or board 
members to be considered as part of demonstrated capacity. Commenters 
stated that the proposed change would make it easier for organizations 
to qualify as CHDOs.
    One commenter suggested that HUD not limit volunteers to board 
members as they considered this limitation unnecessary. The commenter 
noted that if there are concerns about dependability or ongoing 
capacity, then the standard should be broadened to also include 
``contracted volunteers.''
    Other commenters that supported the proposed change suggested that 
HUD consider imposing guardrails on volunteer capacity such as applying 
a limit on the period that the experience of a volunteer official or 
board member may be counted toward a CHDO's capacity. Some commenters 
recommended a three-year limit. One commenter stated that prolonged 
reliance on officials and board members will harm an organization when 
it comes to meeting development capacity requirements, especially 
because nonprofits have high staff turnover. The commenter stated that 
this will affect the ability of nonprofits to train new staff on HOME 
requirements and place the burden of such education on the 
participating jurisdiction.
    One commenter stated that they had serious concerns about 
volunteers serving on a board in meeting the capacity requirements for 
an organization. The commenter stated they had these concerns because a 
volunteer will generally not dedicate the same time and effort as an 
employee. The commenter also stated that the proposed change would 
allow for people to create shell organizations that have a 
representative board who are also real estate professionals and have 
that qualify as a CHDO organization.
    A commenter noted that the definition of CHDO in Sec.  92.2(9) 
states that ``the nonprofit organization must have employees or 
volunteers,'' which appears to allow an organization with volunteers 
and no employees to be designated as a CHDO. The commenter requested 
that HUD clarify whether this language was intentional or 
unintentional. The commenter stated further that HUD could refine the 
language to add clarity on the relationship between ``employees'' and 
the nonprofit seeking CHDO designation.
    HUD Response: The Department thanks the commenters for reviewing 
the rule. The Department especially thanks the commenter that informed 
the Department that the provision as drafted in the proposed rule could 
have allowed a CHDO to meet the capacity requirement without paid 
staff. This was not what the Department intended. The Department is 
revising paragraph (9)(i) of the definition of CHDO. The Department 
believes that requiring paid staff and then allowing their capacity to 
be supplemented by volunteers strikes an appropriate balance. The 
Department also believes this addresses commenters who requested that 
there be guardrails or time limitations.
    Under the final rule, CHDOs must maintain paid staff that will 
manage the development process. CHDOs can also rely upon board members 
and officers of the organization with significant development 
experience because those board members and officers have more lasting 
ties to the organization than typical volunteers, who may only be 
volunteering for individual projects or for a limited time.
    The Department is also declining to allow the use of a ``contracted 
volunteer,'' which is an amorphous term that could lead to abuse or 
indirect control of a CHDO by a for-profit entity, or lead to 
determining that an organization lacks the capacity when the person 
demonstrating capacity is not contracted for the full development 
cycle. Even if the volunteer is contracted for the amount of time 
overlaps with the development cycle for a particular project, the ties 
of contracted volunteer service are not nearly as strong or as binding 
as paid staff, board members, or officers. Typically, the consequences 
are far less significant if a contracted volunteer ends their volunteer 
term early, while volunteer board members and officers have terms of 
office, and the organization generally has mechanisms for replacement 
of former officers or board members written into their organizational 
documents to ensure proper governance.
W. Paragraph (9) of CHDO Definition--Experience With Other Funding 
Sources and Programs
    Commenters stated that they support the proposed rule language that 
would broaden the requirement that an organization have demonstrated 
staff capacity for carrying out projects assisted with HOME funds to 
include housing projects funded with other Federal funds, LIHTC, or 
local and State affordable housing programs. One commenter expressed 
support because the proposed change would help small rural CHDOs meet 
organizational capacity requirements.
    Commenters also requested that HUD explicitly include experience 
with the New Markets Tax Credits and Federal Home Loan Bank Affordable 
Housing Program.
    HUD Response: The Department agrees with commenters that the list 
of types of programs or forms of assistance could be broadened and that 
experience in the Federal Home Loan Bank Affordable Housing Program is 
sufficient to demonstrate capacity. The Department is therefore adding 
this program to this list of programs that demonstrate capacity in 
paragraph (9) of the definition of CHDO in Sec.  92.2. The Department 
is declining to add experience with the New Market Tax Credits as these 
credits are exclusively for non-residential uses and experience in 
commercial development alone is not sufficient to demonstrate 
experience with the challenges of housing development.
X. Paragraph (9) of CHDO Definition--Use of Donated Labor, Consultants, 
and Others
    Commenters made suggestions regarding other individuals whose 
experience should be counted toward a CHDO's capacity. Commenters 
recommended that the final rule permit

[[Page 779]]

the experience of staff from affiliated entities, parent companies, 
for-profit developers, public housing authorities, and regional 
planning commissions whose services are donated to the CHDO be 
considered as capacity of a CHDO. One commenter stated that HUD should 
clarify the difference between donated time and volunteer time. Several 
commenters also recommended that CHDOs be allowed to demonstrate 
capacity and experience through the use of consultants and non-employee 
compensation.
    HUD Response: The Department does not believe that donated labor is 
sufficient to meet the statutory requirement in 42 U.S.C. 12704(6)(C) 
that a CHDO have staff with demonstrated capacity to own, develop, or 
sponsor a HOME project. The CHDO itself must be capable of 
participating in the housing development process. When an organization 
relies upon the expertise of donated labor or individuals who work for 
affiliated organizations, those individuals lack lasting ties to the 
organization and may only be donated for individual projects or for a 
limited time. The donated labor also may lead to situations where 
organizations that are not CHDOs exercise outsized influence over CHDO 
projects, thereby potentially undermining the purposes of the Act.
    The Department does allow the use of a consultant in the first year 
that a CHDO is provided HOME funds; paragraph (9)(i) reads as follows: 
``[f]or its first year of funding as a community housing development 
organization, an organization may satisfy [the capacity] requirement 
through a contract with a consultant who has housing development 
experience to train appropriate key paid staff of the organization.'' 
The Department believes that it is appropriate to retain this provision 
but is adding clarification that the staff that are to be trained must 
be paid staff, as per the Department's earlier comment response on the 
importance of paid staff in demonstrating capacity to develop HOME 
projects.
Y. Revise the CHDO Definition To Enable Participation of More Resident-
Owned Communities
    One commenter who supported the flexibility provided to CHDOs in 
the proposed rule stated that the changes do not allow resident-owned 
communities to qualify as CHDOs. The commenter stated that such 
communities cannot meet the 501(c)(3) status and demonstrated capacity 
requirements, even though they fully meet the intent of CHDOs. The 
commenter stated that resident-owned manufactured housing communities 
are owned by predominantly low-income community members organized to 
govern and preserve their communities and have flourished for 40 years 
due to a system of professional technical assistance, training, and 
ongoing business coaching. The commenter urged HUD to support capacity 
building systems for resident-owned communities and other eligible 
manufactured housing communities.
    HUD Response: The Department appreciates the comments and agrees 
that using HOME funds, including CHDO set-aside funds, for manufactured 
housing communities presents some challenges. The Act requires that to 
qualify as a CHDO, an organization must be a non-profit organization. 
The regulations implement that statutory provision through a 
requirement that a CHDO have tax-exempt status evidenced by a 
501(c)(3), 501(c)(4), or section 905 designation from the Internal 
Revenue Service. In addition, the Act and the Consolidated and Further 
Continuing Appropriations Act of 2012 (Pub. L. 112-55) and the 
Consolidated and Further Continuing Appropriations Act of 2013 (Pub. L. 
113-6) require that a CHDO have staff with demonstrated capacity to 
undertake HOME-assisted housing activities. These requirements do not 
apply to HOME funds outside of the CHDO set-aside making those funds 
possibly a better fit for such projects. The Department provides a 
broad range of technical assistance through its Community Compass 
demand-response system, which can be of assistance in developing 
approaches to use HOME funds to assist manufactured home communities.

Sec.  92.2--Community Land Trust Definition

A. General Comments on the Definition
    Several commenters expressed support for HUD's proposed definition 
of the term ``community land trust'' with many commenters noting that 
the proposed definition allows for flexibility in the composition of 
the organizational board and governance of community land trusts across 
the country. One commenter specifically noted that the proposed 
definition does not specify the structure of the community land trust's 
governing board yet retains the nonprofit purpose, the centrality of 
land, the lasting affordability, and codifies the preemptive purchase 
rights of community land trusts to prevent the loss of units to the 
open market.
    Two commenters support the elevation of the term ``community land 
trust'' to the definition section of the regulation noting that the 
placement makes it clear that the definition applies throughout the 
HOME program.
    Two commenters noted the importance of community land trusts to the 
affordable housing market noting that community land trusts help 
families bridge the gap between rental housing and homeownership, 
benefit residents of color in communities facing displacement, increase 
resilience against climate extremes, pass lower property taxes through 
to the project or end user, and are a dedicated partner for local 
government funding for affordable housing. Several commenters also 
stated that the proposed definition will enable more community land 
trusts to participate in the HOME program, while two commenters noted 
that rural community land trusts in particular would be encouraged to 
participate in the HOME program. Two commenters also added that the 
proposed changes would allow community land trusts to fully realize the 
benefits of the HOME program and the right to a preemptive purchase 
option provided in 2016.
    Several commenters expressed concern about or opposition to HUD's 
proposed definition of community land trust.
    HUD Response: The Department is moving forward with including a 
definition of community land trust in Sec.  92.2. The definition of 
community land trust better enables these organizations to participate 
in the HOME program in the manner envisioned by the Act and the 
drafters of the Consolidated Appropriations Act, 2016.\24\
---------------------------------------------------------------------------

    \24\ The Consolidated Appropriations Act, 2016 Public Law 114-
113, div. L, title II, Dec. 18, 2015, 129 Stat. 2878 said that 
notwithstanding the affordability requirements contained in section 
215(b)(3)(A) of the Act [42 U.S.C. 12745(b)(3)(A)], community land 
trusts may ``hold and exercise purchase options, rights of first 
refusal or other preemptive rights to purchase the housing to 
preserve affordability, including but not limited to the right to 
purchase the housing in lieu of foreclosure.''
---------------------------------------------------------------------------

B. Opposition to the Definition Over Concerns of Conflict With 
Environmental Requirements
    One commenter asked if HUD's proposal regarding community land 
trusts would violate other HUD requirements, including the 
environmental review process requirement that prevents proposed 
projects from being built too close to other low-income housing.
    HUD Response: The commenter is mistaken. There are no low-income

[[Page 780]]

housing concentration requirements as part of the HOME environmental 
review process. Section 92.202(b) requires that new rental housing meet 
the site and neighborhood requirements contained in 24 CFR 983.57(e)(2) 
and (3) but those requirements are not applicable to homeownership 
projects that are developed by community land trusts.
C. Add ``Membership'' or ``Community-Governed'' to the Organizational 
Requirements of Community Land Trusts
    Two commenters objected to the proposed definition noting that HUD 
should add the phrase ``membership or community-governed'' to the 
definition to reflect the community governance structure inherent in 
community land trusts. The commenters added that HUD should address the 
underlying concerns about participating jurisdictions' difficulty 
determining the legitimacy of the governing models through education.
    HUD Response: The Department understands the commenter's concern 
but does not believe that adding additional community governance 
structures to the definition of community land trusts in Sec.  92.2 is 
appropriate at this time. Community land trusts may also attempt to 
meet the definition of CHDO in Sec.  92.2, and own, develop, or sponsor 
HOME projects in accordance with Sec.  92.300. Adding additional 
community governance requirements in addition to those contained in 
Sec.  92.2 or Sec.  92.300 may create too high of a bar for 
participation in the HOME program.
    Moreover, community land trust governance structures vary from 
State to State, based upon State laws and local models. In the 
materials that various commenters provided and in the State laws that 
were reviewed in the preparation of the proposed rule text, the board 
requirements and best practices varied significantly. Given the wide 
variety of community land trust models operating over a significant 
period of time throughout the nation, the Department does not wish to 
inadvertently narrow the definition or eliminate consideration of an 
organization that would have met the intent of the drafters of the Act 
or the Consolidated Appropriations Act, 2016.\25\
---------------------------------------------------------------------------

    \25\ The Consolidated Appropriations Act, 2016 Public Law 114-
113, div. L, title II, Dec. 18, 2015, 129 Stat. 2878 said that 
notwithstanding the affordability requirements contained in section 
215(b)(3)(A) of the Act [42 U.S.C. 12745(b)(3)(A)], community land 
trusts may ``hold and exercise purchase options, rights of first 
refusal or other preemptive rights to purchase the housing to 
preserve affordability, including but not limited to the right to 
purchase the housing in lieu of foreclosure.''
---------------------------------------------------------------------------

    The Department is committed to making it easier for participating 
jurisdictions to support CHDOs and better implement statutory 
provisions that enable community land trusts to participate in the HOME 
program.
D. The Definition of Community Land Trusts Is Too Restrictive
    Another commentor objected to HUD's proposed definition of 
community land trust as too restrictive, stating that the proposed 
definition could disqualify many community land trusts from using the 
additional tools that the revised rule would provide. The commenter 
stated that the use of the phrase ``development and maintenance'' would 
exclude community land trusts that carry out non-development activities 
such as land acquisition and noted that few community land trusts 
provide maintenance services, which are generally the responsibility of 
the owner. The commenter suggested replacing the phrase ``development 
and maintenance'' with the word ``provision,'' as in ``the provision of 
housing that is permanently affordable to low- and moderate-income 
persons,'' thereby aligning the proposed community land trust 
definition with the HOME definition of a CHDO as ``[having] among its 
purposes, the provision of decent housing.''
    HUD Response: The Department agrees with the commenter that many 
community land trusts do not develop or maintain housing. As models 
vary nationwide, the Department recognizes that the wording of the 
definition was too narrow to permit community land trusts that acquire 
and hold existing housing to be considered land trusts. Likewise, the 
use of the term maintenance was confusing for some community land 
trusts that do not have the responsibility of maintaining the housing 
during the term of the ground lease. The Department would note that in 
order to exercise a right of first refusal, the housing must have been 
developed by a community land trust using HOME funds.\26\ Therefore, 
while a community land trust may have, as its purposes, ``acquiring'' 
or ``holding'' land, in order to exercise rights of first refusal, the 
housing must have been developed by the community land trust.
---------------------------------------------------------------------------

    \26\ The Consolidated Appropriations Act, 2016 only allows 
community land trusts to exercises purchase rights for ``funds 
provided in prior and subsequent appropriations acts that were or 
are used by community land trusts for the development of affordable 
homeownership housing pursuant to section 215(b) of such Act.'' 
Public Law 114-113, div. L, title II, Dec. 18, 2015, 129 Stat. 2878.
---------------------------------------------------------------------------

E. Revise Organizational Requirements of Community Land Trusts To Allow 
New Smaller Community Land Trusts
    One commenter stated that HUD should consider amending the 
community land trust board requirements to allow flexibility for new 
community land trusts with small portfolios of homes that do not have 
sufficient lessees to comply with the requirements.
    HUD Response: The definition of community land trusts in Sec.  92.2 
does not have strict board requirements other than the community land 
trust not be sponsored by a for-profit entity. A new organization is a 
community land trust once it meets all of the requirements of the 
definition. If a new organization meets the requirements in the 
definition, even if it was only for a small portfolio, it is a 
community land trust for the purposes of the HOME program definition. 
The Department would like to remind the public that to exercise the 
right of first refusal described in Sec.  92.254, which is what the 
definition of community land trust is used for, the new community land 
trust must develop HOME homeownership housing in accordance with the 
requirements of 24 CFR part 92.
F. Conflicts Between the Definition of Community Land Trust in Sec.  
92.2 and Sec.  92.302
    One commenter stated there is an internal conflict between the 
proposed definition of a ``community land trust'' in Sec.  92.2 and the 
proposed housing education and organization support language at Sec.  
92.302(b)(3)(i). Specifically, the commenter stated there is a conflict 
between the language of the proposed community land trust definition, 
which allows a combination of a deed restrictions and a preemptive 
purchase right at a formula price in lieu of a ground lease, and Sec.  
92.302(b)(3)(i), which is limited to community land trusts that retain 
title and convey it via a ``long-term ground lease.'' The commenter 
noted there is no easy solution because allowing non-ground lease 
approaches may inadvertently expand the definition of a community land 
trust in a manner HUD may not have anticipated.
    HUD Response: The Department acknowledges that the community land 
trust requirements established in Sec.  92.203(b)(3)(i) differ from the 
definition of community land trust proposed by the Department in Sec.  
92.2. Under NAHA, to receive housing education and organizational 
support

[[Page 781]]

funds, a community land trust must meet the requirements established in 
the statute, including but not limited to the requirement that a 
community land trust acquire parcels of land, held in perpetuity, 
primarily for conveyance under long-term ground lease. The Department 
codified these requirements in the regulations at Sec.  
92.302(b)(3)(i).
    The Consolidated Appropriations Act, 2016, which for the first time 
permitted community land trusts to exercise preemptive purchase rights 
for HOME-assisted homeownership units, required that HUD establish a 
revised definition of community land trust for this purpose that did 
not limit program participation to the narrower definition of community 
land trusts that solely enforce restrictions through a ground lease, as 
is required for housing education and organizational support funds 
under NAHA. The proposed definition of community land trust in Sec.  
92.2 is reflective of how community land trusts enforce restrictions 
nationwide, including in the HOME program. The requirements of 
homeownership in Sec.  92.2, as revised, still apply, as do the period 
of affordability requirements in Sec.  92.254. The Department 
understands that there are different dates and different definitions 
for related requirements and will provide additional implementation 
guidance on the definitions of community land trust in Sec.  92.2 and 
Sec.  92.302, how to meet the requirements for homeownership, and 
preserving affordability when a community land trust exercises a 
purchase right.
    The Department will continue to use the definition of community 
land trust established in the Act and promulgated at Sec.  
92.302(b)(3)(i) should the Department receive funds for housing 
education and organizational support in the future. The Department is 
moving forward with the separate regulatory definition of community 
land trust in Sec.  92.2 for those community land trusts that will be 
eligible to exercise preemptive purchase rights pursuant to the 
Consolidated Appropriations Act, 2016, as codified in Sec.  
92.254(b)(3).
G. Concern Regarding 30-Year Ground Lease Term and Conflicts Between 
the Definition of Community Land Trust in Sec.  92.2 and the Definition 
of Homeownership in Sec.  92.2
    Several commenters expressed concern or opposition to the proposed 
regulatory definition that would, in part, require community land trust 
housing and related improvements to be affordable for at least 30-
years. Two commenters noted that community land trusts typically impose 
ground leases of 90-plus years and are concerned about the reduced 30-
year ground lease included in the community land trust definition. One 
commenter recommended that HUD increase the ground lease for community 
land trusts to 90-plus years. The commenter stated that it dilutes the 
mission of community land trusts to reduce the ground lease to 30 
years. The commenter stated that the community land trust movement 
internationally is focused on permanent-affordability with 98- and 99-
year ground leases or land use restrictions. In support of their 
comments, the commenter included additional information regarding 
community land trusts, including the: (1) Grounded Solutions Network, 
2011 Model Ground Lease & Commentary (2018); (2) National League of 
Cities, Community Land Trusts: A Guide for Local Governments (2021); 
and (3) Burlington Associates in Community Development, Frequently 
Asked Questions about Community Land Trusts (2007). Another commenter 
stated that community land trust ground leases typically restrict 
resale of a home to an income eligible buyer at an affordable price for 
99 years, and typically require that the buyer enter into a new 99-year 
ground lease upon purchase. The commenter referred HUD to Grounded 
Solutions Network Model Declaration of Affordability Covenants and 
Model Ground Lease (Article 10).
    One commenter stated that there is an internal conflict within the 
definitions of a ``community land trust'' and ``homeownership.'' The 
commenter noted that the definition of community land trust includes 
organizations that provide ground leases of at least 30 years while the 
definition of homeownership requires that community land trust ground 
leases be for at least 50 years. The commenter stated that these 
definitions could allow organizations to qualify as a community land 
trust by offering ground leases of only 30 years but make said 
community land trusts ineligible to receive HOME funds unless the HOME-
assisted units were accompanied by 50-year ground leases.
    HUD Response: The definition of community land trust at Sec.  92.2 
establishes the minimum requirements an organization must meet to 
qualify to hold a preemptive purchase option on a HOME-funded homebuyer 
unit, including but not limited to the requirement that a community 
land trust must use a lease, covenant, agreement, or other enforcement 
mechanism to require housing and related improvements on land held by 
the community land trust to be affordable to low- and moderate-income 
persons for at least 30 years. Organizations that meet these minimum 
requirements may exercise the purchase option, right of first refusal, 
or other preemptive rights afforded to community land trusts by the 
Continuing Appropriations Act, 2016 (Pub. L. 114-113) and codified in 
Sec.  92.254(b)(3). Community land trusts that do not meet this 
definition are not precluded from receiving HOME funds for projects; 
however, if they exercise a preemptive purchase right within the period 
of affordability, then the housing will cease to be considered 
affordable housing under the Act and the participating jurisdiction 
will be required to repay the HOME investment associated with that 
housing unit pursuant to 42 U.S.C. 12745(b)(3)(A) and 42 U.S.C. 
12749(b).
    The Department understands that community land trust models 
throughout the country often impose a 90 or 99-plus-year ground lease. 
Because the definition of community land trust at Sec.  92.2 only 
establishes a minimum ground lease term for the purposes of determining 
an organization's eligibility to hold or exercise a preemptive purchase 
right on a HOME-assisted unit without violating the Act and requiring 
repayment of the HOME investment, community land trusts imposing longer 
ground lease terms are still permitted.
    The Department also acknowledges that it is using different minimum 
terms for ground leases in the definition of community land trust and 
the definition of homeownership in Sec.  92.2. The definition of 
homeownership at Sec.  92.2 defines homeownership under a community 
land trust as fee simple ownership of a dwelling, or equivalent form of 
ownership approved by HUD, on land with a ground lease that meets one 
of the requirements in Sec.  92.2. Under this definition, if a ground 
lease is provided by a community land trust and is not in an insular 
area, the minimum required ground lease for the unit to be considered a 
homeownership unit under the HOME program is 50 years. As noted above, 
the definition of community land trust only requires that an 
organization impose a minimum 30-year ground lease for the organization 
to be considered a community land trust for purposes of exercising a 
right of first refusal to preserve affordability under Sec.  92.254(b). 
The Department understands that this establishes a higher threshold for 
the term of a ground lease to be considered homeownership under the 
HOME program than it does for an organization providing that ground 
lease to be

[[Page 782]]

considered a community land trust, but the Department also wanted to 
remain consistent with State laws and community land trust models that 
may require ground leases of fewer years when considering whether an 
organization meets the definition of community land trust.
H. Opposition to Community Land Trust Model
    One commenter opposed the use of governments subsidies for 
homeownership projects under the community land trusts model. The 
commenter stated that government subsidies for community land trusts 
should be reserved for affordable rental housing. The commenter also 
stated that downpayment assistance is a better method for building 
financial security and generational wealth through homeownership 
because community land trusts are closer to rental housing than 
homeownership. The commenter submitted a study conducted by the 
National League of Cities comparing the results of community land trust 
and downpayment assistance models. The commenter supported greater use 
of the HUD's 203(k) Loan Program to create accessory dwelling units and 
tax exemptions to encourage homeownership.
    HUD Response: HUD thanks the commenter for reviewing the proposed 
rule and notes that by statute, community land trusts may participate 
in the HOME program and HOME homeownership activities.\27\ Congress 
explicitly authorized their participation, and the Department must 
faithfully adopt the language of the Consolidated Appropriations Act, 
2016 and the provisions of 42 U.S.C. 12773 of the Act.
---------------------------------------------------------------------------

    \27\ See 42 U.S.C. 12773(a)(2), expressly permitting housing 
education and support to community land trusts to assist them in 
developing HOME community housing development organization projects, 
and see and Public Law 114-113, div. L, title II, Dec. 18, 2015, 129 
Stat. 2878 permitting community land trusts to hold and exercise 
certain purchase rights without violating the affordability 
requirements contained in the homeownership provisions of Section 
215 of NAHA.
---------------------------------------------------------------------------

Sec.  92.2--Homeownership Definition

A. Require That Long-Term Ground Leases to HOME-Assisted Manufactured 
Homeowners Are Affordable
    One commenter recommended requiring participating jurisdictions to 
remove barriers to manufactured home homebuyers and homeowners to 
access HOME programs regardless of the manufactured home being on 
owned-land, leased-land, Tribal land, or in manufactured home 
communities. The commenter also specifically urged HUD to ensure that 
HOME-funded manufactured home communities offer homeowners a standard, 
long-term lease with predictable rent provisions that support 
affordable ``home-only'' financing, notice of sale and opportunity to 
purchase the community, and require that projects with HOME funding for 
30 years or more include shared-equity affordability provisions of 
resident-owned communities and rent limitations. The commenter urged 
HUD to issue guidance and education for participating jurisdictions, 
subrecipients, and developers.
    HUD Response: While the definition of homeownership in Sec.  92.2 
requires that manufactured housing ground leases be for at least the 
period of affordability in Sec.  92.254, the Department has not 
specified the amount that may be charged under such ground leases. The 
Department believes that adding such restrictions could have the 
unintended effect of reducing the amount of manufactured home 
purchasers that can be assisted with HOME funds and defers to 
participating jurisdictions in designing their programs. The Department 
also believes that it provided insufficient information the public to 
appropriately place the public on notice of any changes to the ground 
lease requirements for manufactured housing owners and that doing so 
without additional comment would be unwise.
B. Explicitly Include Cooperative Owners as Owners for Purposes of the 
Definition of Homeownership in Paragraph (4)
    One commenter suggested that to ensure eligibility status for 
affordable housing cooperatives, HUD should consider revising its 
definition of homeownership to include housing cooperative members as 
homeowners directly. The commenter explained that designating co-op 
member-owners as homeowners will grant additional flexibility to 
participating jurisdictions, creating another tool to be utilized to 
create affordable homeownership for low-income households and to reduce 
persistent wealth inequities.
    HUD Response: Unfortunately, HUD cannot always draw bright line 
rules in this area. Much of what the commenter is requesting depends 
upon State law and is a fact-sensitive inquiry that must be engaged in 
by the participating jurisdiction. Paragraph (4) of the definition of 
Homeownership in Sec.  92.2 states that the ``participating 
jurisdiction must determine whether or not ownership or membership in a 
cooperative or mutual housing project constitutes homeownership under 
State law; however, if the cooperative or mutual housing project 
receives Low-Income Housing Credits (26 U.S.C. 42), the ownership or 
membership does not constitute homeownership.'' The Department believes 
these are the correct considerations. The Department defers to State 
law on whether membership within a cooperative or being a shareholder 
of a cooperative constitutes homeownership. It also defers to the 
participating jurisdiction to determine whether the cooperative's 
governing documents provide the necessary rights to the member or 
shareholder to constitute homeownership. Under many State laws and 
cooperative governing documents, the commenter may be right that a 
member or shareholder is an owner. However, this is a fact-sensitive 
inquiry and HUD is declining to state that as a rule a member or 
shareholder of a cooperative is an owner of the housing. HUD also 
continues to maintain that where a cooperative is receiving LIHTC and 
is within its compliance period, it is not engaging in a homeownership 
activity.

Sec.  92.2--Period of Affordability Definition

    Commenters supported HUD's proposed definition of ``period of 
affordability.'' One commenter noted that distinguishing between the 
Federal period of affordability and any participating jurisdiction-
imposed additional period will be useful and follows a similar model to 
the LIHTC compliance period. One commenter noted that it was an 
important clarification that addressed confusion about whether this 
term applied to time periods beyond 20 years.
    One commenter stated they supported the proposal because it would 
clarify that this term is different from an extended period of 
affordability or an additional compliance period. The commenter 
explained that this clarification would permit States and localities to 
continue to prioritize long-term affordability.
    HUD Response: HUD thanks the commenters and is moving forward with 
the revised definition of period of affordability without change.

Sec.  92.2--Program Income Definition

    Commenters stated that they oppose changing the definition of 
program income to include the phrase ``at any time.'' The commenters 
stated that this change would extend the participating jurisdiction's 
monitoring obligations, potentially in perpetuity, which would strain 
limited participating jurisdiction resources.

[[Page 783]]

    One commenter opposed HUD's proposal to clarify that program income 
is gross income received ``at any time'' by the participating 
jurisdiction, State recipient, or subrecipient. The commenter stated 
that defining program income as going beyond the period of 
affordability or the closeout of the grant puts an administrative 
burden on participating jurisdictions, subrecipients, and developers. 
The commenter recommended that HUD limit repayment of program income to 
either the duration of the period of affordability for housing 
supported by HOME funds or to the closeout of the grant.
    Two commenters suggested limiting repayment of program income to 
the duration of the period of affordability for homes supported by HOME 
funds or at the close out of the grant in order to ease the 
administrative burden on participating jurisdictions, subrecipients and 
developers. One of these commenters asked that HUD provide more clarity 
to participating jurisdictions and program participants on how any 
final changes would be operationalized if HUD determines to move 
forward on this question.
    HUD Response: The addition of ``at any time'' to the definition of 
program income was a clarification of the existing requirement. The 
Department is aware that there is an administrative burden associated 
with tracking and spending program income. However, 10 percent of 
program income received may be used to administer the HOME program. A 
participating jurisdiction is also capable of providing Subrecipients 
and State recipients with the ability to retain program income if it is 
specified in the written agreement (see Sec.  92.504(c)(1)(iii), Sec.  
92.504(c)(2)(ii)). The Department is concerned that limiting the 
reporting and use of program income to the period of affordability or 
to the time period before grant closeout will result in participating 
jurisdictions waiting until the end of those timeframes to require the 
collection of program income to avoid reporting on the source and avoid 
the restrictions on the use of program income. This might also result 
in participating jurisdictions misunderstanding program income 
requirements and using such funds for purposes not eligible under the 
Act and regulations in 24 CFR part 92. The Department declines to make 
a change and is moving forward with the language clarifying existing 
requirements.

Sec.  92.2--Reconstruction Definition

    One commenter stated that it supports applying new construction 
standards in Sec.  92.251 to newly constructed units within 
reconstruction projects. However, the commenter noted that some 
projects involve reconstruction of some units and rehabilitation of 
others. The commenter objected to applying new construction standards 
to these rehabilitated units, noting that it would not be a prudent use 
of resources. The commenter opposed the revised definition of 
``reconstruction'' but supported applying new construction standards in 
Sec.  92.251 to newly constructed units within reconstruction projects.
    HUD Response: The Department understands there is confusion over 
how to apply a participating jurisdiction's property standards when a 
project consists of a combination of rehabilitation, reconstruction, 
and new construction. In projects where there is a combination of types 
of development, units that are rehabilitated but not reconstructed may 
be inspected to the participating jurisdiction's rehabilitation 
standards. Units that are newly constructed or reconstructed will be 
subject to the participating jurisdiction's new construction standards. 
Accordingly, the Department has revised the regulations at Sec.  
92.251(d) to address the commenter's concerns and provide clarity on 
this issue.

Sec.  92.2--Single Family Housing Definition

    Commenters stated that they support the proposal to amend the 
definition of ``single family housing'' to refer to units.
    HUD Response: The Department thanks the commenters and is moving 
forward with the changes to the ``single family housing'' definition.

Sec.  92.2--Small-Scale Housing Definition

A. General Comments on Definition
    One commenter supported the proposed new definition of ``small-
scale housing'' because it would reduce administrative burden and 
would, according to the commenter, benefit areas with little 
development like small rural towns and Tribal areas because smaller 
projects that are not 30-50 units cannot attract LIHTC or other program 
investors and become financially infeasible.
    One commenter stated their support for the addition of the 
definition of ``small-scale housing'' because it could help spur 
development in rural communities.
    HUD Response: The Department thanks the commenters for reviewing 
the proposed rule and agree that the reduced ongoing monitoring 
requirements for small-scale housing projects will make using HOME 
funds more feasible nationwide. The Department is moving forward with 
the definition of ``small-scale housing'' without change.
B. Expanding Definition To Include Projects With More Units or 
Scattered Site Projects
    One commenter suggested that HUD consider expanding the definition 
of ``small-scale housing'' to apply to rental projects with up to 10 
units (rather than 4) to allow the benefits of HUD's proposed 
streamlined procedures to apply to projects with up to 10 units, which 
would be especially helpful in rural areas. One commenter stated that 
for compliance monitoring, further clarification on the definition of 
``small-scale housing'' and the applicability to both the rental 
housing projects and homeownership funded projects is requested. That 
same commenter believed that as written, it is unclear whether 
scattered-site rental housing projects would be considered small-scale 
housing or not.
    One commenter stated that HUD's proposed definition of ``small-
scale housing'' to mean 1-4 units is not in line with the housing 
industry's use of the term. The commenter recommended that HUD revise 
the definition of ``small-scale housing'' to be more consistent with 
the industry's definition.
    HUD Response: The purpose of the small-scale housing definition is 
primarily to provide relief to participating jurisdictions and small 
landlords in the management of small or scattered site housing 
projects. Consequently, the Department has determined that a 1-4-unit 
project, either managed on the same site or on multiple sites (i.e., 
scattered site housing) shall constitute a small-scale housing project. 
The Department considered larger project sizes, as the commenter 
requested. However, in HUD's experience, 5-10-unit projects can be more 
difficult to manage than 1-4-unit projects, especially when they are 
managed as scattered site projects.
    The Department did note that there is confusion over whether small-
scale projects must all be on contiguous sites or be single family 
housing. While the Department is not revising the definition of 
``small-scale housing,'' the Department is clarifying in this preamble 
and will clarify again in guidance that small-scale housing projects 
can be on either contiguous sites or scattered sites and still 
constitute small-scale housing projects

[[Page 784]]

as long as they meet the definition of ``small-scale housing'' in Sec.  
92.2.

Sec.  92.2--Subrecipient Definition

A. Opposition to Change in Definition To Prohibit a Governmental Entity 
or Nonprofit From Being a Subrecipient if it Uses HOME Funds as a 
Developer or Owner of a Housing Project
    One commenter does not support the removal of a subrecipient's 
ability to acquire and temporarily own standard housing, as 
subrecipients are often partners in locating and purchasing housing.
    HUD Response: HUD appreciates the comment but is declining to make 
the change. In the HOME program, a subrecipient administers an activity 
or entire program on behalf of the participating jurisdiction. An 
organization that partners with other entities to locate and purchase 
housing is not a subrecipient as an organization cannot oversee an 
activity in which it also functions as an owner, developer, or sponsor 
as there is an inherent conflict of interest. HUD believes the approach 
described by the commenter is ineligible for HOME assistance.
B. Comment in Support of the Revised Definition of Subrecipient Because 
it Allows Greater Flexibility in Income Determinations
    A commenter stated that the proposed update to the definition of 
``subrecipient'' is helpful because this updated definition allows HOME 
funds to be more readily used with rental housing based on the 
program's own income determination guidelines for eligibility.
    HUD Response: The commenter is incorrect. Income determinations in 
the HOME program must be made in accordance with Sec.  92.203. The 
definition of subrecipient does not allow a subrecipient to use a 
different set of income requirements than the participating 
jurisdiction uses when determining income under Sec.  92.203.

Sec.  92.2--Unit of General Local Government Definition

    One commenter pointed out that the proposed rule does not address 
eligibility of Tribes nor adds new mentions of Tribes even though the 
definition of CHDO in Sec.  92.2 includes Tribes in the definition of 
``governmental entity'' in paragraph (5). The commenter requested that 
HUD add clarifying language through the proposed regulations to clarify 
that Tribes are eligible, including Indian Tribes, Indian Housing 
authorities, and Tribally Designated Housing Entities as defined at 25 
U.S.C. 4103(22), and requested that HUD clarify that these entities may 
be project owners anywhere that the terms are not synonymous with State 
recipient. The commenter suggested such changes in Sec.  92.2 
Definitions, State recipient; Sec.  92.2 Definitions, Subrecipient; 
Sec. Sec.  92.220(a)(1)(iii)(A) and 92.220(a)(1)(iii)(B) regarding 
matching funds provided by an Indian Tribe, Indian Housing Authority, 
or Tribally Designated Housing Entity.
    HUD Response: Each of the definitions of State Recipient and 
subrecipient uses the term ``unit of general local government'' and not 
``governmental entity.'' The Department is not changing its 
interpretation of the term unit of general local government. Indian 
Tribes, Indian Housing Authorities, and Tribally Designated Housing 
Entities may participate in the HOME program in a variety of 
capacities, including as developers, owners, or contractors. Indian 
Housing Authorities or Tribally Designated Housing Entities, if 
established as nonprofits, may be eligible to be Subrecipients in HOME 
as well. HUD will provide additional information on how HOME funds can 
be used by Indian Tribes, Indian Housing Authorities, and Tribally 
Designated Housing Entities in future guidance.
    Below-market interest rate loans originated by Tribally Designated 
Housing Entities and Indian Tribes that are legally constituted as 
corporations are already eligible as match under the current 
regulation. HUD will clarify this in guidance.

Sec.  92.3--Effective Date and Applicability of This Final Rule

    One commenter requested that HUD clarify which provisions are 
applicable to all HOME-funded developments and which changes are 
applicable only to properties that received commitments of HOME funds 
after the effective date of the final rule. Another commenter requested 
that HUD provide phased implementation and permit permissive compliance 
for a set period of time before mandating required compliance, to allow 
participating jurisdictions time to update information systems, inform 
partners and ensure proper policies and procedures are in place. One 
commenter said that because the changes in the rule will require a 
significant effort to educate stakeholders and ensure a smooth 
transition to the new regulatory framework, HUD should dedicate 
adequate technical assistance resources to this effort. Another 
commenter stated that HUD should expand training for participating 
jurisdictions and HUD field officials on implementation of this rule to 
ensure uniform application, particularly for homeownership projects, 
because of uncertainty about interpretation of HOME regulations among 
participating jurisdictions.
    HUD Response: The Department agrees with the commenters that it 
will take time for participating jurisdictions to prepare to comply 
with certain provisions of this final rule. HUD has carefully 
considered the appropriate timeframes for compliance with each 
provision and has established effective dates in Sec.  92.3. HUD shall 
provide participating jurisdictions up to one year to perform income 
determinations and reexaminations under the final rule's Sec.  92.203. 
HUD shall also allow participating jurisdictions, subrecipients, state 
recipients, and owners to comply with the HOME requirements as they 
existed immediately prior to the effective date of the final rule for 
HOME commitments made up to one year after the effective date of the 
final rule.

Sec.  92.50--Formula Allocation

    One commenter suggested that one way to target funding to rural 
CHDOs would be to increase the awards for State-wide participating 
jurisdictions via a change to HUD's formula allocation regulations. 
Instead of measuring the number of families living in poverty, which as 
an absolute measure disadvantages rural areas, the commenter said the 
metric could instead measure either the percentage of families living 
in poverty or the percentage of counties in a State that are designated 
as Persistent Poverty Counties. The commenter stated that either of 
these approaches would be consistent with the statute, which directs 
that the formula reflects ``poverty, and the relative fiscal incapacity 
of the jurisdiction to carry out housing activities eligible under 
section 12742 of this title without Federal assistance.'' Another 
commenter also noted that the HOME program does not proportionately 
serve rural areas because the smallest and least-resourced places must 
compete for the balance of State funds, while larger communities 
receive guaranteed funding.
    HUD Response: HUD appreciates the commenters' contributions and 
notes that changes to the calculation of HOME program formula 
allocations are outside the scope of this rulemaking. The Department 
was making minor revisions to clarify that ``rental units built before 
1950 occupied by poor households'' meant ``rental units built before 
1950 occupied by households below the poverty line'' but was otherwise 
not

[[Page 785]]

changing the actual data that is used in the calculation. The 
Department does not believe it has provided sufficient notice to the 
public of a possible change in formula elements and declines to change 
any data elements included in the HOME formula in this rulemaking.

Sec.  92.203--Income Determinations

A. General Support
    Commenters stated that they support the proposed changes to income 
determination for HOME because participating jurisdictions can use 
income determinations made by other Federal agencies.
    HUD Response: The Department agrees with commenters that providing 
additional flexibilities to comply with income requirements for HOME-
assisted rental housing will further reduce the administrative burden 
on participating jurisdictions, project owners, and on low-income 
families. Therefore, in this Final Rule, HUD streamlines income 
procedures, reduces the frequency of income determinations for HOME-
assisted small-scale rental projects and for families receiving HOME 
tenant-based rental assistance, and expands a safe harbor to permit 
participating jurisdictions to rely upon the income determinations made 
under the rules of other Federal programs or forms of public assistance 
for HOME-assisted rental units and for tenant-based rental assistance 
programs.
B. Reducing the Frequency of Income Determinations
    Commenters said they support reducing the frequency of income 
determinations. One commenter asked for clarification if the proposed 
change to income recertification from annual to every two years applied 
to Federally funded projects such as housing developed with LIHTC. 
Another commenter supported the proposal and encouraged HUD to consider 
triennial income recertifications for all HOME programs, not just 
small-scale housing, because it would help families experience the 
intended benefits of the program, help families build wealth, and not 
inadvertently punish them for increasing their income.
    HUD Response: HUD reduced the frequency of income determinations 
for HOME-assisted small-scale rental projects and tenants receiving 
tenant-based rental assistance. Triennial income examinations do not 
apply to HOME-assisted rental projects or to tenant-based rental 
assistance programs.
    For HOME-assisted rental housing, HUD expanded an income safe 
harbor which permits a participating jurisdiction to rely upon the 
income determination conducted under the rules of another form of 
public assistance for HOME-assisted rental units where Federal funds 
overlap. This safe harbor significantly reduces instances of when the 
annual income of a family must be calculated in HOME-assisted units 
that are also assisted with Federal or State project based rental 
subsidy programs, developed with LIHTC, or occupied by a family that 
receives Federal tenant-based rental assistance or another form of 
public assistance such as SNAP or TANF. This means that if the HOME-
assisted unit or a family is applying for or occupying an assisted unit 
that is covered by any of these safe harbors, then a participating 
jurisdiction may apply these flexibilities to all income determinations 
performed, including at initial occupancy and subsequent income 
determinations during the HOME period of affordability. HUD is also 
clarifying in Sec.  92.252(g)(3) that an owner is not required to 
examine source documents under Sec.  92.203(b)(1)(i) if the 
participating jurisdiction is accepting an annual income determination 
pursuant to Sec.  92.203(a)(1), Sec.  92.203(a)(2), or Sec.  
92.203(a)(3).
    For HOME tenant-based rental assistance, the income determination 
is aligned with the term of the rental assistance contract, which can 
have a term of up to 24 months. HUD declines to apply a triennial 
income determination to HOME tenant-based rental assistance programs 
because it could not be implemented given the 24-month statutory 
limitation on the term of the rental assistance contract. HUD 
considered many scenarios that would trigger a new income examination 
and how reliant participating jurisdictions are on calculation of 
adjusted income in determining the amount of assistance for a tenant 
receiving tenant-based rental assistance and believes that tying the 
income examination to the rental assistance contract is the best 
policy. HUD also believes that reducing the frequency of income 
determinations in HOME-assisted rental units and aligning income 
determination to the terms of the tenant-based rental assistance 
contract will encourage families to increase income without fear of 
losing their assistance or ability to occupy an assisted unit.
C. Change the Requirement in Sec.  92.203(a)(1) That a Participating 
Jurisdiction ``Must'' Accept the Income Determination Made Under a 
Project-Based Program
    One commenter objected to requiring participating jurisdictions to 
use the income determinations made by owners and program administrators 
in Federal and State project-based rental assistance programs, 
including both the Section 8 project-based voucher and project-based 
rental assistance programs. The commenter believes that requiring the 
use of the income determinations is too strong of a stance and that HUD 
should provide participating jurisdictions with discretion to choose 
whether to accept an income determination made under a Federal or State 
project-based rental assistance program. In the commenter's experience 
monitoring personnel, they have determined that program administrators 
may overlook income sources or fail to properly verify income and 
assets.
    HUD Response: The Department recognizes the commenters' concerns 
that HUD created an income safe harbor as a requirement rather than a 
choice in the HOTMA Final Rule, published in the Federal Register on 
February 14, 2023. Under HOTMA, HUD required a participating 
jurisdiction to accept a public housing agency, owner, or rental 
subsidy provider's determination of a family's annual and adjusted 
income for each HOME-assisted unit that is assisted by a Federal or 
State project-based rental subsidy program. HUD's intent was to create 
alignment in HUD rental programs and to reduce the administrative 
burden on participating jurisdictions and owners of having to meet two 
sets of income requirements for the same unit. HUD agrees with the 
commenter that participating jurisdictions should be provided the 
choice, as a matter of program design, of whether to accept an income 
determination made under a Federal or State project-based rental 
assistance program. Therefore, HUD is revising the ``must'' to a 
``may'' in Sec. Sec.  92.203(a)(1) and 92.203(f)(2) and permitting a 
participating jurisdiction to decide whether to apply this safe harbor. 
HUD recommends that when making this decision, a participating 
jurisdiction undertakes an assessment of staff capacity, size and scope 
of its HOME-assisted rental portfolio, annual monitoring schedules, and 
the availability of trained and knowledgeable housing partners. HUD 
reminds participating jurisdictions that whatever choice they make 
should be explicitly described in the HOME written agreement with 
project owners to reduce instances of noncompliance with the HOME 
program income requirements.

[[Page 786]]

D. Opposition to 2-Month Source Documentation Requirements in Paragraph 
(b) of the Definition
    One commenter suggested that HUD remove the 2 month source of 
income documentation requirement in Sec.  92.203(b)(1)(i) and (b)(2) 
and instead follow the HUD 4350.3 Chapter 5 requirement for all HOME 
activities which considers circumstances when 2 months of documentation 
are not available, allows for third party verification, and would allow 
participating jurisdictions to establish a uniform income review 
process across HOME and HTF.
    HUD Response: The Department recognizes the commenters' concerns 
that HOME's income documentation and verification process is different 
than the processes in other HUD rental programs, but HUD is not 
revising Sec.  92.203(b)(1)(ii) to remove the requirement to examine 2 
months of source documents when determining annual income. The 
Department has required source documents since the 1996 HOME 
regulations \28\ and believes that examination of source documents 
provides needed safeguards to ensure that tenants meet the income 
requirements of the Act. Notwithstanding that fact, the Department has 
also identified other forms of documentation that may also satisfy the 
requirements, including documentation required to use the safe harbors 
in Sec.  92.203(a)(1)-(3).
---------------------------------------------------------------------------

    \28\ See 61 FR 48769.
---------------------------------------------------------------------------

    Moreover, HUD disagrees that adopting the income documentation and 
verification procedures in Chapter 5 of HUD Handbook 4350.3 would 
establish a uniform income review process across all HOME and the 
Housing Trust Fund activities. The requirements explained in Chapter 5 
of HUD Handbook 4350.3, including the mandatory use of source documents 
for a period beyond 2 months and the required use of the Enterprise 
Income Verification (EIV) System, are more burdensome than HOME's 
current income requirements. Under the HOTMA regulations in 24 CFR 
5.609, annual reexaminations must consider all income made in the 
previous 12 months (See 24 CFR 5.609(c)). HOME regulations at Sec.  
92.203(b)(1)(ii) only require an examination of 2 months of income to 
project the prevailing rate of income for the upcoming 12 months. This 
is a less burdensome process than what is required in 24 CFR 5.609. 
HUD's Technical Guide for Determining Income and Allowances for the 
HOME program (income guidebook), which will be updated to provide 
guidance related to this Final Rule, already provides participating 
jurisdictions with the flexibility to establish their own verification 
procedures or to implement verification procedures consistent with the 
Housing Choice Voucher Program.
E. Accepting Determinations by Other Federal Assistance Providers in 
Sec.  92.203(b)
    A commenter stated that the policy should be extremely clear that a 
certification by another Federal assistance provider is sufficient to 
document income eligibility and no additional documentation would be 
needed outside of a certification to the owner or participating 
jurisdiction.
    Other commenters stated that HUD should expand HOME reciprocity 
with other Federal agency programs and harmonize income eligibility 
standards. The commenters requested that HUD engage in reciprocity with 
the USDA Rural Home Development 502 Direct Mortgage program in a manner 
similar to how it honored income eligibility under its Self-Help 
Opportunity Program (SHOP). Specifically, the commenter urged that HUD 
adopt the USDA Rural Development 502 Direct mortgage program's ``income 
banding'' approach to eligibility that the commenter said has been 
beneficial in rural areas around the country and was a direct response 
to the lack of access for broad swaths of persistent poverty areas of 
the country.
    HUD Response: In the HOTMA Final Rule, HUD aligned the HOME income 
regulations with those of other Federal or State rental subsidy 
programs and with those of other Federal tenant-based rental assistance 
programs that determine income eligibility consistent with the HOME 
program to facilitate the layering of funds in a HOME-assisted project 
and to reduce the administrative burden on participating jurisdictions 
and project owners. While the HOTMA safe harbor expanded the number of 
rental programs that a participating jurisdiction may accept income 
determinations from, HUD agrees that it can expand this safe harbor to 
include additional Federal agency programs and other forms of public 
assistance that are compatible with the HOME program.
    To accomplish this, HUD is broadening an existing income safe 
harbor in Sec.  92.203(b)(1)(iii) which permits a participating 
jurisdiction to determine the annual income of a family by obtaining a 
written statement from the administrator of a government program under 
which the family receives benefits, and which examines each year the 
annual income of the family. The expansion of this safe harbor includes 
additional forms of public assistance provided under other Federal 
agencies such as Supplemental Nutrition Assistance Program (SNAP), 
Temporary Assistance for Needy Families (TANF), Medicaid, as well as 
LIHTC income determinations for families living in tax credit units. 
This means that instead of calculating the annual income of a family, a 
participating jurisdiction may rely on the annual income determination 
made by the administrators of those programs or forms of public 
assistance without having to take additional steps to verify the income 
calculation or determination.
    To implement this new safe harbor provision, the participating 
jurisdiction must obtain a written statement from the administrator of 
the assistance which contains the amount of annual income and household 
composition (e.g., two-person household). A participating jurisdiction 
can then implement this safe harbor for all rental housing income 
determinations including but not limited to those performed at initial 
occupancy and every sixth year of the period of affordability. This 
relieves the participating jurisdictions of the requirement to 
calculate the annual income of a family by using 2 months of source 
documents if the family is receiving one of these forms of public 
assistance and the participating jurisdiction is able to obtain a 
statement fulfilling the requirements of the new safe harbor in Sec.  
92.203(a)(3).
    With respect to granting reciprocity with the United States 
Department of Agriculture's (USDA) ``income banding'' approach for 
determining income eligibility for the Rural HOME Development 502 
Direct Mortgage program, HUD declines to adopt this approach of 
determining income eligibility for HOME-assisted homeownership 
programs. HUD has determined that the USDA's method for defining a low-
income family is not compatible with HOME's program definition of a 
low-income family. Under the HOME program, a low-income family means a 
family whose annual incomes do not exceed 80 percent of the median 
income for the area, as determined by HUD, with adjustments for smaller 
and larger families, except that HUD may establish income ceilings 
higher or lower than 80 percent of the median for the area on the basis 
of HUD findings that such variations are necessary because of 
prevailing levels of construction costs or fair market rents, or 
unusually high or low family incomes. An individual does

[[Page 787]]

not qualify as a low-income family if the individual is a student who 
is not eligible to receive Section 8 assistance under 24 CFR 5.612. In 
contrast, the USDA uses two categories of income structure: one 
category is for one-to-four person households and a second category is 
for five-to eight-person households. The USDA's two-tier income 
structure is significantly different than the HOME program's income 
structure and does not take into account other disqualifying factors 
under the HOME regulations and statute. Creating a safe harbor for the 
USDA's two-tier income structure is too significant of a change and is 
outside the scope of this rulemaking because it involves changing the 
definition of a low-income family and not just providing an expanded 
safe harbor to defining an eligible family.
F. Revise Sec.  92.203(e) To Extend the Length of Time That an Income 
Determination Is Valid in Homeownership Programs
    A commenter stated that for owner-occupied rehabilitation and 
homeownership assistance for new construction, it is unclear if the 
income certification before loan closing can remain valid for 12 months 
now or if the rule is still limited to 6 months.
    Another commenter stated that, for new construction, developers 
should be able to confirm that buyers are eligible to purchase the unit 
more than 6 months out because of the potential for construction 
delays. Two commenters recommended that this rule revise the 
regulations found at Sec.  92.203(e)(2) to indicate that the 
participating jurisdiction is not required to re-examine the family's 
income at the time the HOME assistance is provided unless 24 months has 
elapsed since the homebuyer was determined to be income-qualified at 
the start of program participation. These commenters also recommended 
revising the regulations to state that at re-examination, the 
participant's income should be considered eligible so long as their 
income has not grown to the point of exceeding the low-income threshold 
by more than 10 percent.
    HUD Response: The Department recognizes the commenters' concerns 
but is not revising Sec.  92.203(e)(2) to allow an income determination 
to be valid for a period of 12 or 24 months as requested by the 
commenters. The Act is clear that a family must qualify as a low-income 
family at the time of the home purchase.\29\ This means that if a 
family is being assisted to purchase existing housing, they must be a 
low-income family at the time of transfer of ownership (usually at 
settlement or closing). If a family is being assisted to purchase 
existing housing or housing to be constructed under a lease-purchase 
program, the family must be low-income at the time the lease-purchase 
agreement is executed pursuant to Sec.  92.504(c)(5). If a family is 
being assisted to purchase housing to be constructed, the family must 
be low-income at the time the contract to purchase housing to be 
constructed is signed in accordance with Sec.  92.254(a)(8). The HOME 
assistance is provided at execution of the contract to purchase housing 
to be constructed in accordance with Sec.  92.504(c)(5). HUD wants to 
clarify that if the family was determined to be income eligible at the 
time the contract to purchase housing to be constructed was executed, 
there is no additional requirement to redetermine income if there are 
delays in construction.
---------------------------------------------------------------------------

    \29\ See 42 U.S.C. 12745(b)(2)(A)-(C).
---------------------------------------------------------------------------

    HUD understands the complexity of homeownership programs and how it 
can vary by locality. HUD permits an income determination to be valid 
for six months for homeownership activities to account for this 
complexity and delays in property settlement. The Department has 
determined that permitting the income determinations to remain valid 
for six months is consistent with the Act but that providing a longer 
time period for homeownership activities creates a more tenuous 
standard, as prospective homebuyers may already have relatively higher 
incomes than other low-income participants in the HOME program.
    The commenter's recommendation that families be considered eligible 
if their annual income has not exceeded the low-income threshold by 
more than 10 percent, is not statutorily permissible (see 42 U.S.C. 
12744(2)). HUD declines to revise the income regulations to permit 
families to exceed the HOME income limits and still be considered 
eligible low-income families.
G. Counting Income From All Family Members in Sec.  92.203(e)
    One commenter stated that the HOME method of income determination, 
which counts the income of all household members with some exclusions, 
does not account for multi-generational households where some family 
members do not contribute financially. The commenter explained that 
this method leads to an inflated household income calculation that does 
not reflect the financial burdens or capacities of families. The 
commenter recommended that HUD revise its regulations to allow 
household members who are not immediate family (which the commenter 
defined as anyone other than parents, siblings, spouses, and children) 
to be excluded from the income eligibility calculation.
    HUD Response: The Department recognizes the commenters' concerns, 
but HUD is not revising Sec.  92.203(e)(1) to remove the requirement to 
include the income from all persons in the household when calculating 
the annual income of a family under the HOME program. The HOME statute 
specifically requires that the low- and very low-income thresholds be 
determined with respect to smaller and larger families,\30\ and 
necessarily intends that the income of all members of the household 
\31\ be used in determining family income under the HOME program.
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    \30\ See 42 U.S.C. 12704(9) and (10).
    \31\ Please note, 24 CFR 5.609 provides certain income 
exclusions for live-in aides, foster children, and foster adults.
---------------------------------------------------------------------------

    The definition of family \32\ used in the HOME program covers 
multi-generational households. This is pursuant to the Act, which 
requires that the definition of ``families'' in the HOME program be the 
same definition of ``families'' contained in the 1937 Act that is 
applicable to other HUD programs such as the Housing Choice Voucher 
Program and the public housing program.\33\ The Department has codified 
the definition of family found in the 1937 Act in 24 CFR 5.403, and HUD 
is maintaining a consistent interpretation of the 1937 Act across HUD 
programs by using the definition of family in 24 CFR 5.403 for the HOME 
program. Therefore, the Department must decline the commenter's 
suggestion to narrow the definition of family for purposes of 
determining income in the HOME program.
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    \32\ The HOME program uses the definition of family contained in 
24 CFR 5.403, see 24 CFR 92.2 Family.
    \33\ Section 42 U.S.C. 12704(11) of the Act states that 
``families'' shall have the same meaning as the definition of 
``families'' in 42 U.S.C. 1437a. 42 U.S.C. 1437a(b)(3) provides the 
definition of persons and families.
---------------------------------------------------------------------------

Specific Solicitation of Comment #7
    The Department seeks input on whether and how the rule should 
facilitate the conveyance of a financial benefit to low-income tenants 
when the project owner makes energy efficiency upgrades such as the 
installation of small-scale wind or solar facilities in connection with 
an eligible Federal or State program. HUD has issued guidance that 
currently describes how certain utility discounts or rebates can be 
treated under HUD income and utility allowance regulations. HOME is 
subject to the same income requirements under 24 CFR 5.609 as

[[Page 788]]

other program areas issuing guidance on the treatment of these 
discounts and rebates. The Department therefore also requests comment 
from the public on whether to go farther than this guidance for HOME 
projects through this HOME rulemaking. For example, should HUD maintain 
the same utility allowance for the project following energy efficiency 
upgrades to allow the tenant to realize the benefit of decreased 
utility costs? Both the current income regulations at 24 CFR 5.609 and 
24 CFR 5.609 as revised in the HOTMA Final Rule exclude lump-sum 
additions to assets, as well as non-recurring income. However, if a HUD 
program provided a recurring financial benefit directly to a low-income 
tenant, should the rule exclude this income from the HOME income 
determinations?
A. Comments Supporting Conveying a Financial Benefit to Tenants
    One commenter supported efforts to ensure that tenants are able to 
receive the benefits of energy efficiency cost savings but requested 
that HUD eliminate or streamline any obligations on participating 
jurisdictions to monitor and ensure compliance with this benefit 
because monitoring would be difficult at best.
    One commenter supported conveyance of a financial benefit to 
tenants through the design of HOME utility allowances which would 
exclude energy efficient features from the model. The commenter 
explained that the benefit should go to residents because building 
owners will receive benefits by virtue of decreased energy costs and 
use in common areas and building systems.
    HUD Response: The Department appreciates the commenters' responses 
to this specific solicitation, but HUD is declining to adopt a policy 
conveying a financial benefit to tenants in this final rule. It was 
difficult for the Department to determine how to convey a financial 
benefit in a way that would be fair, equitable, and permissible under 
the Act. Unfortunately, commenters also did not provide sufficient 
information on how the Department could effectively convey all or a 
portion of the benefits of energy efficiency measures to HOME tenants 
without disincentivizing owners from paying for energy efficiency 
upgrades. The Department may revisit this topic in a future rulemaking. 
The HOME program will follow current HUD guidance that describes how 
certain utility discounts or rebates can be treated under HUD income 
and utility allowance regulations.\34\
---------------------------------------------------------------------------

    \34\ See https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_Community_Solar_Credits_signed.pdf https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf and https://www.hud.gov/sites/dfiles/PIH/documents/Community%20Solar%20Credits%20in%20PIH%20Programs.pdf.
---------------------------------------------------------------------------

B. Comments Opposing Conveying a Financial Benefit to Tenants
    One commenter opposed HUD attempting to include any benefit 
produced by the use of energy efficiency upgrades. The commenter 
pointed out that if energy efficiency upgrades result in returns to the 
project, financial benefits could flow to the participating 
jurisdiction if the HOME loan requires ``cash flow'' payments. The same 
commenter also stated that it would be better if developers and owners 
invested in long-term benefits instead of focusing on decreased costs 
and updating utility allowances for all tenants.
    A few commenters supported allowing the owner to recalculate the 
utility allowance based on the energy efficiency upgrades so that the 
owner can benefit from a lower utility allowance deduction from the 
HOME rent. One of these commenters cautioned HUD against reducing an 
owner's incentives for undertaking energy efficiency upgrades. One 
commenter noted that it will be important to ensure that utility 
allowances are not prematurely lowered before energy savings are 
realized, which would cause financial harm to economically vulnerable 
tenants.
    HUD Response: The Department appreciates the responses from 
commenters in opposition to the conveyance of financial benefit to 
tenants when an owner makes energy efficient upgrades. The Department 
is not adopting any change in this final rule. However, HUD may further 
study how a financial benefit could be provided to both low-income 
tenants of HOME-assisted rental units and project owners to incentivize 
energy efficiency measures. The HOME program will follow current HUD 
guidance that describes how certain utility discounts or rebates can be 
treated under HUD income and utility allowance regulations.\35\
---------------------------------------------------------------------------

    \35\ Id.
---------------------------------------------------------------------------

C. Comments Stating That Determining How To Convey a Financial Benefit 
for Tenants Is Difficult
    Two commenters stated that the cash benefit or discount to tenants 
would be difficult for owners to implement. One commenter noted that 
including revenues generated as a result of enhanced efficiency as 
income to the tenant would also place an administrative burden on the 
owner, the tenant, as well as on the monitoring participating 
jurisdictions for a likely small change per month.
    HUD Response: The Department thanks the commenters for reviewing 
the proposed rule and agrees that it would be administratively 
difficult to convey such benefit, particularly because consumption of 
utilities vary by tenant and by season. HUD will not be adopting 
measures related to providing a financial benefit directly to low-
income tenants at this time. Commenters' insights on the difficulty of 
such a measure's implementation and the administrative burden will be 
taken into account if HUD chooses to revisit this question in a future 
rulemaking.
D. Comments Suggesting Methods To Convey Financial Benefit to Tenants
    Many commenters agreed that HUD should permit projects to maintain 
the same utility allowance following energy efficient upgrades. One 
commenter stated that this would allow the tenant to realize the 
benefit of decreased utility costs and allow the owner to benefit by 
making them eligible to access tax credits when pursuing energy 
efficiency upgrades. Other commenters indicated that utility allowances 
often do not reflect actual costs of utilities paid for by tenants 
because there is significant variation among units that are the same 
type, therefore, increasing rent based on imprecise estimates of 
theoretical cost savings would make HOME-assisted housing less 
affordable for tenants after energy efficiency upgrades are made.
    One commenter said utility allowances should only be updated if 
there is a risk that utility costs will rise, say, due to 
electrification of heating. This commenter also said that owners also 
need to benefit from green construction in order to incentivize them to 
do the work, and they need green projects to be financially viable. The 
commenter suggested that one approach may be to rely on the addition to 
the project subsidy, along with other tax incentives, and Federal and 
local funding to incentivize owners toward green construction.
    HUD Response: The Department thanks the commenters for their 
suggestions to permit projects to maintain the same utility allowance 
following energy efficient upgrades, which could decrease utility costs 
and increase affordability for tenants while providing owners with the 
opportunity to access relevant tax credits. The

[[Page 789]]

Department agrees with the commenter that owners must be able to obtain 
the benefit of energy efficiency upgrades. As a result, the Department 
is declining to change the current requirement that utility allowances 
be redetermined annually.\36\ The Department believes holding utility 
allowances constant would disincentivize owners from making energy 
efficiency improvements during the period of affordability, as it would 
deny the owner the benefit of any energy efficiency improvements for 
those HOME-assisted units without guaranteeing that the owner obtained 
the benefit of tax credits or other financial incentives. The 
Department considered whether to maintain the same utility allowance 
and convey the financial benefit to the tenant by making such a program 
optional to the owner or dependent upon the owner's participation in a 
program that conditioned the tax credit or assistance upon providing a 
financial benefit to the tenant, but determined that this increased the 
complexity of the HOME program to align with time-limited Federal and 
state programs without necessarily providing adequate incentive to 
owners to participate in such programs. As such, the Department is 
declining to make the change here.
---------------------------------------------------------------------------

    \36\ Paragraph 24 CFR 92.252(d)(1) of the HOME rule existing 
immediately before the effective date of this final HOME rule, 
requires the utility allowance be determined annually. The 
Department is redesignating and revising this as a paragraph (b) but 
is not changing the requirement that the utility allowance be 
determined annually.
---------------------------------------------------------------------------

    The Department is adopting a change that will allow participating 
jurisdictions to use either the HUD Utility Schedule Model, the utility 
allowance established by the local public housing authority (PHA), or 
another method approved by HUD as their maximum monthly allowances in 
the final rule. The Department believes that this added flexibility 
will allow participating jurisdictions to select methods that are most 
appropriate for the project, and which can adequately incentivize 
owners to perform energy efficiency upgrades on their projects.
D. Owners Should Perform a Rental Assistance Demonstration (RAD) 
Capital Needs Assessment To Determine and Incentivize Owners To Perform 
Energy Efficiency Upgrades
    One commenter recommended that HUD permit owners pursuing energy-
efficiency retrofits or other energy-saving measures to pursue the 
process outlined for RAD conversions in prior HUD notices since owners 
are not incentivized to pursue energy efficiency measures that would 
reduce tenant costs when tenants who pay their own utilities and rent 
are calculated for a utility allowance. The commenter suggested 
permitting owners to submit the engineering study contemplated by the 
RAD guidance, along with a request for rent adjustment so that the 
utility allowance could be conservatively reset and suggested that HUD 
should grant waivers to facilitate this approach.
    HUD Response: The Department appreciates the responses from 
commenters recommending that HUD permit project owners seeking energy 
efficiency upgrades to pursue the process outlined for RAD conversions. 
The Department declines to adopt this suggestion in this final rule 
because it adds a significant level of complexity to the HOME program 
without necessarily providing adequate benefits to owners. Requiring a 
physical conditions assessment delays the work to be performed and 
requires owners to incur additional costs before engaging in energy 
efficiency upgrades. Absent project development subsidy, which is only 
available to new HOME projects or troubled HOME projects that are 
provided new HOME funds pursuant to Sec.  92.210, the owner would have 
to pay for these costs themselves. Moreover, the mechanism that the 
commenter is proposing to use to incentivize owners, increasing rents, 
cannot be performed under the HOME program because rent limits are 
statutory.\37\
---------------------------------------------------------------------------

    \37\ See 42 U.S.C. 12745.
---------------------------------------------------------------------------

E. The HOME Program Should Align With Other Federal Programs in the 
Treatment of Utility Discounts and Rebates in Determining Income
    Two commenters recommended aligning requirements for utility 
discounts and rebates for HOME assisted projects and income and utility 
allowance requirements with other Federal programs, to the greatest 
extent possible. One of these commenters noted that the utility 
allowance could be difficult to enforce if it becomes mandated and 
instead recommend that the utility allowance be preserved for to 
tenants up to the net credit on the allowance. In addition, one 
commenter also urged HUD to consider July 2022 guidance published by 
the Office of Multifamily Housing on the treatment of solar credits in 
utility allowance and annual income calculations to facilitate 
conveyance of financial benefit to residents and to exclude such 
benefits from HOME income determinations.
    HUD Response: The Department thanks the commenters for their 
responses to this specific solicitation. In revising the Final HOME 
Rule and soliciting comment on energy efficiency measures, HUD examined 
other Federal programs' utility allowance and income regulations and 
requirements at length. The Department believes that there is no single 
approach or method to align income and utility allowances across other 
Federal programs. The Department has attempted to expand options for 
aligning with other programs by allowing participating jurisdictions to 
select a the applicable local PHA utility allowance in Sec.  92.252(b). 
However, the Department is declining to make further changes such as 
providing tenants additional financial benefits or sizing and 
maintaining an artificially inflated utility allowance up to the net 
amount of the credit received by the owner. As stated earlier, the HOME 
program will follow current HUD guidance that describes how certain 
utility discounts or rebates can be treated under HUD income and 
utility allowance regulations, including the guidance from Multifamily 
housing.\38\
---------------------------------------------------------------------------

    \38\ See https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_Community_Solar_Credits_signed.pdf https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf and https://www.hud.gov/sites/dfiles/PIH/documents/Community%20Solar%20Credits%20in%20PIH%20Programs.pdf.
---------------------------------------------------------------------------

F. Exclude From HOME Income Determination Any Recurring Financial 
Benefit Which Results From Energy Efficiency Upgrades
    Commenters stated that HUD should exclude this financial benefit, 
even when regularly recurring, from HOME income determinations. One 
commenter expressed concern that including the financial benefits from 
reduced costs resulting from investment in energy efficiency upgrades 
as income could cause some tenants to become over-income. The commenter 
explained that this unforeseen income could result in extended negative 
impacts on the rents charged and compliance of the HOME-assisted units.
    HUD Response: The Department appreciates commenters' 
recommendations that HUD exclude a recurring direct financial benefit 
to tenants resulting from energy efficiency upgrades from the HOME 
program's income determinations. The Department recognizes commenters' 
concern that the inclusion of such benefits in income determination may 
result in some low-income tenants being considered over-income, 
resulting in program noncompliance. HUD will not be adopting measures 
related to providing a direct financial benefit to tenants in

[[Page 790]]

upgraded, energy efficient properties in the final rule.
G. Do Not Exclude From HOME Income Determination Any Recurring 
Financial Benefit Which Results From Energy Efficiency Upgrades
    Two commenters opposed any addition of further income requirements 
and stated that HOTMA has simplified the income eligibility process, 
and that any further requirements would prove cumbersome, especially 
given that so many HOME projects also receive Section 8 assistance.
    Another commenter opposed the use of discount and rebate allowances 
for income determinations because saved resources are not typically 
given back to tenants. The commenter also said that if discounts and 
rebates were to be treated as recurring income, HUD would need to 
clarify how this income would be documented and to which tax standard 
the income would be subject. The commenter was also concerned about HUD 
issuing a single rebate formula for a nationwide implementation and 
about the fact that carve outs for HOME rebates is not aligned with 
other HUD programs.
    HUD Response: The Department appreciates commenters' 
recommendations that HUD does not exclude any recurring financial 
benefit to tenants from the HOME program's income determinations and 
acknowledges that were such a measure to be implemented, the income 
documentation, tax standard, and coordination with other HUD programs 
would need to be determined. HUD declines to convey a financial benefit 
to low-income tenants following energy efficiency upgrades and excludes 
said benefit from HOME income determinations in this rule.
H. Clarify Supply Sources and Energy Efficiency Measures
    One commenter recommended that HUD clarify that small-scale wind 
and solar facilities are supply sources, not energy efficient upgrades, 
because they do not reduce the energy demands of the building/unit. One 
commenter stated that it is exploring energy efficiency benchmarking 
opportunities and would welcome the opportunity to share its findings.
    HUD Response: The Department appreciates the commenter's request 
that HUD make a distinction between energy efficient upgrades and 
supply sources. HUD is not proposing a definition of energy efficiency 
improvements. The Department understands that creating small-scale wind 
or adding solar power generation is increasing the supply of power to a 
project and not decreasing the energy demands of the project. The 
Department solicited comment on these forms of power supply because 
they may decrease or eliminate the amount an owner or tenant must pay 
utility providers for utilities to their project or unit respectively. 
The Department recognizes that one of the commenters is engaged in 
energy benchmarking and would be happy to share its findings. The 
Department is happy to discuss this matter with the participating 
jurisdiction after publication of this final rule but cannot consider 
these findings for this rulemaking at this time.
I. Other Comments Received--Affordability of Housing
    One commenter believed HUD was requesting comment on whether 
requiring HOME-assisted units to meet a higher energy efficiency 
standard will negatively impact the affordability of the housing. This 
commenter strongly urged HUD to consider a broader definition of 
``affordability,'' which it argues is incomplete in that it has 
historically been limited to the market-rate price of a home and 
upfront costs like downpayment requirements. Instead, this commenter 
said, housing affordability must also include the costs associated with 
staying in the home long-term, which can include heating and cooling. 
The commenter argued that energy costs disproportionately impact low-
income homes and that costs related to energy-efficiency improvements 
are often mitigated in the first few years. The commenter ultimately 
suggested HUD examine a formulaic approach to determining affordability 
that includes downpayment costs, monthly mortgage payments, and monthly 
utility expenses and regard with skepticism comments that make 
hyperbolic claims about price increases caused by energy efficiency, 
green building, or resilience requirements.
    HUD Response: The Department thanks the commenters for their 
insight into potential affordability issues that could arise from 
imposing energy efficiency requirements and the definition of 
affordability in the context of energy efficiency improvements. 
However, the suggestions are beyond the scope of the proposed HOME 
rule. The Department must use the rent limits and homeownership 
provisions under the Act when determining and preserving affordability 
of HOME-assisted housing.\39\
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    \39\ See 42 U.S.C. 12745, which defines the rent limits for 
HOME-assisted rental housing; maximum home sales price for HOME-
assisted homeownership housing; and use of resale or recapture 
provisions in preserving affordability of HOME-assisted 
homeownership housing.
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Sec.  92.205--Eligible Activities: General

A. Comments in Opposition to Limitations on Land Banking
    A commenter stated that, in paragraph (a)(2) of Sec.  92.205, the 
commenter opposes HUD explicitly tying the use of HOME funds for 
acquisition of vacant land to the definition of ``commitment,'' 
specifically as it relates to uses of the program to support land 
banking. The commenter stated that the use of HOME funds for land 
banking leads to the creation of affordable housing units and increases 
affordability but just on a slightly longer timeline than other uses. 
The commenter noted that in many places there are no other funding 
sources for land banking and enabling partnerships between units of 
local governments and nonprofit affordable housing developers to take 
advantage of opportunities to purchase at lower prices is a flexible, 
efficient use of very limited funding to ensure not only production 
pipelines but also affordability.
    HUD Response: Land banking is statutorily prohibited under 42 
U.S.C. 12742(a)(1):``Funds made available under this part may be used 
by participating jurisdictions to provide incentives to develop and 
support affordable rental housing and homeownership affordability 
through the acquisition, new construction, reconstruction, or moderate 
or substantial rehabilitation of affordable housing.'' The Act further 
explains that [f]or the purpose of this part, the term ``affordable 
housing'' includes permanent housing for disabled homeless persons, 
transitional housing, and single room occupancy housing. Purchase of 
property without a defined end-use that results in ``permanent housing 
for disabled homeless persons, transitional housing, and single room 
occupancy housing'' is not a permissible use of HOME funds under 
statute. HUD permits a participating jurisdiction to provide HOME 
assistance to an owner if the participating jurisdiction reasonably 
expects construction to begin within 12 months of the project set-up 
date in paragraph (2) Commit to a specific local project of the 
definition of Commitment in Sec.  92.2 but cannot permit using HOME 
funds to acquire and indefinitely hold land until such time as enough 
funds are available to permit development. The participating 
jurisdiction must not use HOME funds for acquisition of these types of 
properties if this is the

[[Page 791]]

participating jurisdiction's or owner's intent.
B. Concerns About Clarifications to ``Demolition'' in Sec.  
92.205(a)(2) and One-for-One Replacement Requirements
    Commenters expressed concerns that HUD's clarification regarding 
demolition could lead to overly strict interpretations requiring a one-
to- one rebuild following demolition.
    HUD Response: By statute, HOME participating jurisdictions are 
required to comply with the requirements contained in Section 104(d) of 
the Housing and Community Development Act (42 U.S.C. 5304(d)) (Section 
104(d)) and must certify that they have in effect and follow a 
residential anti-displacement and relocation assistance plan (RARAP) 
developed in accordance with Section 104(d) as further provided in 24 
CFR part 42.\40\ If a participating jurisdiction provides HOME 
assistance for a project involving demolition, as in the commenters' 
example, Section 104(d) requires that all occupied or vacant occupiable 
lower-income dwelling units that are demolished be replaced with lower-
income dwelling units on a one-for-one basis. Please see Sec.  
92.353(e) and 24 CFR 42.375, which remain unchanged in this rulemaking.
---------------------------------------------------------------------------

    \40\ See 42 U.S.C. 12705(b)(16).
---------------------------------------------------------------------------

C. Concerns About How Strictly the Requirement That ``Demolition'' and 
``Vacant Land'' Be Used for Affordable Housing in Sec.  92.205(a)(2) 
Will Be Applied
    Some commenters were also concerned that HUD's clarification 
regarding acquisition of vacant land could lead to overly strict 
interpretations that require affordable housing on each acquired and 
aggregated parcel. These commenters suggested adding language to Sec.  
92.205(a)(2) to permit the acquisition of vacant land or demolition of 
structures on parcels adjoining or contiguous to a project that will 
provide affordable housing, so long as those activities are in 
furtherance of strengthening property values and promoting public 
health and safety of future residents as part of a cohesive affordable 
housing development plan. Another commenter said that permitting 
acquisition of vacant land or demolition of structures on adjoining or 
contiguous parcels will enable more affordable housing. Another 
commenter noted that so long as these activities will further 
neighborhood stabilization, the nature of vacancy and demolition 
continues to align with the purpose of the HOME program.
    HUD Response: The revisions to the HOME regulations at Sec.  
92.205(a)(2) are not intended to disallow reasonable site assembly or 
demolition activities that are integral to the development of the 
affordable housing. The revisions are intended to disallow land banking 
or demolition activities that are not directly tied to the provision of 
affordable housing through a ``specific local project'' as defined in 
Sec.  92.2. If acquisition of vacant land is integral to assembling a 
site for a specific local project, then the acquisition of the land is 
a permissible acquisition cost. Similarly, demolition is a permissible 
cost under the HOME program when the demolition is integral to the 
creation of an affordable housing project, such as when the demolition 
removes a structure that would have prevented the owner from developing 
the affordable housing project. While the Department was revising its 
regulations for clarity, these revisions do not represent a change in 
the statutory or regulatory requirements.
    The Department also notes that the HOME program is subject to one-
for-one replacement requirements. Please see earlier comment responses 
on the statutory requirement that HOME funds be used to construct 
affordable housing.
D. Comments About Requirement That ``Demolition'' and Acquisition of 
``Vacant Land'' Must Be Used for a Specific Local Project Within 12 
Months in Sec.  92.205(a)(2)
    One commenter stated that common delays caused by issues such as 
securing financing, public entitlement, site assembly, and other 
requirements make the proposed rule's commitment deadline of 12 months 
for the acquisition of vacant land or demolition work unreasonable, 
especially for nonprofit developers. These challenges led the commenter 
to recommend that HUD extend the 12-month requirement or establish 
separate deadlines for vacancy and demolition work.
    HUD Response: HUD understands the commenter's concern but is not 
revising the 12-month requirement contained in paragraph (i) of the 
definition of Commit to a specific local project for the reasons stated 
in HUD's earlier comment response on this subject. Demolition and 
acquisition of vacant land are only eligible costs as part of an 
affordable housing project and are not standalone costs or activities 
under the Act. Therefore, the Department will not treat these costs 
different from other costs associated with site assembly, preparation, 
or development.
E. Rewording of Project Completion Requirements for Homeownership in 
Sec.  92.205(e)
    A commenter stated that they disagree with the proposed change in 
wording from ``[i]f a participating jurisdiction does not complete a 
project within 4 years of the date of commitment of funds, the project 
is considered to be terminated . . .'' to ``[i]f project completion, as 
defined in Sec.  92.2, does not occur within 4 years of the date of 
commitment of funds for a specific local project, the project is 
considered to be terminated . . . .'' The commenter explained that a 
participating jurisdiction should not have to repay HOME funds for 
multi-address activities where some houses were completed and sold to 
eligible families since the units that were completed and sold in a 
timely fashion are HOME-assisted units. The commenter requested HUD 
provide additional guidance on multi-address activities.
    HUD Response: HUD was clarifying that the phrase ``complete a 
project'' in this regulation means ``project completion'' as defined in 
Sec.  92.2. This was not a change in existing policy and was a 
clarification of how HUD interprets existing policy. Regarding project 
completion for multi-address projects, the commenter is correct that in 
HUD's IDIS data system, a multi-address development is set up as one 
activity in IDIS and as such construction must be completed for all 
addresses before the activity can meet the definition of completed and 
the period of affordability starts. This system functionality is not 
new and has been established for the entire history of the HOME 
Program.
F. Support for the Four-Year Project Completion Deadline in Sec.  
92.205(e)
    One commenter stated that a four-year deadline to complete the 
project from the commitment of HUD funds is reasonable.
    HUD Response: HUD thanks the commenter for reviewing the proposed 
rule. HUD is not revising the four-year project completion deadline. 
The current regulation is consistent with the comment.

Sec.  92.206--Eligible Project Costs

A. Support for Clarification on Ground Lease Costs
    One commenter supported the clarification that acquisition through 
a ground lease is an eligible HOME cost and sought clarification on 
whether the costs are limited to those eligible under 2 CFR 200.465.

[[Page 792]]

    HUD Response: Acquisition of affordable housing through a ground 
lease that is at least as long as the time periods stated in paragraph 
(1) of Sec.  92.2 Homeownership is a permissible acquisition cost under 
Sec.  92.206. HUD clarified this in the proposed rule by revising Sec.  
92.206(c) to explicitly state that ``(c) Acquisition costs. Costs of 
acquiring improved or unimproved real property and costs for a long-
term ground lease, including costs of acquisition by homebuyers.'' The 
cost principles contained in 2 CFR part 200, subpart E are all 
applicable to HOME project costs, including eligible acquisition costs 
through a ground lease. To the extent that 2 CFR 200.465 applies to the 
ground lease, the participating jurisdiction must determine that the 
cost of the ground lease is reasonable, determine if there are less 
than arms-length transactions, and act accordingly.
B. Support for Revising Soft Costs in Sec.  92.206(d)
    Commenters stated that they support the proposal to allow property 
insurance during project development as an eligible HOME soft cost. 
Commenters stated that they support the proposal to permit the costs 
associated with conducting environmental assessments and reviews as 
costs eligible for reimbursement with HOME funds. One commenter 
explained that time and costs associated with environmental reviews of 
sites proposed for development often stall or restrict execution of 
affordable housing projects, and that HUD's proposal, while not a total 
solution, would advantage programs, especially those providing 
downpayment assistance.
    A commenter suggested that oversight-related fees for environmental 
assessments should qualify for this reimbursement as well, as they can 
be substantial and cited one example of $96,000 for a 14-unit project. 
One commenter stated that they support the clarifications made at Sec.  
92.906(d)(1) regarding ensuring that developers can be reimbursed for 
environmental assessments or reviews on successfully awarded HOME 
projects.
    HUD Response: HUD thanks the commenters for reviewing the proposed 
rule. The Department is accepting the comment regarding oversight fees 
for environmental reviews and environmental studies and revising the 
final rule text to include such fees as eligible for reimbursement.
C. Opposition to Requiring the Participating Jurisdiction Explicitly 
Approve of the Soft Costs in Sec.  92.206(d)(1) in the Written 
Agreement
    A commenter stated that they do not support the proposed 
requirement that the costs for conducting environmental assessments and 
reviews are only eligible for reimbursement with HOME funds when 
expressly permitted in the written agreement. The commenter stated that 
conducting environmental assessments and reviews are consistent 
requirements and therefore the reimbursement should be automatically 
approved.
    HUD Response: The Department thanks the commenters for reviewing 
and is moving forward with the revisions to Sec.  92.206(d)(1). Under 
42 U.S.C. 12756(a) and Sec.  92.504, participating jurisdictions must 
enter into written agreements that bind the owner to comply with HOME 
program requirements. A written agreement between a participating 
jurisdiction and an owner must include a description of the eligible 
uses of the project funds to comply with the regulation. The Department 
is declining to treat environmental assessments differently from other 
reimbursable expenses listed inSec.  92.206(d)(1),\41\ all of which 
must be explicitly mentioned in the written agreement to be eligible 
for reimbursement.
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    \41\ The other reimbursable expenses in 24 CFR 92.206(d) will 
now include: ``Architectural, engineering, or related professional 
services required to prepare plans, drawings, specifications, work 
write-ups; for HUD environmental review or other environmental 
studies, assessments, or fees; and for certain costs to process and 
settle the financing for a project, such as private lender 
origination fees, credit reports, fees for title evidence, legal 
fees, accounting fees, filing fees for zoning or planning review and 
approval, private appraisal fees, fees for independent cost 
estimates, and other lender required third-party reporting fees.''
---------------------------------------------------------------------------

D. Clarification of Requirement to State Eligible Soft Costs in Sec.  
92.205(d)(1) in the Written Agreement
    One commenter stated that participating jurisdictions and other 
participants do not understand that only the costs expressly listed in 
Sec.  92.206(d)(1) may be reimbursed with HOME funds notwithstanding 
that they were incurred up to 24 months prior to the commitment of HOME 
funds. The commenter recommended that HUD address this issue with 
additional education or clearer regulatory language.
    HUD Response: The Department thanks the commenters for reviewing 
and is moving forward with the revisions to Sec.  92.206(d)(1) without 
change. The Department will consider providing implementation guidance 
on this regulatory change in the future.
E. Allow Additional Predevelopment or Holding Costs To Be Reimbursed if 
Specified in the Written Agreement
    One commenter stated HUD should consider whether it is appropriate 
to permit predevelopment costs otherwise allowed under Sec.  
92.206(d)(2) to be reimbursed with HOME funds in the same manner as 
predevelopment costs otherwise allowed under Sec.  92.206(d)(1). The 
commenter noted that it is common for developers to have incurred 
various predevelopment legal/accounting costs, filing fees for 
planning/zoning reviews, appraisals and other lender-required third-
party reports, etc. prior to the commitment of HOME funds (and often as 
a predicate for meeting the conditions for commitment). The commenter 
believed that most of those costs would be ``anchored'' in Sec.  
92.206(d)(2) and that HUD should consider whether it is appropriate to 
allow predevelopment costs otherwise allowed by Sec.  92.206(d)(2) to 
be reimbursed with HOME funds in the same manner as other pre-
commitment predevelopment costs identified in Sec.  92.206(d)(1).
    One commenter requested that HUD delineate other holding and 
interim costs during development that the other parts of industry 
regularly characterize as soft costs with specific focus on property 
assessments and taxes, as well as utilities, groundskeeping, and 
security costs. The commenter stated that this clarification is 
necessary because these types of costs are not eligible for coverage 
once the project is ready for lease-up.
    HUD Response: The Department agrees with the commenters and is 
expanding the project soft costs that may be incurred prior to a 
commitment to include costs to process and settle financing for the 
project, including private lender origination fees, credit reports, 
fees for title evidence, legal fees, private appraisal fees, and fees 
for independent cost estimates. These were all contained in paragraph 
(d)(2) but will now be deleted from paragraph (d)(2) and added to 
paragraph (d)(1). While the Department is moving these provisions to 
paragraph (d)(2), the Department determined that several provisions 
could not be moved because there is no reasonable expectation that they 
should occur prior to commitment. These provisions include obtaining 
building permits, which require HUD environmental review; fees for 
recordation and filing of legal documents, as recorded documents 
relating to an acquisition, rehabilitation,

[[Page 793]]

or new construction project should occur after commitment of HOME 
funds; and builders or developers fees, as those fees should not be 
earned and chargeable to the HOME grant for work performed prior to the 
environmental review and commitment of the HOME funds to the project. 
HUD declines to make reimbursement of holding costs incurred before the 
commitment of HOME funds eligible as the Department considers these 
operating costs not project-related soft cost associated with 
predevelopment.
F. Revise Sec.  92.206(d)(6) To Allow for Additional Costs To Be 
Reimbursed
    One commenter stated HUD should clarify when participating 
jurisdiction overhead and staff costs remain eligible for reimbursement 
even when incurred prior to commitment under Sec.  92.206(d)(6) because 
the rule does not explicitly identify these as eligible costs.
    HUD Response: Staff and overhead cost of the participating 
jurisdiction are eligible for reimbursement as an administrative and 
planning cost under Sec.  92.207(b) or as a project-related cost under 
Sec.  92.206(d)(6). However, participating jurisdiction staff and 
overhead costs for a project that does not proceed as a HOME-assisted 
project is only eligible to be reimbursed as an administrative cost 
under Sec.  92.207(b). A participating jurisdiction may only reimburse 
itself for project-related soft costs under Sec.  92.206(d)(6) after it 
enters into a written agreement committing funds to the project and 
funding the project in IDIS.
G. Revise Eligible Project Costs To Include Additional Costs
    One commenter suggested expanding HOME's eligible costs so that 
developing and rehabilitating garage structures would be an eligible 
cost for the HOME program. The commenter stated that garages provide 
secure places to maintain personal property, like vehicles and mowers, 
and also support higher densities in urban neighborhoods through the 
creation of Accessory Dwelling Units (ADUs).
    HUD Response: HUD thanks the commenter for reviewing the proposed 
rule. HOME funds can be used for the cost of attached garages, i.e., 
garages that are part of the housing structure receiving HOME funds. 
Unfortunately, the Act does not authorize the use of the HOME funds for 
appurtenances. Consequently, costs related to construction of 
freestanding garages or community buildings are not eligible to be paid 
with HOME funds.

Sec.  92.207--Eligible Administrative and Planning Costs

A. Raise Administrative and Planning Cost Cap
    One commenter stated that given the addition of new requirements, 
including BABA and VAWA, and the reduction in recent years of 
entitlement funding, the limit on only spending 10 percent on 
administration and planning costs is not sufficient to meet obligations 
in running compliant programs.
    HUD Response: HUD understands the commenter's concerns about the 
potential increased costs of compliance and the limited amount of 
administrative and planning funds. Unfortunately, the 10 percent cap on 
each administrative and planning costs for each grant is statutory. See 
42 U.S.C. 12742(c).
B. Reimbursement of Program Costs for Projects That Do Not Proceed
    One commenter stated that HOME applicants often drop out of the 
process prior to closing, which means grantees are unable to recover 
the extensive staff time invested in considering or processing 
applications. The commenter recommended that HUD allow reimbursement of 
program costs if the grantee can demonstrate they acted in earnest to 
achieve the national objective. This could include demonstration of 
standard program deliverables, including inspection reports, work-write 
ups, bid packages and construction contract materials.
    HUD Response: HOME regulations at Sec.  92.207 currently permit 
payment of administrative costs, including staff and overhead costs for 
considering or processing applications, monitoring owners, inspections, 
and other administrative costs associated with program governance. 
However, for a cost to be an eligible project cost under Sec.  92.206, 
it must be for a project that provides affordable housing in accordance 
with 24 CFR part 92.
C. Inability To Pass Along Costs to Program Beneficiaries Necessitates 
Additional Administrative Funds
    A commenter noted that State participating jurisdictions often 
develop rules regarding eligible administrative and project costs 
forcing many small cities and counties to exit the program because 
costs cannot be reimbursed fully. The commenter believes that not 
allowing costs for work specifications, needed inspections, and title 
insurance to be charged to successful HOME beneficiaries unfairly 
limits compensation for program delivery in homebuyer and home 
rehabilitation programs.
    The commenter stated that HUD should increase support for 
administrative and activity delivery costs because participating 
jurisdictions, State recipients, or local recipients require grantees 
to provide additional funding from general funds to cover cost overruns 
that stem from these categories. The commenter suggested an increase in 
allowable administrative costs to 12 percent if a State recipient 
contractor or subrecipient is utilized. The commenter suggested 
allowing project delivery cost reimbursement housing rehabilitation, 
homebuyer assistance, and ADU programs.
    HUD Response: Program beneficiaries in HOME homeownership programs 
(i.e., homebuyers and homeowners) may only pay costs in accordance with 
Sec. Sec.  92.254, 92.251, and 92.214. Under Sec.  92.504(a) 
participating jurisdictions are responsible for managing the day-to-day 
operations of its HOME program, ensuring that HOME funds are used in 
accordance with all program requirements and written agreements, and 
taking appropriate action when performance problems arise. The 
participating jurisdiction must have and follow written policies, 
procedures, and systems, including a system for assessing risk of 
activities and projects and a system for monitoring entities consistent 
with HOME requirements in 24 CFR part 92, and must take all necessary 
steps to require compliance with the HOME requirements. The Department 
is not changing these requirements or removing discretion from 
participating jurisdictions to determine the terms of the HOME 
assistance. Many of the costs that the commenter mentioned are within 
the discretion of the participating jurisdiction to pay if they are 
included in the written agreement, this includes work-write-ups; 
environmental reviews, studies, or assessments; and title insurance 
fees.\42\ The HOME rule at Sec.  92.205(d)(6) requires that these costs 
only be charged as activity costs if the project is funded, and the 
individual becomes the owner or tenant of the HOME-assisted project. 
The Department believes this is a reasonable restriction of the costs 
because, by statute, project delivery costs may only be paid for 
completed projects that meet the requirements of 24 CFR part 92.\43\ 
Finally, the Department understands that the commenter is requesting 
additional administrative and planning funds. The 10 percent cap on 
each FY's

[[Page 794]]

administrative and planning costs is statutory. See 42 U.S.C. 12742(c). 
There is no HUD-imposed cap on project delivery cost reimbursement for 
the costs required in Sec.  92.206(d)(1). Reimbursement of those costs 
are at the discretion of the participating jurisdiction and must 
explicitly be included in the written agreement committing the funds to 
be eligible HOME project costs.
---------------------------------------------------------------------------

    \42\ See 24 CFR 92.205(d)(1) and (2).
    \43\ See 42 U.S.C. 12742 and 42 U.S.C. 12749.
---------------------------------------------------------------------------

Sec.  92.208--Eligible Community Housing Development Organization 
(CHDO) Operating Expense and Capacity Building Costs

A. General Support
    Commenters supported the proposed rule revisions to correct a 
drafting error that created an unintended barrier to using CHDO 
operating expense and capacity building funding to assist nonprofit 
organizations seeking CHDO designation to meet the demonstrated 
capacity requirements.
    HUD Response: The Department thanks the reviewers for commenting, 
agrees with the commenters in support of the change, and is moving 
forward with the change.
B. Concern About Requirement That Operating Assistance Be Provided to 
an Organization That the Participating Jurisdiction Expects To Commit 
Assistance to for a Project Within 24-Months
    One commenter recommended adding the requirement described in Sec.  
92.300(e) of the existing rule, that a participating jurisdiction may 
only provide operating expense assistance under Sec.  92.208 to a CHDO 
if the participating jurisdiction expects to commit CHDO set-aside 
funds to the CHDO for a project within 24 months, to Sec.  92.208. The 
commenter believed this to ensured that the limitation is not 
overlooked. A commenter asked that HUD clarify the consequences of 
providing operating funds to a CHDO that does not receive CHDO set-
aside funding for a project within 24 months and recommended that HUD 
not require repayment of the operating assistance funds if the CHDO has 
made good faith efforts to qualify for project funding. Another 
commenter recommended providing examples of good faith efforts in sub-
regulatory guidance and two commenters provided potential examples of 
good faith efforts.
    One commenter stated that CHDOs receiving capacity building funds 
should receive more time because developing affordable housing for low-
income persons is complex and difficult. Other commenters recommended 
extending the time period for organizations receiving operating expense 
funds to secure project-related set aside funds from 24 months to 36 
months. Some commenters noted that a 36-month timeline would align CHDO 
TA with other Federal programs, such as the CDFI Fund, which requires 
that organizations receiving TA awards become certified as a CDFI 
within three years of receiving their TA award. A commenter also 
suggested that the longer timeframe would align with the needs of low-
income communities, recognizing the unique challenges and longer 
timelines that are often faced in those areas.
    HUD Response: Based on the comments received, the Department 
recognizes that there is some confusion among commenters about the use 
of operating assistance funding for capacity building activities, and 
the separate category of capacity building funding for development of 
CHDOs by new participating jurisdictions during their first 24 months 
of participation of the HOME program. To eliminate this confusion, HUD 
is revising the language in the proposed rule's paragraph Sec.  
92.208(c) to strike the term ``capacity building.''
    In response to the query about the consequences of a CHDO that 
received operating assistance not receiving a commitment of project 
funding, in most cases repayment is not required but the participating 
jurisdiction must cease providing operating assistance to the 
organization when it determines that it will not be committing funds to 
the organization for a HOME project.
C. Expand CHDOs That May Receive Operating Funds Under Sec.  92.208(a)
    One commenter stated that CHDOs experiencing employee turnover 
should have access to CHDO operating funds under Sec.  92.208(a).
    HUD Response: The Department thanks the commenter for reviewing the 
proposed rule and notes that the current regulations and this final 
rule permit participating jurisdictions to provide CHDO operating 
assistance funds to CHDOs experiencing employee turnover.
D. Expand Eligibility for Capacity-Building Funds in Sec.  92.208(b)
    A commenter supported the proposed changes but urged HUD to remove 
the language at Sec.  92.300(b) that restricts capacity building 
funding only to participating jurisdictions within the first 24 months 
of participation in the HOME program as there are many participating 
jurisdictions that have not identified a sufficient number of capable 
CHDOs and struggle to use their CHDO set-aside each year.
    HUD Response: The restriction that a participating jurisdiction may 
only engage in capacity building activities for CHDOs in the first 24 
months of a participating jurisdiction's participating in the program 
is statutory. 42 U.S.C. 12771(a) states in relevant part that ``[i]f 
during the first 24 months of its participation under this subchapter, 
a participating jurisdiction is unable to identify a sufficient number 
of capable community housing development organizations, then up to 20 
percent of the funds allocated to that jurisdiction under this section, 
but not to exceed $150,000, may be made available to carry out 
activities that develop the capacity of community housing development 
organizations in that jurisdiction . . . .'' If a participating 
jurisdiction has been participating in the HOME program for more than 
24 months, it may still provide CHDOs with CHDO operating funds in 
accordance with Sec.  92.208(a) and (c).
E. General Requests To Enhance CHDO Capacity
    Commenters urged HUD to provide technical assistance to help CHDOs 
build and maintain capacity, particularly in rural areas. A commenter 
that is an organization that serves persons with disabilities and has 
previously sought CHDO designation requested that HUD provide technical 
assistance to existing community-serving organizations that wish to or 
that are becoming CHDOs. One commenter urged HUD to use capacity 
building money in non-entitlement communities because it would provide 
needed funding to nonprofit organizations in those communities to 
address their affordable housing needs.
    HUD Response: HUD acknowledges the importance of providing 
technical assistance to rural CHDOs to help them succeed in competitive 
funding cycles administered by their participating jurisdictions. The 
Department recognizes that rural CHDOs face unique challenges that can 
be addressed through targeted support. However, HUD can only provide 
direct program assistance to entities that receive funds directly from 
HUD. Partners, subrecipients, or project sponsors that receive HUD 
funds through a participating jurisdiction must coordinate with the 
participating jurisdiction to submit a request for in-depth program 
assistance on their behalf. HUD will continue to develop training and 
tools aimed at providing broad assistance that is relevant to rural 
CHDOs.

[[Page 795]]

Sec.  92.209--Tenant-Based Rental Assistance

A. Request for Clarification on Rental Assistance Contract
    One commenter asked HUD to clarify Sec.  92.209 by stating that the 
rental assistance contract is the one under which HOME funds are 
committed to the activity, not the agreement between the tenant, 
landlord, and participating jurisdiction/State recipient.
    HUD Response: The Department thanks the commenters for reviewing 
the proposed rule. The definition of ``Commit to specific local 
project'' in paragraph (2) of the definition of ``Commitment'' in 24 
CFR 92.2 states that the committing document for HOME tenant-based 
rental assistance is the rental assistance contract. When a 
participating jurisdiction is administering its own tenant-based rental 
assistance program, this will be the document committing HOME tenant-
based rental assistance. If a participating jurisdiction is using a 
Subrecipient (or State recipient) to provide tenant-based rental 
assistance, then there will be at least two commitments, one will be 
committing funds to administer a tenant-based rental assistance program 
that is between the participating jurisdiction and its Subrecipient (or 
State recipient); the other will be committing funds through the rental 
assistance contract between the Subrecipient (or State recipient) and 
the tenant and owner receiving the tenant-based rental assistance.
    If a participating jurisdiction is using a contractor to provide 
tenant-based rental assistance, then there will also be at least two 
commitments, one committing the funds to the contractor to administer 
the participating jurisdiction's tenant-based rental assistance 
program; and the other being the rental assistance contract between the 
Contractor (as agent of the participating jurisdiction) and the owner 
and tenant assisted by the tenant-based rental assistance.
B. Use of Tenant-Based Rental Assistance in Lease Purchases
    One commenter expressed support for HUD's outline in the proposed 
rule of the parameters within which a tenant may become a homeowner 
through the lease-purchase process and said that easing lease-purchase 
in the HOME program would provide a much-needed path toward 
homeownership for low- to moderate-income homebuyers. The commenter 
reasoned that allowing a homebuyer-tenant to contribute their TBRA 
toward a down payment will facilitate rent-to-own processes for HOME-
assisted households. According to the commenter, if HUD's proposal were 
finalized, both participating jurisdictions and potential homebuyers 
could determine that all or some of the tenant's contribution to rent 
could be set aside for closing costs or a down payment and solidify 
terms through the lease-purchase agreement.
    HUD Response: The commenter supports changes made to the lease-
purchase program but requests the ability for TBRA tenants 
participating in a lease-purchase program to have a portion of their 
tenant-based rental assistance, and not just the tenant contribution 
towards rent, be used to accumulate a downpayment for the unit. The 
current regulation at Sec.  92.209(c)(2)(iv) only allows a portion of 
the tenant's monthly contribution towards rent to be set aside for this 
purpose. The Department did not propose a change to this provision and 
does not believe it can do so because the result would be that the 
tenant-based rental assistance provided would be used as both tenant-
based rental assistance and homeownership assistance. This dual use of 
HOME funds would violate the provisions of 42 U.S.C. 12742(a)(3) and 
(b), which do not contemplate using tenant-based rental assistance for 
such purpose. Instead, the Department only clarified that when all or a 
portion of the homebuyer-tenant's monthly contribution toward rent is 
set aside for closing costs or a downpayment, it must be set aside in 
accordance with the lease-purchase agreement.
C. Income Reexaminations and Sec.  92.209(c)(1)
    Several commenters stated that they support reducing the frequency 
of income determinations by requiring income redetermination only at 
TBRA contract renewal instead of an annual determination. Commenters 
stated that reducing the frequency of income determinations was prudent 
and would lessen the impact on tenants and reduce administrative burden 
on participating jurisdictions. One commenter noted that longer 
recertification periods would allow families to build wealth without 
immediately having to pay higher rent and utility payments. The 
commenter was grateful HUD was building off its Bridging the Wealth Gap 
plan but encouraged the Department to implement longer recertification 
periods such as triennial income recertifications as proposed in the 
Bridging the Wealth Gap plan.
    One commenter noted that, as written, the rule may still require 
income determinations annually because leases expire annually. The 
commenter suggested clarifying that income reexamination is not 
required for amendments to the rental assistance contract during the 
original term of the contract as project costs may change during the 
term.
    HUD Response: The Department thanks the commenters for reviewing 
the proposed rule and is moving forward with the proposed change. In 
response to the commenters, HUD is adding language to Sec.  92.209(e) 
that clarifies when an income reexamination is required. While the 
Department is not moving to triennial income reexamination for tenant-
based rental assistance, HUD is revising Sec.  92.209(e) to add a new 
paragraph (3) that defines what events constitute an amendment or 
renewal of the rental assistance contract. Specifically, a rental 
assistance contract may only be amended for the following reasons and 
within its term if all parties consent, for the following reasons: to 
extend the term of the rental assistance contract up to 24 months from 
the original date of execution; when a tenant changes units within the 
same building or development provided the parties to the lease, the 
family size, and number of bedrooms remain the same; or the lease term 
or amount charged under the lease has been changed. Subject to the 
availability of HOME funds, a rental assistance contract may be renewed 
after the expiration of its initial term.
    The Department is also adding language in a new paragraph (4) that 
explains when initial and subsequent income determinations are 
required. Income determinations will be required before a participating 
jurisdiction enters into an initial or new rental assistance contract 
with the family, and at contract renewal. Participating jurisdictions 
will not be required to reexamine a family's income if the rental 
assistance contract is amended. The Department believes this will 
address the commenters' concerns by establishing a clear framework for 
reducing income reexaminations in tenant-based rental assistance.
D. Increase Alignment With Section 8 on Income Reexaminations
    Commenters stated that HOME TBRA should require income eligibility 
screening only at new admission and not require it afterwards, i.e., 
not during the annual certification process, because Section 8 requires 
income eligibility screening only upon new admission.
    Commenters also suggested that HOME TBRA do not have a lease

[[Page 796]]

renewal requirement similar to Section 8, where lease renewal is 
implied.
    HUD Response: The Department thanks the commenter for reviewing the 
proposed rule and acknowledges the commenter's recommendation to align 
income eligibility requirements across the HOME tenant-based rental 
assistance programs and Section 8 Housing Choice Voucher programs. Due 
to HOME statutory limitations, HUD declines to adopt this 
recommendation.
    The Act requires income targeting for HOME tenant-based rental 
assistance to be based on income at the time of occupancy or at the 
time funds are invested, whichever is later.\44\ The Act also limits 
the term of rental assistance contracts to 24 months.\45\ The combined 
effect of the two provisions is that the participating jurisdiction 
must redetermine income each time it invests its funds into a new 
rental assistance contract to determine that the family meets the 
income eligibility requirements and to determine that the funds 
invested in the rental assistance contract still meet the statutory 
income targeting requirements. Rental assistance contracts may be 
renewed if a participating jurisdiction has funds available and the 
family still meets the income requirements after their income is 
redetermined.
---------------------------------------------------------------------------

    \44\ 42 U.S.C. 12744.
    \45\ 42 U.S.C. 12742(a)(3)(C).
---------------------------------------------------------------------------

E. Remove Requirement That a Rental Assistance Contract Begin on the 
First Day of the Lease
    One commenter asked HUD to remove the requirement in Sec.  
92.209(e) that the rental assistance contract begin on the first day of 
the term of the lease because it imposes a hardship on households that 
receive TBRA in the rental housing they currently occupy, but where 
they were unassisted at the time of lease execution. The commenter 
explained that HUD allows for the lease term to expire during the term 
of assistance, so long as no HOME assistance is provided when an active 
lease is not in place and that an existing lease may be amended to 
include the required tenant protections after the lease term begins, so 
the lease effective date should be immaterial to the HOME assistance 
start date, so long as all other requirements are achieved.
    HUD Response: HUD agrees with the commenter that requiring the 
rental assistance contract to begin on the first day of the lease is 
problematic for families that are already under an existing lease. The 
Department is revising Sec.  92.209(e) to state that the term of the 
rental assistance contract must begin on the first day of the term of 
the lease or the beginning of the first month in which tenant-based 
rental assistance is provided in accordance with the rental assistance 
contract. Permitting the rental assistance contract to begin on the 
first month in which the tenant-based rental assistance is provided 
will allow participating jurisdictions to assist families already 
residing in a unit, provided that the lease conforms to the tenant-
based rental assistance requirements in Sec.  92.209 and includes the 
HOME tenant-based rental assistance tenancy addendum required in Sec.  
92.253.
F. Support for Tenant Hardship Provisions in Sec.  92.209(h)
    Several commenters stated that they support the proposed change to 
the TBRA requirements to allow participating jurisdictions to establish 
hardship policies that permit an exception to the minimum rent 
requirement for families with little or no income.
    HUD Response: HUD thanks the commenters for their support and is 
moving forward with these changes.
    Specific solicitation of comment #9: The Department currently 
applies only the tenant protections contained in the current Sec.  
92.253(a) and (b) to tenants receiving TBRA. The proposed rule would 
apply proposed paragraphs (a)-(c) and (d)(2) to tenants receiving TBRA, 
including tenants that only receive HOME security deposit assistance. 
The Department is seeking public comment on whether the requirements at 
Sec.  92.253(b) and (d)(2) should be required for tenants that receive 
TBRA. If not, what tenant protection requirements should apply to 
tenants that receive TBRA?
A. Comments in Support of a Tenancy Addendum for Tenant-Based Rental 
Assistance Recipients
    Several commenters supported providing a tenancy addendum for 
recipients of HOME tenant-based rental assistance. One commenter stated 
the proposed tenant protections are a positive step towards protecting 
low-income renters in subsidized units and that they hoped to see the 
protections expanded to other HUD programs. Another commenter supported 
the expanded tenant protections and stated that many of the protections 
already exist in State law and local ordinances. Another commenter said 
that even though the commenter is unaware of any jurisdictions that use 
HOME funds to provide TBRA, there is no reason why TBRA should operate 
differently than the Housing Choice Voucher program, which provides 
tenant protections.
    One commenter stated that a universal HOME tenancy addendum would 
ensure compliance with Violence Against Women Act (VAWA) requirements 
and other Federal tenant rights and reduce the burden on participating 
jurisdictions to develop their own addenda or review individual leases. 
The commenter cautioned HUD must ensure that the universal HOME tenancy 
addendum does not conflict with any lease provisions or addenda 
required by other Federal programs, and should avoid conflict with 
applicable State or local laws to the maximum extent possible. One 
commenter urged HUD to extend the full range of tenant protections to 
those receiving HOME TBRA and noted its appreciation for extending 
these protections to persons with disabilities. The commenter 
appreciated HUD seeking to minimize owner retaliation for reasonable 
accommodation requests but notes that HUD enforcement of the regulation 
is required in order to prevent such retaliation.
    HUD Response: HUD thanks the commenters for their views and agrees 
that tenancy addenda are an effective and administratively streamlined 
way to ensure that leases are free from prohibited lease terms and 
provide tenants with adequate protections and rights. HUD is adopting 
tenancy addenda for rental housing, tenant-based rental assistance, and 
families receiving only security deposit assistance. However, in 
response to public comment, HUD is making significant changes to the 
addenda requirements in this final rule so that the requirements in the 
addenda reflect the extent of HOME involvement in the project.
    Specifically, HUD is making even greater distinctions between the 
addenda for rental housing in which the owner has accepted HOME funding 
for the project and tenant-based rental assistance, as well as between 
ongoing tenant-based rental assistance and only security deposit 
assistance. This final rule also better aligns HOME tenancy provisions 
with those applicable to Housing Choice Vouchers and project-based 
vouchers to maintain consistency across the programs.
    HUD declines to include VAWA protections applicable to HOME 
projects in the HOME-specific tenancy addenda established by this rule 
because the Department is undertaking separate rulemaking to implement 
the expanded VAWA protections across HUD programs. The HOME-specific 
protections in these addenda must be

[[Page 797]]

adjudicated through State and local judicial processes. Participating 
jurisdictions are also required to monitor and enforce HOME 
requirements. HUD, in its HOME program monitoring and oversight role, 
may identify when a participating jurisdiction is not enforcing the 
HOME requirements and may require that the participating jurisdiction 
enforce tenant protections, as necessary. The Department notes that 
individuals may report housing discrimination to HUD's Office of Fair 
Housing and Equal Opportunity (FHEO), including complaints involving 
violations of VAWA, the Fair Housing Act, Section 504 of the 
Rehabilitation Act, and Title VI of the Civil Rights Act. See https://www.hud.gov/fairhousing/fileacomplaint. However, the Department is 
declining to establish grievance procedures on either the Departmental 
level or for participating jurisdictions. The HOME program is a block 
grant affordable housing program, and it is the responsibility of each 
participating jurisdiction to determine the best systems, policies, and 
procedures for monitoring and enforcing compliance in accordance with 
Sec. Sec.  92.253 and 92.504.
B. Cautious Support of a Tenancy Addendum for Tenant-Based Rental 
Assistance Recipients
    One commenter supported HUD's proposal to expand tenant protections 
for households receiving TBRA assistance in theory but was concerned 
that doing so may provide a disincentive for owners of rental housing 
to participate in the program. While the commenter acknowledged the 
benefits of extending tenant protections, especially in jurisdictions 
without many protections for tenants, an expansion of requirements 
would likely deter available units from being accessed. The commenter 
recommended providing an option for participating jurisdictions to 
exempt the new requirements for households that receive TBRA security 
deposit assistance only, as well as an option for participating 
jurisdictions to exempt 1-4 family and attached rental dwellings if it 
is a deterrent for owners in their jurisdiction.
    HUD Response: HUD shares the commenter's concern that HOME lease 
addenda not act as a disincentive to private landlords accepting 
participants in HOME TBRA programs, including security deposit 
assistance only programs. HUD believes that establishing different 
addenda for HOME rental projects, HOME TBRA, and HOME security deposit 
assistance that provide different levels of tenant protections based on 
the form of HOME assistance being provided will help address landlord 
reluctance to accept the tenant protections in the addenda. The 
Department believes that HOME TBRA recipients should have protections 
similar to tenants of HOME-assisted rental units. Consequently, the 
TBRA addendum is substantially similar to the Rental Housing addendum 
except that it does not include the requirements: (1) that an owner 
relocate a tenant if a life-threatening deficiency cannot be addressed 
on the same day it is identified; and (2) that allows tenants to 
organize, create tenant associations, convene meetings, distribute 
literature, and post information. Because of the limited nature of 
security deposit assistance, the new security deposit assistance 
tenancy addendum includes the prohibited lease terms in the current 
regulations. The Department chose this set of protections because the 
vast majority of the protections have been the minimum standard for 
tenant protections in the HOME program since 1991, when the HOME 
program's first rule was issued.\46\
---------------------------------------------------------------------------

    \46\ See 56 FR 65354.
---------------------------------------------------------------------------

C. Opposition to a Tenancy Addendum for Tenant-Based Rental Assistance 
Recipients
    Several commenters stated that requiring a tenancy addendum on TBRA 
leases would likely limit the housing supply because fewer landlords 
would accept tenants with HOME TBRA, especially in places where the 
expanded protections exceed existing law. One of the commenters 
recommended that HUD specially reach out to all participating 
jurisdictions to obtain input on the impact of these proposed changes.
    One commenter stated that the additional requirements limit the 
units that are available to tenants for landlords that refuse the 
additional protections as part of the lease. The commenter explained 
that where demand exceeds supply the additional requirements limit the 
units available for rent. Additionally, the commenter said that State 
and local laws already provide tenant protections and the HOME program 
should not limit tenants' access to existing available units for rent 
by adding duplicative regulations and requirements. Another commenter 
also said the proposed changes would risk decreasing program use and 
create difficulties finding available units. This commenter said LIHTC 
units have been lost due to qualified contract provisions that have 
caused a housing shortage for low-income communities.
    One commenter stated that the proposed tenant protection provisions 
would undermine the operational and financial well-being of 
participating rental properties and would interfere with existing State 
and local tenant protection laws without any evidence supporting the 
effectiveness of the proposed provisions. Another commenter stated that 
the proposed tenant protection provisions would make it more difficult 
for local courts to interpret lease agreements.
    HUD Response: HUD appreciates the feedback and has carefully 
considered the commenters' concerns that a TBRA addendum might create a 
disincentive for private landlords to rent units to HOME TBRA 
recipients. The Department understands that there may be owners that 
refuse tenants with HOME tenant-based rental assistance because of the 
terms of the HOME tenant-based rental assistance tenancy addendum; 
nonetheless, the Department has experience with applying tenancy 
addenda in other tenant-based rental assistance programs, most notably 
the Housing Choice Voucher program, and believes that it must balance 
the disincentive to some owners with the overall needs of the tenants 
being assisted with Federal funds. TBRA recipients are entitled to 
tenant protections and the Department has determined that these tenant 
protections should be similar to those being provided to tenants of 
HOME-assisted rental housing units, as described in the preamble to 
this final rule. The Department provided notice to the public of these 
protections in the proposed rule and specifically solicited comment on 
applying the protections to tenant-based rental assistance, just as the 
commenter is saying that the Department should have done. After 
examining the comments received, HUD is adopting the requirement for a 
HOME tenant-based rental assistance tenancy addendum in this final 
rule.
    Tenant protections under State laws vary widely and HUD does not 
agree with commenters that it should defer to individual State laws 
that may not always provide sufficient tenant protections for families 
receiving HOME tenant-based rental assistance. Many State laws do not 
afford the minimum set of tenant protections provided under the current 
HOME regulations. After careful consideration of the comments received 
as part of this rulemaking, the Department has determined that it 
should not rely upon State laws and should promulgate the tenant 
protections provided in Sec.  92.253(c) as a

[[Page 798]]

minimum standard of tenant protections. The Department does not believe 
that requiring a minimum level of tenant protections will undermine the 
operational and financial well-being of participating rental 
properties, as owners are free to assess the risks and choose whether 
they are comfortable with executing a tenancy addendum that includes 
the tenant protections in Sec.  92.253(c). The tenancy addendum will 
not interfere with existing State and local tenant protection laws and 
tenants may exercise any protections that are more stringent than HUD 
requirements. The Department also believes that the preamble discussion 
of both the proposed and this final rule, the plain language of Sec.  
92.253(c), and the HOME tenant-based rental assistance tenancy addendum 
provide ample materials for courts to interpret tenant leases. The 
Department also notes that many participating jurisdictions already 
include a tenancy addendum addressing prohibited lease terms contained 
in the current HOME regulations, and that such practice has made it 
easier, not harder, for tenants to assert their rights under their 
lease.
D. Opposition to Tenancy Addendum for Security Deposit Assistance
    One commenter stated HUD should not require a tenancy addendum on 
security deposit-only HOME clients, as this scenario typically includes 
TBRA or Housing Choice Voucher or VASH vouchers, which already occur 
and have an entity monitoring the landlord-tenant relationship for 
compliance.
    HUD Response: HUD agrees with the commenter that it is not 
appropriate to use the HOME tenant-based rental assistance tenancy 
addendum for tenants receiving security deposit only assistance. Unlike 
tenancy in a HOME-assisted rental unit or receipt of HOME TBRA, 
security deposit only assistance is one-time assistance. This is 
especially true when it is coupled with another form of assistance such 
as a Housing Choice Voucher. However, security deposit only assistance 
is subject to the prohibited lease terms established in the HOME 
statute and already promulgated in the current regulations. 
Consequently, HUD is adopting an addendum solely for use in conjunction 
with security deposit only assistance that contains only those 
currently prohibited lease terms, as an addendum is an effective 
mechanism for ensuring compliance.
    Specific solicitation of comment #10: Currently, a rental 
assistance contract can be between a participating jurisdiction and 
either an owner or a tenant. The Department is also aware of many 
participating jurisdictions that have tri-party rental assistance 
contracts where the owner, the tenant, and the participating 
jurisdiction all sign the rental assistance contract. The Department is 
seeking feedback on whether a rental assistance contract should always 
be executed by an owner so that the participating jurisdiction can 
require that the HOME-assisted tenant's lease contain the HOME tenancy 
addendum, and that the owner follow all applicable TBRA requirements.
    To promote robust enforcement, a commenter suggested that HUD 
should consider elaborating on the participating jurisdiction's 
obligations upon receiving the lease or revision via final rule or 
accompanying guidance. The commenter explained that tenants would 
benefit if the participating jurisdiction was obligated to notify them 
of proposed lease revisions and if tenants had the right to submit 
comments regarding those revisions. The commenter also suggested that 
HUD could also play a role in compliance monitoring if HUD performed 
audits of the leases and revisions that are submitted. The commenter 
further suggested that HUD should also require that leases disclose any 
other Federal housing subsidies that are attached to the unit and the 
property, as well as a statement that if a property or unit has 
multiple subsidies, the most restrictive tenant protections apply.
    Several commenters stated that the rental assistance contract 
should be executed by an owner to ensure that the owner is compliant 
with all applicable HOME TBRA requirements, particularly given that the 
regulatory requirements apply to the owner of the project. One 
commenter noted that agreements with project owners are common 
practice. Another commenter noted that it already requires the owner to 
be party to the rental assistance contract and agrees that it is 
necessary to ensure tenant protections are enforced. Another commenter 
stated that they have often experienced instances where tenants sign 
the agreement but as an owner the commenter did not see the agreement 
until after execution, which doesn't allow the owner to know up front 
what is expected of them.
    One commenter stated that a tri-party rental assistance contract 
ensures that the owner and tenant have a clear understanding of, and 
agree to, the program requirements, however the commenter noted that a 
tri-party contract may be a disincentive to small-scale rental owners' 
participation in the program. Another commenter noted that while it 
believes the rental assistance contract should be executed by the 
owner, it does support triparty contracts as an option.
    Two commenters stated that HUD should permit participating 
jurisdictions to choose whether owners should be included on the rental 
assistance contract, as is currently permitted in the regulations, 
although one commenter noted that requiring owners to be on the 
contract may result in owners electing not to participate in the 
program. The commenter also encouraged HUD to survey participating 
jurisdictions to see how many currently include owners on the contract 
and whether they support requiring the HOME tenancy addendum.
    One commenter stated that the tenant protections should be required 
to be in the tenant's lease in whatever method is appropriate. Another 
commenter said that even though the commenter is unaware of any 
jurisdictions that use HOME funds to provide TBRA, there is no reason 
why TBRA should operate differently than the Housing Choice Voucher 
program, which requires a tenancy addendum.
    One commenter stated that the proposed changes would risk adding an 
unnecessary layer of oversight and would create a link between 
participating jurisdictions and owners that would risk property damage 
concerns and tri-party contract disputes. The commenter also said that 
since States or subrecipients could also have assistance contracts and/
or rental assistance contracts used as emergency solutions, having a 
requirement to issue contracts with owner signatures would add 
additional administrative burden. The commenter suggested that HUD 
leave the regulation in its current form.
    One commenter stated that participating jurisdictions can always 
require that the HOME-assisted tenant's lease contain the HOME tenancy 
addendum and that the owner follow all applicable TBRA requirements 
either by including that requirement in a participating jurisdiction/
owner contract or in a tri-party contract. The commenter is not aware 
of any data indicating the proposed change would benefit residents and 
may, in fact, deter owners from participating in HOME TBRA programs.
    HUD Response: The Department appreciates the feedback provided by 
the commenters and has decided to require the participating 
jurisdiction to enter a rental assistance contract with the owner and 
the family. The Department is revising Sec.  92.209(e) to add paragraph 
(1) to delineate the required parties to a rental assistance contract. 
This may take the form of one agreement with the owner and a

[[Page 799]]

separate agreement with the family, or one single tri-party agreement 
with the participating jurisdiction, the owner, and the family. The 
Department disagrees that requiring an owner be a party to the rental 
assistance contract would create an administrative burden, but instead 
believes the participating jurisdiction must have a means of enforcing 
the tenant-based rental assistance requirements in Sec.  92.209 with 
both the project owner and the assisted family to ensure compliance 
with all applicable requirements in Sec.  92.209, including but not 
limited to tenant protections, income determinations, and unit 
inspections.
    In contrast to the comment that requiring a rental assistance 
contract to be executed by the owner will lead to more contractual 
disputes, the Department believes the final rule provides clearer 
rights for tenants in contract disputes, especially those related to 
property damage. By eliminating normal wear and tear as grounds for an 
adverse action, and by tying charges for property damage to the 
tenant's intentional or negligent acts, the HOME tenant-based rental 
assistance tenancy addendum provides significantly greater clarity on 
permissible charges. The Department agrees with the commenter who 
stated that the rental assistance contract is the best vehicle that the 
participating jurisdiction has to enforce the tenant protections 
contained in the HOME tenant-based rental assistance tenancy addendum 
and also believes that this will provide greater clarity in the event 
of contractual disputes.

Sec.  92.210--Troubled HOME-Assisted Rental Housing Projects

A. General Support
    Some commenters supported the additional flexibility for troubled 
HOME-assisted rental projects. A commenter stated that they support 
HUD's efforts to improve the effectiveness, specificity, and clarity of 
participating jurisdiction's authority to preserve affordable housing 
prior to foreclosure or similar events. Two commenters supported the 
changes in Sec.  92.210(a) and (c), including allowing HUD to consider 
physical condition and financial viability when preserving HOME-
assisted units at risk of failure or foreclosure. One commenter stated 
that this change would be a critical update providing clarity on this 
issue, as past interpretations have too narrowly focused on the 
financial viability of the property. Commenters stated that they 
support the proposed change to allow units to float-up from 50 percent 
of area median income to 80 percent of area median income if a project 
lacks sufficient income to cover operating expenses.
    HUD Response: HUD appreciates the commenter's feedback on these 
troubled HOME-assisted rental projects provisions and has revised this 
final rule based on the comments. Specifically, HUD is broadening the 
grounds on which a project may be considered financially troubled under 
Sec.  92.210; under Sec.  92.210(a)(1) of this final rule, a project is 
no longer financially viable if any one of three conditions exist, 
including if the project's operating costs exceed its operating 
revenue, considering project reserves; if the owner is unable to pay 
for necessary capital repair costs or ongoing expenses for the project; 
or if the project reserves are insufficient to be able to operate the 
project. The Department believes that broadening these grounds will 
better capture the type of projects that may be assisted with 
additional HOME funds. By contrast, the Department is moving forward 
with its proposed definition of physical viability, redesignated as 
Sec.  92.210(a)(2), without change.
B. Request for Clarification on ``Significant'' Financial Issues
    Commenters supported the flexibility in assisting troubled HOME-
assisted rental housing projects and recommended HUD provide more 
clarity on what constitutes ``significant'' where the rule states ``a 
HOME-assisted rental project is no longer financially viable if its 
operating costs significantly exceed its operating revenue.'' A 
commenter asked HUD to evaluate ``a project's current or future ability 
to maintain affordability'' and asked that HUD detail the expected 
process and timeline when making a request to HUD regarding troubled 
HOME-assisted rental housing. The commenter also stated that HUD should 
allow HOME funds to be used to restructure debt for troubled HOME-
assisted projects.
    HUD Response: HUD agrees with commenters that the term 
``significantly'' in Sec.  92.210 is vague and undefined. Consequently, 
in this final rule HUD is deleting the word so that the flexibilities 
of Sec.  92.210 will be available to projects in which operating costs 
exceed operating revenue. HUD notes that in addition to the provisions 
set forth in Sec.  92.210, HUD has the authority to waive certain 
regulations and requirements under 24 CFR 5.110 if HUD determines that 
good cause exists. The Department understands that commenters may not 
know how to begin the process of determining if a project is troubled 
under Sec.  92.210 or requesting a waiver under 24 CFR 5.110. To begin 
the process, the participating jurisdiction requests technical 
assistance from HUD to conduct a financial workout for a troubled 
project. Then, the participating jurisdiction and Department engages in 
a comprehensive assessment of the project's physical and financial 
sustainability, which includes discussions with other funders, if 
appropriate, and identification of all viable methods for the 
participating jurisdiction to ensure the project will comply with all 
applicable regulatory requirements through the period of affordability. 
The process then culminates in either a memorandum of understanding or 
a request for a waiver of HOME project requirements. In most instances, 
both methods will lead to changes in the number or mix of HOME-assisted 
units, investment of additional HOME funds, refinancing of debt, 
recapitalization of operating reserves, or rent adjustments.
C. Support for Considering Physical Condition in Troubled HOME Projects
    A commenter supported the flexibility to consider financial 
viability or the physical condition of housing when preserving HOME-
assisted units at risk of failure or foreclosure. The commenter noted 
the importance of recognizing that physical changes can significantly 
impact a project's preservation, including deferred maintenance due to 
unanticipated financial limitations or unforeseen capital needs. The 
commenter stated that this change would improve collaboration between 
participating jurisdictions and property owners to identify troubled 
properties and preserve them.
    HUD Response: HUD appreciates the commenter's support for the 
flexibility to consider both financial viability and the physical 
condition of housing when preserving HOME-assisted rental units at risk 
of failure or foreclosure. HUD agrees that acknowledging the impact of 
physical changes, often driven by unexpected financial challenges or 
unforeseen capital needs, is crucial to preserving these projects.
    HUD agrees that this flexibility will enhance collaboration between 
participating jurisdictions and property owners, enabling the early 
identification of troubled properties and improving preservation 
efforts. HUD thanks the commenters and concurs that strong partnerships 
with participating jurisdictions are vital in reducing the number of 
troubled projects in the HOME rental portfolio. While projects do not 
deteriorate overnight, early identification, thorough analysis, and

[[Page 800]]

proactive management are essential for ensuring the long-term 
sustainability of HOME-assisted rental projects.
D. Participating Jurisdictions Should Preserve as Many Units as 
Possible
    One commenter understood that unforeseen events can affect projects 
but encouraged HUD to allow participating jurisdictions to request 
additional HOME funds to preserve as many units as possible or reduce 
the number of HOME-assisted units to ensure the safety and health of 
families. The commenter was concerned that ``deferred maintenance'' or 
``unforeseen capital needs'' can be considered as factors that impact 
the long-term affordability or physical viability of projects and 
recommended that in these cases, 92.210(c) not apply and that HUD do as 
much as it can to preserve the units, including enforcing inspections 
regularly and providing additional resources to participating 
jurisdictions.
    HUD Response: HUD agrees that addressing deferred maintenance and 
unforeseen capital needs is critical to preserving HOME-assisted rental 
housing for families. However, the regulatory framework, including 
Sec.  92.210, establishes clear requirements for when and how units may 
be assisted with additional HOME funds. While HUD strives to preserve 
as many units as possible, funding constraints limit HUD's ability to 
provide additional HOME resources for every at-risk project. HUD 
encourages participating jurisdictions to leverage other Federal, 
State, and local funding sources alongside HOME to ensure comprehensive 
preservation strategies.
    HUD agrees that regular inspections are essential for identifying 
potential issues early and will continue to emphasize their importance 
through monitoring and technical assistance to prevent deferred 
maintenance and protect long-term affordability. HUD remains committed 
to working with participating jurisdictions and property owners to 
maintain the viability of HOME-assisted projects while ensuring the 
safety and health of residents.
E. Streamlining the Troubled Housing Project Process
    One commenter supported process streamlining of troubled HOME-
assisted rental projects.
    HUD Response: HUD appreciates the comment, and acknowledges that 
workouts of troubled projects can be difficult and time-consuming due 
to the complexity of the issues and the number of stakeholders that may 
be involved. In addition to the changes made in this final rule to the 
financial viability provisions, which the Department believes may aid 
in streamlining the approval process under Sec.  92.210, HUD plans to 
further outline the process for addressing troubled HOME-assisted 
rental projects in guidance.

Sec.  92.212--Pre-Award Costs

    Two commenters supported the proposed change authorizing pre-award 
costs instead of requiring HUD to issue a waiver in each fiscal year in 
which Congressional appropriations are not timely.
    HUD Response: HUD thanks the commenters for reviewing and is moving 
forward with this change.

Sec.  92.214--Prohibited Activities and Fees

A. Revise Sec.  92.214(a) To Allow for Faircloth-to-RAD Transactions
    A commenter opposed the prohibition against providing HOME funds to 
support rental units that will receive subsidies through the Faircloth-
to-RAD program. The commenter stated that Faircloth-to-RAD units are 
considered assisted under section 9 of the 1937 Act which, though HOME 
cannot fund, the ultimate intent for Faircloth-to-RAD units is for such 
assistance to be provided through section 8 of the 1937 Act, and as 
HOME-assisted rental units may also be assisted under section 8.
    HUD Response: The commenter is correct. Until the public housing 
units are converted to Section 8 units through the Rental Assistance 
Demonstration, they are public housing units under the U.S. Housing 
Act.
    42 U.S.C. 12745(d)(4) & (5) prohibits HOME funds from being used to 
provide assistance authorized under section 9 of the U.S. Housing Act 
(42 U.S.C. 1437g) or to carry out capital and management activities 
under the Capital Fund. The HOME rule at Sec.  92.213 states that HOME-
assisted housing units may not receive Operating Fund or Capital Fund 
assistance under section 9 of the 1937 Act (42 U.S.C. 1437g) during the 
HOME period of affordability. Because the public housing units in a 
Faircloth-to-RAD transaction are being constructed as public housing 
units under section 9 of the U.S. Housing Act (42 U.S.C. 1437g), and 
because the units must receive Public Housing Operating and Capital 
Funds in order to convert the assistance into a Housing Assistance 
Payments Contract when the units are converted, HOME assistance cannot 
be provided to develop the units. After conversion to Section 8 
project-based rental assistance or project-based vouchers, HOME funds 
can be used to assist the development if there are any remaining 
expenses. Pursuant to Sec.  92.213(c), HOME funds can also be used for 
non-public housing units if any are being constructed on the same site 
as the Faircloth-to-RAD units.
B. Revise Sec.  92.214(b) To Clarify the Role of Participating 
Jurisdictions in Approving Fees
    One commenter suggested HUD amend Sec.  92.214(b)(4) to state 
``With the permission of the participating jurisdiction, rental project 
owners may charge. . .'' The commenter stated this language clarifies a 
participating jurisdiction's responsibilities with respect to 
permissible fees.
    HUD Response: HUD thanks the commenter for reviewing. HUD will not 
be moving forward with this change. The Department did not propose to 
limit owners from charging reasonable application fees, parking fees 
(where customary), or fees for services such as transportation (when 
such services are voluntary and the fees are charged for the service 
provided) and these are already fees that owners are permitted to 
charge tenants of HOME projects under the current regulations. The 
Department also does not see the utility in requiring that 
participating jurisdictions regulate the permissible fees and is only 
requiring that participating jurisdictions prohibit the fees and 
charges listed in Sec.  92.214(b)(3).
C. Revise Sec.  92.214(b) To Permit Late Fees
    One commenter stated that HUD should clarify whether owners may 
charge late fees and insufficient funds fees, which are common in the 
industry. The commenter noted HUD has informally indicated such fees 
are not meant to be prohibited under the current language of Sec.  
92.214(b)(1).
    HUD Response: The HOME rule at Sec.  92.214(b)(3)(ii) prohibits 
``[f]ees that are not customarily charged in rental housing (e.g., 
laundry room access fees).'' Reasonable late fees and returned check 
fees are customarily charged in rental housing and would not be 
prohibited by Sec.  92.214(b).
D. Revise Sec.  92.214(b) To Add Additional Prohibited Fees
    Another commenter urged HUD to further clarify prohibited 
activities and fees in Sec.  92.214 including ``normal wear and tear.'' 
The commenter also asked HUD to address predatory fees such as a trip 
fee in conjunction with a lock-out and requested that HUD require 
owners to have a free rent payment method to address the fees often 
required when tenants pay online or with a credit card. The commenter 
stated that any fees which are not optional, such as

[[Page 801]]

mandatory renter's insurance, should be required to be included in the 
gross rent calculation. The commenter also questioned whether bulk 
cable/phone/internet providers are allowable fees.
    HUD Response: The Department thanks the commenter for reviewing the 
proposed rule and agrees with the commenter's recommendation that HUD 
clarify that charges for the normal wear and tear be prohibited under 
Sec.  92.214. In this final rule, HUD is adding this prohibition to 
Sec.  92.214(b)(3). The Department declines to accept the commenter's 
suggestion to prohibit fees for lock outs since owners may incur costs 
where a locksmith is required, or duplicate keys must be made. Provided 
such fees are customary and reasonable, participating jurisdictions may 
determine that owners of HOME-assisted projects may charge such fees.
    With respect to the comment that HUD require owners to have a free 
rent payment method to address the fees often required when tenants pay 
online or with a credit card, charging fees associated with online 
payments and using credit cards is a normal and customary business 
practice in many markets and as such HUD declines to adopt the 
commenter's suggestion. However, participating jurisdictions should 
encourage owners to ensure free rent payment methods are available to 
low-income families and may restrict the types of fees charged for 
paying rent through the written agreement with the rental housing 
project owner, as per Sec.  92.504(c)(3)(x).
    While the Department understands that one commenter believes that 
any fees that are not optional, such as mandatory renter's insurance, 
should be required to be included in the gross rent calculation, HUD is 
declining to adopt the commenter's recommendation. Fees are not utility 
costs and are not included in the gross rent determination. Mandatory 
fees may be permissible when commercially reasonable. The Department is 
not going to create a compliance standard where the owner must reduce 
the rent charged to a tenant by the monthly cost of mandatory fees. 
Instead, the Department is providing participating jurisdictions 
discretion to restrict fees through the written agreement. The 
Department also notes that mandatory renter's insurance is a 
commercially reasonable practice in the rental market.
    Finally, one commenter questioned whether bulk cable/phone/internet 
providers are allowable fees. When such fees are not customarily 
charged within the participating jurisdiction's local rental market, 
such fees must be prohibited.
E. Revise Sec.  92.214(b) To Clarify How To Determine Reasonable 
Application Fees
    One commenter questioned what a reasonable application fee is, what 
can be used to calculate a reasonable application fee. In terms of 
reasonable application fees, the commenter provided HUD the example 
that in their State's LIHTC Program, the owner can only charge the 
actual costs of processing an application credit/criminal background 
and cannot inflate application fees.
    HUD Response: The Department appreciates the commenter's question 
concerning reasonable application fees. The Department is declining to 
define the amount of a reasonable application fee, as commercially 
reasonable application fees may vary based on the project's location, 
sources of financing, and the type of background examination selected 
by the owner.

Sec. Sec.  92.216 and 92.217--Income Targeting in HOME Rental Housing, 
Tenant-Based Rental Assistance, and Homeownership Programs

A. Align Income Limits Across HOME and NAHASDA Programs
    One commenter requested that HUD align the definition of area 
median income for the HOME program with the definition contained in the 
Native American Housing Assistance and Self-Determination Act (NAHASDA) 
to facilitate leveraging NAHASDA funds with HOME funds and Tribes' use 
of HOME funds, and to reduce burden caused by two different 
methodologies for income for projects that utilize both NAHASDA and 
HOME funds. The commenter stated that HUD's interpretation seems to be 
that the median income of an Indian Area is the NAHASDA definition, and 
that this should be implemented for instances where HOME funding is 
used in an Indian Area. In support, the commenter referenced section 
214 of the Cranston-Gonzalez National Affordable Housing Act (NAHA) (42 
U.S.C. 12744); statutory language in NAHASDA at 25 U.S.C. 4103(14), and 
the definition of ``median income'' in paragraph (15); the definition 
of ``Indian area'' in NAHASDA,; the definition of ``median income for 
an Indian area'' in HUD's Indian Housing Block Grant (IHBG) regulations 
that implement NAHASDA; published guidance containing median incomes 
for Indian Areas; \47\ published IHBG area income limits; and the U.S. 
Department of Treasury's definition of area median income for the 
Emergency Rental Assistance Program.\48\
---------------------------------------------------------------------------

    \47\ E.g., https://www.hud.gov/sites/dfiles/PIH/documents/2022-01_Income_Limits.pdf.
    \48\ E.g., https://www.huduser.gov/portal/datasets/il.html#2022.
---------------------------------------------------------------------------

    HUD Response: The Department thanks the commenter for their 
recommendation that HUD align area median income for the HOME program 
with the NAHASDA. NAHA and NAHASDA define low-income families 
differently. NAHASDA permits HUD to establish an income floor for low-
income families for NAHASDA programs nationwide that is the greater of 
80 percent of the median income for the United States or 80 percent of 
the median income of the Indian area.\49\ In the definition of low-
income families, NAHA permits the Secretary to establish income 
ceilings higher or lower than 80 percent of the median for the area on 
the basis of the Secretary's finding that such variations are necessary 
in accordance with 42 U.S.C. 12704(10).\50\ This revision requires that 
HUD reexamine its methodology for calculating income limits for the 
HOME program and make findings based on variations relating to the 
prevailing levels of construction costs, unusually high or low family 
incomes. The Department would then propose a different methodology and 
solicit public input. HUD did not propose to change the definition of 
low-income families or the way that area median income is calculated in 
the HOME program in the proposed rule. The Department also did not 
propose to establish a national income floor for HOME program as part 
of the proposed rule. The Department believes that such significant 
changes require notice and

[[Page 802]]

comment and will not make this change in the final rule.
---------------------------------------------------------------------------

    \49\ 25 U.S.C. 4103(15) states: ``MEDIAN INCOME- The term 
`median income' means, with respect to an area that is an Indian 
area, the greater of--(A) the median income for the Indian area, 
which the Secretary shall determine; or (B) the median income for 
the United States.''
    25 U.S.C. 4103(14) defines low-income families as follows: 
``LOW-INCOME FAMILY--The term 'low-income family' means a family 
whose income does not exceed 80 percent of the median income for the 
area, as determined by the Secretary with adjustments for smaller 
and larger families, except that the Secretary may, for purposes of 
this paragraph, establish income ceilings higher or lower than 80 
percent of the median for the area on the basis of the findings of 
the Secretary or the agency that such variations are necessary 
because of prevailing levels of construction costs or unusually high 
or low family incomes.''
    \50\ 42 U.S.C. 12704(10) states that: ``The term ``low-income 
families'' means families whose incomes do not exceed 80 percent of 
the median income for the area, as determined by the Secretary with 
adjustments for smaller and larger families, except that the 
Secretary may establish income ceilings higher or lower than 80 
percent of the median for the area on the basis of the Secretary's 
findings that such variations are necessary because of prevailing 
levels of construction costs or fair market rents, or unusually high 
or low family incomes.''
---------------------------------------------------------------------------

B. Create a National Income Limit Floor
    One commenter recommended that HUD address the failures of its 
income limit calculations in the HOME program and beyond, noting that 
``state floors'' meant to prevent the effects of concentrated poverty 
do not work in places with severely depressed economies and high levels 
of poverty. The commenter stated that families in such places are not 
able to qualify for assistance under HUD programs despite very low 
incomes with respect to cost of living because the median family income 
limits in their communities are so low. The commenter said they are 
pursuing a legislative change to create a ``national floor'' and that a 
HUD January 2024 Notice proposing the idea of a ``national minimum 
income limit'' shows that HUD could immediately implement changes to 
address this existing inequality.
    HUD Response: The Department thanks the commenter for their 
recommendation to address the effects of HUD's methodology for 
calculating the income limits used for determining eligibility for HUD 
programs, and particularly the HOME program, on individuals and 
families living in places with severely depressed economies and high 
levels of poverty. The HOME income limits are calculated using the same 
methodology that HUD uses for calculating the income limits for the 
Section 8 program, in accordance with section 3(b)(2) of the U.S. 
Housing Act of 1937, as amended. These limits are based on HUD 
estimates of median family income, with adjustments based on family 
size using the American Community Survey (ACS) and other sources. Every 
year, HUD publishes the annual income limits, which are used primarily 
to determine the income eligibility of applicants for the HOME program. 
In addition to being used to determine eligibility for Federal rental 
housing programs, income limits are also used to determine the maximum 
rents allowed for HOME projects.
    HUD acknowledges the commenters' concerns that HUD's methodology 
for calculating income limits used by the HOME Program should be 
reexamined. In a January 10, 2024, Federal Register Notice (see FR-
6436-N-01), HUD first announced a change in the methodology for 
determining the cap on how much income limits can go up in a single 
year in any individual Fair Market Rent (FMR) area. Since FY2010 HUD 
has limited all annual income limit decreases to five percent and all 
annual increases to the greater of five percent or twice the change in 
the national area median incomes. For FY-2024, HUD added an absolute 
cap of 10 percent and clarified that the national median family income 
is the change in uninflated ACS estimates. HUD made this change for 
three reasons: to protect tenants from facing a large single-year rent 
increase resulting from higher income limits, to address statistical 
errors resulting in fair market rent areas that do not have a large 
sample size, and to create stable and predictable income limits. 
However, HUD will not revise how the HOME income limits are calculated 
with this final rule, as the change is too significant to make without 
HUD first proposing a different methodology and soliciting public 
input.

Sec.  92.221--Match Credit

    A commenter requested that HUD clarify that the requirements in 
Sec.  92.221(b) would be applicable only to carryover amounts going 
forward from the applicable date of the adoption of the rule otherwise 
participating jurisdictions would have to have records beyond the 
current recordkeeping period of documentation.
    HUD Response: The Department will prospectively require compliance 
with the revised requirements in Sec.  92.221(b), which explicitly 
requires a participating jurisdiction to have documentation supporting 
the source, eligibility, and value of match contributions that have 
been carried over from previous years at the time that they apply the 
contribution toward their match obligation. However, HUD notes that 
participating jurisdictions are already responsible for complying with 
the Sec.  92.508(a)(2)(ix), which requires records related to carryover 
match. HUD is adopting the proposed rule language without change.

Sec.  92.250--Maximum Per-Unit Subsidy

A. Support for Increasing HOME Maximum Per Unit Subsidy Limit
    Several commenters supported the increase of HOME subsidy limits. 
Two commenters stated that HOME subsidy limits should be increased 
because of the increase in the cost of labor and materials.
    HUD Response: The Department appreciates the commenters' review of 
the proposed rule and notes that the policy HUD is establishing through 
a separate Federal Register publication increases the maximum per unit 
subsidy limits from the current levels.
B. General Support for Revising Sec.  92.250(a) To Establish HOME 
Maximum Subsidy Limits in Accordance With Section 212(e) of NAHA
    Generally, commenters stated that they support the proposal of 
establishing the HOME maximum subsidy limits in accordance with section 
212(e) of NAHA. Several commenters stated support for HUD's 
clarification that the statutory limit in Section 212(e) of NAHA is a 
floor and not a cap of the subsidy amount, and for revising Sec.  
92.250 so that the section refers to the statutory requirements in 
order to avoid the need to waive or change the HOME regulations to 
align with section 212(e) in the future. Two commenters supported HUD's 
proposal to publish the methodology for determining the new maximum 
per-unit subsidy limits through a future notice published in the 
Federal Register and on HUD's website, with the opportunity for public 
comment. Another commenter recommended HUD seek feedback through a 
notice and comment period before finalizing a new methodology to ensure 
it meets the diverse needs of stakeholders.
    HUD Response: The Department appreciates the commenters' feedback 
and is moving forward with the changes as proposed.
C. Support for Using Section 234 Limits on an Interim Basis
    Several commenters supported HUD's proposal to adopt the Section 
234 limits and increase the housing cost percentage from 240 percent to 
270 percent in the maximum per-unit subsidy methodology. One commenter 
said this would permit more flexibility for the commenter's members and 
other stakeholders looking to maximize their usability of HOME funds 
ahead of HUD's release of the proposed methodology. One commenter said 
the resulting increase will be essential for communities where land and 
building costs are exceptionally high, and that the additional 
financing might also make the creation of smaller-scale properties 
unable to obtain LIHTC financially feasible. Another commenter stated 
that until a new methodology is finalized, HUD should establish the 
maximum per-unit subsidy limit as 270 percent of the section 234 
limitations, educate stakeholders, and consider waivers or high-cost 
percentage exceptions. Another commenter noted its appreciation that 
HUD increased the Section 234 limitations to 270 percent while it 
designs new limits as this will allow more flexibility and affordable

[[Page 803]]

homeownership stakeholders who seek to maximize their useability of 
HOME funds ahead of HUD's release of the proposed methodology. Another 
commenter stated that changes to the per-unit subsidy limits 
methodology would affect many other aspects of the proposed rule and 
urged HUD to issue the notice that will revise the methodology as soon 
as possible and in the interim to use the Section 234 elevator 
condominium mortgage limits as the base but lift the cap for high-cost 
areas to 270 percent. One commenter advocated for an increase in the 
subsidy limit to 300 percent to accommodate land and construction 
costs.
    HUD Response: The Department appreciates the commenters' review of 
the proposed rule and agrees that increasing the maximum per unit 
subsidy limits to 270 percent of the Section 234 elevator condominium 
mortgage limits will help communities where land and building costs are 
exceptionally high and may also make the creation of smaller-scale 
properties that are unable to obtain LIHTC financially feasible. The 
Department believes increasing the limits to 300 percent is currently 
unnecessary because few HOME-assisted units receive HOME subsidies 
close to the limits. However, HUD notes that this final rule will 
permit HUD to reconsider the limits based upon changing circumstances.
D. Specific Considerations in Per-Unit Methodology
    Several commenters also recommended that in developing its new 
methodology HUD consider the specific cost implications of 
rehabilitation, rural communities, single family housing and 
multifamily properties, fluctuating construction costs, as well as 
operating costs, property insurance costs, income limits, 
administrative costs, and impacts to a developer's revenue stream.
    HUD Response: HUD appreciates the comments and, as allowed by the 
Act, may consider appropriate variables such as the cost of land and 
construction, market area, number of bedrooms, eligible activity type 
(e.g., homeownership, rental), and work performed (e.g., 
rehabilitation, new construction) when developing a future methodology 
for maximum per unit subsidy limits.\51\
---------------------------------------------------------------------------

    \51\ See 42 U.S.C. 12742(e)(1).
---------------------------------------------------------------------------

E. Opposition to Using Maximum Per-Unit Subsidy in Effect at 
Underwriting
    One commenter opposed the proposed change that the HOME subsidy 
limit must be determined at the time of underwriting and recommended 
that the HOME subsidy limit be determined at the time of project 
completion. The commenter stated that their recommended approach is 
appropriate because: (1) the HOME subsidy limits are published once a 
year, giving the participating jurisdiction plenty of time to adjust 
subsidy layering, if needed; (2) projects may take more than a year to 
complete and, with inflation, the HOME subsidy limits can significantly 
increase, allowing participating jurisdictions more HOME funds to 
complete the substantial renovations; and (3) while the maximum per-
unit HOME subsidy limit is often not reached, it is the times when a 
particularly substandard home is renovated that more HOME funds being 
available allows participating jurisdictions to make the necessary 
substantial repairs.
    HUD Response: The Department did not propose a change with respect 
to the maximum per-unit subsidy limit applicable to a project. The 
proposed language is a clarification. Because a HOME participating 
jurisdiction is required to perform a subsidy layering analysis before 
committing HOME funds to a project, the maximum per-unit subsidy limit 
in effect at this time is the appropriate limit to apply to the 
project. The Department does not agree that the HOME subsidy limit 
should be determined at the time of project completion and will adopt 
this language as proposed.
F. Exceeding the Maximum Per-Unit Subsidy To Meet Green Building 
Standards in Sec.  92.250(c)
    Commenters overwhelmingly supported HUD's proposal to permit 
participating jurisdictions to provide additional subsidy in excess of 
the maximum per-unit subsidy limits at Sec.  92.250(a) for HOME 
projects that meet a green building standard. Several commenters 
indicated that the increased subsidy could help to defer upfront costs 
and assist with meeting their sustainability and housing goals, and 
they encouraged HUD to include mitigation and resilience improvements 
in the permissible standards. However, commenters also reminded HUD to 
consider that the application of green building standards is different 
for rehabilitation and new construction projects. One commenter noted 
that due to project construction timelines, any new green building 
requirements should be applicable based on date of commitment of HOME 
funds rather than grant year.
    HUD Response: The Department thanks commenters for their support of 
HUD's proposal to permit participating jurisdictions to provide 
additional subsidy in excess of the maximum per-unit subsidy limits at 
Sec.  92.250(a) to HOME rehabilitation and new construction projects 
that meet a green building standard. HUD is moving forward the change 
and in response to comments has increased the amount by which the 
maximum per-unit subsidy described in Sec.  92.250(a) may be exceeded 
to ten percent for a project that meets one of the acceptable green 
building standards enumerated by the Department. HUD agrees with the 
commenter that stated that the green building requirements are 
applicable based on the date HOME program funds are committed to a 
project.
G. Opposition to Mandatory Green Building Requirements
    Commenters opposed any mandatory green building requirements as a 
condition of receiving HOME funds. These commenters stated that green 
building standards should be voluntary given reductions in HOME 
appropriations and increased costs of construction over time. One of 
these commenters also suggested that requiring green building could 
result in fewer HOME units produced and decreased interest from 
contractors and developers in participating in the HOME program.
    HUD Response: HUD thanks the commenters and clarifies that it did 
not propose to require green building requirements under Sec.  92.251 
property standards requirements but instead is proposing to incentivize 
building to industry-recognized green building standards through the 
use of an increased maximum per-unit subsidy.
H. Additional Green Building Incentives and Considerations
    Commenters offered additional policy suggestions and shared 
concerns for HUD's consideration. One commenter recommended that the 
rule allow participating jurisdictions to exempt the amount of HOME 
funds spent on green and resilient building measures from the 
calculation of the total HOME subsidy for the purpose of determining 
the minimum HOME period of affordability in accordance with Sec.  
92.252(e). Two other commenters stated that HUD should consider Build 
America, Buy America (BABA) requirements in determining any increases 
in maximum per-unit subsidy related to green building standards because 
BABA may result in increased costs from sourcing green building 
materials.

[[Page 804]]

    HUD Response: The Department thanks the commenters for reviewing 
the proposed rule. As described elsewhere in the preamble, HUD is 
adjusting the periods of affordability to reflect increased costs over 
the last three decades and other requirements that may increase 
compliance costs for owners. For new construction of rental housing, 
the incremental cost of meeting green building standards will have no 
effect on the period of affordability, as HUD has retained the 20-year 
period of affordability. The Department does not have statutory 
authority to disregard the costs related to green building from the 
determination of per-unit subsidy and declines to adopt the change.
    HUD notes that BABA is beyond the scope of this rulemaking. Until 
additional guidance is provided about how BABA will apply to HOME and 
other HUD programs, HUD cannot determine the effect of BABA compliance 
on the green building incentive or overall compliance with the HOME 
final rule.
    Specific solicitation of comment #2: The Department specifically 
requests public comment from participating jurisdictions, developers, 
and other affected members of the public about the green building 
standards that the Department should establish in the Federal Register. 
In addition, the Department seeks public comment about stakeholder 
experiences regarding the percentage increase in the cost of 
constructing or rehabilitating affordable housing to a green building 
standard and whether a 5 percent increase in the maximum per unit 
subsidy limit is sufficient. Finally, the Department requests public 
comment on whether permitting participating jurisdictions to exceed the 
maximum per unit subsidy limit by an amount in excess of the additional 
costs of green building measures (i.e., to provide additional HOME 
funds to cover a larger portion of other HOME-eligible development 
costs),would create a sufficient incentive to developers and owners to 
meet green building standards in projects that would otherwise not be 
designed to meet those standards.
A. Requiring a Specific List of Qualifying Green Building Standards
    Commenters were divided over whether HUD should specify green and 
resilient building standards and which standards HUD should permit. 
Several commenters suggested that HUD should allow participating 
jurisdictions a range of choices by prescribing a wide variety of 
qualifying standards to account for differences in the availability of 
resources, costs of certification, and unique State and local needs 
based on population and geographic location. Alternatively, two 
commenters recommended against a HUD-prescribed list and instead 
suggested that HUD establish a broad definition of green and energy 
efficient measures that would qualify as a green building standard to 
allow for maximum flexibility. Furthermore, commenters recommended that 
HUD allow the increased HOME subsidy if the project meets State and 
local green standards and requirements. One commenter stated that HUD 
should review best practices that increase the feasibility of the 
developer to adhere to green standards while bringing down energy costs 
for the consumer.
    HUD Response: The Department thanks commenters for their views 
regarding whether HUD should establish a set list of green and 
resilient building standards to publish in the Federal Register. HUD 
has received numerous recommendations of green building certifications, 
standards, codes, and thresholds that commenters believe HUD should 
incentivize, each with differing technical components, building 
requirements, and effectiveness criteria. HUD will evaluate the 
standards suggested, publish a provisional Federal Register notice for 
effect, and solicit additional public comments.
B. Use of Nationally Recognized Certifications To Align With Other 
Federal Programs
    Commenters that support a HUD-prescribed list recommended that HUD 
establish green and resilient building standards that are consistent 
with the national certifications required by other Federal or HUD-
assisted programs to promote alignment, limit disruption or confusion, 
and ease administrative burden, given that these standards are well 
known by many participating jurisdictions and their developers. One 
commenter noted that these standards are included by States in their 
qualified allocation plans (QAPs) for low-income housing tax credits. 
Another commenter suggested that HUD collaborate with other Federal 
agencies such as the Department of Energy, Department of Health and 
Human Services, and the Environmental Protection Agency to create such 
a list or consider allowing the use of other agency's Green Building 
Standards. The specific Federal programs suggested for alignment by 
commenters include the following:
    1. HUD's Green and Resilient Retrofit Program (GRRP), which permits 
DOE Zero Energy Ready Home; Zero Energy Ready Multifamily; National 
Green Building Standard--Silver, Gold, or Emerald; LEED V4.1; 
Enterprise Green Communities Plus, Greenpoint Gold or Platinum; 
Earthcraft Gold or Platinum; Passive House; International Living 
Institute; Well Building Standard; RELi; or FORTIFIED Silver or Gold.
    2. The Environmental Protection Agency's Greenhouse Gas Reduction 
Fund program.
    3. The Department of Energy's Section 45L Tax Credits for Zero 
Energy Ready Homes, which also includes Energy Star requirements.
    HUD Response: The Department thanks commenters for recommending a 
large number of green and resilient building standards for HUD's 
consideration. HUD agrees that green standards consistent with national 
certifications required by other Federal programs have the highest 
likelihood of reducing confusion and administrative burden. HUD will 
evaluate the standards suggested, issue a provisional Federal Register 
publication for effect, and solicit additional public comments.
C. Green Building Standards Promoted by Commenters
    Irrespective of alignment with other HUD or Federal programs, 
commenters recommended that the following certifications, standards, 
codes, or thresholds be used to determine compliance for the purposes 
of increased HOME subsidy:
    1. CALGreen (California Green Building Standards Code--Part 11, 
Title 24, California Code of Regulations).
    2. GreenPoint Rated (GPR) Certified or 75+ points.
    3. International Green Construction Code (IgCC), which the 
commenter indicates will allow for coordination with the statutory HOME 
energy efficiency requirements for new construction projects. A 
commenter also notes that Appendix M of the 2024 IgCC provides options 
for residential compliance with the National Green Building Standard 
(ICC 700) and Appendix K aligns IgCC requirements with core elements of 
versions 4.0 and 4.1 of the LEED rating system.
    4. Home Energy Rating System (HERS) Index threshold specifically 
for homeownership projects, for example requiring a HERS rating of 50 
or lower to qualify as meeting the green building standard.
    5. Earth Advantage.
    6. Energy Rating Index (ERI) thresholds, for example requiring that 
homes achieve an ERI of 60 or lower.
    7. ENERGY STAR, and specifically ENERGY STAR Multifamily New 
Construction National Program Requirements Version 1.1.

[[Page 805]]

    8. Enterprise Green Communities, and specifically Enterprise Green 
Communities Plus.
    9. National Green Building Standard (NGBS Green).
    10. Passive House.
    11. US Green Building Council's LEED, and specifically LEED Silver 
(50+ points) or LEED Net Zero.
    12. Zero Energy Ready Homes.
    HUD Response: The Department thanks commenters for recommending a 
large number of green and resilient building standards for HUD's 
consideration. Just as in the previous responses, HUD will evaluate the 
standards suggested, issue a provisional publication in the Federal 
Register for effect, and solicit additional public comments. The 
Department understands that the green building standards mentioned by 
commenters may not be currently required under or incentivized by 
Federal programs but that they should be considered, and HUD will 
perform the necessary examination of these standards before it issues 
its Federal Register publication.
D. Support for Electrification
    Two commenters urged HUD to prioritize electrification as an 
essential measure for reducing greenhouse gas emissions and improving 
indoor air quality, and therefore, the health and safety of the 
occupants. Both commenters suggested that the HOME rule should require 
that new construction and substantial rehabilitation projects be all 
electric, and that HUD prevent the use of HOME funds in new fossil fuel 
connections. However, one commenter suggested that an exception may be 
necessary in cold weather climates to allow for fossil fuel backup 
sources.
    HUD Response: The Department thanks the commenters for their 
recommendations on improving energy efficiency and resident health 
outcomes via the prioritization of electrification. However, these 
recommendations are not within the scope of this rulemaking. The 
Department will continue to assess ways to further incentivize green 
building in the HOME program.
E. Five Percent Increase in Maximum Per-Unit Subsidy Is Insufficient
    Although several commenters support HUD's proposal to permit an 
increase in the maximum per unit subsidy by five percent for meeting a 
green building standard, the majority of commenters indicated that five 
percent is insufficient to cover the increased costs of constructing or 
rehabilitating affordable housing to a green standard including the 
costs associated with obtaining a certification. Two commenters 
asserted that the proposed five percent increase is insufficient even 
to cover the increased costs of meeting the HOME statutory energy 
efficiency requirements as updated by FR-6271-N-03. Meanwhile, other 
commenters indicated that they could not determine whether a five 
percent increase would cover increased costs of construction or provide 
any incentive for green building without knowing which standards would 
be required to access the benefit. One commenter recommended that HUD 
request funding to establish a competitive Green Building pilot program 
in conjunction with the HOME program to gather data on costs associated 
with various green building standards.
    Several commenters also expressed concern that the proposed policy 
to permit an increase of the maximum per-unit subsidy would be 
ineffective at any level to incentivize green building because 
participating jurisdictions lack the additional HOME funds needed to 
provide the benefit. Specifically, commenters noted that HOME projects 
are often not awarded the full amount of the current maximum per unit 
subsidy, particularly homeownership projects. In addition, one 
commenter suggested that providing additional funding to HOME projects 
would be a more effective means of incentivizing owners to meet green 
building standards rather than allowing participating jurisdictions to 
exceed the maximum per-unit subsidy by five percent.
    HUD Response: The Department thanks the commenters and agrees that 
the proposed five percent increase in the maximum per-unit subsidy is 
insufficient to cover the costs associated with meeting nationally 
recognized green building standards. Subsequently, the Department is 
adopting a change in this final rule to increase the percentage in 
Sec.  92.250(c) to 10 percent. The Department acknowledges that 
ascertaining whether this 10 percent increase sufficiently covers 
associated costs is difficult without having confirmed green and 
resilient building standards. Moving forward, HUD will complete an 
additional review and include standards in a provisional notice for 
effect with public comments. The Department will continue to reevaluate 
both green building standards and other methods of incentivizing green 
building for the HOME program.
F. Increasing the Maximum Per-Unit Subsidy by 5 Percent Is Not 
Sufficient To Incentivize Meeting Stronger Green Building Standards
    Of the commenters who supported a 5 percent increase, several 
indicated that 5 percent would only be sufficient to cover the 
increased costs of meeting certain basic standards. These commenters 
indicated that 5 percent is not sufficient to cover the higher costs of 
more rigorous green and resilient building standards and that the 5 
percent increase would not incentivize the type of wraparound measures 
necessary to achieve meaningful energy and cost savings. Commenters who 
suggested a greater increase in the maximum per unit subsidy limit 
proposed a wide variety of alternatives. Commenters stated that the 
appropriate amount would be closer to 10, 15, 20, or even 30 percent of 
the maximum per unit subsidy given the wide range of costs associated 
with different green building standards and the varying costs of 
acquiring certifications based on location. One commenter indicated 
that all residential buildings in California are required to meet 
CALGreen, so the additional costs of building to green standards are 
already reflected in the costs of residential construction in the 
State. However, this commenter also recommends allowing an increase of 
20 percent in the maximum per unit subsidy, which in States like 
California where green building compliance is required, the additional 
HOME investment will help to mitigate the current high cost of 
construction and make assisted projects less reliant on other highly 
competitive funding sources. In addition, two commenters stated that an 
increase up to 30 percent would support green building by covering the 
increased upfront costs of supplies while lowering the rents required 
to be charged at the project.
    HUD Response: The Department thanks the commenters for reviewing 
and agrees that the proposed five percent increase in the maximum per-
unit subsidy is insufficient to cover the costs associated with meeting 
green building standards. The Department is adopting a change to 
increase the percentage in Sec.  92.250(c) to 10 percent. The 
Department understands that many commenters recommended the maximum 
per-unit subsidy limits be increased by an even higher percentage. 
However, the Department must balance the benefits from more 
sustainable, energy-efficient housing against the potential that fewer 
units will be created or fewer families will be served. Given the level 
of annual appropriations that

[[Page 806]]

the HOME program receives, the Department believes it can only move to 
10 percent at this time but will reevaluate in the future.
G. A Higher Maximum Per-Unit Subsidy Increase for Rehabilitation 
Projects
    One commenter noted that meeting green building standards for new 
construction is fundamentally different than for rehabilitation 
projects and the commenter estimated that an increase of 25 percent of 
subsidy would be required for rehabilitation projects to achieve a 
green building standard beyond the State energy code. However, the 
commenter expressed concerns with permitting a significant increase in 
maximum per unit subsidy due to the impact on production and instead 
suggested that HUD provide a 10 percent increase for rehabilitation 
projects in States with ambitious green building standards, as 
determined by HUD. The commenter stated that this proposal could 
increase the number of HOME-assisted rehabilitation projects in areas 
where green building standards are already required.
    HUD Response: The Department thanks the commenters for reviewing 
and is adopting a change increasing the maximum per-unit subsidy limit 
percentage to 10 percent in Sec.  92.250(c) for both new construction 
and rehabilitation projects that meet certain green building and 
resiliency standards. The Department understands that many commenters 
had requested increases that were significantly higher, particularly 
for rehabilitation projects. However, the Department must balance the 
benefits from more energy-efficient housing against the potential that 
fewer units will be created or fewer families will be served. Given the 
level of annual appropriations that the HOME program receives, the 
Department believes it can only move to 10 percent for both new 
construction and rehabilitation project at this time but will 
reevaluate in the future.
H. Use of Actual Construction Costs Instead of Set Percentage Increases 
in Maximum Per-Unit Subsidy for Green Building
    Rather than permitting a specific percentage increase in the 
maximum per unit subsidy limits, several commenters supported 
permitting participating jurisdictions to exceed the limits by actual 
additional construction costs of green building measures for the 
project. One of these commenters suggested that the rule should permit 
project owners to apply for the amount above the maximum per unit 
subsidy needed for a rehabilitation project, and that the participating 
jurisdictions should provide the largest awards to proposed projects 
with the highest energy and cost savings potential, therefore 
prioritizing rehabilitation of the most inefficient housing. Other 
commenters recommended that the rule permit a participating 
jurisdiction to determine the percentage increase because needs and 
costs vary geographically.
    HUD Response: The Department thanks the commenters for their 
recommendation that HUD adopt increases in the maximum per-unit subsidy 
limit based on either documented construction costs or at a 
participating jurisdiction's discretion, rather than adopting a set 
percentage increase. The Department declines to adopt these 
recommendations, as measuring, documenting, and implementing these 
methods would be unduly burdensome and complex for all parties 
involved.
I. Using a Tiered Approach to Maximum Per-Unit Subsidy Increases for 
Different Types of Green Building Standards
    Many commenters also suggested that HUD implement a tiered approach 
to providing an increased HOME subsidy to account for the varying 
nationally recognized standards, with more aggressive standards 
equating to larger incentives based on the relative level of value-
added above-code efficiency in terms of both energy savings and energy 
cost savings and resilience in the project. One commenter remarked that 
increased subsidy levels designed to cover the higher costs of advanced 
standards would be a sufficient incentive in projects that would not 
otherwise have been designed to meet green building standards. However, 
the commenter also noted that there is not always an additional cost to 
meet green building standards, particularly for standard level green 
certifications and that the cost differential is likely to diminish 
over time as developers become more familiar with green building 
standards, so an increased HOME subsidy will eventually become a true 
incentive to build greener housing.
    Two commenters suggested that a tiered approach be tied to Energy 
Rating Index (ERI) thresholds with the largest subsidy available for 
net zero design and/or the installation of solar in assisted projects. 
Other commenters suggested that HUD allow a lower increase, from 2 to 5 
percent for base green building certifications such as ENERGY STAR and 
a 10 percent increase for buildings that achieve higher certifications 
consistent with the recent National Definition of a Zero Emissions 
Building, such as Enterprise Green Communities Plus, the forthcoming 
LEED Zero Carbon, ENERGY STAR NextGen, and/or the Department of 
Energy's Zero Energy Ready Homes combined with specific required 
criteria or additional requirements to make them zero emissions. 
Another commenter suggested that to create an incentive, HUD should 
implement a range of increased subsidy rather than a set percentage 
using a formula based on criteria such as disparities between State 
code and HUD requirements, the extent of green building rating systems 
and any subsidies offered at the State or local level. The commenter 
recommended that the further ``behind'' a State is in adopting the most 
recent International Energy and Conservation Code (IECC) and American 
Society of Heating, Refrigerating and Air-Conditioning Engineers 
(ASHRAE) codes, the higher the base subsidy should be. A different 
commenter stated that HUD should implement an ``up to or higher'' 
standard, which could be provided through a waiver process based on 
taking into account the type of activity and technology deployed.
    HUD Response: The Department thanks the commenters for the 
recommendations. However, HUD believes that establishing a tiered 
approach or ranges based on the green building standards individual 
participating jurisdictions use would be extremely complicated and 
potentially unworkable. HUD is declining to adopt these recommendations 
at this time but will continue to assess ways to pay for the increased 
costs of developing affordable housing that meets higher standards for 
green building, climate resiliency, and a greater level of energy 
efficiency and may revisit this issue in a future rulemaking.
J. Opposition to Five Percent Increase in Maximum Per Unit Subsidy 
Because of Uneven Application and Reduction of Overall Units Produced
    Commenters anticipated that homeownership projects would be the 
most affected by cost increases related to energy efficiency 
requirements and green building standards. Commenters agreed that large 
multifamily rental development projects are the most likely to benefit 
from any permitted increase in maximum per unit subsidy. However, a 
commenter stated that data they analyzed showed that the amount of HOME 
funds awarded even to rental projects depends largely on the 
participating jurisdiction's policies rather than on local conditions 
(e.g., high cost areas), and therefore it is not

[[Page 807]]

clear that participating jurisdictions will provide additional HOME 
funds based on the increased costs of meeting a green building 
standard. Consequently, this commenter does not support HUD's proposal 
because they believe it would have an uneven impact nationally, with 
most of the country unable to take advantage of the flexibility. In 
addition, the commenter worried that HUD's proposal will result in a 
decrease in the number of assisted projects and limit unit production. 
However, in anticipation of this challenge, two other commenters 
suggested that HUD provide guidance and tools on how to leverage other 
funding sources and maximize available HOME funds to allow for more 
comprehensive energy efficiency projects while maintaining unit 
production.
    HUD Response: The Department appreciates the comments. HUD notes 
that HOME is a block grant program with local choice and flexibility at 
its core. Consequently, the Department does not believe that because 
not all participating jurisdictions will exercise this or any other 
flexibility in the regulations is a sound reason for not offering the 
flexibility at all. HUD does not expect that all participating 
jurisdictions will choose or need to take advantage of the increase in 
the subsidy limit. HUD takes seriously the need to balance the benefits 
from more resilient and energy-efficient housing with the added costs 
and marginal reduction in the total number of HOME-assisted unit. 
Because the regulation does not require the use of green building 
standard and instead makes it more feasible to pursue this housing that 
meets the standards, HUD is devolving the choice to State and local 
government based upon their priorities. The Department is moving 
forward with the 10 percent increase and will continue to reevaluate 
green building standards, other methods of incentivizing green 
building, and the prospect of requested technical assistance once green 
standards are implemented for the HOME program.
K. Incentivizing Universal Design With Increases in the Maximum Per-
Unit Subsidy
    One commenter suggested that in addition to increasing Green 
Building standards, HUD should consider how the HOME program can 
incentivize or require increased disability-related accessibility 
standards. For example, the commenter suggested that the HOME program 
could adopt the Universal Design criteria which is currently in the HUD 
Section 811 Capital Advance application.
    HUD Response: The Department appreciates the comment and urges HOME 
program participants to create projects with Universal Design in units 
and common areas, enhanced accessibility features, and more than the 
minimum number of units that meet Federal accessibility requirements 
for persons with disabilities. However, the commenter's proposal is 
outside the scope of this regulation as HUD has not solicited public 
comment on suitable standards for a regulatory provision or the 
incremental cost of compliance with them. Individual projects that 
require HOME investment exceeding the maximum per unit subsidy limits 
due to the cost of incorporating universal design elements may seek 
case-specific relief from HUD.

Sec.  92.251--Property Standards and Inspections

A. General Support for Changes
    One commenter provided general support for all the changes to HOME 
property standards to include energy efficiency, carbon monoxide 
detectors, incorporate green building standards and include NSPIRE 
changes.
    HUD Response: HUD thanks the commenters for reviewing the proposed 
rule and for their support.
B. Statutory Energy Efficiency Requirements in Sec.  92.251(a)--Support
    Commenters supported the proposal to codify the statutory HOME 
energy efficiency requirements in the HOME regulations. One commenter 
recommended HUD update the reference from section 109 of NAHA to HUD's 
recent minimum energy standards determination (FR-6271-N-03) to 
streamline requirements across programs and minimize confusion about 
the requirements.
    A commenter agreed with HUD's proposal that the rule should be 
clear that the ASHRAE Standard 90.1-2019 (for high-rise multifamily) 
and the 2021 Energy Conservation Code (for single-family and low-rise 
multifamily) apply to all new construction under HOME, including 
alternative compliance pathways such as specified green building 
certifications and future HUD-developed standards. The commenter 
recommended that HUD go further and apply the standards to major 
rehabilitations under HOME, arguing that rehabilitated homes can and 
should meet the same standards as new construction. Additionally, the 
commenter said that HUD should consider setting higher minimum 
standards for HOME new construction and major rehabilitation that 
require certifications consistent with the Department of Energy's 
National Definition of a Zero Emissions Building.
    One commenter noted that low-income households are more likely to 
experience higher utility costs, and that energy efficiency means 
residents do not need to choose between paying utilities, rent, or 
putting food on the table and responds to climate instability. The 
commenter noted the importance of energy standards being codified in 
accordance with section 109 of NAHA, including any revisions adopted by 
HUD and USDA and encouraged the use of HUD funding to implement these 
requirements.
    HUD Response: The Department thanks the commenters for their review 
and is adopting the proposed change codifying the statutory requirement 
that all HOME-assisted rental and homebuyer new construction projects 
meet the energy efficiency standards promulgated by HUD in accordance 
with section 109 of NAHA, including any revisions adopted by HUD and 
the U.S Department of Agriculture (USDA). To maintain consistency in 
regulations and energy efficiency requirements as standards are updated 
over time, the Department declines to update the reference from section 
109 of NAHA to the recent minimum energy standards determination (FR-
6271-N-03). The Department also declines to apply these standards to 
rehabilitation projects, or to apply new, higher minimum standards to 
new construction or rehabilitation projects under the HOME program. The 
priority of this final rule is to maintain consistency and advance 
alignment across programs, meaning that the HOME program has the same 
energy efficiency standards as the rest of the Department. The 
Department will continue to assess ways to further produce efficient, 
healthy, and resilient affordable homes, and may revisit this issue in 
a future rulemaking.
C. HUD Should Engage in Monitoring of Energy Efficiency Requirements in 
Sec.  92.251(a)
    One commenter stated that the energy efficiency standards would 
require monitoring to ensure that HUD's energy efficiency goals are 
being met. The commenter stated that HUD could ensure the goals are met 
by tracking developer use of inspections and assessments. The commenter 
stated that HUD could require these assessments since the proposed rule 
allows for reimbursements of environmental assessments.
    HUD Response: The Department thanks commenters for their 
recommendation that HUD require

[[Page 808]]

tracking developer use of inspections and assessments to ensure that 
energy efficiency goals are being met. Requirements at Sec.  92.504 
state that participating jurisdictions must have and follow, among 
other things, a system for monitoring entities to ensure that HOME 
program requirements for HOME-assisted units set forth in 24 CFR part 
92 are met throughout the specified period of affordability. As the 
energy efficiency standards under Sec.  92.251 fall under that umbrella 
and are subject to monitoring, the Department declines to adopt this 
recommendation that more stringent or developer-specific monitoring 
requirements be put into effect.
D. HUD's Energy Efficiency Standards Should Prohibit New Fossil Fuel 
Connections
    One commenter stated that HUD's proposal to have projects meet high 
energy efficiency standards was beneficial but could go further by 
further eliminating new fossil fuel hookups.
    HUD Response: In a separate rulemaking, HUD has developed energy 
efficiency standards in order to comply with 42 U.S.C. 12709. Revising 
those energy efficiency standards to prohibit new fossil fuel 
connections is beyond the scope of this rulemaking.
E. Allowing the Use of NSPIRE Inspections To Determine Compliance With 
HOME Property Standards in Sec.  92.251(a), (b), and (f)--Support
    Multiple commenters stated that they support the proposed alignment 
in the HOME program of permitting the use of inspections from other 
programs or sources.
    HUD Response: HUD thanks the commenters. HUD is moving forward with 
its proposal to accept inspections performed under other HUD programs.
F. Allowing the Use of NSPIRE Inspections To Determine Compliance With 
HOME Property Standards in Sec.  92.251(a), (b), and (f)--Concern About 
Current Properties
    Commenters stated that HUD should clarify the specifics of the 
applicability of NSPIRE to various HOME-eligible activities. One of 
these commenters noted that it is unclear how NSPIRE applies 
differently among homebuyer activity, homeowner rehabilitation 
activity, rental new construction activity and rental rehabilitation 
activity. The commenter requested that the final rule address the as-
applied differences between these activities. One commenter cautioned 
that applying new physical condition standards such as the NSPIRE 
program to old properties is problematic because they were built under 
very different code and standard requirements.
    HUD Response: HUD recognizes the commenter's concerns. Under Sec.  
92.251(f)(2), if a participating jurisdiction is monitoring a project 
that received a HOME commitment before January 24, 2015, then the 
participating jurisdiction is required to monitor that project under 
the applicable State or local housing quality standards or code 
requirements, and if there are no such standard or code requirements, 
the housing must meet the housing quality standards in 24 CFR 982.401. 
For projects with commitments after January 24, 2015, they must meet 
all applicable State or local code requirements and ordinances and in 
the absence of existing applicable State or local code requirements and 
ordinances, at a minimum, the participating jurisdiction's ongoing 
property standards must provide that the property does not contain the 
specific deficiencies established by HUD based on the applicable 
standards in 24 CFR 5.703 and published in the Federal Register for 
HOME rental housing (including manufactured housing) and housing 
occupied by tenants receiving HOME tenant-based rental assistance (see 
Sec.  92.251(f)(1)(i)).
    Under the Effective Date section of the NSPIRE Final Rule, HUD 
clarified that ``[p]articipants and owners subject to these regulations 
are subject to the Code of Federal Regulations as it exists on the 
publication date of this rule and are not subject to the regulatory 
changes being made by this rule on July 1, 2023, until October 1, 
2023.'' HUD has since delayed the compliance date for implementing 
NSPIRE inspection standards and requirements until October 1, 2025,\52\ 
giving participating jurisdictions more time to update their property 
standards and owners more time to bring their properties into 
compliance with the new ongoing property standards. HUD will provide 
additional guidance and materials aimed at assisting participating 
jurisdictions and owners in complying with the requirements, including 
a streamlined list of minimum inspectable items that shall be a subset 
of the larger set of standards published in the NSPIRE Standards notice 
at 88 FR 40832.
---------------------------------------------------------------------------

    \52\ On September 2023, HUD delayed the compliance date for CPD 
programs (88 FR 63971) and for the HCV and PBV programs (88 FR 
66882) until October 1, 2024, to allow PHAs, jurisdictions, 
participants, recipients, and HUD grantees additional time for 
implementation. On July 5, 2024, HUD further extended the compliance 
date for CPD programs and for the HCV and PBV programs until October 
1, 2025 (89 FR 55645).
---------------------------------------------------------------------------

G. Allowing the Use of NSPIRE Inspections To Determine Compliance With 
HOME Property Standards in Sec.  92.251(a), (b), and (f)--Compliance 
Concerns
    While one commenter was supportive of the changes made to accept 
inspections under other HUD programs, they noted that the success of 
the policy will depend upon effective implementation and coordination 
among the various entities involved in the project and urged HUD to 
take steps to ensure that all entities involved are committing to 
inspection standards that prevent issues in units from going undetected 
for extended periods. In addition, one commenter requested that HUD 
clarify whether a participating jurisdiction must be a party to the 
contract for an inspector conducting the inspection in satisfaction of 
another funding source's requirements. Another commenter asked which 
entity is responsible for ensuring that inspections are conducted in 
compliance with HOME requirements and stated that they wished to avoid 
conflicts between states and local jurisdictions.
    HUD Response: HUD acknowledges the commenter's concerns and 
believes that the final rule requirement that a participating 
jurisdiction perform an onsite inspection within 12 months after 
project completion coupled with the ongoing inspection requirements at 
Sec.  92.251(f)(3)(i) address the commenter's concern. The 
participating jurisdiction will still be required to determine that 
HOME units meet the property standards at the completion of 
rehabilitation. Moreover, once every three years, either the 
participating jurisdiction will perform an onsite inspection of the 
units to determine if they meet the ongoing property standards (Sec.  
92.251(f)(3)(i)(A)) or it may accept an inspection conducted on the 
HOME-assisted units within 12 months that met the NSPIRE requirements 
in 24 CFR part 5, subpart G or an alternative inspection standard, 
which HUD may establish through Federal Register publication (Sec.  
92.251(f)(3)(i)(B)). To help ensure that all entities involved are 
meeting inspection standards, HUD will continue to develop training and 
tools aimed at ensuring compliance.
    The participating jurisdiction is not required to be a party to the 
contract of an inspector that is inspecting on behalf of another 
program but may enter into contracts with inspectors to perform the on-
site inspection of units under the HOME program. The Department is not

[[Page 809]]

responsible for monitoring the entity that inspects the units under 
another funder's program but is simply provided the option of accepting 
the inspection results if it meets the requirements of the final rule 
in Sec.  92.251.
H. Allowing the Use of NSPIRE Inspections To Determine Compliance With 
HOME Property Standards in Sec.  92.251(a), (b), and (f)--Equivalent 
Standards in Tax Credit Programs
    Two commenters stated that the proposal to allow a participating 
jurisdiction to ``[a]ccept a determination made under another HUD 
program . . .'' should be expanded to also include rental inspections 
made for tax credit programs. One of these commenters stated that tax 
credit programs, while not HUD programs, are by far the most frequent 
and prominent other funding source for affordable housing. The 
commenter requested that HUD revise the proposed language in Sec.  
92.251 to allow participating jurisdictions to accept inspections made 
by any other funding source when the other funding source's inspection 
requirements equal or exceed HUD's requirements. One commenter noted 
that the language of the proposed rule states that HUD may accept the 
determination of ``another HUD program,'' which could limit HUD's 
ability to accept the determination of programs outside of HUD that 
engage in similar determinations. The commenter stated they were 
especially confused because the informational portion of the comment 
session made it seem as though HUD ``may accept the determination of 
another funder in accordance with [Sec.  ]92.251 every three years 
thereafter.''
    HUD Response: The Department thanks commenters for their 
recommendation that HUD revise the proposed language in Sec.  92.251 to 
allow participating jurisdictions to accept inspections made by other 
funding sources when those other funding sources' requirements equal or 
exceed HUD's own requirements. This recommendation would allow 
participating jurisdictions to accept rental inspections for tax credit 
programs. The Department is moving forward with language allowing for 
participating jurisdictions to use an inspection performed under the 
requirements of NSPIRE (24 CFR part 5, subpart G) as evidence of 
compliance with the HUD housing standards required under Sec.  
92.251(b)(1)(viii), and is clarifying that inspections for tax credit 
programs such as LIHTC are acceptable so long as those inspections meet 
or exceed the NSPIRE standard in 24 CFR 5.703. The Department 
acknowledges that the language stating that HUD may accept the 
determinations made under ``another HUD program'' may be limiting when 
it comes to non-HUD programs that make similar determinations.
I. Allowing the Use of NSPIRE Inspections To Determine Compliance With 
HOME Property Standards in Sec.  92.251(f)--Accepting an Inspection 
Within 3 Months
    One commenter suggested that the flexibility of accepting physical 
inspections performed by other HUD programs using the Housing Quality 
Standards and NSPIRE standards for tenant-based rental assistance units 
should operate in a slightly different manner. The commenter 
recommended extending the timeframe for when the other inspection has 
occurred from 3 months to 12 months because requiring duplicative 
inspections annually can cause unnecessary delays in getting families 
housed.
    HUD Response: The Department understands the commenter's concern 
but must balance the potential delay in receiving assistance with the 
requirement that a tenant receiving tenant-based rental assistance live 
in a unit that meets all applicable local or State codes and applicable 
housing quality standards. HUD believes 3 months is a reasonable period 
of time in which an inspection reflects the state of the property 
condition. Any inspections before that period may not accurately 
represent the condition of the property because too much time will have 
passed in which intervening events may have negatively impacted the 
property causing new deficiencies that must be corrected before the 
tenant could occupy the unit. HUD also retained the language in Sec.  
92.251(f)(4)(ii) of the proposed rule that stated that ``[a] 
participating jurisdiction may move its inspection cycle to align with 
an inspection'' made under another program. This will better enable the 
participating jurisdiction to reduce the frequency of inspections 
during the tenancy.
J. Allowing the Use of NSPIRE Inspections To Determine Compliance With 
HOME Property Standards in Sec.  92.251(a), (b), and (f)--Use of 
Housing Quality Standards (HQS) Under Sec.  982.401
    One commenter stated that they support HUD's proposal to accept 
physical inspections performed by other HUD programs that were 
completed using Housing Quality Standards, or eventually, NSPIRE. 
Another commenter asked whether inspections conducted under NSPIRE 
replace inspections conducted under previous standards such as the 
Uniform Physical Condition Standards (UPCS) or Housing Quality 
Standards.
    HUD Response: HUD wishes to clarify that it is not allowing the use 
of Housing Quality Standards inspections performed under 24 CFR 982.401 
to be used to determine compliance through either Sec.  
92.251(b)(1)(viii)(A) (rehabilitation property standards) or Sec.  
92.251(f)(3)(i)(B) (ongoing property standards). HOME property standard 
regulations allow inspections conducted under 24 CFR part 5, subpart G. 
This provision does not contain Housing Quality Standards inspection 
requirements, it contains NSPIRE requirements. The Department did not 
propose to apply or allow the application of the Housing Quality 
Standards requirements contained in 24 CFR 982.401 beyond its current 
application to projects with commitments before 2015. Please see Sec.  
92.251(f)(2). The Department has determined that the use of NSPIRE 
standards will result in better housing quality and long-term viability 
of HOME-assisted units than Housing Quality Standards. In addition, 
through the Economic Growth Regulatory Relief and Consumer Protection 
Act: Implementation of National Standards for the Physical Inspection 
of Real Estate (NSPIRE) Final Rule published on May 11, 2023 (88 FR 
30442), the Department replaced the Uniform Physical Condition 
Standards previously at 24 CFR 5.703 with NSPIRE. In accordance with 
the Federal Register Notice titled Economic Growth Regulatory Relief 
and Consumer Protection Act: Implementation of National Standards for 
the Physical Inspection of Real Estate (NSPIRE); Extension of NSPIRE 
Compliance Date for HCV, PBV and Section 8 Moderate Rehab and CPD 
Programs published on July 5, 2024 (89 FR 55645), HOME participating 
jurisdictions are not permitted to use UPCS inspection requirements to 
determine compliance through either Sec.  92.251(b)(1)(viii)(A) 
(rehabilitation property standards) or Sec.  92.251(f)(3)(i)(B) 
(ongoing property standards) for HOME-assisted projects with 
commitments on or after October 1, 2025. The use of NSPIRE as a unified 
inspection protocol will facilitate alignment inspections of HOME-
assisted units with other housing programs.

[[Page 810]]

K. Allowing the Use of NSPIRE Inspections To Determine Compliance With 
HOME Property Standards in Sec.  92.251(b) and (f)--Use of NSPIRE 
Results During Rehabilitation and Ongoing Inspections
    One commenter supported HUD's proposal to provide administrative 
relief by better aligning HOME inspection standards with the standards 
of other funding sources. The commenter supported allowing 
participating jurisdictions to accept NSPIRE inspections conducted 
under another funding source, in lieu of the final completion 
inspections for rehabilitation projects as well as ongoing inspections 
of rental projects and housing occupied by tenant-based rental 
assistance tenants because it would reduce participating jurisdictions' 
administrative burden and reduce the impact on owners and tenants of 
having multiple project inspections due to layered Federal funding.
    HUD Response: HUD appreciates the commenter's review and is moving 
forward with language allowing for participating jurisdictions to use 
an inspection performed under the requirements of NSPIRE (24 CFR part 
5, subpart G) as evidence of compliance with the HUD housing standards 
required under Sec.  92.251(b)(1)(viii).
L. Elimination of Initial, Progress, and Final Inspections in Sec.  
92.251(b)
    One commenter believed HUD's proposal allowed participating 
jurisdictions to accept NSPIRE inspections of rehabilitation projects 
performed for other funding sources instead of final and ongoing 
periodic inspections. The commenter also believed that this allowed the 
use of LIHTC inspections. The commenter stated that it recommends that 
HUD still provide participating jurisdictions the option of performing 
final and ongoing inspections to prevent delays in inspection.
    HUD Response: HUD thanks the commenter for reviewing the proposed 
rule. However, the commenter misunderstands the inspection provision in 
the proposed rule. HUD did not propose to eliminate initial, progress 
and final inspections under Sec.  92.251(b)(3). HUD proposed to allow 
the use of another HUD inspection conducted under 24 CFR part 5, 
subpart G to be evidence that the property met the requirements under 
Sec.  92.251(b)(1)(viii) once construction was completed. The 
participating jurisdiction must still conduct initial and ongoing 
progress inspections, as HUD explained in the preamble to the proposed 
rule. See 89 FR 46630.
M. Inspection to Applicable Housing Codes in Sec.  92.251(a), (b), and 
(f)
    One commenter stated that HUD should allow State participating 
jurisdictions to inspect all their HOME properties in accordance with 
either local codes or a national standard as determined by HUD and that 
if a State participating jurisdiction chooses to use the national 
uniform standard, participating jurisdictions should still require 
owners to certify that they meet local codes but should not be required 
to inspect the property in accordance with the local code.
    HUD Response: Participating jurisdictions are required, by statute, 
to provide on-site inspections to determine compliance with housing 
codes and other applicable regulations. See 42 U.S.C. 12756(b). HUD 
does not believe that is has the flexibility to require a national 
uniform property standard instead of applicable local and State housing 
codes because the requirement to perform on-site property inspections 
to those codes is statutory.
N. Support for Adding Carbon Monoxide Detection Requirements to Sec.  
92.251(a), (b) and (f)--General Support
    Many commenters expressed general support for requiring the 
installation of carbon monoxide detectors in HOME projects. One 
commenter went further, stating that carbon monoxide alarms should also 
be accessible for people with hearing loss.
    HUD Response: HUD appreciates commenters' support of the 
provisions. HUD will describe standards for carbon monoxide detection 
through a Federal Register publication, as described in Sec.  
92.251(a)(3)(vi)(A), (b)(1)(xi)(A), and (f)(1)(iv)(A).
O. Adding Carbon Monoxide Detection Requirements to Paragraphs (a), 
(b), and (f)--Concerns
    Many commenters also conveyed concerns about imposing strict 
requirements for the installation of hard-wired carbon monoxide 
detectors. One commenter requested that the rule provide an exception 
be made for those housing units where a gas line or similar hazard is 
not present. Another commenter only supports requiring hard-wired 
alarms in HOME-funded new construction. One commenter supports a 
requirement for a 10-year battery-powered carbon monoxide detector in 
rehabilitation and homebuyer acquisition projects and in units occupied 
by tenants receiving HOME tenant based rental assistance. However, for 
homebuyer acquisition and tenant-based rental assistance projects, the 
commenter requested that the installation of a carbon monoxide detector 
be permitted as an eligible HOME cost. This commenter expressed concern 
that requiring a seller or landlord to pay for the cost of installation 
of carbon monoxide detectors may reduce the available housing stock for 
these types of activities. Furthermore, this commenter and another were 
not in favor of requiring a HOME-assisted homebuyer to pay these costs. 
Other commenters also requested that HUD make additional HOME funding 
available for the costs of installing carbon monoxide detectors.
    Another commenter stated that they do not support the proposal 
because carbon monoxide detectors are already required by the 
International Housing Code, and they view any additional HOME 
requirements for carbon monoxide detectors as overreach.
    HUD Response: HUD recognizes commenters' concerns regarding the 
installation costs of carbon monoxide alarms. Through final rule, HUD 
will be establishing carbon monoxide alarm requirements through a 
Federal Register publication. HUD believes installing carbon monoxide 
alarms is a reasonable cost for homeowners and owners of rehabilitated 
rental units. Finally, HUD is unable to make additional funds 
specifically available for the costs of installing carbon monoxide 
detectors but notes that installation of carbon monoxide alarms is an 
eligible use of HOME funds for new construction and rehabilitation 
projects.
P. Carbon Monoxide Requirements in Sec.  92.251(a), (b), and (f) Should 
Align With Other HUD Programs
    One commenter emphasized that any HOME requirements for carbon 
monoxide detectors should align with other HUD programs.
    A different commenter noted that some State regulations require a 
smoke alarm in every unit room that also contain carbon monoxide 
detection. Consequently, the commenter suggests that the rule defer to 
applicable State and local laws for carbon monoxide detection 
standards.
    HUD Response: This final rule seeks to align HOME carbon monoxide 
requirements with those of the NSPIRE Final Rule and those contained in 
the U.S. Housing Act of 1937 (42 U.S.C. 1437), thereby promoting 
consistency with other HUD programs. HUD declines to defer to State and 
local codes due to the safety benefits of these carbon monoxide alarm 
requirements to

[[Page 811]]

occupants of HOME-assisted housing and in the interest of aligning HOME 
requirements with other HUD programs.
Q. Permitting Property Standards Compliance Six Months After Title 
Transfer in Homeownership Programs Under Sec.  92.251(c)--Support
    Most commenters support the proposal to allow homebuyer acquisition 
projects to meet HOME property standards within six months after the 
assisted homebuyer purchases the unit because such a change would 
expand homebuyers' purchasing options and simplify the pre-purchase 
period. One commenter reasoned that this change would provide more 
choices for homebuyers and provide access to bank foreclosures, and 
that this change would prove advantageous for buyers because of risks 
for buyers to cover out-of-pocket repairs before closing. Furthermore, 
commenters noted that sellers would often not consider offers that 
included contingencies regarding property standards, which made HOME-
assisted homebuyers less competitive in the private market. In 
addition, one commenter indicated that the proposal would align HOME 
with other funding sources before closing. Furthermore, commenters 
noted that sellers would often not consider offers that included 
contingencies regarding property standards, which made HOME-assisted 
homebuyers less competitive in the private market. In addition, one 
commenter indicated that the proposal would align HOME with other 
funding sources.
    HUD Response: HUD thanks the commenters for their support. HUD is 
adopting the six-month deadline for a homebuyer to make necessary 
repairs so that their unit meets applicable property standards. 
However, HUD has also adopted language in the final rule permitting 
participating jurisdictions to provide the homebuyer a written 
extension of up to an additional six months to meet property standards. 
Participating jurisdictions that wish to exercise the authority to 
provide extensions, when necessary, must establish policies and 
procedures for reviewing and approving a homebuyer's request for an 
extension of the deadline.
R. Permitting Property Standards Compliance Six Months After Title 
Transfer in Homeownership Programs Under Sec.  92.251(c)--Need for 
Additional Time
    Several commenters suggested that the proposed six-month timeframe 
would be insufficient time for many homebuyers to complete the 
necessary rehabilitation. As reasons for this statement, one commenter 
cited supply chain issues, Build America, Buy America requirements, 
contractor availability, and green certifications requirements. 
Commenters proposed allowing longer periods, such as 9, 12, or 18 
months after acquisition, to bring a property to standard. Allowing for 
reasonable extensions or phased rehabilitation plans based on property 
conditions and local market dynamics could alleviate some of the 
pressure on participating jurisdictions while maintaining housing 
quality standards.
    HUD Response: HUD agrees with commenters' concerns about potential 
obstacles to homebuyers meeting the proposed six-month deadline and is 
revising the proposed language to allow participating jurisdictions 
when necessary to provide up to an additional six months for homebuyers 
to meet property standards. This revision allows participating 
jurisdictions to exercise their judgment regarding a homebuyer 
project's unique circumstances and local market conditions.
S. Permitting Property Standards Compliance Six Months After Title 
Transfer in Homeownership Programs Under Sec.  92.251(c)--Opposition
    One commenter stated that they do not support the proposed revision 
due to concerns around enforcement and the possibility that the 
participating jurisdiction may be required to foreclose on the property 
or allow the homeowner to live in substandard conditions. Another 
commenter supportive of the proposal expressed similar concerns about 
the difficulty of monitoring the six-month deadline to rehabilitate 
housing and meet homebuyer acquisition property standards. One 
commenter opposed the proposal, recommending instead that the 
requirement should align with a local jurisdiction's certificate of 
occupancy requirements. This commenter agreed with the previous 
commenter that it may not be practicable for a participating 
jurisdiction to enforce property inspection requirements on a homeowner 
after title transfer.
    HUD Response: HUD thanks the commenters for reviewing the proposed 
rule. However, HUD believes that there are adequate safeguards in place 
to prevent homebuyers from occupying substandard properties. 
Participating jurisdictions are required to conduct inspections to 
ensure that homes purchased with HOME assistance comply with HOME 
property standards, in accordance with Sec.  92.251(c)(3). In the case 
of projects under this delayed compliance date, the participating 
jurisdiction must confirm through onsite physical inspection that all 
required work has been completed to meet property standards. Regarding 
the concern related to inspecting units after title transfer, 
participating jurisdictions will be required to make such inspections a 
condition of the receipt of funds in the homebuyer written agreement. 
HUD recognizes that permitting homebuyers six months to meet property 
standards will require participating jurisdictions to adjust their 
policies and procedures but views this as a worthwhile change to expand 
the supply of homes that homebuyers may purchase with HOME funds. 
Regarding the risk that a homebuyer may be unable to afford the 
rehabilitation necessary to meet property standards, HUD emphasizes 
that participating jurisdictions must establish and use homebuyer 
underwriting standards and ensure that HOME funds are supporting 
sustainable homeownership opportunities, in accordance with Sec.  
92.254(f). If a homebuyer is unable to fund necessary repairs, the 
participating jurisdiction must either provide HOME or other funding 
for rehabilitation or decline to provide HOME funds to the homebuyer 
for the purchase.
T. Permitting Property Standards Compliance Six Months After Title 
Transfer in Homeownership Programs Under Sec.  92.251(c)--Defining How 
``Funds are Secured for Rehabilitation''
    Several commenters requested clarification of the proposed policy. 
Specifically, two commenters requested that HUD clarify what evidence a 
homebuyer must provide to demonstrate that ``funds are secured for 
rehabilitation.'' One of these commenters suggested that HUD consider a 
letter provided by a mortgage lender or a bank statement as evidence of 
sufficient funds.
    HUD Response: In accordance with Sec.  92.254(f), participating 
jurisdictions must establish and use homebuyer underwriting guidelines 
that ensure homebuyers will have sufficient savings post-purchase or 
secured financing to complete rehabilitation necessary to meet HOME 
property standards. This final rule does not prescribe specific 
documentation that a homebuyer must provide to the participating 
jurisdiction, as this is for the participating jurisdiction to define 
in its policies and procedures. It is in the interest of participating 
jurisdictions to ensure that rehabilitation can and will be completed 
because the project will otherwise be determined to be ineligible for 
HOME funding.

[[Page 812]]

U. Permitting Property Standards Compliance Six Months After Title 
Transfer in Homeownership Programs Under Sec.  92.251(c)--Clarifying 
Consequences of Non-Compliance
    One commenter requested that the Department clarify in the 
regulation at Sec.  92.251(c) the consequences of failure to meet the 
property standards requirements within six months after title transfer 
in a homeownership program.
    HUD Response: If the homeownership unit does not meet property 
standards within six months, the participating jurisdiction may extend 
the time period in which the property must meet the participating 
jurisdiction's property standards to 12 months (see Sec.  
92.251(c)(3)(ii)(D)). If the property still does not meet the 
participating jurisdiction's property standards after six months (if no 
extension is given) or 12 months (if an extension is given), then the 
housing does not meet the requirements of 24 CFR part 92 and the 
participating jurisdiction must repay the HOME investment. The 
corrective and remedial actions for failure to comply with HOME program 
requirements are outlined at Sec.  92.551. HUD declines to make the 
suggested change to further clarify the consequences of failing to meet 
the property conditions because it is unnecessary.
V. Permitting Property Standards Compliance Six Months After Title 
Transfer in Homeownership Programs Under Sec.  92.251(c)--Guidance
    Two commenters requested HUD provide guidance on the inspections 
required to ensure that the housing met property standards after a 
HOME-assisted homebuyer purchases the unit and completes the required 
rehabilitation. One of these commenters requested that HUD provide a 
sample template inspection form for jurisdictions that operate 
downpayment assistance programs to standardize practices.
    HUD Response: HUD is unable to provide a sample inspection form as 
part of this final rule. HUD encourages the commenter to review the 
provisions of this final rule and HOME program resources on the HUD 
Exchange. As part of the implementation of the NSPIRE Final Rule, HUD 
will provide additional guidance and materials aimed at assisting 
participating jurisdictions and owners to comply with the requirements, 
including a streamlined list of minimum inspectable items that shall be 
a subset of the larger set of standards published in the NSPIRE 
Standards notice at 88 FR 40832.
W. Exempt Manufactured Homes From Construction and Safety Standards if 
They Meet HUD National Construction and Safety Standards for 
Manufactured Housing
    One commenter requested HUD provide for an exemption for HUD Code 
manufactured housing from all proposed requirements that deal with 
construction and safety standards. The commenter is concerned that 
HUD's proposal would impose new construction requirements on all 
housing structures utilized under the HOME program. For manufactured 
homes, the commenter believed this would result in conflicts with the 
Manufactured Home Construction and Safety Standards (the HUD Code) 
resulting in the inability to utilize manufactured housing for projects 
funded by the program. The goals of the new construction requirements 
may make sense for other forms of housing that are not subject to 
national construction standards administered by HUD. However, the 
commenter believed they are not necessary for manufactured homes, which 
as noted, already are subject to such standards.
    HUD Response: The Department agrees with the commenter that 
construction of manufactured housing should meet the requirements 
contained in the HUD manufactured housing regulations. Under Sec.  
92.251(e), ``Construction of all manufactured housing including 
manufactured housing that replaces an existing substandard unit under 
the definition of ``reconstruction'' must meet the Manufactured Home 
Construction and Safety Standards codified at 24 CFR part 3280 . . . 
.''
X. Use the International Code Council/Modular Building Institute 
Standards for Off-Site Construction
    One commenter encouraged HUD to recognize the International Code 
Council/Modular Building Institute standards for off-site construction 
in order to facilitate their expanded use and encourage efficient 
design and construction that addresses housing affordability and 
availability, sustainability, workforce availability, and supply chain 
disruptions.
    HUD Response: The HOME rule at Sec.  92.251(e) requires that 
construction of all manufactured homes meet the Manufactured Home 
Construction and Safety Standards codified at 24 CFR part 3280 and 
additional requirements. Section 92.251(e) also requires that in HOME-
funded rehabilitation of existing manufactured housing the foundation 
and anchoring must meet all applicable State and local codes, 
ordinances, and requirements or in the absence of local or State codes, 
the Model Manufactured Home Installation Standards at 24 CFR part 3285. 
Manufactured housing that is rehabilitated using HOME funds must meet 
the participating jurisdiction's rehabilitation standards requirements, 
as required in Sec.  92.251(b). When building components are built off-
site and then installed on the HOME project site as a form of new 
construction or reconstruction but not as a form of manufactured 
housing under the Manufactured Home Construction and Safety Standards, 
the new construction must meet the requirements in Sec.  92.251(a).
Y. Revise Financial Oversight Requirements in Sec.  92.251(f)
    One commenter is not supportive of the financial oversight 
requirements applying to rental projects with 10 or more HOME-assisted 
units. While the commenter understands that it can always adopt more 
restrictive requirements, the reality is that financial oversight is an 
invaluable tool in understanding how properties are performing, as well 
as early indications of financial distress and/or properties having 
surplus beyond what was originally underwritten. The commenter uses 
financial oversight during annual rent increase requests to verify it 
is reasonable for HOME-funded projects which more than likely have a 
blend of LIHTC, HOME, Housing Trust Fund (HTF), and/or local resources.
    HUD Response: HUD is noting that it has not changed the financial 
oversight provisions in Sec.  92.504(d)(2). In the proposed rule, HUD 
reorganized the HOME regulations and moved those requirements to Sec.  
92.251(f). HUD understands that many participating jurisdictions may 
wish to exert greater financial oversight on HOME-assisted projects in 
their portfolio and encourages participating jurisdictions to determine 
and implement the best approach for their jurisdictions. At this time, 
the Department is not reducing the 10-unit threshold for when a 
participating jurisdiction is required to conduct financial oversight 
under Sec.  92.251(f). HUD believes this is inconsistent with its 
efforts to provide monitoring flexibilities to small-scale housing 
projects and that it is best left to the participating jurisdiction to 
determine how to monitor projects with fewer than 10 units.

[[Page 813]]

Z. Energy Efficiency Considerations for Manufactured Homes and Off-Site 
Construction
    One commenter also suggested that HUD should ensure that energy 
efficiency considerations are addressed for off-site built housing like 
manufactured homes. The commenter noted that HUD should consider the 
Environmental Protection Agency's EnergyStar v.3 standard or the 
Department of Energy's Zero Energy Ready standard for manufactured 
homes as a minimum for any activities related to the purchase of new 
manufactured housing with HOME funds.
    HUD Response: HUD appreciates the comment. However, the Department 
was not proposing to change the minimum property standards for 
manufactured housing, which are covered by Sec.  92.251(e). Paragraph 
Sec.  92.251(e) continues to require that manufactured housing be 
constructed in accordance with the Manufactured Home Construction and 
Safety Standards found at 24 CFR part 3280. The Department just 
recently revised its Manufactured Home Construction and Safety 
Standards as part of another rulemaking and the Department is declining 
to make further revisions to those rules or to the HOME rules in 
response to this comment.\53\
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    \53\ See 89 FR 75704.
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AA. Use of Inspection Performed by Third Parties
    Another commenter recommended allowing States to accept ongoing 
inspection reports from local government inspections that review 
compliance with local codes during construction of a HOME-assisted 
project. The commenter believed that HUD should only require the final 
inspection be conducted by the State participating jurisdiction before 
completing the project in the IDIS, instead of requiring frequent State 
participating jurisdiction inspections during construction. The 
commenter explained that this would avoid unnecessary burden, 
especially for larger States where it can take several hours to commute 
to a project's location.
    Another commenter stated that HUD should create a process to accept 
either State or local rental inspections in lieu of HUD required 
inspections.
    HUD Response: HUD declines to revise the requirement that 
participating jurisdictions conduct progress inspections and notes that 
HOME regulations do not require participating jurisdiction staff to 
conduct the inspections. Participating jurisdictions may contract with 
qualified third-party inspectors, including contractors for other 
funders or units of government, to conduct HOME inspections in 
accordance with the participation jurisdiction's policies and 
procedures.
BB. Provide Small-Scale Rental Housing Inspection Requirements to All 
Owners
    One commenter said that the changes being proposed to the small-
scale development compliance requirements, such as requiring 
inspections every three years, should be extended to larger-scale 
developments as well.
    HUD Response: HUD declines to extend the revisions to compliance 
requirements for small-scale rental housing to all rental projects. 
These revised requirements are based on the unique considerations of 
small-scale housing and would result in insufficient monitoring if 
applied to larger rental projects. HUD also notes that current HOME 
regulations at Sec.  92.504(d)(1)(ii)(A) require inspections every 
three years following the inspection within 12 months of project 
completion.
CC. Reduce Property Standards Requirements for Homeowner Rehabilitation
    One commenter stated that HOME's Housing Quality Standards, 
especially the requirement to address all health and safety hazards, 
impose significant challenges on low-income homeowners who cannot 
afford critical repairs due to limited equity or reluctance to encumber 
properties. The commenter stated that these issues cause HOME 
applicants to drop out of the process, which often means that grantees 
cannot recover the extensive staff time invested in considering or 
processing applications. The commenter recommended that HUD remove the 
Housing Quality Standards (HQS) requirements for single-family 
rehabilitation projects. One commenter stated HUD should expand grant 
funding available to cover critical repairs, such as roofs, plumbing, 
and electrical systems, which are often unaddressed due to limited 
equity, hesitation of homeowners to participate in the program, and 
concerns about encumbering their property with debt vs income. The 
commenter noted that HUD could expand the range of available grants to 
mirror CDBG programs.
    HUD Response: HOME is an affordable housing program with the 
statutory purpose of bringing rental and homeownership housing up to 
standard physical condition and imposing periods of affordability on 
the housing.\54\ CDBG is a community development program that can fund 
single purpose or emergency rehabilitation that does not address all 
deficiencies in a property or impose long-term affordability 
restrictions. Unlike the CDBG program, the HOME regulations require 
that the rehabilitation meets the participating jurisdiction's 
rehabilitation standards, which are more stringent standards that 
require that the entire housing structure is code compliant and meets 
the HUD housing standards contained in 24 CFR 5.703, as provided for in 
Sec.  92.251(b). HQS do not apply to HOME-assisted homeowner 
rehabilitation projects. For HOME-assisted homeowner rehabilitation, 
participating jurisdictions must determine the scope of repairs needed 
to bring the homeowner's property up to code as well as the form of 
assistance to homeowners, including any loan terms. The critical 
repairs noted by the commenter are eligible costs if such repairs are 
necessary to meet participating jurisdiction's rehabilitation 
standards. Salaries, wages, and related costs of program administration 
are also eligible costs under the HOME program (Sec.  92.206(d)(6)). 
The Department declines to reduce the property standards requirements 
for homeowner rehabilitation projects and acknowledges that other 
programs may be better suited for more limited-scope homeowner 
rehabilitation projects than the HOME program.
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    \54\ See 42 U.S.C. 12721, 42 U.S.C. 12722, and 42 U.S.C. 12741.
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DD. Reduce Property Standards Requirements for Homebuyer Acquisition
    One commenter requested that HUD only require participating 
jurisdictions to ensure that homebuyer housing is free of immediate 
life and safety issues rather than imposing extensive property 
standards. The commenter stated that this may create a more reasonable 
option for income eligible buyers and private sellers instead of 
financing additional rehabilitation costs, which may put debt-to-income 
ratios too high.
    HUD Response: The Department declines to reduce the property 
standards requirements for homebuyer acquisition projects. The purpose 
of the HOME program is to bring housing into compliance with property 
standards and ensure the housing remains affordable over time.\55\ For 
homeownership, adequate property condition is key to

[[Page 814]]

the sustainability of a household's homeownership over the period of 
affordability. When a participating jurisdiction uses HOME funds for 
downpayment assistance or other homebuyer assistance programs, the 
participating jurisdiction is required to determine that the housing 
being acquired meets property standards at purchase or to ensure that 
necessary rehabilitation is performed soon after purchase. HUD 
encourages participating jurisdictions to use HOME funds to complete 
necessary repairs to units being acquired by homebuyers with HOME 
funds. However, this final rule also reduces a key barrier for private 
sellers by providing the HOME-assisted homebuyer 6 months to meet 
property standards. When permitted by a participating jurisdiction, 
this time period may be extended to 12 months. This should be rare. 
Meeting property standards may require additional investment by the 
participating jurisdiction or the homebuyer. The participating 
jurisdiction must work with the homebuyer and determine the correct 
amount of homeownership assistance based not only on the cost of 
acquisition but also any necessary rehabilitation to bring the property 
into compliance with the participating jurisdiction's property 
standards.
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    \55\ See 42 U.S.C. 12721, 42 U.S.C. 12722, and 42 U.S.C. 12741.
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EE. Align Rehabilitation Standards With the Community Development Block 
Grant (CDBG) Program
    One commenter suggested that the Department align HOME 
rehabilitation requirements with the rehabilitation requirements under 
the CDBG program.
    HUD Response: The Department declines to align HOME rehabilitation 
requirements with CDBG. The CDBG program does not require that all 
rehabilitated residential properties meet the national Standards for 
the Condition of HUD housing contained in Sec.  5.703. The Department 
chose to align with programs that are subject to the standards 
contained in Sec.  5.703 because those programs, which include but are 
not limited to the Section 8 project-based rental assistance and 
Housing Choice Voucher program, are the forms of assistance most likely 
to be combined with HOME assistance. The CDBG program does not require 
rehabilitation projects to meet these property standards or inspection 
requirements, and therefore, the CDBG program does not align with other 
HUD programs under NSPIRE inspection protocols. Adopting the CDBG 
rehabilitation requirements for HOME-assisted rehabilitation would mean 
the removal of property standard and inspection requirements from the 
existing regulation. 42 U.S.C. 12722 states that one of the purposes of 
the HOME program is ``to expand the supply of decent, safe, sanitary, 
and affordable housing, with primary attention to rental housing, for 
very low-income and low-income Americans.'' HUD does not believe that 
is has the flexibility to remove rehabilitation property standards and 
inspection requirements because the requirement that all HOME-assisted 
projects be decent, safe, and sanitary is statutory.
    Specific solicitation of comment #3: The Department specifically 
seeks public comment on the proposal to require HOME-assisted units 
comply with NFPA 72, or any successor standard, to use hardwired smoke 
alarms or sealed or tamper resistant smoke alarms with ten-year non 
rechargeable, nonreplaceable batteries, that provide notification for 
persons with hearing loss. The Department is particularly interested in 
public comment on the feasibility of these requirements in HOME-funded 
homeownership programs that do not include rehabilitation or 
construction of housing (e.g., downpayment assistance programs).
A. Support for Smoke Alarms in HOME Projects
    Commenters generally expressed support for requiring the 
installation of smoke alarms in the interest of promoting safety. In 
addition, only a few commenters stated their support for the specific 
proposal to require NFPA 72 smoke alarms in HOME-assisted projects. Of 
those commenters, one indicated support of the proposal for all types 
of HOME-assisted projects (i.e., new construction, rehabilitation, 
homeowner or rental acquisition and TBRA) and indicated that the 
minimal additional cost is worth the potential lifesaving impact. One 
other commenter indicated support for compliance with NFPA 72 
specifically in homebuyer acquisition (i.e., downpayment assistance) 
programs. The third commenter reasoned that hard-wire smoke detectors 
would reduce both the removal of batteries and the frustration of 
tenants responsible for replacing batteries but could not comment on 
the impact of the policy on homebuyer acquisition projects because the 
participating jurisdiction does not use funds for that purpose.
    HUD Response: HUD thanks the commenters for sharing their views. 
HUD is revising the proposed language in order to achieve an approach 
that improves safety while addressing feasibility concerns that 
commenters raised. This final rule requires that HOME-assisted new 
construction projects use hardwired smoke alarms. For rehabilitation 
projects, if the use of hardwired smoke alarms places an undue 
financial burden on the owner or is infeasible, a participating 
jurisdiction may provide a written exception to an owner to allow the 
owner to install a sealed and tamper resistant smoke alarm that uses 
10-year non-rechargeable, non-replaceable primary batteries. 
Participating jurisdictions may also provide exceptions for projects 
including the acquisition of standard housing for homeownership, such 
as downpayment and closing cost assistance programs. Finally, a 
participating jurisdiction's standards must require that existing 
rental housing and housing occupied by tenants receiving tenant-based 
rental assistance contain smoke alarms in accordance with the 
requirements contained in 24 CFR 5.703(b) and (d). These standards do 
not require NFPA 72 compliance but do require that units occupied by a 
hearing-impaired person contain smoke alarms designed for hearing-
impaired persons.
B. Concerns Over Requiring Installation of NFPA 72 Compliant Smoke 
Alarms
    Most commenters expressed concerns about the specific proposal to 
require the installation of NFPA 72-compliant smoke alarms. Their 
primary concerns are costs, availability of such smoke alarms, and 
feasibility in projects that do not involve new construction or 
rehabilitation. Specifically, commenters were unclear how compliant 
smoke alarms would be paid for in homebuyer programs and speculated the 
proposal could increase administrative burden and cost in many 
jurisdictions where homeownership assistance programs are often 
oversubscribed and financially stretched. Many commenters were also 
concerned that installation would be challenging and cost-prohibitive 
in the rehabilitation of older housing. One of these commenters stated 
that adoption of the NFPA 72 standard would cause their participating 
jurisdiction to discontinue use of HOME funds for rehabilitation 
projects.
    HUD Response: HUD acknowledges commenters' concerns and has revised 
the proposed language to provide flexibility for participating 
jurisdictions. For new construction projects and many rehabilitation 
projects, installing hardwired smoke alarms is feasible and promotes 
safety and user-friendliness. However, installing hardwired alarms may 
be challenging for certain rehabilitation projects. This final rule 
allows participating jurisdictions to provide written exceptions to 
allow the

[[Page 815]]

owner to install a sealed and tamper resistant smoke alarm that uses 
10-year non-rechargeable, non-replaceable primary batteries. Likewise, 
the participating jurisdiction may provide an exception for homebuyers 
participating in homeownership assistance programs. HUD believes 
installing battery-powered smoke alarms is a reasonable cost for 
homeowners and owners of rehabilitated rental units. Finally, HUD notes 
that smoke alarms are widely available and that their installation is 
an eligible use of HOME funds for new construction and rehabilitation 
projects.
C. Smoke Alarm Requirements Should Be Optional
    To address concerns about costs, one commenter proposed that smoke 
alarm requirements should be encouraged but not required. Other 
commenters suggested that the rule not require smoke alarms to be hard-
wired. One commenter, however, supported hard-wired smoke alarms only 
in HOME-funded new construction projects. Two other commenters agreed 
that HUD should differentiate requirements for new construction and 
rehabilitation projects. The first commenter suggested that the rule 
require 10-year battery-powered smoke alarms in rehabilitation, 
homebuyer acquisition, and HOME tenant based rental assistance 
projects. However, this commenter's recommendation for homebuyer and 
TBRA projects was contingent on the HOME rule allowing the installation 
of alarms as an eligible HOME cost.
    HUD Response: HUD appreciates the commenters' recommendations. This 
final rule requires all HOME-assisted units to contain smoke alarms 
while differentiating requirements by project type. Hardwired smoke 
alarms are required in new construction projects, while participating 
jurisdictions may provide exceptions for rehabilitation and homebuyer 
projects. The installation of smoke alarms is not an eligible HOME cost 
for homebuyer and tenant-based rental assistance activities. As with 
other property standards requirements, homebuyers and owners of tenant-
based rental assistance units must ensure compliance with smoke alarm 
requirements. This final rule revises Sec.  92.251(c)(3) to allow a 
homebuyer to bring a home up to the participating jurisdiction's 
property standards within 6 months after acquisition, rather than 
requiring the home to meet all property standards at the time of 
purchase. The final rule also allows for the participating jurisdiction 
to extend that time up to 12 months through an amendment to its written 
agreement with the homebuyer.\56\
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    \56\ See 24 CFR 92.251(c)(3).
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D. Cost Concerns Are Not Eliminated by Eliminating Hardwired Smoke 
Alarms
    Other commenters disagreed that eliminating the requirement for 
hard-wired smoke alarms would address cost concerns. They stated that 
compliant battery-operated smoke alarms can also be significantly more 
expensive and harder to find than more widely available models. One 
commenter suggested that 10-year non-rechargeable, non-replaceable 
batteries pose the risk of increased replacement costs due to 
uncertainty about future safety codes after initial battery life has 
expired. In addition, one commenter indicated that these smoke alarms 
may require training for the tenant or homeowner to use this system and 
creates additional expense for homeowners and rental housing owners to 
replace and maintain.
    HUD Response: HUD recognizes that the smoke alarms required by this 
rule may be more expensive than other smoke alarms in some cases and 
that battery-powered alarms will involve future replacement costs. 
However, the marginal cost of these smoke alarms is not significant in 
the context of rehabilitation or new construction and smoke alarms 
required by this rule are widely available in stores and online. HUD 
believes potential additional costs are reasonable in order to promote 
the safety of tenants and homeowners. Additionally, training for 
tenants and homeowners on using battery-powered smoke alarms, if 
required, may already be available online from manufacturers and should 
be minimal in any case.
E. Consider Availability and Cost of NFPA 72 Smoke Alarms
    One commenter urged HUD to assess the availability and cost of NFPA 
72 smoke alarms before imposing such a requirement on HOME projects.
    Several commenters requested that HUD make additional funds 
available to cover the costs of meeting any new smoke detector 
requirements. One commenter stated that national standards must not 
disadvantage rural places or low-income people, so Federal funds should 
be provided to cover the cost of any new Federal standards.
    HUD Response: This final rule allows participating jurisdictions to 
make exceptions for rehabilitation and homebuyer projects where 
installing hardwired alarms would be infeasible or prohibitively 
costly. HUD notes that installation of the smoke alarms required by 
this rule is an eligible HOME cost for rehabilitation and new 
construction costs. Very few projects receive HOME subsidies at or near 
the maximum per-unit subsidy limit and this rule increases those 
limits. HUD does not believe that installation of these smoke alarms 
will be cost prohibitive.
F. Requiring NFPA 72 Smoke Alarms Reduces Ability To Use HOME for 
Homeownership Opportunities
    Commenters who expressed concern about imposing NFPA 72 
requirements on homebuyer acquisition projects stated that the proposal 
would reduce single family homeownership opportunities because it would 
be difficult for HOME-assisted homebuyers to negotiate specialized 
smoke detector requests during the purchase and sales of existing units 
on the market with private owners. For this reason, one commenter noted 
that such a policy would reinforce its decision to decline to offer 
homebuyer assistance independently of HOME-assisted new construction or 
rehabilitation projects. Another commenter suggested that even if the 
cost of smoke detector installation was permitted as an eligible HOME 
cost, low-income homebuyers cannot afford to use their downpayment 
assistance for this purpose due to the high cost of housing. A third 
commenter suggested that if a household requires a specialized smoke 
detector, it should either be requested at the time of construction as 
a reasonable accommodation or should be installed by the homeowner 
after purchase. However, commenters also expressed concerns about 
requiring the assisted family to pay for upgrades after purchase, the 
ability of participating jurisdictions to enforce smoke alarm 
requirements after closing, and the additional program costs of 
additional post-closing inspections.
    HUD Response: HUD recognizes that HOME property standards can 
sometimes make it challenging for HOME-assisted homebuyers to find a 
compliant home to purchase. In this final rule, HUD has revised the 
requirements at Sec.  92.251(c)(3) in order to provide HOME-assisted 
homebuyers 6 months to make improvements necessary to meet HOME 
property standards, with the ability for participating jurisdictions to 
extend that period for up to 12 months from purchase. Therefore, 
homeowners selling to HOME-assisted buyers will not need to install the 
smoke alarms required by this rule prior to closing. In cases where 
acquired homes do not have smoke alarms meeting the requirements of 
this rule, HUD believes

[[Page 816]]

it is a reasonable cost for homebuyers to install a hardwired alarm or, 
with written exception from the participating jurisdiction, a 10-year 
battery-powered smoke alarm. Participating jurisdictions will monitor 
smoke alarm requirements as part of its final inspection for overall 
property standard compliance. HUD notes that the smoke alarms required 
by this rule present safety benefits for all tenants and homeowners, 
not only for persons experiencing hearing loss.
G. Property Standards Requirements Should Only Require That Housing 
Meet State and Local Smoke Alarm Requirements
    Several commenters noted that current building codes in some States 
and local jurisdictions already require compliance with NFPA 72 smoke 
alarm standards for single and multifamily buildings. Consequently, a 
number of commenters urged HUD to defer to State and local code 
requirements for smoke alarms. Commenters explained that State building 
codes facilitate choice and therefore flexibility based on the 
conditions of the project.
    HUD Response: Due to the safety benefits of the smoke alarms 
required by this rule, HUD declines to defer to State and local codes. 
This final rule provides participating jurisdictions flexibility in 
rehabilitation and homebuyer projects and does not require NFPA 72 
smoke alarms for existing rental and TBRA units.
H. Don't Use Only the NFPA 72 Standard
    One commenter advised against solely applying NFPA 72 because these 
requirements do not align with the Consolidated Appropriations Acts of 
2021 and 2023 which require all public housing to meet or exceed the 
requirements of Chapters 9 and 11 of the 2018 International Fire Code 
and that smoke alarms are installed in Federally assisted housing in 
accordance with the International Code Council or NFPA and NFPA 72. The 
commenter urged HUD to reference the smoke alarms requirements outlined 
in the International Building Code, International Residential Code, and 
International Fire Code which the commenter stated are industry-leading 
national voluntary consensus standards, are widely used by government 
agencies across the nation, and trigger NFPA 72 smoke alarm 
installation requirements. The commenter stated that implementation of 
the hearing impairment requirements will be difficult because they are 
not referenced in the international codes and the technology is limited 
in availability. The commenter noted that the international codes 
require smoke alarms be hardwired with battery backup unless it is a 
first-time install and that the allowance to install seal tamper 
resistant non-replaceable 10-year battery operated alarms are intended 
to be limited to existing buildings that do not currently contain 
hardwired alarms and that it is unclear whether these alarms would 
comply with NFPA 72 for hearing impairment.
    HUD Response: HUD thanks the commenter for their suggestion. This 
final rule requires that, for new construction, rehabilitation, and 
homebuyer projects, smoke alarms be installed in accordance with 
certain specific requirements of HUD. In addition, meeting the 
applicable codes and standards published by the International Code 
Council or the National Fire Protection Association ensures compliance 
Sec.  92.251(a)(3)(vi)(B). Ongoing property standards require that a 
participating jurisdiction's standards require housing contain smoke 
alarms in accordance with the requirements contained in 24 CFR 5.703(b) 
and (d). All carbon monoxide detectors in HOME-assisted units must be 
installed in a manner that meets or exceeds the standards that HUD will 
further describe in a forthcoming Federal Register publication.
I. Clarification on Smoke Alarms in Projects With Floating Units
    Several commenters asked for clarification of the proposed policy. 
One commenter asked how the proposal would apply (f) in HOME-assisted 
properties with floating HOME units. Other commenters asked HUD to 
clarify monitoring and compliance requirements, especially after resale 
for homebuyer activities.
    HUD Response: For rental projects with floating units, in 
accordance with Sec.  92.252(j), project owners must ensure that units 
are comparable in terms of their features, which includes ensuring that 
units have compliant smoke alarms. For homebuyer projects, 
participating jurisdictions will monitor compliance with smoke alarm 
requirements as part of final inspections for overall property standard 
compliance. This final rule revises Sec.  92.251(c)(3) to allow a 
homebuyer to bring a home to property standards within 6 months after 
closing and provides participating jurisdictions the ability to extend 
that to 12 months, if necessary. Whether at initial sale or resale, the 
participating jurisdiction would therefore inspect the unit once the 
homebuyer has completed necessary improvements.
    Specific solicitation of comment #4: The Department specifically 
seeks public comment on the proposal to require that a participating 
jurisdiction inspect at least 20 percent of the HOME assisted units 
during its ongoing on-site inspections of rental housing.
A. General Support for 20 Percent Sample Size
    Many commenters supported the proposal to require participating 
jurisdictions to inspect at least 20 percent of the HOME-assisted 
units. One commenter agreed that the current HOME rule requirement that 
participating jurisdictions inspect a ``statistically valid'' sample of 
units is challenging for participating jurisdictions that lack software 
capabilities to develop such a sample. In addition, one commenter in 
support of the proposal also recommended that HUD require that each 
inspection include accessible units and evaluate the accessibility of 
common areas.
    HUD Response: HUD thanks the commenters for their support. HUD 
notes that accessible units in a project are not always HOME units and 
their designation can change during the period of affordability. 
Further, requiring each inspection to include accessible units may lead 
to the same, limited number of accessible units being inspected 
repeatedly. HUD believes this would be burdensome for the tenants of 
accessible HOME units. HUD agrees that it is important that common 
areas remain accessible to persons with disabilities. While the NSPIRE 
inspection protocol does not specifically include an accessibility 
section, it requires inspection of common areas for inspection of 
walkways, ingress and egress, and railings.
B. General Opposition to 20 Percent Sample Size
    Many commenters also opposed the proposal, their primary concern 
being that an inspection of 20 percent of the HOME-assisted units will 
result in a large sample size, particularly in large projects, and will 
place an undue burden on residents, project owners, property managers, 
and participating jurisdictions. In response, several commenters 
requested that HUD provide additional administrative funds because the 
proposal would require additional staff time and costs.
    One commenter noted that, for properties with a limited number of 
HOME units, it will be difficult to avoid inspecting the same units 
each year. Another commenter maintained that current requirements are 
sufficient for

[[Page 817]]

ensuring properties' compliance with property standards.
    HUD Response: HUD appreciates the comments and shares commenters' 
concerns about burden. HUD is providing burden relief in this final 
rule by reducing the minimum required sample size to less than 20 
percent for projects with 136 or more HOME-assisted units. Beginning 
with properties that include between 167 and 214 HOME-assisted units, 
the minimum inspection sample size table in this final rule aligns with 
the inspection size table included in the NSPIRE Final Rule.\57\ HUD 
also considered aligning with the LIHTC sample size chart but felt it 
was more appropriate to align HOME with other HUD programs subject to 
NSPIRE.
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    \57\ See ``Table 9--Number of Units Sampled Under NSPIRE Scoring 
and Sampling Methodology Based on Property Size.'' https://www.govinfo.gov/content/pkg/FR-2023-07-07/pdf/2023-14362.pdf.
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C. Impose a Lower Percentage of Units for Larger Projects and Align 
With LIHTC
    Several commenters proposed reducing the sample size for larger 
projects. Two commenters stated that the proposed sampling method 
differs from the requirements of other funding sources, including 
LIHTC, and recommended that HUD instead align the HOME and LIHTC 
program requirements. One of these commenters suggested using the LIHTC 
standard of the lesser of 20 percent or an amount on a chart included 
in the LIHTC regulation 1.42-5 for larger projects to lessen the burden 
for participating jurisdictions.
    HUD Response: HUD thanks the commenters for their suggestions. HUD 
agrees that the 20 percent sample size in the proposed rule is too 
large for very large projects and is adopting the NSPIRE sample size 
chart for larger projects to align with other HUD programs.
D. Require a Bifurcated Sampling Standard for Large and Small Projects
    One commenter proposed 20 percent of units in projects with 5-50 
units and 10 percent in projects with 50 or more units. Similarly, a 
different commenter recommended 15 percent of HOME-assisted units in 
projects with 20-30 units, and 10 percent for projects with more than 
30 HOME assisted units.
    HUD Response: HUD thanks the commenters for their suggestions and 
agrees that it should have different sample sizes based on whether the 
project has a smaller or larger number of units. Although HUD did not 
adopt the commenter's precise suggestions, this final rule does reduce 
the minimum required sample size for larger projects as suggested by 
the commenters.
E. Reduce Sample Size to 10 Percent
    One commenter suggested that 10 percent of HOME-assisted units be 
inspected in all HOME projects, regardless of the total number of units 
in the project with a minimum of one unit per building.
    HUD Response: HUD thanks the commenter for the suggestions. HUD 
declines to adopt this approach uniformly within the rule because, in 
most cases, a sample size of 10 percent of HOME-assisted units would be 
insufficient to ensure the project's compliance with HOME property 
standards. In larger projects, the Department has determined that it 
may be appropriate to reduce the percentage to 10% or less, and for 
projects with greater than 300 HOME units, the sample size is 10% or 
less.
F. Reduce Sample Size for Small-Scale Rental Housing Projects
    One commenter proposed that developers with multiple properties 
containing between one and four HOME units should be required to 
inspect 20 percent of the HOME-assisted units across their portfolio 
every three years.
    HUD Response: HUD appreciates the commenter's suggestion but 
declines to adopt this change. The HOME statute and regulations apply 
HOME requirements individually to each HOME-assisted project. While a 
single ownership entity may have multiple HOME-assisted projects in its 
portfolio, the physical characteristics, management, and occupancy of 
those project may vary significantly. Physical deficiencies or a lack 
of deficiencies in one project do not necessarily reflect the condition 
of other properties in the portfolio. Therefore, the Department 
believes that each project should be on its own on-site inspection 
cycle and that the participating jurisdiction cannot sample units 
across the owner's portfolio to satisfy the individual project 
inspection requirements for that owner.
G. Confusion Over Sampling Units for Unit Inspections in HOME
    Several commenters expressed confusion or requested clarification 
about the proposed requirements. One commenter stated that the proposed 
rule is unclear about how the sample size requirement relates to the 
requirements for timing of HOME onsite inspections. The commenter asked 
whether annual inspections that, in sum, surpass 20 percent of HOME-
assisted units over three years, but do not in a single year, would 
satisfy the proposed requirement. Another commenter stated that they 
thought the 20 percent inspection sample size was the existing 
requirement. And a commenter also stated that no additional inspections 
should be added to the regulations at all because they are 
administratively burdensome.
    A different commenter requested that HUD clarify whether both HOME 
and non-HOME units would be required to be included in the inspection 
sample. The commenter suggests that inspection requirements apply only 
to HOME-assisted units and that HUD should allow inspection of voucher 
units without affordability agreements to qualify as inspection and 
monitoring for HOME. In its final rule, we ask HUD to mandate agreement 
disbursement for documentation of HOME properties.
    HUD Response: This final rule does not change the number or timing 
of required inspections. Participating jurisdictions must conduct on-
site inspections within 12 months after project completion and at least 
once every 3 years thereafter during the period of affordability. A 
participating jurisdiction may choose to conduct ongoing inspections 
more frequently, but each inspection must meet the appropriate minimum 
inspection sample size defined in this final rule. The inspection must 
only include HOME-assisted units, and HUD is unable to allow voucher 
units that are not HOME-assisted to be included in the inspection 
sample, as these units are not subject to HOME requirements.
H. Other Comments Received on the Solicitation--Adopting Different 
Property Standards
    One commenter urged HUD to adopt the most recent International 
Property Maintenance Code as the basis for on-site inspections of 
rental homes to promote standardization of requirements.
    HUD Response: HUD thanks the commenter for this suggestion but 
declines to adopt this change. The Department has engaged in extensive 
rulemaking on the required standards for on-site inspections and is not 
going to substantially change those standards at this time.
I. Other Comments Received on the Solicitation--Publish Inspection 
Components
    One commenter asked HUD to publish the components that will be 
included in a required inspection.
    HUD Response: HUD encourages the commenter to review the provisions 
of this final rule and HOME program resources on HUD.gov. As part of 
the

[[Page 818]]

implementation of the NSPIRE Final Rule, HUD will provide additional 
guidance and materials aimed at assisting participating jurisdictions 
and owners in complying with the requirements, including a streamlined 
list of minimum inspectable items that shall be a subset of the larger 
set of standards published in the NSPIRE Standards notice at 88 FR 
40832.
J. Other Comments Received on the Solicitation--Source Documentation in 
Income Determinations During the Sixth Year of Affordability
    One commenter also asked whether the sixth year of affordability is 
measured by the individual tenant's occupancy date or the date of the 
project completion date and how the six-year period of affordability 
will be affected if ownership changes during that period. The commenter 
expressed confusion between the current six-year period of 
affordability and the period of affordability outlined in HOTMA, so 
they asked HUD to provide occupant variance probabilities and to 
incorporate said variances into the final rule. The commenter also 
supported participating jurisdictions making the final determination of 
period of affordability based on variance probability guidance from HUD 
in the final rule.
    HUD Response: The period of affordability in a HOME-assisted rental 
project starts when the project meets the definition of project 
completion (see Sec.  92.2 definitions), and the project is placed into 
service. During the period of affordability, the HOME-assisted units 
must be occupied by income eligible families and comply with applicable 
rent requirements. To ensure the HOME-assisted units qualify as 
affordable housing, the project owner must determine the annual income 
of the family using a variety of methods permitted under HOME and 
selected by the participating jurisdiction. HUD's rule is that unless a 
person is qualifying under Sec.  92.203(a)(1), (a)(2), or (a)(3), the 
owner must calculate the person's annual income using source 
documentation prior to initial occupancy, and then once every six years 
during the period of affordability (e.g., the six-year schedule of 
examination for a project with a 20-year period of affordability would 
be to perform an income examination with source documents in years 1, 
6, 12, and 18). The six-year schedule applies to the period of 
affordability and not to a tenant's occupancy. The requirement to 
redetermine income eligibility using source documents every sixth year 
applies only in units where a participating jurisdiction permits the 
use of self-certification in accordance with Sec.  92.203(b)(1)(ii). 
The six-year schedule and method of determining income eligibility 
under this schedule does not change if there is a change in ownership; 
it is based on when the project was completed and placed into service. 
When there is a change in ownership during the period of affordability, 
the HOME requirements continue to apply to the project and the income 
examination cycle remains the same. This is the methodology that HUD 
uses to ensure the HOME-assisted units remain affordable during the 
period of affordability as established in the table in Sec.  92.252(d).
    The Department is also clarifying that the six-year schedule in 
this Final Rule is the same as the six-year schedule in the HOTMA Final 
Rule, and that the requirements are consistent with one another. HUD 
does not believe it necessary to calculate occupant variance 
probabilities (within the six-year period of period of affordability) 
as requested by a commenter or to reexamine HUD's methodology for 
verifying units remain affordable and occupied by low-income families 
during the period of affordability.
    Specific solicitation of comment #8: The Department specifically 
requests public comment from participating jurisdictions, developers, 
and other affected members of the public about the appropriateness of 
the length of the HUD-required periods of affordability for HOME-
assisted rental housing. The current regulation at 24 CFR 92.252(e) 
establishes periods of 5 years for a per-unit HOME investment of under 
$15,000, 10 years for a per-unit investment between $15,000 and 
$40,000, and 15 years for a per-unit investment of more than $40,000, 
15 years for any unit involving refinancing of existing debt, and 20 
years for any unit involving new construction. Section 215(a)(1)(E) of 
NAHA (42 U.S.C. 12745(a)(1)(E)) requires that the period of 
affordability be for the remaining useful life of the HOME-assisted 
property, as determined by HUD, without regard to the term of the 
mortgage or to transfer of ownership, or for such other period that HUD 
determines is the longest feasible period of time consistent with sound 
economics and the purposes of NAHA. Since the Department established 
these periods of affordability in 1991, costs have increased 
significantly, LIHTCs have become the primary funding mechanism for 
rental housing, and the housing affordability crisis in the country has 
worsened significantly. The Department seeks input about whether the 
length of the periods of affordability and the dollar thresholds and 
activity thresholds that are the basis of the current periods of 
affordability remain appropriate. In addition, the Department seeks 
input about any project feasibility challenges of the current HOME 
periods of affordability and factors that the HUD should consider in 
contemplating changes to the current periods of affordability.
A. General Comments
    HUD received a broad range of responses to this solicitation on the 
appropriate periods of affordability to impose on HOME-assisted 
projects. Commenters recommended that HUD leave the existing 
regulations intact, increase the dollar thresholds for existing periods 
of affordability, eliminate the longer period of affordability for new 
construction of rental housing, align HOME requirements with other 
housing program requirements, establish longer periods of 
affordability, establish different periods for homeownership 
activities, or allow participating jurisdictions to determine their own 
periods of affordability.
    HUD Response: The Department appreciates the many thoughtful 
comments submitted by commenters. HUD is guided by the Act, which 
states that HOME-assisted housing must ``remain affordable for the 
remaining useful life of the property, as determined by the Secretary, 
without regard to the term of the mortgage or to transfer of ownership, 
or for such other period that the Secretary determines is the longest 
feasible period of time consistent with sound economics and the 
purposes of this Act,'' Therefore, HUD carefully balanced commenters 
legitimate concerns about increases in land and construction costs in 
the past 30 years with the degree to which the nation's affordability 
crisis has deepened and spread during that period. HUD also notes that 
the most recent HOME appropriation of $1.25 billion is less than the 
$1.5 billion appropriated for HOME in Fiscal Year 1992. Had the HOME 
appropriation kept pace with the rate of general inflation, the current 
appropriation would be nearly $3.9 billion. In this final rule, HUD has 
retained the periods of affordability of 5, 10, and 15 years based on 
per-unit investment and 20 years for new construction of rental housing 
but partially adjusted the thresholds for the per-unit investment-based 
periods to reflect cost increases over the past three decades. However, 
these limits are not fully adjusted for inflation due to the need to 
address the significantly worsened affordability crisis with an

[[Page 819]]

appropriation that in real dollar terms is less than half what it was 
in Fiscal Year 1992. The rule imposes the following periods of 
affordability: (1) 5 years when per-unit HOME investment is less than 
$25,000; (2) 10 years when the per-unit HOME investment is between 
$25,000 and $50,000; (3) 15 years when the per-unit HOME investment is 
more than $50,000; and (4) 20 years for all projects involving new 
construction of rental housing.
B. Make No Changes to Period of Affordability
    Some commenters stated that the current length and amount criteria 
for period of affordability is appropriate and can remain as currently 
written.
    HUD Response: HUD appreciates the comments. However, the Department 
believes that it is appropriate to partially adjust the dollar ranges 
for the period of affordability to reflect the 226 percent increase in 
the Consumer Price Index between 1992 and 2024, the increase in 
compliance costs, and the current cost of labor and materials.
C. Adjust Dollar Thresholds To Reflect Cost Increases
    Numerous commenters stated that the length of the current periods 
of affordability are appropriate but recommended that HUD adjust the 
dollar thresholds to reflect the significant increase in the cost of 
land and construction since the current thresholds were established in 
December 1991. Two commenters who supported the length of current 
periods of affordability recommended that HUD adjust the existing 
dollar thresholds to reflect the cumulative change in the Consumer 
Price Index (CPI) since that time. One of these commenters noted that 
the existing $15,000 threshold between the 5-year and 10-year periods 
would be nearly $35,000 if adjusted by the CPI.
    Several commenters cited increased costs of rehabilitation since 
1991 and stated that HUD should adopt alternative dollar thresholds. 
Commenters recommended thresholds of between $20,000, and $125,000 for 
a 5-year period of affordability and between $50,000 and $250,000 for 
the 15-year period of affordability. One commenter who supported higher 
dollar thresholds also recommended that HUD adopt a 25-year period of 
affordability for new construction. One commenter suggested a period of 
affordability of 20 years for a HOME investment of less than $1,000,000 
and 50 years for a HOME investment of more than $1,000,000.
    HUD Response: The Department agrees with commenters that the HOME 
periods of affordability should be adjusted to reflect cost increases 
over time and appreciates the various suggestions. HUD also declines to 
adopt suggestions that would increase the thresholds far beyond the 226 
percent increase in the Consumer Price Index as such increases would 
reduce the affordability achieved through HOME subsidies below what was 
required at the inception of the HOME program. HUD also notes that some 
of the suggested amounts far exceed the maximum HOME subsidy that may 
be provided to a unit. The thresholds established in this rule 
constitute a 66 percent increase in the five-year period of 
affordability threshold, and a 25 percent increase in the threshold 
separating the 10-year period of affordability and the 15-year period 
of affordability, which HUD believes balances the competing needs for 
modernized thresholds and the severity of the current shortage of 
affordable housing. HUD also declines to extend the period of 
affordability for new construction of rental units to 25 years because 
even newly constructed units will require rehabilitation and 
recapitalization before the expiration of that period. Extending this 
period would complicate efforts to recapitalize housing projects, 
including efforts to further extend periods of affordability through 
additional HOME funds or other funding sources.
D. Eliminate the Longer Period of Affordability for New Construction of 
Rental Housing
    A commenter recommended eliminating the 20-year requirement for new 
construction projects and applying the per-unit subsidy-based periods 
of 5-, 10-, or 15-year to all units irrespective of the activity 
undertaken. The commenter stated that a gut rehabilitation project has 
a 15-year period of affordability and new construction has a 20-year 
period of affordability, although there is essentially no difference in 
housing quality of these two project types. Another commenter advocated 
eliminating the 20-years period of affordability for new construction 
to allow for the reinvestment of HOME funds after 15 years.
    HUD Response: The Department appreciates the comments but declines 
to make this change. HUD believes that the longer period of 
affordability for newly constructed rental housing faithfully 
implements the statutory requirement that HOME periods of affordability 
reflect the useful life of the property or such other period that the 
Secretary determines is the longest feasible period of time consistent 
with sound economics and the purposes of this Act. The fact that some 
substantial rehabilitation or reconstruction projects may be similar in 
construction and useful lifespan to new construction is not an adequate 
justification to reduce the period of affordability for HOME-funded new 
construction projects.
E. Align Period of Affordability Requirements With Other Programs
    One commenter stated that periods of affordability are critical to 
ensuring that the investment of Federal funds has an impact on housing 
availability and affordability over time, but also make project 
underwriting at the time of funding and ongoing maintenance of the 
financial and physical health of the property more challenging. The 
commenter stated that the affordability restrictions in HOME are a 
barrier to HOME-assisted rental housing development in high-cost areas, 
given the need to layer financing from multiple sources. The commenter 
suggested aligning HOME periods of affordability with the 15-year 
credit compliance period of the Low-Income Housing Tax Credit (LIHTC) 
to enable preservation of existing affordable housing through 
recapitalization. Another commenter recommended that HUD align the HOME 
period of affordability 30-year LIHTC extended use period to allow 
cities to track period of affordability more easily among various 
affordable housing project types. One commenter stated HUD should align 
its periods of affordability with the minimum 55-year period frequently 
used in affordable housing programs in California.
    HUD Response: HUD appreciates the comments and recognizes that most 
HOME projects also include one or more other Federal, State, local, or 
private funding sources, which means that there are multiple restricted 
use periods imposed by other affordable housing funding sources to 
which HOME could possibly align. The Department believes that the 
multiplicity of possible options is a compelling reason not to align 
with a single other funding source and maintain the current periods, 
which are well-understood among affordable housing developers. HUD also 
reads the Act to require it to affirmatively establish periods of 
affordability that apply to HOME-assisted units rather than deferring 
to one or more other funding sources.

[[Page 820]]

F. Change Lengths of Periods of Affordability
    Several commenters stated that HUD should impose longer periods of 
affordability. One commenter supported a period of affordability up to 
40 years and encouraged HUD to consider mandatory periods coterminous 
with the compliance requirements of the superior funding source as long 
as they exceed 30 years.
    One commenter requested that HUD require HOME periods of 
affordability to be the greater of (1) the longest period of 
affordability of any other public assistance program supporting the 
assisted housing or (2) 10 years for a per-unit HOME investment of 
under $15,000, 15 years for a per-unit investment between $15,000 and 
$40,000, 20 years for a per-unit investment of more than $40,000 or any 
unit involving refinancing of existing debt, and 30 years for any unit 
involving new construction. The commenter also recommended that HUD 
consider incentivizing permanent or 99-year periods of affordability by 
increasing the maximum per-unit HOME subsidy limit in exchange for a 
commitment to permanent affordability. Another commenter supported 
lengthening the HOME periods of affordability but urged HUD to reduce 
long-term compliance requirements to ease administrative burden.
    Other commenters opposed longer periods of affordability. One 
commenter said that cash flow challenges are already an obstacle to 
rental housing development in rural areas, and extending periods of 
affordability would increase the difficulty of cash-flowing potential 
projects in those areas further limiting already constrained new unit 
production. The commenter emphasized that impact on project viability 
in rural areas should be a prime factor when HUD contemplates changes, 
including changes to the periods of affordability. Another commenter 
said that although it requires a 30-year or 40-year affordability terms 
on multifamily development projects, it does not recommend extending 
the HOME periods due to the prohibition on investing additional HOME 
funds in a project during the period of affordability. The commenter 
opposed extending HOME periods of affordability beyond the life of the 
HOME-funded improvements. A commenter opposed any extensions to the 
periods, and especially the 15-year period applicable when HOME funds 
are used to refinance existing debt, due to increased liability and 
decreased flexibility and recommended that the period begin when a 
building is put into service not when it is entered into IDIS.
    One commenter stated that the period of affordability is too long 
based on the funding provided and recommended that HOME allow 
participating jurisdictions to set the period of affordability. The 
commenter noted that this change would provide flexibility in various 
housing markets, where needs can vary significantly.
    HUD Response: HUD thanks the commenters for reviewing the proposed 
rule and making suggestions. However, for reasons explained above, HUD 
is declining to lengthen, to align to other programs, or to devolve 
decision-making on HOME periods of affordability. As required by the 
Act, HUD has considered both what is the longest period of 
affordability consistent with sound economics and the purposes for 
which the HOME program was established in making the determinations 
reflected in this rule. HUD believes that a participating 
jurisdiction's use of HOME funds to refinance an owner's existing debt 
as part of a HOME transaction should be entered into only after careful 
consideration and a finding that it is an absolute necessity to enable 
a project to proceed. The period of affordability selected by HUD 
ensures that the investment of taxpayer funds to pay off an owner's 
existing debt results in a tangible benefit.
G. Require Different Periods of Affordability Based on Different 
Considerations
    One commenter recommended different periods of affordability for 
rental and homeowner activities. The commenter stated that a longer 
period of affordability is a deterrent for single family homeowner 
programs. The commenter also urged HUD to investigate ways to update 
the periods of affordability to take into account scenario planning for 
varying annual appropriations, how long tenants stay in a HOME unit, 
and the average cost of repairs and how long repairs last.
    HUD Response: The Department thanks the commenter for reviewing the 
proposed rule. HUD declines to establish different periods of 
affordability for homebuyer and rental housing. The longest period of 
affordability applicable to homebuyer housing is 15 years for a total 
investment of more than $50,000 in a homebuyer development project or 
direct subsidy to a homebuyer of $50,000 to facilitate the purchase of 
a property. The Department does not believe that these periods are 
unreasonable given the public subsidy being provided. HUD has taken the 
size of recent HOME appropriations, the useful life of construction or 
rehabilitation, and the costs of these activities into account in 
finalizing this rule.

Sec.  92.252--Qualification as Affordable Housing: Rental Housing

A. Support for Changes to Rent and Utility Allowances
    Commenters supported proposed changes that resulted in more 
flexible policies with respect to rent and utility allowances. Other 
commenters worded their support differently and stated that they 
supported the proposed alignment of the HOME program with the rent 
limits from other programs involved in a project.
    HUD Response: The Department thanks the commenters for reviewing 
the proposed rule and providing comments on the proposals related to 
HOME rental housing. The Department is moving forward with changes to 
the rent and utility allowance requirements, as described in this 
preamble.
B. Changes to Marketing Provisions in Introductory Provision
    One commenter supported the elimination of the requirement for 
participating jurisdictions to submit marketing plans to HUD for HOME-
assisted units not being leased up within 6 months of project 
completion. The commenter explained that it, as a participating 
jurisdiction, works with owners and managers to ensure lease up is 
timely but would not be the best equipped party to create a marketing 
plan.
    HUD Response: The Department thanks the commenter for their 
support. HUD is moving forward with the proposed change.
C. Support for Not Applying Rent Limits to Payments Under Federal or 
State Rental Assistance or Subsidy Programs in Sec.  92.252(a)
    Commenters stated that they supported the proposal to permit 
housing developers to allow an owner of a HOME-assisted unit to charge 
the permissible Housing Choice Voucher (HCV), project-based voucher, or 
project-based rental assistance rent instead of the maximum HOME rent 
because it would increase the financial viability of developments.
    One commenter stated that housing developed for persons at or below 
30 percent area median income often includes eight or more government 
funding sources, each with separate inspection and reporting 
requirements.

[[Page 821]]

The commenter stated that the proposed HOME program alignment will 
reduce redundancy and increase efficiency. Commenters stated that they 
support allowing the public housing authority (PHA) rent reasonableness 
study to serve as the upper limit for rents in a property when an 
outside subsidy such as Section 8 is used. Another commenter expressed 
support for aligning Sec.  92.252(a) requirements with HERA rules, and 
LIHTC rules allowing the owner to receive the rent determined by a PHA 
in accordance with proposed Sec.  982.507(c)(3) or another Federal or 
State rental assistance or subsidy program. A commenter noted that the 
change would align with what has been allowed in LIHTC properties for 
decades and improve cash flow at properties that have had limited 
options previously, but that it would be important to ensure adequate 
funding was provided. Another commenter explained this would ease 
administrative burden and reduce confusion related to overlapping 
requirements.
    Several commenters supported only applying the rent limits to the 
amounts paid by the tenants in HOME projects. One commenter also 
supported the removal of rent subsidy from the rent calculation.
    HUD Response: The Department thanks the commenters for reviewing 
and is moving forward with the proposed language. In addition, in 
response to the commenters, the Department also considered further 
streamlining of the rent limit provisions. The Department has 
determined that it is permissible to revise the High HOME rent limits 
to exclude the tenant payment when a tenant is participating in a 
program where the tenant pays no more than 30 percent of their monthly 
adjusted income or 10 percent of their monthly income towards rent.\58\ 
This allows Section 8 voucher holders to pay the total tenant payment 
in accordance with Section 8 requirements and permits the HOME rental 
housing project owner the ability to accept the rent from both the 
rental assistance provider and the tenant without limitation. This 
provision will also increase alignment when combining multiple sources 
of funding.
---------------------------------------------------------------------------

    \58\ See 24 CFR 92.252(a)(1)(A).
---------------------------------------------------------------------------

D. Opposition to Changes in Rent Limits
    One commenter sought clarification on the HOME rent limits and 
stated that it would not support rent limits being only applied to the 
tenant portion of rent. The commenter wished for the rent limits to 
apply to the overall amount received by the owner.
    HUD Response: The Department declines to make the changes 
recommended by the commenter. HERA is statutory and it is the 
Department's legal interpretation that the rent limits under the Act do 
not apply to either the tenant contribution or the rental assistance or 
subsidy provided to a person or unit under the Section 8 rental 
assistance programs. The Department lacks discretion to apply the rent 
limits to the overall amount received by the owner, as this is contrary 
to law and the intent of Congress.
E. Request To Further Revise HOME Rent Requirements in Sec.  92.252(a)
    Another commenter supported the proposed change as it considerably 
simplifies compliance for voucher holders. The commenter recommended 
that the changes should remove the ``project-based'' language and the 
requirement that the ``very low-income family pays as a contribution 
toward rent not more than 30 percent of the family's adjusted income'' 
from Sec.  92.252(b)(2)(ii) because the PHA or subsidy provider should 
be determining what the household must contribute to rent under their 
program.
    HUD Response: The Department is revising the language of Sec.  
92.252(a) in response to public comments. The Department has expanded 
the provision to state 30 percent of the family's monthly adjusted 
income or 10 percent of the family's monthly income, to align with the 
Section 8 regulations on total tenant payment. The Department has added 
this language to both the High and Low HOME rent provisions and will 
allow tenants to pay the amount determined under the Section 8 program 
when a voucher holder is also living in a HOME-assisted unit.
F. Permit an Owner To Receive Rent Determined by a Local Government 
Rental Assistance or Subsidy Program in Sec.  92.252(a)
    Commenters stated that HUD should permit an owner to receive rent 
determined by a local government rental assistance or subsidy program 
in addition to the allowance of receipt of rent determined by a PHA or 
another Federal or State rental assistance or subsidy program. The 
commenter recommended HUD amend the proposed language in Sec.  
92.252(a) from ``rent limits do not apply to any payment provided under 
a Federal or State rental assistance or subsidy program . . .'' to 
``rent limits do not apply to any payment provided under a Federal, 
State, or local government rental assistance or subsidy program.''
    HUD Response: The Department considered the commenter's request, 
examined the Act in light of the passage of HERA, and has determined 
that Congress did not intend to apply the rent limits to families that 
were paying, as a contribution towards rent, no more than 30 percent of 
their monthly adjusted income or 10 percent of their monthly income in 
another program. The Department has revised Sec.  92.252(a) 
accordingly. The Department also expanded the language in Sec.  
92.252(a) to cover local rental assistance programs, as requested by 
the commenter. This fully addresses the commenter's concerns and allows 
owners to accept the rent contribution of a family under Section 8 and 
similar rental assistance programs.
G. Change Low HOME Rent Requirements in Sec.  92.252(a) To Be Based on 
Gross Income
    Commenters also proposed amending the language of Sec.  
92.252(a)(2)(ii) to say, ``[T]he rent contribution of the family is not 
more than 30 percent of the family's gross income,'' similar to recent 
HOTMA changes implemented for rental assistance programs, in order to 
align more closely with the intent to streamline housing programs and 
assistance.
    HUD Response: HUD thanks the commenters for reviewing the proposed 
rule. 42 U.S.C. 12745(a)(1)(B) requires that ``not less than 20 percent 
of the units (i) occupied by very low-income families who pay as a 
contribution toward rent (excluding any Federal or State rental subsidy 
provided on behalf of the family) not more than 30 percent of the 
family's monthly adjusted income as determined by the Secretary . . .'' 
HUD lacks the discretion to change the requirement from the statutory 
30 percent of ``monthly adjusted income'' to 30 percent of ``gross 
income'' that the commenter has recommended.
H. Allow Owners To Collect Full Contract Rent When the Tenant Rental 
Contribution of a Family That Received Section 8 Rental Assistance in a 
HOME Unit Earns More Than 65 Percent of Area Median Income in Sec.  
92.252(a)
    A commenter supported the alignment of project- and tenant-based 
subsidized rents and Low and High HOME units in Sec.  92.252 but stated 
that High HOME rent units still face an issue when tenants paying their 
share of the rent under the subsidy program have a tenant rent that 
exceeds the otherwise applicable HOME limit. The commenter urged HUD to 
allow the collection of the

[[Page 822]]

full subsidy for all HOME units that are currently allowed for Low HOME 
rent units where families are paying 30 percent of adjusted income as 
required by a rental assistance program. The commenter suggested 
addressing this issue by adding the same clause to the definition of 
High HOME rent limits as exists for Low HOME by adding a new Sec.  
92.252 (b)(1)(iii) which would say ``[t]he rent contribution of the 
family is not more than 30 percent of the family's adjusted income.'' 
The commenter stated that PBRA policy allows families to decide if they 
want to keep the security of their subsidy or let it go in favor of 
lower rents applicable to another program and stated that this could 
also apply to HOME.
    One commenter expressed support for the change to allow owners to 
charge rents that exceed the HOME rent limits for units occupied by 
tenants with tenant-based vouchers (in alignment with changes made to 
the Section 8 programs and HERA), but was concerned about how this will 
impact underwriting financial feasibility at the time of application 
and possible unintended consequences.
    Another commenter stated that HUD should align HOME rent limits 
with the Section 8 programs for PBVs. The commenter stated that they 
support this approach because, from an underwriting perspective, it is 
important to not over-subsidize units, and it is easier to underwrite 
higher rents when they are guaranteed PBVs.
    A commenter stated that, as long as the unit is receiving at least 
one dollar in subsidy, the HOME program should not impose any 
restrictions on gross rent or the tenant portion of rent for households 
receiving PBVs, housing choice vouchers (HCV), or Veterans Affairs 
Supporting Housing (VASH) vouchers. The commenter stated that this 
approach aligns with the LIHTC program requirements.
    A commenter stated that for projects that have both PBVs and HOME 
funds, it will be more difficult for PJs to regulate the HOME rent 
limit being applied to the tenant portion of the rent.
    HUD Response: The Department considered the commenter's request, 
examined the Act and HERA, and has determined that Congress did not 
intend to apply the HOME rent limits to families that were paying, as a 
contribution towards rent, no more than 30 percent of their monthly 
adjusted income or 10 percent of their monthly income. The Department 
has revised Sec.  92.252(a) accordingly. This fully addresses the 
comment and allows for owners to accept the rent contribution of a 
family under Section 8, including HUD VASH and similar rental 
assistance programs.
I. Underwrite to HOME Rent Limits in Sec.  92.252(a) for Units Without 
Project-Based Rental Assistance
    One commenter recommended that HUD specifically state in the final 
rule that the HOME rent limits must be used for units without project-
based rental assistance (i.e., units that may have tenants with 
vouchers, but it is not certain at the time of underwriting). If higher 
rents are assumed for those units, rental income may be artificially 
inflated; however, after initial occupancy, the commenter believes it 
would be appropriate to allow owners to charge the allowable rents 
under the tenant based rental assistance program to generate additional 
income and help ensure the project is sustainable for the long term.
    HUD Response: The Department thanks the commenter for the feedback 
and agrees with the commenter that unless a project has been awarded a 
HAP contract and is assured continued provision of project-based rental 
assistance or project-based vouchers, HOME units should be underwritten 
using the High and Low HOME Rents. It would not be consistent with the 
regulation at Sec.  92.250(b) to assume that HOME units will be 
occupied by people who have Housing Choice Vouchers because there would 
be no basis for the assumptions around the operating income for the 
project. However, the Department declines to codify this requirement, 
as each project is different and there are a variety of other funding 
sources that may be layered together in a HOME project, some with their 
own rents that must be factored into underwriting.
J. Allowing Owners To Accept the Full Section 8 Contract Rent in Sec.  
92.252(a) May Change Owner Behavior
    One commenter expressed concern that allowing owners to charge 
rents that exceed the HOME rents for units occupied by tenants with 
vouchers might inadvertently incentivize owners to rent only to tenants 
with vouchers. The commenter notes that many more households need 
rental assistance than receive the assistance; however, HOME units are 
more affordable than market rate housing, and eligible tenants should 
be able to access the units without barriers. The commenter expressed 
concern that the unintended incentive for owners to rent only to 
tenants with vouchers could have fair housing implications.
    HUD Response: The Department appreciates the commenters concern but 
would like to note that the Act expressly permits project owners to 
accept tenants with Section 8 vouchers. Specifically, section 
12745(a)(1)(D) of the Act states that ``Housing that is for rental 
shall qualify as affordable housing under this subchapter only if the 
housing . . . (D) is not refused for leasing to a holder of a voucher 
or certificate of eligibility under section 1437f of this title because 
of the status of the prospective tenant as a holder of such voucher or 
certificate of eligibility . . .'' This statutory requirement is 
reflected in Sec.  92.253 which also requires project owners to have 
and follow written tenant selection policies and procedures and provide 
for the selection of tenants from a written waiting list in the 
chronological order of their application, insofar as is practicable. 
Given the statutory and regulatory requirements for tenant selection, 
the Department believes it is Congress's intent to incentivize owners 
in the HOME program to include tenants with Section 8 vouchers or 
rental assistance in their projects and to allow the owners to accept 
the total tenant payment and the contract rent for the family's unit. 
To that end, the Department has expanded the prohibition against source 
of income discrimination to also include State and local rental 
assistance programs, as the Department believes it is consistent with 
the purposes of the Act to allow holders of such forms of assistance 
the ability to use their assistance to live in HOME units.
K. Support for Utility Allowance Changes to Sec.  92.252(b)
    One commenter expressed support for the proposed language in Sec.  
92.252(b) that would allow use of the HUD Utility Schedule Model 
(HUSM), public housing authority utility allowance, or other method 
approved by HUD, reasoning that HUD should allow more options because: 
there are difficulties in getting detailed utility data in rural areas; 
more options would be consistent with other HUD program requirements; 
and, if options remain limited, Indian Tribes and Indian Housing 
Authorities may operate rental assistance programs with their own 
conflicting rules. The commenter explained that the public housing 
authority utility allowance would be easier to administer for less-
experienced project owners with small projects and portfolios. The 
commenter also encouraged HUD to allow HUSM as an option for all HOME-
assisted rental units rather than just units with specified rental 
assistance programs. Furthermore, the commenter requested that both 
telephone and internet be

[[Page 823]]

listed as exclusions from utilities and services in Sec.  92.252(b).
    Another commenter supported the proposed exceptions for HOME 
projects with Section 8 Project Based Voucher (PBV) and HUD-VASH but 
noted that utility allowances determined by local public housing 
authorities are almost always either significantly higher or lower than 
other models, which ends up being inequitable for tenants or unfair for 
owners.
    HUD Response: The Department thanks the commenters for reviewing 
and is moving forward with the proposed language in Sec.  92.252(b) 
allowing participating jurisdictions to use the HUD Utility Schedule 
Model, the utility allowance established by the applicable local PHA, 
or other method approved by HUD for its maximum monthly utility 
allowances. This change will make all three options available for all 
HOME-assisted rental units. The Department is listing broadband as an 
exclusion from utilities and services in Sec.  92.252(b) to help 
clarify utilities covered by the utility allowance.
    The Department has noted the commenter's concern about inequities 
in utility allowances determined by public housing authorities but has 
seen no data demonstrating that price differences as drastic or 
prevalent as described exist. Furthermore, if a participating 
jurisdiction finds the utility allowance determined by its local PHA 
unsuitable, it is now able to choose a more suitable model (the HUD 
Utility Schedule Model or another method approved by HUD) for its 
project.
L. Support for Utility Allowance Changes in Sec.  92.252(b)--Alignment 
With PHA Utility Schedule
    One commenter supported the use of the PHA utility allowance in all 
HOME-assisted rental projects because a standardized utility allowance 
allows for better compliance monitoring. In addition, the commenter 
stated that, to make compliance significantly easier, a participating 
jurisdiction should still be able to establish the effective date of 
the utility allowance to align with revisions to the HOME rents.
    HUD Response: The Department thanks the commenter for their review 
and notes that the final rule does not prescribe a timeline for annual 
updates to rents and utility allowances.
M. Confusion Over Utility Allowances in Sec.  92.252(b)
    One commenter recommended that HUD create a pathway for compliance 
for rental subsidy programs that include the household's contribution 
to utilities as part of their rental contribution and that HUD move the 
language at Sec.  92.252(b)(2)(ii) out of paragraph (b) so that rent 
can go up to the maximum allowed under the Federal or State rental 
subsidy.
    HUD Response: In the rental subsidy programs that the commenter 
describes, the subsidy provider pays the owner directly on behalf of 
the renting household or tenant. Under the HOME regulations Sec.  
92.252, utility allowances are provided for tenant-paid utilities in 
HOME-assisted rental units. The Department declines to change the 
existing language, as the situation outlined by the commenter does not 
apply to HOME.
N. Support for 60-Day Notice Requirement Before Imposing Rent Increases 
in Sec.  92.252(e)
    One commenter supported the increase in the minimum number of days 
required from 30 to 60 for a rent increase.
    HUD Response: HUD thanks the commenter for their support of the 
proposed period for rent increases. HUD is adopting propose rule 
language to ensure that tenants of HOME-assisted rental units have 
adequate notice of rent increases proposed by the owner and approved 
the participating jurisdiction.
O. Revise Sec.  92.252(g)(2) To Use Different Terminology
    One commenter suggested that the proposed regulatory text at Sec.  
92.252(g)(2) be revised to list ``rental'' rather than ``multifamily''.
    HUD Response: HUD agrees with the commenter and is making the 
change.
P. Rent Restrictions in Sec.  92.252(h)
    One commenter stated that the proposed Sec.  92.252(h)(2)(i) should 
allow tenants of HOME-assisted projects with multiple sources of 
funding to pay the rent amount required under any of the programs' 
requirements, not just LIHTC.
    HUD Response: The Department agrees with the commenter and has 
expanded the owner's ability to accept the rent and total tenant 
payment for other programs that are often combined with HOME assistance 
in HOME rental housing projects, including programs that require 
tenants to pay no more than 30 percent of their monthly adjusted income 
or 10 percent of their monthly income. The Department also codified 
provisions on LIHTC rents that are contained in 42 U.S.C. 
12745(a)(1)(B) of the Act. The Department also expanded the amount of 
rent that an owner may receive for over-income tenants by also allowing 
the owner to accept the subsidy provided under a program that provides 
Federal, State, or local rental assistance or subsidy (see Sec.  
92.252(h)(iii)). This should adequately address the commenter's 
concerns.
    Specific solicitation of comment #6: Rather than permitting all 
HOME-assisted projects to use the local PHA's utility allowance, should 
HUD limit the use of the PHA utility allowance to only HOME-assisted 
projects which also receive PBV or HUD-VASH PBV assistance?
A. Comments in Support of Allowing a Participating Jurisdiction To Use 
a Local PHA Utility Allowance
    Commenters predominantly supported permitting all HOME-assisted 
projects to use the local public housing authority's utility allowance, 
noting that the change would make the process simpler, more effective, 
provide greater flexibility to participating jurisdictions and 
developers, and align HUD's process and operations with programs like 
HTF and LIHTC.
    HUD Response: The Department thanks commenters for reviewing and is 
adopting language permitting participating jurisdictions to use the HUD 
Utility Schedule Model, the utility allowance established by a local 
PHA, or other methods approved by HUD for their maximum monthly 
allowances.
B. Comments in Support of Allowing a Participating Jurisdiction To Use 
a Local PHA Utility Allowance With Changes
    In expressing their support, many commenters included addendums or 
clarifications they suggested be made to this proposed policy. One 
commenter advised HUD to clarify that using the housing authority-
established utility allowance is not a requirement for all units, and 
that a participating jurisdiction may work with the property owner to 
determine whether the public housing authority or a property-specific 
utility allowance is more appropriate. This commenter, as well as 
another otherwise-supportive commenter, advocated for the use of 
alternative energy models to provide flexibility for projects with 
different energy use profiles, with the public housing authority's 
utility allowance serving as the baseline option to reduce soft costs 
and provide clear alignment with other funding programs.
    HUD Response: The Department thanks the commenters for reviewing 
and is moving forward with the proposed language in Sec.  92.252(b) 
allowing participating jurisdictions to use the HUD Utility Schedule 
Model, the utility allowance established by the local PHA, or other 
method approved by HUD for their maximum monthly utility allowances. 
Which of the three methods

[[Page 824]]

is selected is at the participating jurisdictions' discretion. 
Participating jurisdictions that wish to utilize alternative energy 
models (or any other utility allowance method that is not the HUD 
Utility Schedule Model or the utility allowance established by a local 
PHA) may submit a request to HUD for review.
C. Requests for Clarification of Utility Allowance Requirements
    One commenter recommended that HUD clarify the utility rates for 
communities not served by a local public housing authority. Commenters 
noted that grantees are confused when State agencies require different 
utility allowances than local participating jurisdictions and 
recommended that HUD allow participating jurisdictions to coordinate 
program funding.
    Another commenter recommended HUD clarify which utility allowance 
should be used where more than one housing authority has PBVs in a 
development layered with HOME units. In the absence of PBVs, the 
commenter stated that the participating jurisdiction needs to have 
authority to determine the most applicable housing authority utility 
allowance. If HUD does not leave this decision to participating 
jurisdictions, the commenter suggested that HUD adopt a rule stating 
that the applicable public housing authority utility allowance is the 
smallest unit of government. The commenter also recommended that HUD 
allow participating jurisdictions to establish rules in areas without 
applicable housing authorities preventing developments from using a 
housing authority's utility allowance.
    HUD Response: The Department thanks commenters for their review and 
is adopting the proposed language in Sec.  92.252(b) allowing 
participating jurisdictions to use the HUD Utility Schedule Model, the 
utility allowance established by the applicable local PHA, or other 
method approved by HUD for their maximum monthly utility allowances. 
HUD does not recommend or require any one of the three available 
options over any other--this is left up to the participating 
jurisdictions' discretion. If a utility model from a statewide entity 
that is funding a project is available, the participating jurisdiction 
may submit a request to HUD for use of that model in its project. 
Usually, there is at least one public housing authority serving a 
specific jurisdiction, whether it be a state, regional, county, or city 
public housing authority. The Department believes that the applicable 
local public housing authority will typically be the one that 
administers the project-based voucher assistance to the property, if 
the project contains project-based voucher units, or the public housing 
authority that the participating jurisdiction determines is most 
representative of the community where the project is located.
D. Request for Technical Assistance on Utility Allowance Requirements
    One commenter supported the inclusion of public housing authority 
utility allowance but stated that HUD should provide technical 
assistance to ensure allowances are updated in a timely manner.
    HUD Response: The Department provides technical assistance to 
public housing authorities and participating jurisdictions in a variety 
of areas, including utility allowances. The Department will examine 
further ways to ensure that utility allowances are updated in 
accordance with the applicable program regulations, including through 
additional guidance and engagement with participating jurisdictions and 
public housing authorities.
E. Align Utility Allowances With State LIHTC Requirements
    One commenter supported mirroring State agency requirements for 
utility allowance use on LIHTC properties.
    HUD Response: The Department is adopting the proposed language in 
Sec.  92.252(b) allowing participating jurisdictions to use the HUD 
Utility Schedule Model, the utility allowance established by the local 
PHA, or other method approved by HUD for their maximum monthly utility 
allowances. Which of the three methods the participating jurisdiction 
uses is up to the participating jurisdictions' discretion. State LIHTC 
requirements do not fall under HUD's purview. If a participating 
jurisdiction wishes to use a utility model from a statewide entity for 
its HOME project, the participating jurisdiction may submit a request 
to HUD for use of that model.
F. Opposition or Conflicted Beliefs on Applying PHA Utility Allowance
    Two commenters did not support permitting all HOME-assisted 
projects to use the local housing authority's utility allowance. The 
first commenter stated that using utility information specific to a 
property is in the best interests of all parties and suggested that HUD 
use gathered data to ensure that tenants will not be harmed with higher 
rents caused by less accurate utility allowances (in the case that the 
local housing authority's utility allowance be permitted for all HOME-
assisted projects). The second commenter supported no change to the 
current method, as HUD has generally expressed flexibility on the rule 
in the past, which the commenter found helpful when other funding 
sources have different utility allowances.
    One commenter was conflicted about whether aligning HOME-assisted 
units with PBVs and/or HUD-VASH Vouchers should apply universally to 
all HOME-assisted units, explaining that while public housing authority 
rates could be more cost- and time-effective for nonprofits, they are 
often higher than those found with individual analysis by a developer 
using the HUSM at the time of application.
    HUD Response: The Department appreciates the recommendations made 
by the commenters but believes that allowing participating 
jurisdictions to use the HUSM, the utility allowance established by the 
local PHA, or other method approved by HUD for their maximum monthly 
utility allowances provides participating jurisdictions with far more 
flexibility than was permitted prior to this change. With the ability 
to choose one of the three options presented, participating 
jurisdictions will be able to select a method that they have determined 
to be in the best interests of all parties, whether that is in regard 
to accuracy, time-, or cost-effectiveness. If the Department does not 
include the local public housing authority's utility allowance as one 
of the options, then each time that HOME assistance is combined with 
project-based vouchers or project-based VASH units, the Department will 
have to waive the utility allowance regulations in Sec.  92.252. This 
misalignment between HUD programs delays the provision of HOME 
assistance and projects, requires the Department to waive the 
regulation, and causes some owners and developers not to combine the 
two forms of assistance in the same project.
    Specific solicitation of comment #5: The Department specifically 
requests public comment from participating jurisdictions and program 
participants regarding the challenges they have encountered in using 
HOME funds to assist small-scale housing, as defined in this proposed 
rule. The Department also requests public comment regarding the costs 
and benefits of the changes that HUD is proposing for small-scale 
housing in requirements for the frequency of income determinations and 
inspections and the use of alternative waiting lists.
A. Support for Small-Scale Changes
    Several commenters supported the changes to monitoring compliance 
in

[[Page 825]]

small-scale housing projects. One commenter supported the lowering of 
barriers for small-scale rental properties through the proposed changes 
to Sec. Sec.  92.2, 92.251, 92.252, and 92.253. The commenter 
emphasized their belief that rural areas, as well as areas with limited 
buildable land, would greatly benefit from the same lowering of 
barriers, due to a dearth of CRA-driven investment, and economic 
challenges to new rental unit development in these communities. One 
commenter believed that small-scale housing provides a tremendous 
investment opportunity for production and preservation of affordable 
housing.
    Another commenter supported HUD's proposed changes and believes the 
benefits of reducing the burden for owners of small-scale housing 
outweigh the possible public benefit loss of reduced compliance 
requirements.
HUD Response: HUD thanks the commenters for their review of the HOME 
rule. HUD is moving forward with the small-scale flexibilities it 
proposed.
B. Support for Small-Scale Housing Inspection Requirements
    Several commenters supported a three-year property inspection for 
small-scale HOME-assisted projects. One commenter supported inspecting 
small-scale housing every three years instead of using a risk-based 
schedule for small-scale housing inspections. One commenter supported 
the proposal to allow participating jurisdictions to adopt customized 
inspection schedule for small-scale housing where health and safety 
deficiencies have been identified and corrected.
    One commenter stated that the streamlined inspection procedures for 
small-scale rental projects would not likely assist emerging 
developers, but would assist existing affordable housing developers 
acquire, rehabilitate, or build new small-scale units.
    HUD Response: HUD appreciates the commenter's review of the 
proposed rule. HUD is adopting the proposed rule language related to 
the frequency of physical inspections. HUD believes the flexibilities 
provided to small-scale housing owners will help all owners of small-
scale housing projects, whether they be emerging developers, homebuyers 
that purchase multi-unit structures and rent them as HOME rental 
housing units, or developers that have significant experience in the 
program already.
C. Objections to Small-Scale Housing Inspection Requirements
    One commenter objected to HUD's changes to property inspection 
requirements for small-scale rental housing. The commenter explained 
that small-scale projects already struggled to maintain compliance with 
physical condition requirements, that this was exacerbated by the 
pandemic and the shortage of qualified property managers in their 
State. The commenter believed that reducing the frequency of 
inspections will lead to the rapid deterioration of units and to 
ongoing compliance challenges.
    HUD Response: The Department appreciates the commenter's concern 
about inspections of physical condition for small-scale rental 
projects. The HOME program is a block grant program that permits 
participating jurisdictions to determine how best to design and 
administer their affordable housing programs, as long as they comply 
with the minimum requirements established in the HOME regulations. As a 
participating jurisdiction, the commenter has the flexibility to adopt 
inspections procedures for small-scale rental projects and other rental 
projects that are more frequent than required in the regulations. HUD 
is adopting the alternative inspection protocol for small-scale 
projects to help facilitate the use of HOME for small-scale rental 
housing. As a reminder, participating jurisdictions must also comply 
with all applicable Federal fair housing and civil rights requirements 
in the administration of their affordable housing programs in addition 
to the HOME regulations.
D. Support for Small-Scale Rental Housing Waiting List Requirements
    Several commenters supported the proposed changes to tenant 
selection procedures in small-scale rental housing. Commenters 
specifically supported permitting participating jurisdictions to 
establish policies to identify tenants when vacancies occur in small-
scale housing. One commenter believed that HUD's proposed update 
allowing participating jurisdictions to create alternative waiting list 
procedures would empower participating jurisdictions to create and 
enact policies aligned with their respective programs and more 
responsive to owner and tenant needs. One commenter stated that they 
support HUD's proposed changes to the alternative waiting list 
requirements because they would reduce the length of turnover of units 
from one renter to the next.
    HUD Response: HUD thanks the commenters for reviewing the rule and 
is adopting the alternative waiting list provision with a revision 
described below.
E. HUD Approval of Waiting List Requirements
    One commenter stated the requirement to get pre-written HUD 
approval of alternative procedures for a written waiting list for 
small-scale housing would hamper small-scale housing. The commenter 
recommended that HUD publish in a manner viewable by all participating 
jurisdictions and a list of previously approved alternative tenant 
selection procedures, as well as grant participating jurisdictions 
presumptive approval if they implement one of the previously approved 
methods for small-scale housing. Another commenter similarly requested 
clarification or examples of acceptable alternatives to written tenant 
waitlists.
    HUD Response: HUD thanks the commenter for reviewing the proposed 
rule. To reduce burden, the Department is removing the requirement that 
it approve a participating jurisdiction's alternative written waiting 
list and will provide further guidance on required and recommended 
elements of such plans. Such plans, among other obligations, must be 
nondiscriminatory and all tenant selection plans and waiting list 
procedures must comply with Federal fair housing and civil rights 
requirements. Participating jurisdictions' alternative waiting lists 
will be subject to compliance monitoring rather than prior approval.
F. Support for Reducing Income Examination Requirements
    Several commenters supported permitting streamlined or less 
frequent procedures for small-scale rental housing projects (one to 
four total units) for reexamination of annual income. One commenter 
supported the changes HUD made to reduce the burden but believed that 
HUD should make income recertifications more flexible.
    HUD Response: HUD believes that it is being as flexible as it can 
be with income recertifications. By moving to a triennial income 
recertification process for small-scale rental housing, the Department 
is balancing the need to examine income for families whose rents are 
income-dependent with the need to provide administrative relief to 
participating jurisdictions administering small-scale projects across 
their jurisdictions. HUD has provided additional flexibilities to 
expand safe harbors in income examinations and believes that the 
combination of these flexibilities is sufficient to address the 
commenters concerns. HUD will continue to review income examination 
policies in the future as the Department seeks to balance the need for 
accurate

[[Page 826]]

family income data with the burden of income reexamination placed on 
tenants, owners, and participating jurisdictions.
G. Eliminate Income Reexaminations in Small-Scale Rental Housing 
Projects
    One commenter suggested conducting income determinations only upon 
unit turnover to reduce administrative burden and impact on tenants. 
The commenter also suggested requiring that 100 percent of beneficiary 
households have incomes at or below 60 percent of area median income at 
initial lease up, which is what the City of Madison and State of 
Wisconsin require, to address concerns regarding benefitting households 
over 80 percent of area median income.
    HUD Response: The HOME statute at 42 U.S.C. 12756(b) and 42 U.S.C. 
12745(a) require that participating jurisdictions monitor owners for 
compliance with HOME requirements, including income examination 
requirements, and that rents be determined based upon income 
examinations. The commenter is proposing that tenants never be 
reexamined for income, similar to HOME's homeownership activities. This 
is not consistent with the HOME statute. 42 U.S.C. 12756(c) permits the 
Secretary to ``provide for such streamlined procedures for achieving 
the purposes of this section'' for small-scale or scattered site 
projects. The Department has determined that eliminating income 
reexamination requirements for tenants in small-scale rental housing is 
inconsistent with the HOME statute, which requires income 
reexaminations for all tenants in rental housing. Rents for over-income 
tenants have an income-based component and to ignore those requirements 
completely would not be achieving the purposes of the monitoring 
provisions of the Act.
H. Small-Scale Housing Projects Present Monitoring and Oversight 
Challenges
    One commenter was critical of the small-scale and scattered site 
housing models. The commenter said that the new rules would make it 
challenging to produce small-scale and scattered site housing. The 
commenter believed that enforcing the period of affordability and 
monitoring requirements on these owners causes additional 
administrative burden to participating jurisdictions. The commenter 
also thought that this was encouraging an inefficient use of scare 
program resources. The commenter encouraged HUD to review financial and 
commercial viability of the scattered site approach for housing 
fulfillment, given these concerns.
    Two commenters stated they were concerned about the small-scale 
housing inspections and monitoring because small-scale housing 
providers often have less oversight experience or ability. One of these 
commenters stated that this lack of experience may unintentionally 
decrease the frequency and quality of inspections.
    HUD Response: HUD thanks the commenters for reviewing the proposed 
rule. One commenter mistakenly believes that the small-scale housing 
requirements are new requirements imposed on participating 
jurisdictions. This is incorrect. The commenter also states that 
enforcing the period of affordability and monitoring small-scale 
projects are too burdensome for participating jurisdictions. Small-
scale housing has heretofore been subject to all HOME rental housing 
requirements; this final rule reduces this burden to make it easier to 
use HOME for these projects. The Department is adding these monitoring 
flexibilities for small-scale housing projects to better implement the 
Act, which authorized the Department to provide streamlined procedures 
for achieving the purposes of the Act as the Secretary determines to be 
appropriate.\59\ The Department believes that the drafters of the Act 
intended for small-scale housing projects, including scattered site 
projects, to be funded under HOME, and that it is best left to 
participating jurisdictions on whether to fund these types of projects.
---------------------------------------------------------------------------

    \59\ See 42 U.S.C. 12756(c).
---------------------------------------------------------------------------

    Other commenters who expressed concerns about the adequacy of 
monitoring and inspections under this proposal mistakenly assume that 
owners, not participating jurisdictions conduct physical inspections 
and monitoring. HUD is not changing the requirement that the 
participating jurisdiction engage in onsite monitoring and review of 
small-scale projects, it is just changing how this monitoring is 
performed to reduce the burden on participating jurisdictions and 
owners. HUD believes that this final rule appropriately balances burden 
reduction and compliance for small-scale housing projects.
I. Opposition to Changes to Small-Scale Housing
    One commenter believed that the small-scale changes were not 
helpful. The commenter was not supportive of using HOME funds for 
small-scale rental housing projects, believed that CDBG funding was 
more attractive because it entailed fewer requirements, and believed 
that owners of small-scale rental housing had no interest in complying 
with HOME requirements. In the commenter's experience, when the 
commenter did provide CDBG funds to owners of small-scale housing 
projects, it was difficult to obtain required documentation, including 
tenant rents, ethnicity, and income. The commenter also believed that 
the small-scale housing project requirements did not streamline 
requirements for the development small-scale housing but only improved 
how the ongoing requirements are monitored.
    Another commenter expressed concerns about enabling increased 
owner-occupied HOME-assisted rental unit creation, as the commenter's 
experience is that low-income homebuyers who are immediately made the 
owners of HOME-assisted rental units have a very high failure rate when 
it comes to compliance with HUD regulations. The commenter said that 
the administrative burden on such homeowners would still be too high 
even despite the lowering of barriers in this proposed rule and the 
commenter does not support a system that sets its neighbors up to fail. 
Further, the commenter said that a newly rehabilitated or constructed 
duplex or triplex would better serve their communities as either 
individual homeownership units or as properly administered affordable 
rental units.
    HUD Response: HUD thanks the commenters for reviewing the proposed 
rule. The Department understands that developing and managing small-
scale housing can be challenging. Despite these challenges, such 
housing can play an important role in meeting a community's affordable 
housing needs. HUD notes that NAHA provides it with authority to 
establish streamlined requirements with ongoing oversight and 
compliance of small-scale and scattered site projects, not with respect 
to the development of that housing. HUD recognizes that not all 
communities will decide to pursue small-scale housing due to the 
challenges and priorities cited by the commenters. However, the 
Department believes that burden relief is beneficial to participating 
jurisdictions that wish to pursue that strategy and that such revisions 
are in furtherance of the Act.
J. Small-Scale Housing Project Flexibilities Are Insufficient or Not 
Helpful
    One commenter supported HUD's changes but noted that leading 
challenges of applying HOME towards small-scale housing include high 
costs in providing gap financing in rural areas and a lack of training. 
The commenter

[[Page 827]]

encouraged HUD to create policies that are responsive to State and 
local conditions and empower participating jurisdictions to use HOME 
funds for targeted developments accordingly. The commenter noted that 
the use of property management firms may assist in managing small-scale 
rental housing.
    Another commenter said that the reduction or streamlining of 
regulatory requirements such as inspections and wait lists would make 
it more attractive to use HOME funding, but compliance would still 
remain more onerous than the commenter's city-funded program. The 
commenter explained that their city offers a rental rehabilitation loan 
program for properties with seven or fewer units where landlords are 
required only to preserve 50 percent of units for occupants earning at 
or less than 60 percent of area median income through a 10-year loan 
term; but that HOME's compliance requirements make it undesirable to 
utilize HOME for such programs.
    Another commenter urged HUD to consider how private market 
financing conflicts with HOME requirements, especially for condominium 
development which have early pre-sale requirements from Fannie Mae and 
Freddie Mac that conflict with HOME's requirement to recheck income 
after six months.
    HUD Response: HUD thanks the commenters for reviewing the proposed 
rule. As stated above, the Department understands that developing and 
managing small-scale housing can be challenging, as can oversight by 
participating jurisdictions and other funders. HUD did not propose 
these streamlining measures for small-scale rental housing because it 
believed that every jurisdiction would or should adopt this activity 
with its HOME funds. Rather, HUD's intent is to make small-scale 
housing easier to manage and oversee for owners and participating 
jurisdictions that choose to undertake it with HOME funds. With respect 
to the comments regarding conflicts between HOME requirements and 
Fannie Mae and Freddie Mac pre-sale programs, HUD notes that while a 
small-scale housing project can have a homeownership unit, the rest of 
the units in the project must be for rental. Therefore, the condominium 
purchase rules being described are likely not applicable. In any event, 
the Department has given exhaustive explanation earlier in this 
preamble about why it is declining to extend the amount of time that an 
income determination is valid when purchasing housing with HOME 
homeownership assistance.
K. Accessibility Requirements Are a Barrier to Small-Scale Housing 
Projects
    One commenter stated that the Uniform Federal Accessibility 
Standards (UFAS) requirements for small-scale housing have made it 
virtually impossible to fund small rehabilitation developments. The 
commenter supported more waivers or modified requirements for small 
rehabilitation developments.
    HUD Response: The Department thanks the commenter for reviewing the 
proposed rule. Section 504 of the Rehabilitation Act of 1973 (Section 
504), and HUD's implementing Section 504 regulation at 24 CFR part 8 
prohibit recipients from discriminating on the basis of disability. By 
definition, small-scale housing projects are single family housing 
consisting of no more than four units or scattered-site projects 
consisting of no more than four units. These projects do not meet the 
definition of multifamily housing subject to the requirements that a 
percentage of newly constructed or rehabilitated units be accessible to 
individuals with mobility impairments and an additional percentage of 
units be accessible to individuals with vision and hearing impairments 
in compliance with HUD's accessibility standards, (i.e., UFAS or HUD's 
Deeming Notice).
    A recipient must provide for reasonable accommodations that may be 
necessary for individuals with disabilities. A recipient's obligations 
under Section 504 cannot be waived. Such requirements ensure that 
individuals with disabilities are able to participate in, and are not 
denied the benefits of, such programs or activities. As a reminder, 
recipients may also be subject to additional accessibility requirements 
under the Fair Housing Act, and title II of the Americans with 
Disabilities Act (ADA).
L. Request To Reduce Environmental Review Requirements for Small-Scale 
Housing Projects--HUD Should Change Environmental Review Requirements 
for Small-Scale Projects
    One commenter suggested that, to lower the cost of the production 
of affordable housing and encourage more supply while still protecting 
the environment, HUD should change its regulations governing the three 
project/activity types in this paragraph. They are currently governed 
under 24 CFR 58.35(a) but should be governed under 24 CFR 58.35(b). The 
commenter stated that this change would still ensure that reasonable 
impacts were examined before project commencement, while lowering the 
burdens and costs to re-entering dilapidated housing stock back onto 
the market. The commenter also supported retaining limited historic 
preservation protections, explaining that such limited protections 
would reduce the delays incumbent in current historic preservation 
compliance, while retaining State Historic Preservation Officer 
notification. The commenter suggested that flexibility for waiting 
periods to run concurrently with participating jurisdictions and HUD 
review should be explored.
    The commenter stated that to lower the cost of the production of 
affordable housing and encourage more supply while still protecting the 
environment, HUD should expand the scale of projects that can qualify 
as categorically excluded. The commenter reasoned that increasing the 
current categorical exclusion to individual actions on between 5 and 15 
scattered site dwelling units or housing units will lower costs, 
burdens, and speed the delivery of units, while still examining all 
environmental impacts.
    Lastly, the commenter recommended that HUD should use this existing 
authority to include HOME funds deployed for small (one-four unit) 
residential projects via nonprofit affordable housing developers as an 
exception criterion35. The commenter explained that this would allow 
the nonprofits to work with their local governments, who act as the 
responsible entity, for speedier resolutions of all existing 
environmental review processes.
    HUD Response: HUD appreciates the commenter's suggestions related 
to streamlining the environmental review procedures at 24 CFR part 58. 
However, the authority granted to HUD at 42 U.S.C. Sec.  12756 to 
establish streamlined procedures for small-scale and scattered site 
housing extends only to monitoring of such housing after project 
completion. The commenter's suggestions relate to project development 
rather than ongoing compliance and thus are outside the scope of this 
rulemaking. Moreover, the Department did not propose making any 
revisions to environmental review requirements for HOME projects in the 
proposed rule and believes that such changes are also beyond the scope 
of this rulemaking.
M. Other Comments in Solicitation--Create New Eligible Activity for 
Inspections
    One commenter stated that participating jurisdictions stated that 
the need to regularly inspect all units in small-scale housing every 
three years is a major expense. The commenter

[[Page 828]]

recommended that HUD allow participating jurisdictions to create an 
IDIS activity called ``HOME Inspections'' that would enable inspection 
costs to be charged to that activity and not count the on-site 
inspection expenses as a part of HOME administration. The commenter 
recommended that the planning and preparation for the HOME inspections 
be counted as an administrative cost while the actual site inspection 
costs would be counted as activity delivery expenses.
    HUD Response: The Department appreciates the comment. However, the 
HOME statute The Act does not permit HUD to establish new activities in 
IDIS for the types of ongoing administrative costs described by the 
commenter. See 42 U.S.C. 12742. During the HOME period of 
affordability, the participating jurisdiction may charge the cost of 
periodic inspections to HOME administration in accordance with Sec.  
92.207, or the participating jurisdiction may charge a reasonable 
monitoring fee to the project owner in accordance with Sec.  
92.214(b)(1)(i).
N. Other Comments in Solicitation--Opposition to Financial Oversight 
Requirements
    One commenter believed that the current financial oversight 
requirements are inadequate and that not performing financial oversight 
on small-scale rental housing ignores an invaluable tool in 
understanding how properties are performing. The commenter believed 
that such oversight detects signs of financial distress or over 
subsidization and assists in the rent setting process and other 
processes involved in LIHTC, HOME, HTF, and local resources.
    HUD Response: Though it does apply to small-scale housing, the 10-
unit threshold for performing financial oversight that the commenter is 
objecting to is not a small-scale housing flexibility. This is a 
provision within Sec.  92.504(d)(2) that is being moved to Sec.  
92.251(f). Please see HUD's response above on financial oversight for 
the HOME program for why HUD is declining to reduce the 10-unit 
threshold.

Sec.  92.253--Tenant Protections and Selection

A. General Comments on Requiring a Tenancy Addendum in Sec.  92.253(a)
    Commenters supported the tenant addendum changes. One commenter 
stated that outlining the required elements of the HOME lease addendum 
in the affirmative is much more effective and provides clarity for all 
parties. Some commenters expressed broad support for the proposed 
expansion of tenant rights and protections provisions. Another 
commenter supported HUD's proposed changes to Sec.  92.253(a)-(b) and 
the proposed addition of paragraph (c), which the commenter stated 
would simplify TBRA and improve TBRA for tenants, landlords, and 
participating jurisdictions.
    Another commenter strongly supported the proposed requirement of a 
HOME lease addendum. The commenter suggested that HUD should consider 
providing additional means of enforcement. For example, the commenter 
suggested that tenants should have the right to access a grievance 
procedure, which would permit tenants to request an information 
conference with the owner when their rights are violated. The commenter 
further suggested that tenants should be able to appeal the owner's 
decision to the participating jurisdiction, and they should also have 
an explicit avenue to bring a complaint to HUD.
    One commenter requested that HUD develop a HOME addendum template 
that contains all of the HOME program requirements in a single 
addendum. Another commenter supported the tenancy addendum requirement 
but stated that it should not be a requirement until there is a HUD 
HOME tenancy addendum that can be used on all rental housing projects.
    One commenter generally opposed the proposed tenant protections to 
the HOME program. The commenter explained that apartment owners and 
managers already are subject to a myriad of tenant protection and fair 
housing statutes, regulations, administrative policies, and case law 
from all levels of government. The commenter further explained that 
this existing framework provides balanced protections for both tenants 
and landlords. Specifically, the commenter points out that the proposed 
mandatory HOME lease addendum would impose a set of one-size-fits-all 
tenant protections for HOME-assisted rental housing and HOME tenant-
based rental assistance (TBRA) recipients.
    One commenter preferred that lease addendum and protections be left 
to State landlord-tenant law but did not strongly oppose the use of a 
Federal addendum for purposes of consistency and reducing participating 
jurisdiction burden. Another commenter stated that HUD should not 
engage in tenant protection rulemaking because State and local 
regulations are sufficient.
    One commenter stated that tenant protections will increase a 
tenant's ability to locate and sustain units that are affordable and 
that tenant protections should be included in a tenant's lease 
agreement. However, that commenter was also concerned that since the 
HOME funds they used made up a small percentage of the total cost of 
the project and resulted in a limited number of HOME-assisted units 
(usually 5-10), a HOME-specific lease addendum would be impractical to 
implement.
    One commenter supported the proposal (under Sec.  92.253(a)) to 
require owners to attach VAWA and HOME addenda to the lease, as this 
would help ensure that owners, tenants, and eviction court judges 
clearly understand tenant rights and owner obligations. However, this 
commenter suggested simplifying the addendum by drafting an addendum 
that cites to HOME regulations for additional detail.
    HUD Response: HUD appreciates the comments and is moving forward 
with requiring a HOME tenancy addendum for rental housing, tenant-based 
rental assistance, and security deposit assistance only. The Act states 
that the lease between a tenant and owner of HOME-assisted rental 
housing and HOME tenant-based rental assistance ``shall contain such 
terms and conditions as the Secretary shall determine to be 
appropriate.'' (42 U.S.C. 12755(a)). HUD has determined that Congress 
intended that HUD use the terms and conditions of the lease to provide 
tenant protections in the HOME program. Instead of requiring a standard 
form lease or prohibiting terms contained in an owner's lease, HUD 
believes that creating HOME tenancy addenda for rental housing, tenant-
based rental assistance, and security deposit assistance is the best 
way to enforce reasonable tenant protections in a consistent manner 
while reducing participating jurisdiction burden.
    HUD's HOME tenancy addenda will include the tenant protections 
listed in the HOME regulations. HUD maintains that the tenant 
protections it is including in the HOME tenancy addenda represent a 
minimum standard that is based in a thorough analysis of Federal, 
State, and local laws. Before proposing these protections, HUD examined 
State and local landlord-tenant laws and protections and the 
requirements of other Federal programs that serve the same tenants and 
are frequently combined with the HOME program (such as the Section 8 
programs). Through this analysis and comment from the public, HUD is 
confident that the inclusion of the tenant protections contained in the 
HOME tenancy addenda are consistent with the intent of the drafters of 
the Act.
    The Department understands some commenters' desire to formalize a

[[Page 829]]

grievance process and an appeal right to HUD. However, the Act does not 
require participating jurisdictions to establish a grievance process or 
for HUD to establish a right to appeal to the Department. Participating 
jurisdictions must determine their own systems for assessing risk and 
methods for enforcing compliance with the requirements of 24 CFR part 
92.
    The Department also recognizes that some commenters have 
significant concerns about the one-size-fits-all nature of tenancy 
addenda and the potential for adding new HOME tenant protections to 
other Federal, State, and local requirements. The Department did its 
best to address the commenters' concerns by aligning certain tenant 
protection provisions with other Federal programs (most notably the 
Section 8 programs) and tailoring each tenancy addendum to the type of 
HOME program (i.e., rental housing, tenant-based rental assistance, 
security deposit assistance only).
    In response to commenters that stated that the Department should 
not require tenant protections for HOME because the HOME funding may 
only be a small portion of the overall financing or fund only a few 
housing units, the Department understands the concerns, but this does 
not diminish the need to guarantee tenants of HOME rental housing 
projects a baseline level of tenant protections, as intended under the 
Act. Some participating jurisdictions provide HOME funds to projects 
that require only a small amount of funding to move forward. Others 
provide much more significant amount of funding and fund much larger 
HOME projects. Tenants should receive the same protections regardless 
of the decisions made by the participating jurisdiction on how much 
funding to provide to a particular rental housing project. The Act did 
not specify that tenant protections were to be based upon the level of 
HOME funds and the Department is declining to draw such distinctions or 
only require a reduced set of protections for HOME simply because some 
participating jurisdictions may use HOME funds to fund fewer units in 
larger rental projects.
    The Department considered one commenter's request that the HOME 
tenancy addenda should cite to the appropriate regulations and be as 
simple as possible. However, the Department intends to create tenancy 
addenda that do not require a tenant or owner to look up HUD 
regulations in order to know what they are agreeing to and shall 
provide a standalone tenancy addendum for HOME rental housing, tenant-
based rental assistance, and security deposit assistance only.
B. Requiring a Tenancy Addendum Under Sec.  92.253(a) Violates the 
Rights of Housing Project Owners
    Commenters said that the rule infringes on property rights by 
circumventing the established legal process for eviction, denying 
housing providers due process rights, and creating an imbalance in 
tenant-landlord relations by making nonpayment of rent a protected 
class. Commenters also called on HUD to be fair and not overreach.
    HUD Response: The Act states that the lease between a tenant and 
owner of HOME-assisted rental housing and HOME tenant-based rental 
assistance ``shall contain such terms and conditions as the Secretary 
shall determine to be appropriate.'' (42 U.S.C. 12755(a)). HUD has 
determined that this is a Congressional delegation of authority to the 
Secretary and provides the Secretary with the discretion to determine 
the appropriate lease terms for tenants living in HOME-assisted rental 
units. Owners accept HOME assistance in the development of their rental 
housing projects with the knowledge that they do so subject to Federal 
laws and regulations. This includes the prohibited lease terms and the 
current termination of tenancy and refusal to renew provisions that are 
currently listed in Sec.  92.253. HUD is updating these protections but 
will not, and does not have legal authority to, circumvent State or 
local eviction processes, alter any due process rights of owners under 
State or local law, or define any new protected classes.
    In recognition of the concerns that the commenter raises, the 
Department is requiring that the new and revised tenant protections 
only apply prospectively (See Sec.  92.3). This will allow owners of 
HOME rental housing to knowingly agree to the new tenant protections 
before accepting the HOME funds for a project. This will allow the same 
for owners entering into a rental assistance contract with 
participating jurisdictions. The Department believes that this 
meaningfully addresses any legal concerns that the commenter had, even 
though the Department disagrees with the assertion that imposing such 
protections upon existing owners would violate their rights.
C. Requirement To Provide the Participating Jurisdiction With a Copy of 
the Lease in Sec.  92.253(a)
    One commenter stated that the components in the rule related to 
lease contents are generally reasonable, but that the requirement that 
the owner provide the participating jurisdiction with a copy of the 
written lease before it is executed and once revised is unclear and 
potentially troublesome. The commenter recommended that HUD reconsider 
this requirement because it could be burdensome and lack an 
understandable review process. The commenter noted that if HUD 
proceeded with the requirements, to avoid significant confusion and 
delays, HUD should clarify that a participating jurisdiction would not 
be required to review or approve individual leases and that a model 
lease would be sufficient.
    HUD Response: HUD is adding the requirement to Sec.  92.253(a) that 
owners must provide the participating jurisdiction with a copy of the 
written lease to allow the participating jurisdiction to verify that 
the lease complies with the requirements in Sec.  92.253, including 
that it includes the applicable HOME tenancy addendum. This should not 
be disruptive for participating jurisdictions or owners. HUD is not 
changing its requirement that each lease comply with the requirements 
in Sec.  92.253 (See Sec.  92.252 (rental housing) and Sec.  92.209 
(TBRA)). Section 92.504(a) already requires participating jurisdictions 
to have and follow written policies, procedures, and systems, including 
a system for assessing risk of activities and projects and a system for 
monitoring entities consistent with 24 CFR part 92 to ensure that the 
HOME requirements are met, including lease requirements. Also 
unchanged, Sec.  92.508(a)(3)(ix) requires the participating 
jurisdiction to maintain records demonstrating that each lease complies 
with HUD requirements. A participating jurisdiction is therefore 
already required to determine that each lease complies with HOME 
requirements and maintain project records proving that the leases are 
compliant. HUD is adding the requirement that the owner provide the 
participating jurisdiction with the lease in advance to allow a 
participating jurisdiction to review under their procedures before any 
potential noncompliant leases are executed.
D. Methods of Communication in Sec.  92.253(a)
    Commenters expressed strong support for the requirements to provide 
essential information to tenants, including those in proposed Sec.  
92.253(a) regarding (1) accessible means to contact owners, managers, 
and participating jurisdictions; (2) accessible notice specifying the 
grounds for any adverse action; and (3) that owners provide 30 days 
advance notice of an impending

[[Page 830]]

sale or foreclosure of the property. A commenter explained that these 
are important for maintaining decent, safe, and sanitary conditions in 
assisted housing; allowing tenants to clear misunderstandings and 
giving them information needed to challenge adverse actions and avoid 
unjust outcomes; and allowing tenants to prepare for possible 
disruptions. However, the commenter stated that without an enforcement 
mechanism, the requirements will be meaningless and the burden for 
enforcement will fall on individual tenants. The commenter suggested 
that for (1) and (2), HUD should require participating jurisdictions to 
develop and publish an enforcement mechanism. For (3), the commenter 
suggested that HUD's rulemaking should specify that no adverse action 
shall become effective unless such notice has been provided. Another 
commenter supported the HOME lease addendum but suggested that HUD 
simplify the addendum to make it more user friendly.
    One commenter recommended deleting the requirement in Sec.  
92.253(a)(2) that leases include the participating jurisdiction's 
contact information to avoid tenants calling participating 
jurisdictions. If HUD keeps the requirement the commenter recommended 
moving it to a new Sec.  92.253(b)(8) so that contact information would 
be included in the HOME tenancy addendum. Another commenter supported 
the requirement for tenant leases to contain more than one method to 
communicate directly with the owner or property manager but stated that 
as a participating jurisdiction, it does not feel that review prior to 
lease execution or revision is necessary. Additionally, owners must 
ensure effective communication with persons with disabilities, 
including, for example those with hearing, visual, speech, or 
disabilities consistent with Section 504 and the ADA, as applicable.
    HUD Response: The Department is moving forward with the changes and 
will require that contact information be provided in the lease. The 
Department is not embedding this requirement in the tenancy addenda 
regulations in Sec.  92.253(b)-(d) but will include an area in the HOME 
rental housing tenancy addendum and the HOME tenant-based rental 
assistance tenancy addendum for this information to be added. By 
building this information into the addendum, it should reduce the need 
to create an enforcement mechanism. However, there are other 
enforcement mechanisms in Sec.  92.504. The Department is committed to 
ensuring that the tenancy addenda are user-friendly. The Department 
also recognizes the commenter's concern that no adverse action should 
occur for a tenant until the notice in the proposed rule's paragraph 
(a)(3) had been provided. The Department would like to clarify that the 
proposed rule paragraph (a)(3) was the requirement that a VAWA addendum 
be added and not the requirement that notice be provided of VAWA 
protections. The notice the commenter is describing is required under 
Sec.  92.359(c) and is unchanged by this rulemaking.
    The Department has noted the concerns of participating 
jurisdictions and owners who do not believe that it is appropriate to 
provide contact information but strongly disagrees. When tenants have 
clear ways to communicate with the participating jurisdiction that is 
monitoring the HOME rental housing owner or that is assisting them with 
tenant-based rental assistance, it empowers them to be able to assert 
their rights or protections, and better enables participating 
jurisdictions to learn about potential compliance problems.
E. General Support for Changes to HOME Tenancy Addendum Physical 
Condition Requirements in Sec.  92.253(b) Description of Tenancy 
Addendum Contents
    One commenter supported HUD's proposed changes requiring owners to 
provide tenants with the expected timeframe for maintenance and/or 
repair work, prohibiting owners from charging tenants for normal wear 
and tear, and requiring owners to prompt relocate tenants to decent, 
safe, and sanitary housing, or to suitable lodging when there is a 
life-threatening deficiency that can't be repaired the same day--at no 
cost to the tenant.
    HUD Response: The Department thanks the commenter for their support 
of the proposed changes. The Department agrees and believes that these 
changes will promote a better, safer environment for tenants and will 
enable them to live in units that meet property standards. Tenants must 
not be exposed to life-threatening deficiencies. Where such 
deficiencies are present, they should be corrected by owners 
expeditiously and with as few disruptions to the family as possible. 
Requiring owners to provide alternative suitable units until such 
repairs are made is a strong incentive to repair life-threatening 
deficiencies quickly and comprehensively to avoid future disruption and 
expense. Notwithstanding the foregoing, the Department believes this 
requirement is only acceptable where the participating jurisdiction has 
provided the owner with HOME assistance in the acquisition or 
development of the project and therefore is not applying the 
requirement to owners whose units are occupied by tenants with tenant-
based rental assistance. This is because the requirement could have the 
potential to chill participation from private landlords whose only 
assistance is the rental assistance received from the participating 
jurisdiction on behalf of the tenant.
F. Unit Maintenance and Repair in Sec.  92.253(b) Description of 
Tenancy Addendum Contents
    One commenter suggested that HUD should require that the owner 
``provide expected time frames for maintaining or repairing units'' in 
writing in Sec.  92.253(b)(1)(ii)(A). The commenter explained that this 
encourages transparency between the owner and tenant and provides the 
tenant with the information needed to hold owners accountable in case 
of delayed maintenance.
    HUD Response: The Department thanks the commenter for reviewing the 
proposed rule. HUD agrees with the commenter that the owner must 
provide written notice to a tenant of the expected timeframes for 
maintaining or repairing a HOME-assisted unit. HUD is revising Sec.  
92.253(b)(1)(A) to incorporate this change. HUD is also adding similar 
language to the HOME tenant-based rental assistance tenancy addendum in 
Sec.  92.253(c)(1)(A).
G. Unit Damage and Charges in Sec.  92.253(b) Description of Tenancy 
Addendum Contents
    One commenter recommended, for HUD's proposed regulatory text in 
Sec.  92.253(b)(1)(ii)(C), that HUD provide text enabling a tenant to 
bring a challenge to the participating jurisdiction regarding any 
charges the tenant believes are unwarranted and requested sub-
regulatory guidance regarding such proceedings.
    HUD Response: The Department appreciates the comment but is moving 
forward without the commenter's proposed change. A participating 
jurisdiction is not responsible for litigating disputes between tenants 
and owners for charges a tenant may feel are unwarranted. However, the 
participating jurisdiction is required to monitor and enforce the 
requirements of 24 CFR part 92, including the tenant protections 
requirements. The Department defers to participating jurisdictions in 
determining the best method for enforcing the tenant protections 
requirements. While some

[[Page 831]]

participating jurisdictions may establish or use existing grievance 
procedures, there may be others that take a more targeted or risk-based 
monitoring and enforcement approach.
H. Temporarily Moving Tenants Due to Emergencies on the Property in 
Sec.  92.253(b) Description of Tenancy Addendum Contents
    One commenter supported HUD's proposal in Sec.  92.253(b)(1)(iii) 
to require owners to temporarily relocate tenants, at the owner's 
expense, in the situations involving a life-threatening emergency 
because this clarifies owners' existing duty to provide decent, safe, 
and sanitary housing for tenants. The commenter expressed concern that 
``life'' was too high a bar to achieve HUD's purpose for the change 
stated in the preamble of the proposed rule, ``to prevent HOME tenants 
from remaining in housing that poses a threat to their physical safety 
and from being subjected to additional costs as a result of physical 
housing conditions outside their control.'' The commenter explained 
that many housing conditions pose serious but not life-threatening 
threats to occupants' physical safety, including mold, infestation, and 
lead-based paint. The commenter also noted that occupants remaining in 
the home during remediation of emergencies or adverse conditions may 
not be safe. The commenter suggested extending the relocation 
requirement to cover all conditions and repair activities that ``pose a 
threat to the health and safety of the tenant household.'' Another 
commenter stated that the requirement that owners temporarily relocate 
tenants at the owner's expense should apply to all conditions that pose 
an immediate threat to the health and safety of the tenant household.
    One commenter recommended that HUD should modify the standard at 
which an owner must relocate a tenant in Sec.  92.253(b)(1)(iii) to 
reflect more commonly used standards. Specifically, HUD should require 
that an owner relocate the tenant when ``maintenance or repairs are 
necessary to ensure the habitability of the housing unit''--rather than 
when the unit's physical condition creates ``a life-threatening 
deficiency.''
    HUD Response: HUD thanks the commenters for reviewing the proposed 
rule but disagrees that HUD should adopt a different standard for 
relocating tenants in the case of physical deficiencies in the unit. 
The proposed language in Sec.  92.253(b)(1)(iii) seeks to prevent HOME 
tenants from remaining in units that pose a threat to their physical 
safety if a life-threatening deficiency cannot be corrected on the day 
the deficiency is identified. This provides a strong incentive to fix 
immediate, life-threatening problems with the unit. Requiring project 
owners to relocate tenants for health and safety deficiencies that are 
severe but not life-threatening, especially when those deficiencies 
could be corrected in a reasonable time frame without posing a life-
threatening risk to the tenant, may impose too significant of a 
financial burden on project owners or deter participation in the HOME 
program. HUD is moving forward with its proposed change. Participating 
jurisdictions are always capable of requiring more stringent 
requirements through their written agreements, but the Department 
believes that the minimum requirement must prevent families from living 
in units with life-threatening deficiencies.
I. Owner Requests for Access to Unit Under Sec.  92.253(b) Description 
of Tenancy Addendum Contents
    One commenter supported the new tenant protections except for the 
notice to enter requirement which it believed should be 24 hours, not 2 
days. The commenter stated that 2 days' notice to enter is longer than 
what many States and HUD programs require and that it may be too long 
in non-emergency situations where time is still of the essence. One 
commenter suggested that HUD should strengthen the written statement 
requirement in Sec.  92.253(b)(2)(iii)(A) by requiring the written 
statement to include the date and time, as well as the purpose of the 
owner's entry. The commenter further suggested that HUD should require 
that the owner deliver the written statement to the tenant, not simply 
the ``dwelling unit,'' to ensure that the tenant actually received the 
statement. The commenter stated that it would also encourage 
accountability and transparency on the owner's behalf.
    One commenter supported HUD's proposed changes requiring at least 
two days' notice before entering a tenant's unit for normal business, 
but anytime without advanced notice if there is a reasonable belief 
that there is an emergency.
    One commenter suggested that for emergency entries in Sec.  
92.253(b)(2)(iii)(B), HUD should require that the owner provide the 
tenant with a notice similar to the notice required in Sec.  
92.253(b)(2)(iii)(C).
    HUD Response: The Department thanks the commenters for reviewing 
the proposed rule. HUD disagrees with commenters that feel that 
providing the owner providing the tenant with 2 days' notice prior to 
entry is too long. This is a commercially reasonable time period in 
much of the country and a best practice in many jurisdictions already. 
The Department also believes that 2 days' notice provides tenants with 
ample time to arrange to be present for the repairs and make other 
arrangements, such as childcare. In non-emergency situations, owners 
should be able to appropriately plan to notify a tenant 48 hours before 
repairs or maintenance.
    HUD is requiring owners to provide the tenant a written statement 
specifying the date, time, and purpose of entry when the tenant is not 
present in the unit but declines to require this notice under all 
circumstances. This notice is not always necessary, especially if the 
original notice was already delivered and the tenant is present in the 
unit when the owner or their agent enters the unit to perform the 
repairs. The Department does agree that a project owner that enters a 
unit in the case of emergency should provide the tenant with a written 
notice of entry upon entering the unit. HUD is revising Sec.  
92.253(b)(2)(iii)(C) to require an owner to provide the tenant a 
written statement specifying the date, time, and purpose of entry after 
entering the unit in the case of emergency. HUD is also adding similar 
language to the HOME tenant-based rental assistance tenancy addendum in 
Sec.  92.253(c)(2)(iii)(2).
    HUD disagrees that an owner should be required to serve notice 
directly to the tenant instead of to the unit. Requiring an owner to 
locate a tenant to serve notice of entry to the unit is not customary 
and could cause undue delays to project owners attempting to perform 
emergency repairs.
J. Reasonable Use of Common Areas in Sec.  92.253(b) Description of 
Tenancy Addendum Contents
    One commenter supported HUD's proposal to require HOME-assisted 
tenants to have reasonable access to, and use of, common areas and to 
prohibit having separate elevators or amenities that are only available 
to non-assisted tenants, which furthers HUD's commitment to fair 
housing and equity.
    HUD Response: The Department thanks the commenter for reviewing the 
proposed rule and is moving forward with the proposed change.
K. Right To Organize in Sec.  92.253(b) Description of Tenancy Addendum 
Contents
    Commenters supported HUD's proposal in Sec.  92.253(b)(2)(v) to 
explicitly state that tenants have the right to organize, create tenant 
associations, convene meetings, and

[[Page 832]]

conduct other similar actions. Two commenters suggested HUD issue 
guidance mirroring the details of 24 CFR part 245 for clarity and 
consistency. One of those commenters urged HUD to explicitly state that 
the rights are further elaborated in sub-regulatory guidance. One 
commenter recommended elaborating on the tenant's protected organizing 
activities in Sec.  92.253(b)(2)(v). In addition to the rights under 
the proposed rule, the commenter suggested that tenants should have the 
right to provide building access to outside tenant organizers, conduct 
door-to-door surveys of tenants' interest in establishing a tenant 
organization and/or offer information about tenant organizations, and 
distribute leaflets in lobby areas, other common areas, or under 
tenants' doors.
    HUD Response: The Department believes that the final rule's right 
to organize language sufficiently protects tenants and declines to 
implement 24 CFR part 245 for HOME tenants. The 24 CFR part 245 
protections apply to only a few programs and were not part of HUD's 
proposed rule. The Department does not believe it is appropriate to add 
these requirements and the level of detail in 24 CFR part 245 into the 
tenancy addenda for either HOME rental housing or tenant-based rental 
assistance. The Department will consider providing additional guidance 
and best practices based on the lessons learned from implementing 24 
CFR part 245 requirements in the future but will not revise the 
regulation to refer to outside guidance.
L. Notice of Adverse Action in Sec.  92.253(b) Description of Tenancy 
Addendum Contents
    One commenter supported the proposed requirement for owners to 
provide written notice to tenants for any adverse actions. Another 
commenter recommended that the notice required prior to an owner 
carrying out an adverse action in Sec.  92.253(b)(3)(i) specify that 
the notice be two-weeks advanced notice. The commenter also recommended 
that the final rule provide for a tenant's ability to bring to the 
participating jurisdiction a challenge of any adverse action the tenant 
believes is unwarranted and requested sub-regulatory guidance for such 
proceedings.
    HUD Response: The Department appreciates the comments. HUD agrees 
that a tenant should be notified in writing of an adverse action prior 
to the adverse action taking effect. Consequently, HUD is revising 
Sec.  92.253(b)(3)(i) to state that before an owner may take an adverse 
action against a tenant, the tenant must be notified in writing. HUD is 
also adding similar language to the HOME tenant-based rental assistance 
tenancy addendum in Sec.  92.253(c)(3)(i).
    The Department disagrees with the commenter that two weeks' notice 
should be required prior to any adverse action. This time period is too 
long, especially when the adverse action is one that may require more 
immediate correction. HUD also disagrees that the participating 
jurisdiction must have a formal process for adjudicating any tenant 
challenges to an owner's adverse action. NAHA does not require a 
grievance progress for participating jurisdictions to settle disputes 
between tenants and owners. Participating jurisdictions must determine 
what is best for monitoring and enforcing compliance with the new 
tenant protections requirements. Some may wish to establish grievance 
procedures, while others may choose to perform risk-based monitoring or 
take other preventative measures to address landlord-tenant disputes in 
their HOME programs.
M. Take Into Account Income and Medical Expenses Before Imposing 
Adverse Actions in Paragraph Description of Tenancy Addendum Contents
    A commenter suggested that for tenants whose income and medical 
expenses were high, the expenses (including rent, fines, or damage) 
should be prorated based on benefit income, taking into account medical 
spend downs. The commenter believed that this would reduce the number 
of people that would have to choose between paying housing expenses or 
paying healthcare expenses.
    HUD Response: The Department thanks the commenter for reviewing the 
proposed rule. Requiring project owners to request and review a 
tenant's medical expenses to determine a prorated fine or other damage 
prior to taking an adverse action would be unduly burdensome for 
project owners and may conflict with other statutes such as the Health 
Insurance Portability and Accountability Act (Pub. L. 104-191). The Act 
also does not permit HUD to impose this type of requirement, as it was 
never contemplated. For families receiving tenant-based rental 
assistance, families living in Low HOME rent units where their rental 
payment is based upon 30 percent of their adjusted income, or families 
receiving rental assistance or living in a subsidized rental unit under 
another program that calculates adjusted income, the adjusted income 
calculation will consider health and medical expenses as a deduction 
from annual income (see 24 CFR 92.203(f)). Moreover, participating 
jurisdictions that administer a tenant-based rental assistance program 
may also wish to establish hardship policies as now permitted in Sec.  
92.209(h)(2). A TBRA family receiving a hardship would be provided an 
exception to the requirement that the family contribute a minimum 
amount of rent which would alleviate some of the financial burden on 
the family. As a reminder, participating jurisdictions must also 
provide reasonable accommodations that may be necessary for individuals 
with disabilities in accordance with Section 504, the Fair Housing Act, 
and the ADA, as applicable.
N. Notice of Intent To Sell Property or Foreclosure of Property in 
Description of Tenancy Addendum Contents
    One commenter supported the proposed requirement for owners to 
provide written notice to tenants within 5 business days of any change 
in ownership (including foreclosure) and at least 30 days' notice 
before a sale or foreclosure. One commenter also supported the delivery 
of a 5-day notice for ownership or management company change.
    Commenters asked HUD to amend Sec.  92.253(b)(3)(ii) to require an 
owner to provide a 60-day notice of intent to sell property or 
foreclosure of property. The commenters stated that 60 days' notice was 
appropriate given the burdens of finding new housing and moving.
    HUD Response: The Department thanks the commenters for reviewing 
the proposed rule. HUD agrees with the commenter that tenants should be 
notified of a change in the property management company and is revising 
Sec.  92.253(b)(3)(ii) and Sec.  92.253(c)(3)(ii) to require the 
property owner to notify tenants within 5 days of any change to the 
property management company managing the property. Property management 
staff are often the face of the owner and have the most communication 
with tenants. Adding a requirement that tenants be notified if the 
management company changes is prudent to prevent disruption to families 
and ensures clear lines of communication between tenants and an owner's 
representatives at all times. HUD is moving forward with the proposed 
change to require 30 days' notice prior to an impending sale or 
foreclosure of the property.
    The Department believes that 60 days' notice may be too long and 
may not always be reasonable or possible. The Department would note 
that when there is a change in ownership in HOME

[[Page 833]]

rental housing during the period of affordability that is not due to 
foreclosure, the owner takes the property subject to all the 
requirements of 24 CFR part 92. Therefore, the change in ownership may 
not always result in an immediate move from the property or disruption 
to tenants. The Department understands the concern may be greater for 
tenant-based rental assistance and is noting that HUD's requirement is 
a minimum standard, and participating jurisdictions can always require 
more advance notice of a potential sale or foreclosure in rental 
assistance contracts or written agreements with owners of rental 
housing projects, especially if those participating jurisdictions wish 
to exercise any rights to preserve the affordability of the rental 
housing project.
O. Act or Failure To Act in Description of Tenancy Addendum Contents
    A commenter suggested that HUD add clarifying language to Sec.  
92.253(b)(4)(iii) specifying that the liability for action or failure 
to act is only in connection with the lease. The commenter suggested 
revisions to HUD's proposed language, ``(iii) The tenant may hold the 
owner or the owner's agents legally responsible for any action or 
failure to act in connection with the lease, whether intentional or 
negligent.''
    HUD Response: The Department considered the commenter's 
recommendation but disagrees with the commenter. The prohibited lease 
term upon which this is based was one that prohibited excusing an owner 
from responsibility and was written to apply to owners broadly. It 
prohibited the tenant from agreeing not to hold owners responsible for 
any action or failure to act. The Department understands that not every 
adverse action that an owner can take against a tenant or household 
relates to the lease. For instance, retaliatory acts may not be acts 
that are entirely born from or related to the lease; they may be 
personal in nature. Narrowing potential liability to only matters 
pertaining to the lease could create a gap in protections that could be 
exploited by unscrupulous owners who could claim that the negative 
actions were related to personal matters and not the lease.
P. Retaliation and Unreasonable Interference With the Tenant's Comfort, 
Safety, or Enjoyment of the Tenant's Housing Unit in Sec.  92.253(b) 
Description of Tenancy Addendum Contents
    One commenter supported the addition of anti-retaliation provisions 
in Sec.  92.253. Another commenter supported the addition of specific 
language to the regulations prohibiting owners from retaliating against 
tenants who exercise their rights, by decreasing services, interfering 
with a tenant's right to privacy, and/or harassing households or their 
guests.
    One commenter supported the non-exhaustive list of tenants' rights 
protected by a right against retaliation in Sec.  92.253(b)(5). 
However, the commenter stated that, as currently written, the 
prohibition against retaliation provision is ineffective. The commenter 
said that the actions described in the prohibition against retaliation 
are independently prohibited as unjust interference, regardless of 
retaliatory motive. The commenter also stated that the rule fails to 
specify consequences for retaliation. The commenter suggested that HUD 
adopt a mechanism similar to that used by States and municipalities to 
discourage retaliation, and state in regulation that (1) no termination 
or non-renewal of a lease or alteration of a term or condition of the 
lease is valid if taken in retaliation for the exercise of a legal 
right by the tenant or member of the tenant's household, and (2) any 
such adverse action taken within a specified period of time (the 
commenter suggested 12 months) of the exercise of a legal right will be 
presumed to have been taken in retaliation unless the owner proves that 
the action was taken solely for a non-retaliatory purpose. Another 
commenter expressed a similar objection to the protection against 
retaliation in Sec.  92.253(b)(5), stating that it is ineffective as 
currently written and should specify consequences for violations.
    One commenter suggested that HUD should revise Sec.  92.253(b)(5) 
to more clearly convey that subsection (i) includes examples of owner 
interference or retaliation and that subsection (ii) includes examples 
of tenant rights. To better reflect commonly used terms, the commenter 
recommended that HUD should replace ``comfort, safety, or enjoyment'' 
with ``right to peaceful enjoyment.''
    One commenter recommended adding ``refusal to renew a tenant lease 
agreement'' and ``increase rental amount in renewal or otherwise 
initiate a termination of tenancy'' as protections against retaliation 
in 92.253(b)(5)(i), either by addition or explicit reference to 
92.253(d)(1)(i)-(v).
    HUD Response: The Department thanks the commenters for reviewing 
the proposed rule and is making several revisions to the HOME rental 
housing tenancy addendum retaliation and unreasonable interference 
regulations in Sec.  92.253(b)(5), and similar provisions in the 
tenant-based rental assistance tenancy addendum provisions in Sec.  
92.253(c)(5). The Department agrees with the commenter that Sec.  
92.243(b)(5) and Sec.  92.253(c)(5) should differentiate between 
unreasonable interference and retaliation by the owner. Consequently, 
HUD is revising the section headings to include unreasonable 
interference as its own standalone prohibition and reorganizing the 
sections to clarify that the consequences for retaliation are that the 
owner is in breach of the tenant lease, is violating the requirements 
in 24 CFR part 92, and is in violation of the written agreement with 
the participating jurisdiction (in the case of rental housing) or the 
rental assistance contract (in the case of tenant-based rental 
assistance).
    The Department considered changes to shift burden or create 
presumptions that certain actions were interference or retaliation 
based upon the time in which they occurred in relation to the protected 
acts that the Department had initially linked to the retaliation 
provisions. The Department also considered stating that refusal to 
renew or termination of tenancy would not be effective if it was to 
retaliate or interfere with a tenant. However, after the Department 
specified consequences relating to the written agreement, and made 
examples of rights that a tenant could take free from retaliation or 
interference into explicit rights in the tenancy addendum, the 
Department believed these further revisions would be unnecessary and 
add undue complexity to the regulation. The Department will consider 
guidance on how to determine that an action is retaliation in response 
to a protected act by a tenant or household member in the future.
    The Department also agrees with the commenter that recommended that 
both ``refusal to renew a tenant lease agreement'' and ``increase 
rental amount in renewal or otherwise initiate a termination of 
tenancy'' should be examples of retaliation or unreasonable 
interference. Section 92.253(b)(5)(iii)(A) states that ``[r]ecovery of, 
or attempt to recover, possession of the housing unit in a manner that 
is not in accordance with paragraph (b)(10) of this section'' is an 
action evidencing retaliation or unreasonable interference. HUD is also 
adding similar language to the HOME tenant-based rental assistance 
tenancy addendum in Sec.  92.253(c)(5)(iii)(A). Paragraphs Sec.  
92.253(b)(10) and Sec.  92.253(c)(10) provide both the termination of 
tenancy and refusal to renew lease provisions. The Department has also 
revised Sec.  92.253(b)(5)(iii)(B) and Sec.  92.253(c)(5)(iii)(B) to 
state that ``[d]ecreasing services to the housing

[[Page 834]]

unit (e.g., trash removal, maintenance) or increasing the obligations 
of a tenant (e.g., new or increased monetary obligations, etc.) in a 
manner that is not in accordance with the requirements of this part'' 
is an example of retaliation or unreasonable interference. Increasing 
monetary obligations in retaliation or in an attempt to unreasonably 
interfere with a tenant is now explicitly prohibited by the tenant 
protections in Sec.  92.253(b)(5)(iii)(B) and Sec.  
92.253(c)(5)(iii)(B) in addition to the rent setting provisions in 
Sec.  92.252.
Q. Other Recommend Provisions in Sec.  92.253(b) Description of Tenancy 
Addendum Contents
    One commenter stated that the HOME tenancy addendum should provide 
notice to the tenant that there are income restrictions for occupancy 
and the tenant is required to re-certify and document changes in their 
household income. The commenter stated that the regulations allow a 
lease to state that the rent may change if the household income exceeds 
the income limit at the time of re-certification.
    HUD Response: The Department understands the desire to enforce 
income requirements as part of the tenant lease. This is inappropriate 
as a required term of the lease addendum. It is up to the participating 
jurisdiction to determine how best to obtain the necessary income 
information to determine income for HOME rental housing projects and 
tenants with tenant-based rental assistance. The Department provides 
participating jurisdictions with a variety of options for calculating 
income, including the use of safe harbors, and gives participating 
jurisdictions the discretion to allow owners to accept self-
certification of tenant income in years 2-5, 7-11, and 13-17 of a 
rental housing project's period of affordability. As such, the 
Department is declining to add these terms as an explicit part of the 
lease.
R. Security Deposit Requirements Should Be in the Tenancy Addendum
    One commenter suggested that HUD should include the security 
deposit protections in the HOME tenancy addendum.
    HUD Response: HUD agrees with the commenter that security deposit 
provisions are a material term of the lease, as described earlier in 
Section III of this preamble, and agrees that these provisions are best 
contained and enforced through the lease. The Department is revising 
Sec.  92.253(b) and (c) to add security deposit provisions as part of 
the terms of the HOME rental housing tenancy addendum and the HOME 
tenant-based rental assistance tenancy addendum.
S. Security Deposit Limit--Two Month's Rent
    One commenter supported the proposed changes to the HOME rule 
requiring security deposits to be no greater than two months' rent and 
refundable. One commenter supported imposing a maximum on security 
deposits but stated that two months of rent is an insurmountable 
barrier to tenancy and suggested HUD limit security deposits to no more 
than 1 month's rent. The commenter stated that if HUD does not change 
the limit, it should require the option of paying any amount over one 
month's rent monthly installments. Another commenter also recommended 
that HUD should limit security deposits to the equivalent of one-
month's rent, not two months' rent. This commenter asserted that of the 
States that have enacted limits on security deposit amounts, the 
majority have opted for a one-month limit over a two-month limit. The 
commenter provided citations for 14 States that had enacted one-month 
security deposit limits and three States that had enacted one and one 
half-month security deposit limits.
    HUD Response: HUD understands the commenter's concern that paying a 
security deposit of two months' rent is not always affordable for HOME 
tenants, even when that rent is set at the Low HOME Rent Limits. 
However, HUD also recognizes that a two-month security deposit is a 
commercially reasonable request that is consistent with most State 
laws. The Department also understands that there are different ways to 
reduce that type of barrier, such as by allowing the security deposit 
to be paid in installments. HOME is a block grant program. 
Participating jurisdictions and owners must underwrite and determine 
the level of risk they wish to expose themselves to when determining 
the amount they wish to charge for a security deposit. Moreover, 
participating jurisdictions and owners also must determine what is 
commercially reasonable for affordable housing in their markets. In 
many of those markets, this necessitates charging a security deposit 
equal to two months' rent or requiring the security deposit to be paid 
all at once.
    HUD also recognizes that a number of States have different, more 
stringent security deposit requirements that require that the security 
deposit be less than the maximum security proposed in Sec.  92.253(c). 
A lease for a HOME tenant must comply with State and local landlord-
tenant law, and where State landlord-tenant laws are more restrictive 
than HUD requirements, then the owner must follow the more restrictive 
requirements. Therefore, in those States or localities where landlord-
tenant law requires the security deposit be less than two month's rent, 
the owner may only charge the maximum amount allowable under the 
applicable law.
T. Use of Surety Bonds and Security Deposit Insurance
    Many commenters supported HUD's proposal to prohibit the use of 
surety bonds and security deposit insurance. The commenters supported 
HUD's reasoning that these tools disadvantage tenants without any 
material benefit for landlords. One commenter noted that surety bonds 
can be costly to both tenants and housing providers. Another commenter 
believed the use of surety bonds or security deposit insurance in lieu 
of security deposits don't meet the intent of the National Affordable 
Housing Act (NAHA) and aren't treated as security deposits under-State 
statutes.
    Other commenters opposed the proposed rule's prohibition of surety 
bonds or security deposit insurance in lieu of a security deposit. One 
commenter believed it would be cost-prohibitive for potential renters 
of HOME-assisted rental housing. The commenter explained that the use 
of a surety bond or security deposit insurance can be a more affordable 
option for low-income renters who may not be able to pay up to the 
allowable two-months' rent in advance as security deposit.
    Another commenter asked HUD to remove the prohibition in Sec.  
92.209(j)(6) on surety bonds or security deposit insurance and similar 
instruments in lieu of or in addition to a security deposit because it 
may deter landlords from renting to TBRA tenants. The commenter also 
pointed to the possibility that a TBRA tenant could receive assistance 
in a unit they already occupy and for which a security bond was already 
purchased. The commenter recommended that HUD only prohibit the use of 
HOME funds for surety bonds or security deposit insurance as an 
ineligible fee as proposed in Sec.  92.214(a)(10). Another commenter 
also stated that a property owner should not be allowed to require a 
tenant to pay for security deposit insurance but that the regulations 
should not prohibit property owners from informing the tenant about the 
availability of third-party insurance coverage.
    HUD Response: As HUD explained in the preamble to the proposed 
rule, HUD

[[Page 835]]

determined as a matter of law that surety bonds and security deposit 
insurance are not security deposits within the meaning of NAHA nor are 
they treated as security deposits under State statutes.'' \60\ The 
drafters of NAHA contemplated that renters would pay security deposits 
and authorized security deposit assistance as part of the tenant-based 
rental assistance program.\61\
---------------------------------------------------------------------------

    \60\ 89 FR 46266.
    \61\ 42 U.S.C. 12742(a)(3)(E).
---------------------------------------------------------------------------

    The Department recognizes that commenters are requesting 
flexibility to accept these instruments, which are generally insurance 
instruments, in lieu of security deposits and not just as a substitute 
form of security deposit. To that end, some commenters described 
allowing the owner to waive the security deposit requirement entirely 
in exchange for a surety bond or security deposit insurance. Beyond the 
legal barriers the Department identified, the Department also believes 
that at each phase of the process, surety bonds and security deposit 
insurance can pose a risk to both tenants and owners. Tenants must pay 
a nonrefundable fee or premium and are still liable under State 
landlord-tenant law and the lease contract for damages that are not 
covered by the issuer. The owner must submit a claim through a claims 
process and there is a risk of nonpayment or delayed payment that is 
significantly higher than if the owner itself held the security deposit 
in a bank account. Finally, the payment by the issuer of the surety 
bond or security deposit insurance is reliant upon the sufficiency of 
the overall fund itself. If the fund's underwriting standards or fund 
management are insufficient to enable the issuer to pay claims on the 
instruments it issued, then the owner will still be required to press 
their claim against the tenant.
    While the Department strenuously objects to the use of these 
instruments in the HOME program, it also recognizes the commenter's 
concern that there may be some tenants that are already in a lease and 
are seeking to obtain tenant-based rental assistance. The Department 
believes that these instances will be rare but has added language to 
the HOME tenant-based rental assistance tenancy addendum provisions to 
hold landlords and tenants harmless if the tenant is already leasing 
the unit from the owner at the time that the HOME tenant-based rental 
assistance is provided. The Department is doing this because it does 
not wish to create unnecessary barriers to obtaining tenant-based 
rental assistance, especially when a tenant has already fulfilled 
whatever security deposit requirements the owner had set forth under 
the lease, before the participating jurisdiction provided the tenant-
based rental assistance.
    As a result of the above, the Department will be moving forward 
with language barring the use of surety bonds and security deposit 
insurance in Sec.  92.253(b)(9) and (c)(9). The Department considered 
tenants that would be receiving tenant-based rental assistance after 
the beginning of their lease and has revised Sec.  92.253(c)(9) to 
address the commenter's concerns.
U. Charges Against Security Deposit
    One commenter supported the proposed changes to the HOME rule 
requiring that if charges are made against the tenant's security 
deposit, owners must list all items charged and their cost, and 
promptly refund the security deposit to the tenant at move-out, less 
any documented charges made.
    Another commenter recommended that HUD's final rule should enable a 
tenant to bring to a participating jurisdiction a challenge to any 
damage claims made by an owner and/or amounts charged against a 
tenant's security deposit refund. The commenter suggested that a tenant 
could use this challenge process if an owner does not refund all or a 
portion of a security deposit within two weeks. The commenter noted 
that sub-regulatory guidance regarding any such proceedings would be 
helpful.
    HUD Response: The Department is maintaining its proposed language 
on charges against the security deposit and embedding the language in 
both the HOME rental housing tenancy addendum (Sec.  92.253(b)(9)) and 
HOME tenant-based rental assistance tenancy addendum (Sec.  
92.253(c)(9)). The Department believes that requiring owners to list 
all items charged against the security deposit and the amount of each 
item is a minimum standard that should be required of all owners 
assisted by HOME or whose units are occupied by tenants with HOME 
assistance.
    The Department understands the desire to require participating 
jurisdictions to decide disputes between owners and tenants, especially 
when the participating jurisdiction has an agreement with the owner. 
However, it is up to the participating jurisdiction to determine how 
best to enforce compliance with the tenant protections provisions and 
the provisions of the lease addenda. While many participating 
jurisdictions may wish to inject themselves in disputes such as those 
over property damage and returning security deposits, there will be 
many other participating jurisdictions that only respond when the 
tenant alleges a violation of the HOME requirements and will leave more 
commonplace landlord-tenant disputes to the courts. The Department 
defers to participating jurisdictions to choose what is best for their 
jurisdictions but reminds them that they must demonstrate that they 
monitored and enforced the tenant protection requirements.
V. Direct Threats to Health and Safety Should Constitute Good Cause 
Regardless of Whether a Criminal Violation Has Occurred
    One commenter emphasized that the proposed changes do not address 
situations where eviction is necessary due to violence or other lease 
violations that may endanger other residents or the integrity of the 
property--situations that the commenter stated the housing provider 
should have the ability to take appropriate legal action against.
    HUD Response: The Department agrees with the commenter that there 
are explicit grounds for termination of tenancy or refusal to renew 
under the Act when a tenant poses a direct threat to the safety of the 
tenants or employees of the housing, or an imminent and serious threat 
to the property. The Department is adding these grounds to the 
termination of tenancy provisions at Sec.  92.253(b)(10)(i)(B)(1) and 
Sec.  92.253(c)(10)(i)(B)(1) in this final rule.
W. Nonpayment of Rent as Grounds for Termination or Refusal To Renew
    One commenter questioned whether nonpayment of rent qualified as a 
``serious violation of the lease.'' The commenter believed that because 
the Department further specified the grounds for termination of tenancy 
or refusal to renew, the omission of nonpayment of rent as a ground for 
eviction could be interpreted as HUD stating that it is not grounds to 
take those actions. The commenter was certain it was not HUD's 
intention to exclude nonpayment of rent as grounds for termination or 
refusal to renew but believed that one could interpret the new 
regulations to exclude this as grounds due to its omission.
    HUD Response: The Department is not changing its position that 
nonpayment of rent is a violation of the lease and that violation of 
this term of the lease is grounds to terminate a tenancy or refusal to 
renew. The Department disagrees with the commenter that any silence or 
omissions in the regulation would allow a determination that nonpayment 
of rent

[[Page 836]]

is not grounds for termination or refusal to renew under the HOME 
regulations. The Department declines to further explain each type of 
lease violation that could be considered by an owner. If HUD were 
exhaustive in its explanation of each type of lease violation that an 
owner could consider, HUD may inadvertently omit grounds for 
termination and make the very mistake that the commenter is describing 
in their comment.
X. Increase in Income or Assets Is Not ``Other Good Cause''
    One commenter supported HUD's proposed changes that clarify ``other 
good cause'' may not include a tenant's assets or the type of income or 
assets.
    One commenter objected to the proposed change. The commenter stated 
that this was an example of a conflict with the Section 8 program. The 
commenter noted that if a PHA terminates the Housing Assistance Payment 
for a tenant who becomes over-income, in accordance with existing HUD 
regulations, ``the lease automatically terminates''. However, neither 
being over-income nor the termination of a rental assistance contract 
are allowable reasons for the termination of a tenancy under the 
proposed regulations for a HOME-assisted unit. The commenter questioned 
whether HUD defines ``governmental entity'' as including PHAs, and 
whether a PHA termination represents ``an order from a governmental 
entity.'' The commenter requested clarity on how to apply the 
requirements where a PHA terminates assistance because the tenant is 
over-income or over the asset limitation in 24 CFR 5.618.
    HUD Response: The Department thanks the commenter for reviewing the 
proposed rule and supporting the proposed change. Continuing to live in 
a HOME rental housing unit when there has been an increase in income is 
statutorily protected for tenants of HOME rental housing (see 42 U.S.C. 
12745(a)(3)). The Act does not permit an increase in assets or assets 
of a certain type or amount to be considered good cause, even though 
this is good cause in other programs, most notably certain programs 
under the U.S. Housing Act of 1937 (42 U.S.C. 1437 et seq.) such as the 
Housing Choice Voucher program. The Department does not have discretion 
to permit termination or refusals to renew for these reasons and is 
clarifying this so that owners continue to comply with HOME 
requirements when assistance is combined with programs that do consider 
an increase in income or assets to be good cause for termination or 
refusal to renew. To that end, the Department is clarifying for the 
commenters that termination of tenancy due to the amount, form, or type 
of income or assets is a violation of the Act and current HOME 
regulations. The Department clarified this for the amount and type of 
assets in the preamble to the HOTMA final rule and is now further 
clarifying for over income tenants as well.\62\
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    \62\ See 88 FR 9625, which states:
    There is no HOME statutory requirement to limit a family's 
assets or to remove a family from the HOME program if the family's 
net family assets exceed a threshold. HUD solicited public comment 
on whether HUD should impose asset limitations in the proposed rule 
to align with other programs. However, after due consideration and 
examination of the Cranston-Gonzalez National Affordable Housing Act 
(42 U.S.C. 12701 et seq.), HUD has determined that it will not 
impose asset limitations through this rulemaking. Section 225(b) of 
the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 
12755(b)), which provides tenant protections in the HOME program, 
states in relevant part that ``[a]n owner shall not terminate the 
tenancy or refuse to renew the lease of a tenant of rental housing 
assisted under this subchapter except for serious or repeated 
violation of the terms and conditions of the lease, for violation of 
applicable Federal, State, or local law, or for other good cause.'' 
HUD has never interpreted holding a certain level or type of assets 
as sufficient good cause for an owner to terminate a tenancy under 
the HOME statute and declines to do so in this rulemaking.
---------------------------------------------------------------------------

Y. Other Good Cause Should Include Unreasonably Denying Access to the 
Owner To Make Repairs
    One commenter supported HUD's proposed changes that clarify ``other 
good cause'' may include when a tenant unreasonably refuses to provide 
the owner access to the unit for repairs.
    HUD Response: The Department thanks the commenter for reviewing the 
proposed rule and supporting the proposed change. Owners must be able 
to reasonably access and repair units. All HOME-assisted rental housing 
units and units occupied by tenants with tenant-based rental assistance 
must meet applicable property standards. Requiring tenants to allow 
owners reasonable access to properly maintain the units in accordance 
with applicable property standards is prudent and protects tenants and 
owners alike.
Z. Other Good Cause Requirements--Material Lease Violations, Nuisance, 
and Nondiscrimination Requirements
    One commenter suggested that in Sec.  92.253(d)(1)(i) HUD should 
amend the rule by adding ``material'' to clarify that good cause exists 
for serious or repeated violations of the material terms of the lease.
    Alternatively, the commenter suggested HUD put landlords on notice 
that nuisance ordinances may violate Federal civil rights law and 
recommended the following potential language: Other good cause may 
include when a tenant creates a documented nuisance under applicable 
State or local law or when a tenant unreasonably refuses to provide the 
owner access to the unit to allow the owner to repair the unit, but 
only when termination or refusal to renew a tenancy would be consistent 
with Federal civil rights law, such as the Fair Housing Act.
    One commenter supported HUD's proposed changes that clarify ``other 
good cause'' may include a tenant creating a documented nuisance under 
applicable State or local law. Some commenters expressed concern with 
the language at Sec.  92.253(d)(1)(i)(B) and asked HUD to remove it as 
a basis for good cause, stating that it is their experience that 
alleged nuisances are often disability related.
    Commenters recommended that HUD not use the term ``nuisance'' in 
Sec.  92.253(d)(1)(i)(B) and (C) because States and local governments 
have laws that target residents responsible for alleged nuisance 
activity, including calls to emergency services or noise disturbances 
related to domestic violence, with penalties such as fines and 
evictions. One commenter stated that these policies stand in opposition 
to HUD's efforts to protect tenants against unjustified evictions, and 
that HUD should instead establish a ``good cause'' for eviction that 
requires an actual, substantial, and imminent threat to the health and 
safety of, and right to peaceful enjoyment of the premises by, others.
    HUD Response: The Department agrees with the comment regarding 
addition of ``material'' and is adding ``material'' in Sec.  
92.253(b)(10) and Sec.  92.253(c)(10) of this final rule to 
characterize the types of lease violations that constitute good cause 
to terminate a tenancy or refuse to renew a tenancy of a tenant in HOME 
rental housing or assisted with HOME tenant-based rental assistance. 
Inconsequential or minor lease violations that are easily curable or 
whose conditions no longer exist should not be the basis for a 
termination or refusal to renew.
    The Department has removed from this final rule the use of nuisance 
as grounds for termination of tenancy or refusal to renew. The 
Department agrees that this ground has been the subject of significant 
fair housing and civil rights abuses and has led to the denial of 
necessary housing for survivors of domestic violence, dating violence, 
sexual assault, or stalking. The Department does not wish to perpetuate 
this cycle of discrimination through the

[[Page 837]]

use of this terminology as an explicit ground for termination or 
refusal to renew.
    The Department already required that all terminations or refusals 
to renew are in accordance with all applicable Federal, State, and 
local laws and believes its revisions have addressed the commenter's 
concerns.
AA. Good Cause in Lease-Purchase Projects
    One commenter expressed concerns about the ``good cause'' 
definition, at proposed Sec.  92.253(d)(1)(i)(A), stating that the 
language provides no provision for when a homebuyer fails to purchase a 
housing unit in a lease-purchase project. The commenter stated that 
this creates a loophole where after the failure of a lease-purchase 
agreement, a developer of property specifically for homeownership 
becomes locked into the long-term ownership and management of a HOME-
assisted rental unit because the Department is not allowing this 
failure to be good cause to terminate the tenancy. The commenter 
recommended that a ``business or economic reason'' clause be added to 
the proposed ``good cause'' definition.
    HUD Response: The Department agrees with the commenter and is 
adding to this final rule a provision in Sec.  92.253(b)(10)(i)(A) and 
Sec.  92.253(c)(10)(i)(A) allowing for termination of a tenancy for a 
family that is occupying a unit under a lease-purchase program when 
that family does not acquire the housing unit in accordance with a 
lease-purchase agreement. The Department recognizes that owners of 
homeownership development projects should have the ability to terminate 
the tenancy of a tenant that fails to purchase the housing so that the 
owner may sell the homeownership unit to another eligible low-income 
homebuyer before the housing is converted to rental housing (see Sec.  
92.254(a)(7) for more information).
    The Department is declining to consider a business or economic 
reason as adequate grounds for termination of tenancy for the HOME 
rental housing tenancy addendum. In the proposed rule, HUD proposed 
that it would be good cause to terminate a tenancy when an owner 
intends to withdraw the unit from the rental market to occupy the unit; 
allow an owner's family member to occupy the unit; or demolish or 
substantially rehabilitate the unit. This language is being maintained 
in this final rule and will allow owners to terminate for certain 
specific business or economic reasons. However, the Department was 
concerned that providing the more general grounds that the commenter 
requested would be too broad and could have unintended consequences.
BB. Use of Previous Convictions To Terminate Tenancy or Refuse To Renew 
a Tenancy
    Commenters stated that the preamble for Sec.  92.253(d)(1)(i)(D) 
discusses how the crime for which there has been a conviction is a 
crime ``during the tenancy period'' and that good cause cannot be based 
on a violation ``that occurred prior to tenancy.'' However, the 
commenter pointed out that these are not explicit in the regulatory 
text and urged HUD to explicitly state in the final rule that the 
record of conviction be of a crime that took place during a person's 
tenancy and not prior to tenancy. The commenter also urged HUD to 
specify in the final rule that for ``good cause'' the conviction must 
have a direct bearing on the tenant's continued occupancy and pose an 
actual, substantial, and imminent threat to the health and safety of, 
and peaceful enjoyment of the premises by, others. The commenter 
repeated these suggestions as applied to the proposed TBRA provisions 
in Sec.  92.253(d)(2)(i)(B).
    One commenter added that HUD should consider limiting this 
provision to convictions by a tenant, household member, current guest, 
or other person under the tenant's control. The commenter further 
suggested that HUD should consider adding a definition of ``crime that 
bears directly on the tenant's continued tenancy'' or, alternatively, 
provide examples in sub-regulatory guidance accompanying the final 
rule. The commenter stated that the standard in the proposed rule is 
vague and could result in owners evicting for pretextual reasons and 
for criminal activity that does not pose a real threat to the health 
and safety of others.
    One commenter noted that the preamble states there must be a record 
of conviction for a crime ``during the tenancy period'' to justify 
termination of tenancy or refusal to renew a lease, but the text of the 
rule is not as explicit, and the commenter recommended HUD make the 
final rule text as clear as the preamble discussion.
    HUD Response: The Department agrees with the commenter that stated 
that the Department should define or provide examples of a ``crime that 
bears directly on the tenant's continued tenancy.'' After much 
consideration, the Department is revising the language in the new 
paragraphs Sec.  92.253(b)(10)(i)(C) and Sec.  92.253(c)(10)(i)(B)(3) 
to state that an owner may establish good cause for a violation of an 
applicable Federal, State, or local law through a record of conviction 
of a crime that threatens the health, safety, or right to peaceful 
enjoyment of the premises by other tenants in the project. This 
standard is a sufficient threshold and is directly related to the 
statutory good cause conditions found in 42 U.S.C. 12755.
    The Department is declining to specify the time period of the 
conviction of the crime in the regulation itself. There may be times, 
such as when a person moves into a unit during a family's ongoing 
tenancy, where tying the conviction to the family's initial occupancy 
may be inappropriate. However, the Department maintains, as it stated 
in the proposed rule, that for tenants that have already been screened 
by the owner--
    ``good cause based on a violation of applicable Federal, State, or 
local law cannot be based on a violation that occurred prior to 
tenancy, a violation that does not have a direct bearing on a tenant's 
continued tenancy, or a basis other than a record of conviction. An 
owner may consider any mitigating circumstances relevant to whether the 
tenant will commit further violations of the lease or applicable 
Federal, State, or local law.'' \63\
---------------------------------------------------------------------------

    \63\ 89 FR 46639.
---------------------------------------------------------------------------

CC. Good Cause for Violation of Law Evidenced by Arrest for a Crime
    One commenter supported HUD's proposal that an owner shall not use 
a record or arrest, parole or probation, or current indictment to 
establish a violation of law.
    Some commenters expressed opposition to the proposed language in 
Sec.  92.253(d)(1)(i)(D) that would require that establishment of good 
cause for violation of law to be predicated on the conviction of a 
crime. One commenter explained that this lease renewal requirement is 
an excessively high standard because a criminal conviction requires a 
``beyond a reasonable doubt'' evidentiary standard. The commenter 
suggested that the rule should require a more reasonable 
``preponderance of the evidence'' standard. Additionally, the commenter 
suggested that the proposed rule specify the types of criminal activity 
that would qualify as affecting the safety of persons or property, as 
it does not consider the potential risks to tenant and staff safety in 
cases where an arrest or current indictment is due to violent actions 
of the tenant.
    The commenter also noted that the proposed rule requires ``that an 
owner shall not use a record of arrest, parole or probation, or current 
indictment to

[[Page 838]]

establish a violation of applicable Federal, State, or local law.'' The 
commenter expressed concerned that this language only gives power to 
owners in cases where a tenant has a record of conviction. The 
commenter suggested that the rule should allow for other evidence to be 
used besides just a conviction in cases where the owner believes the 
tenant or prospective tenant is a threat to the safety of residents, 
staff, or property.
    HUD Response: The Department understands the concerns of the 
commenters. The Department believes that direct threats to the safety 
of the tenants or employees of the housing, or imminent and serious 
threats to the property should constitute separate grounds for 
terminating a tenancy or refusing to renew a lease and is adding Sec.  
92.253(b)(i)(B)(1) and Sec.  92.253(c)(i)(B)(1). The Department does 
not believe that such threats require a record of conviction so long as 
the threat to safety or property is evidenced by credible acts or 
threats that the harm will occur. As described in Section III of this 
preamble, this is not a low standard, but it is also not the legal 
standard of ``beyond a reasonable doubt'' evidenced by a conviction. 
The Department believes that with this change, and the change to allow 
termination in accordance with certain rules of other programs when 
tenants are assisted by each (see the next comment response), it has 
addressed the commenters' concerns.
DD. Conviction of a Crime and Section 8 Housing Choice Voucher 
Regulations
    One commenter opposed the proposed changes to Sec.  92.253(c) and 
(d), citing that many of the changes would create conflicts with 
existing HUD regulations because they go beyond what other HUD programs 
require and create conflict with the Housing Choice Voucher program.
    One commenter stated that the proposed changes to the current 
termination of tenancy regulations should match more closely the 
Housing Choice Voucher program's termination of tenancy regulations to 
avoid conflicting interpretations. The commenter cites to examples 
where language mirrors section 8 regulations but is silent as to 
definitions of key terms. The commenter also stated that the 
requirement that ``good cause'' be established by conviction of a crime 
at the proposed Sec.  92.253(d)(1)(i)(D) conflicts with treatment of 
criminal convictions under section 8 regulations, which allow for 
termination of tenancy for criminal activity regardless of conviction. 
The commenter also wanted clarification about whether signs of repeated 
drug activity on the premises through objectively verifiable contacts 
by emergency services were sufficient to constitute good cause to evict 
or if such activity must be coupled with a conviction because it 
constituted criminal activity in the jurisdiction.
    The commenter also explains that where a household member is 
engaged in criminal activity in the Section 8 program, the requirements 
of 24 CFR 982.310(h)(2) permit an owner to require a tenant to exclude 
a household member in order to continue to reside in the assisted unit, 
where that household member has participated in or been culpable for 
action or failure to act that warrants termination. The commenter 
believes that the HOME rule conflicts with the Section 8 rule because 
it requires that a civil court proceeding is instituted against the 
household member to remove them from the unit.
    HUD Response: The Department has revised the regulation at Sec.  
92.253(b)(10)(i) to address the commenter's concerns. If the tenant is 
participating in a program that is subject to 24 CFR part 5, subpart I; 
24 CFR 882.511; or 24 CFR 982.310, then the owner is permitted to 
terminate the tenancy of any tenant or household member or refuse to 
renew the lease of a tenant of rental housing assisted with HOME funds 
pursuant to those provisions. This new provision will allow these 
regulations that govern other programs to form the basis of a 
termination or refusal to renew and constitute good cause under the 
HOME program even though these would not necessarily be grounds for 
HOME tenants that are not assisted through programs subject to those 
regulations. This improves alignment and addresses the commenter's 
concerns.
EE. 60-Day Notice Before Termination of Tenancy or Refusal To Renew
    Some commenters supported the proposed change in Sec.  
92.253(d)(1)(ii) that would require owners to provide 60 days notice to 
tenants before termination of tenancy or refusal to renew instead of 30 
days notice before termination of tenancy or refusal to renew. One 
commenter stated that HUD should amend 92.253(d)(1)(ii) and 
92.253(d)(2)(ii) to require a 60-day notice of intent to terminate 
tenancy and/or not renew (both rental housing and TBRA should get 60-
day notice). Another commenter suggested extending the 30-day eviction 
notice period for TBRA to 60 days to allow time for finding a suitable 
housing alternative.
    One commenter explained that this would help tenants avoid eviction 
by providing sufficient time to dispute or cure lease violations and, 
where tenants are unable to do so, 60 days notice would provide better 
opportunity for those tenants to find new affordable housing and avoid 
being rendered homeless. One commenter suggested that HUD should 
clarify that the tenant has the right to cure a lease violation during 
the notice period in 92.253(d)(1)(ii). The commenter explained that 
allowing tenants to cure evictions in that time period promotes clarity 
in the law, and also prevents needless evictions.
    One commenter noted that while a 60-day notice could provide better 
tenant protections, a concern would be if an industry norm of 
reciprocated notice periods pushed landlords to extend these expanded 
60-day timeline for tenants to notify landlords beyond HOME supported 
units.
    Some commenters opposed the provisions in the proposed rule that 
would extend the current requirement of a 30-day notice before a 
termination of tenancy to 60 days. Commenters expressed concern that 
the extension of the 30-day notice to a 60-day notice would conflict 
with local or State laws that vary widely on timing and requirements 
for eviction. A commenter stated that when a State has a 30-day notice 
in place for non-HOME tenants, administering and determining evictions 
in mixed-income communities will become difficult and may 
unintentionally cause confusion and inequity. The commenter recommended 
that HUD not institute a 60-day notice requirement and maintain the 
current 30-day notice requirement.
    Other commenters also expressed concern with the extension of the 
notice period, contending that many housing providers cannot sustain 
the financial burden of nonpayment for an extended period of time and 
that the 30-day timeframe already leads to loss of income, increased 
operational costs, unsustainable balances for tenants, and disruptive 
delays. One commenter stated that the proposed 60-day notice of lease 
termination provision is particularly onerous and does not provide 
financially distressed tenants with the financial support that they 
need. Another commenter noted that owners should have access to timely 
recourse in the event of continued and ongoing lease violations and 
there are risks to housing providers, property operations, and 
maintenance when landlords are unable to collect rent revenue for 
extended periods and that HUD should not further extend the

[[Page 839]]

HOME notice to quit period without additional resources for owners to 
weather the resulting ``economic vacancies'' or the resources for 
residents to find alternate housing.
    Commenters opposed increasing the notice of termination of tenancy 
to 60 days for nonpayment of rent because it adds challenges to owners 
and current and prospective tenants. The commenters explained that 
increasing the timeline for nonpayment of rent to 60 days increases the 
financial burden on owners who need rent to sustain property 
operations. The commenter further explained that enforcement of a 
longer notice period may incentivize owners to file for evictions 
sooner due to the slow pace of the court process and the costs it will 
incur.
    One commenter emphasized that its members are affordable housing 
providers; they are not in the ``eviction business'' as they are 
sometimes ``branded,'' and a 60-day notice period would lead to a 
significant departure of some great housing providers from 
participation in the HOME program. This commenter further stated that 
its member housing providers often face noncommunication from tenants 
who are unable to pay their rent and argued that HUD needed to be fair 
and require tenants to communicate with landlords when they can't pay 
their rent and make their best efforts to make timely partial payments 
as possible. The commenter also stated that housing providers are 
facing 60-120 days of nonpayment and uncollected rent in the millions, 
which leads to decreased operating budgets and fewer households 
assisted. Additionally, the commenter said that eviction cases can last 
several months.
    Another commenter objected to the eviction period extension from 30 
days to 60 days, stating that it finds that statistically the longer 
someone is permitted to stay in a unit without paying rent, the longer 
they will stay without paying rent. The commenter said that it is more 
likely that the month's rent will be just another month's rent that 
goes unpaid to the landlord and decreases the cash available for that 
landlord to pay its bills or maintain the property. The commenter also 
stated that anything longer than a 30-day eviction notice would not 
benefit tenants because it could increase exposure to harmful 
conditions and increase owners' scrutiny of tenants' background records 
relative to past-owed amounts to landlords, bad landlord references, 
and credit issues.
    HUD Response: The Department thanks the commenters for reviewing 
the proposed rule. HUD agrees with commenters that the 60-day eviction 
notice for tenants in HOME-assisted rental units may conflict with 
State and local laws as well as the eviction requirements for tenants 
in units with project-based vouchers. HUD agrees that requiring owners 
to provide 60 days' notice may be a financial burden to owners, 
particularly when the good cause for eviction is the tenant's failure 
to pay rent. This burden may negatively impact the overall financial 
stability of the rental housing project, given local court processes 
and other delays once a termination action has been filed. The 
Department also understands that extending the notice period from 30 
days to 60 days reduces alignment with other HUD programs that require 
only 30 days' notice and could have a chilling effect on new and 
existing landlords. For these reasons, HUD is maintaining the existing 
regulatory requirement that a project owner provide a written notice to 
vacate at least 30 days before the termination of tenancy or refusal to 
renew in this final rule.
FF. Providing Notice To Vacate to Participating Jurisdictions
    One commenter requested HUD explain what a participating 
jurisdiction is required to do once they receive an owner's notice to 
vacate in accordance with the proposed Sec.  92.253(d). For example, 
the commenter suggested that the final rule could clarify that, once 
collected, the participating jurisdiction should make the information 
available to HUD for compliance review.
    HUD Response: The participating jurisdiction already must maintain 
the documentation for its files and provide it to HUD upon request. So, 
the commenter's recommendation is already covered by the recordkeeping 
requirements in Sec.  92.508. The Department defers to participating 
jurisdictions on how best to use the notice to vacate. Some 
participating jurisdictions may wish to monitor the owners of projects 
that issue notices to vacate, especially if such notices are frequent. 
In other instances, participating jurisdictions may wish to intercede 
to attempt to stabilize the landlord-tenant relationship, if it is 
possible and practicable. These decisions are best left to 
participating jurisdictions and the owners they assist. The Department 
is simply attempting to empower participating jurisdictions by making 
sure they have current information on lease terminations in their HOME 
rental housing and tenant-based rental assistance portfolios.
GG. Difference Between HOME Requirements and State Law Requirements on 
Notice of Termination of Tenancy or Refusal To Renew
    A commenter stated that many States have a rule of a 7-day ``pay or 
quit'' for an eviction based on non-payment of rent. The commenter 
asked for additional clarity on how to manage the 7-day notice 
requirement in States with the proposed requirement of providing an 
accessible notice to vacate at least 30 days prior to termination.
    HUD Response: Regardless of other State laws that may be more 
permissive, the HOME statutory minimum notice period prior to 
termination of tenancy or refusal to renew is 30 days (see 42 U.S.C. 
12755(b)). The only exception to the 30-day notice period is when the 
person poses a direct threat to the safety of the tenants or employees 
of the housing or an imminent and serious threat to the property and 
the termination or refusal to renew is in accordance with the 
requirements of State or local law.
    If an owner is in a State where the notice requirements are less 
stringent (i.e., States that require shorter notice periods) than the 
HOME statutory notice requirements, then the owner must still comply 
with the HOME tenant protections and adhere to the HOME requirements. 
The owner is making the decision to adhere to these stricter notice 
requirements when the owner and participating jurisdiction enter into a 
HOME agreement where the owner agrees to comply with the tenant 
protection requirements (see 24 CFR 92.504(c)). This treatment and the 
statutory requirements are not being changed as part of this 
rulemaking.
HH. Termination of Tenancy for Refusal To Provide Income Documentation
    One commenter suggested that the provision should also clearly 
state that the landlord may terminate their tenancy or not renew their 
lease for failure to provide satisfactory documentation.
    HUD Response: The Department declines to make failure to provide 
sufficient documentation an explicit form of good cause to terminate 
tenancy or refusal to renew in this final rule. The participating 
jurisdiction and owner must work with HOME-assisted tenants to obtain 
the appropriate documentation to determine the applicable income and 
HOME rents for HOME-assisted rental housing tenants. Failure to provide 
documentation may be for legitimate reasons. Further, the Department is 
attempting to reduce the burden of providing source documents during

[[Page 840]]

income determinations by providing an additional safe harbor that can 
be used at initial and annual income examinations in the new Sec.  
92.203(a)(3).
II. Right To Renew Clause
    One commenter stated that HUD should have a right to renew clause 
for all tenants unless the tenants have violated the terms of their 
agreement. The commenter stated that HUD should require a landlord to 
provide 180 days advanced notice of their decision not to renew and 
said notice must offer a written explanation of the good cause for non-
renewal. The commenter recommended that good cause be defined as 
follows: (1) the tenant has not accepted the renewal offer in writing 
within the time allowed; (2) the tenants who accepted the renewal 
offer, along with any replacement tenants acceptable to the landlord, 
have not returned a signed lease to the landlord within 10 days of 
receipt; (3) the landlord can demonstrate a lease violation; (4) the 
owner or a member of the owner's immediate family is going to occupy 
the unit for a succeeding term; or (5) the landlord will no longer be 
renting the property out.
    HUD Response: The Department declines to create the right to renew 
clause described by the commenter in this final rule. The Department is 
also not going to impose through this final rule a requirement that an 
owner provide a family with 180 days' notice before refusing to renew a 
lease. The Department believes 180 days is an unreasonably long amount 
of time and has reverted its notice requirements to 30 days' notice in 
response to public comment (see earlier preamble responses).
    The good cause requirements in the HOME program are statutory. In 
HOME, the tenant has the right to renew unless the owner has good cause 
to refuse to renew or terminate the tenancy.\64\ The Department is 
providing different forms of good cause that may allow an owner to 
terminate the tenancy but many of the grounds provided by the commenter 
provide insufficient protections to families or are inherent in the way 
that HOME projects and private market properties are managed.
---------------------------------------------------------------------------

    \64\ See 42 U.S.C. 12755(b).
---------------------------------------------------------------------------

    The Department is declining to describe in this final rule whether 
a tenant's failure to accept a lease renewal offer or failing to 
execute a lease would constitute good cause to refuse to renew the 
tenants lease because in each case, the tenant has not renewed the 
lease. The Act requires that only serious or repeated lease violations 
be good cause. The Department is further defining the types of lease 
violations that should constitute good cause as ``material'' as the 
Department does not believe that frivolous or inconsequential lease 
violations should constitute good cause. As such, the Department 
believes the commenter's language that ``the landlord can demonstrate a 
lease violation'' is not legally acceptable under the Act and is 
declining to adopt it. The Department does allow for owners of units 
occupied by tenants receiving tenant-based rental assistance to 
terminate a tenancy or refuse to renew if the owner wishes to occupy 
the unit, allow family to occupy the unit, or take the property off the 
market. The Department had proposed those as appropriate grounds for 
termination of tenancy or refusal to renew the lease in the proposed 
rule in Sec.  92.253(d) and is maintaining those grounds in the 
redesignated Sec.  92.253(c)(10)(i)(B)(5). As these grounds apply only 
to units on the private market and not to HOME rental housing, which 
must be owned and operated in accordance with the requirements of 24 
CFR part 92 for the minimum period of affordability, the Department 
declines to include in this final rule these grounds for HOME rental 
housing terminations of tenancy or refusals to renew.
JJ. Termination of Tenancy in Tenant-Based Rental Assistance
    One commenter recommended that any deviations between the two sets 
of protections be clearly stated. One commenter opposed the addition of 
Sec.  92.253(d)(2) because, according to the commenter, these standards 
should already apply more broadly and not just for TBRA clients. 
Additionally, the commenter stated that the word ``reasonable'' would 
be too subjective and not allow for standardization of tenant selection 
across the program.
    This commenter also asserted that TBRA contracts should continue to 
be executed by the owner and support tri-party rental assistance 
contracts where the owner, tenant, and participating jurisdiction all 
sign, as an option. This method would ensure the lease contains the 
HOME tenancy addendum and that the owner follows applicable TBRA 
requirements.
    HUD Response: The Department has reorganized the tenant protections 
in Sec.  92.253 and the tenant-based rental assistance contract 
provisions in Sec.  92.209(e) in this final rule in a way that 
addresses some of the commenters' concerns. The Department is now 
placing the termination provisions directly in the HOME rental housing 
tenancy addendum and the HOME tenant-based rental assistance tenancy 
addendum. The Department is also requiring in Sec.  92.209(e)(1) that 
owners and tenants each enter into a rental assistance contract with 
the participating jurisdiction when tenant-based rental assistance is 
provided. This may take the form of a tri-party contract or individual 
agreements between the participating jurisdiction and the owner and the 
participating jurisdiction and the tenant.
    The Department is declining in this final rule to define reasonable 
or to remove its usage in HUD regulations. Reasonable is a commonly 
used and understood term and is not too subjective. There is a body of 
caselaw and jurisprudence surrounding what is and is not reasonable 
under certain circumstances and HUD declines to further specify what 
reasonableness is in tenant selection. The Department also declines in 
this final rule to apply the termination of tenancy provisions 
applicable to tenant-based rental assistance to HOME rental housing 
tenants. The termination provisions for tenant-based rental assistance 
contain certain provisions that only apply to owners of private rental 
housing and not HOME rental housing projects, such as termination of 
tenancy so that the owner may move into their unit (See Sec.  
92.253(c)(10)(i)(B)(5)).
    The Department agrees with the commenter on the benefits of tri-
party rental assistance contracts but is providing participating 
jurisdictions with the option of entering into tri-party rental 
assistance contracts or into separate agreements with the owner and the 
tenant. This is because HOME is a block grant program, and 
participating jurisdictions should have discretion in how they bind 
owners and tenants to the requirements of their tenant-based rental 
assistance program.
KK. Prohibiting Constructive Evictions
    One commenter supported HUD's proposal to prohibit owners from 
performing ``constructive evictions'' (aka ``self-help'' evictions''), 
such as locking a tenant out of their unit or stopping service on their 
utilities. One commenter supported requiring owners to provide tenants 
with uninterrupted utility service to ``counteract a disturbing trend 
of so-called `self-help' evictions'', whereby owners use their control 
of utilities to force tenants to end their tenancy.
    HUD Response: The Department thanks the commenters and is including 
these provisions in this final rule. Due to reorganization of the 
tenancy addenda provisions, these provisions are now contained in Sec.  
92.253(b)(10)(v)

[[Page 841]]

and Sec.  92.253(c)(10)(iv) and shall apply to both tenants in rental 
housing and tenants receiving tenant-based rental assistance.
LL. Termination of Tenancy Because of Termination of Rental Assistance 
Contract
    One commenter opposed the revisions to Sec.  92.253(d)(2)(i)(E) 
because the commenter believes tenants should have the ability to 
request termination if the rental assistance contract ends, but the 
landlord should not have the discretion to do so. The commenter also 
suggested adding tenant liens as a prohibited action in Sec.  
92.253(d)(1)(v). The commenter urged HUD to further indicate how 
confidential tenant information is handled.
    HUD Response: The Department agrees with the commenter and is 
removing from this final rule the termination of the rental assistance 
contract as specific grounds for termination of tenancy or refusal to 
renew. Instead, the Department is revising Sec.  92.253 of this final 
rule to state that the HOME tenant-based rental assistance tenancy 
addendum shall terminate upon the termination of the rental assistance 
contract.
    The Department is declining to enumerate in this final rule 
specific measures projects owners must take to ensure tenant 
information is handled confidentially. Participating jurisdictions and 
owners should take reasonable measures to prevent unauthorized access 
to confidential information by persons without a need to know, (e.g., 
password protected systems, locking file cabinets and desk drawers that 
contain personal identifying information, etc.).
MM. Tenant Selection Procedures Should Require That Owners Do Not 
Evaluate Previous Bankruptcies
    A commenter stated that a previous bankruptcy should not be treated 
as equivalent to a previous eviction when a person is applying for low-
income housing. The commenter also recommended that, prior to charging 
an application processing fee, properties must inform persons applying 
for housing that a previous bankruptcy disqualifies them from housing 
at the property, if applicable.
    HUD Response: HOME is a block grant program, and neither the 
statute nor the regulations address whether or how previous 
bankruptcies are treated in the tenant screening process. The Act 
provides owners with discretion in tenant selection. As long as tenant 
selection is performed in accordance with the Act, all applicable 
Federal, State, and local laws (including but not limited to 
nondiscrimination and VAWA requirements), the owner has discretion to 
consider the effect of prior bankruptcies or past financial problems. 
The Department encourages tenant selection policies that do not 
unfairly penalize families for factors that no longer negatively impact 
their ability to pay or to live in HOME-assisted rental housing but 
recognizes that these determinations are fact-sensitive. The Department 
therefore declines to further impose requirements in this area at this 
time, including requiring notice prior to submission of application. 
HUD notes that the comment appears to address all low-income housing, 
not only housing funded through the HOME program. To the extent that 
this comment also describes programs that are not part of this 
rulemaking, that portion of the comment is outside the scope of this 
rulemaking.
NN. Tenant Selection Procedures Should Incorporate Fair Chance Housing 
Practices
    One commenter suggested that HUD prohibit the use of explicit 
credit score and criminal history requirements, as well as limit the 
``look-back'' period for eviction records to one year from the date of 
application.
    HUD Response: HUD appreciates the commenter's feedback, but HOME is 
a block grant program, and participating jurisdictions and project 
owners are permitted to establish tenant screening and selection 
criteria. Similar to the previous response, the Department encourages 
tenant selection policies that do not unfairly penalize families for 
factors that no longer negatively impact their ability to pay or to 
live in HOME-assisted rental housing. The Department also reminds 
owners and participating jurisdictions that all tenant selection is 
subject to Federal, State and local requirements, including 
nondiscrimination and VAWA protections. However, as these 
determinations are fact-sensitive and the Act provided owners with 
discretion in tenant selection,\65\ the Department declines to further 
impose requirements in this area at this time.
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    \65\ See 42 U.S.C. 12755(d).
---------------------------------------------------------------------------

    Owners should be aware that screening based on credit score and 
criminal history can have a disparate impact against protected classes 
in violation of the Fair Housing Act \66\ and should ensure that their 
screening procedures do not run afoul of these laws.
---------------------------------------------------------------------------

    \66\ See Guidance on the Application of the Fair Housing Act to 
the Screening of Applicants for Housing'' https://www.hud.gov/sites/dfiles/FHEO/documents/FHEO_Guidance_on_Screening_of_Applicants_for_Rental_Housing.pdf, 
mentioned by a commenter, and ``Tenant Background Checks and Your 
Rights'', https://www.hud.gov/sites/dfiles/FHEO/documents/HUD_Tenant_Background_Checks_and_Your_Rights.pdf, which is joint 
guidance developed by HUD, the Federal Trade Commission, the 
Department of Justice, and the Consumer Financial Protection Bureau.
---------------------------------------------------------------------------

OO. Notification of Grounds of Disapproval Under Sec.  92.253(e) Tenant 
Selection Procedures
    With regard to Sec.  92.253(e)(6), one commenter suggested that HUD 
should require that the written notification to reject applicants 
describe the grounds for rejection with sufficient specificity that a 
person can prepare an appeal of the housing provider's decision. The 
commenter stated that any supporting materials, such as a consumer 
report, must be provided to the tenant. The commenter further stated 
that these additional requirements align with HUD's recent fair housing 
guidance on tenant screening.
    HUD Response: 42 U.S.C. 12755(d)(4)(B) only requires ``the prompt 
notification in writing of any rejected applicant of the grounds for 
any rejection'' and does not provide any additional recourse. If an 
applicant believes that the grounds for disapproval violate Federal, 
State, or local law, they may make a complaint with the relevant legal 
authorities in accordance with the applicable process (e.g., contact 
HUD's Office of Fair Housing and Equal Opportunity if an applicant has 
reason to believe that the grounds for rejection are due to 
discrimination). The Department has issued guidance on tenant screening 
and the Fair Housing Act, and such guidance applies to all HOME rental 
housing units and HOME tenant-based rental assistance.\67\
---------------------------------------------------------------------------

    \67\ See the Fair Housing Act guidance for tenant screening in 
rental housing here: https://www.hud.gov/sites/dfiles/FHEO/documents/FHEO_Guidance_on_Screening_of_Applicants_for_Rental_Housing.pdf.
---------------------------------------------------------------------------

PP. Environmental, Health, and Safety Hazards
    One commenter supported the change to add language requiring a 
participating jurisdiction to notify owners and tenants of any 
environmental, health, or safety hazards affecting the project, a unit, 
or tenants, and provide them with a summary of the nature, date, and 
scope of the hazard.
    One commenter urged HUD to include in the final rule, in Sec.  
92.253(f), a requirement that where an owner has actual knowledge of an 
environmental, health or safety hazard, the owner must inform tenants 
(in addition to the

[[Page 842]]

participating jurisdiction), and provide them with a summary of the 
nature, date, and scope of the hazard as well as actions the owner will 
take, if able, to address the hazard. Furthermore, one commenter 
suggested that HUD should require that the summary be in writing and 
that the owner should provide notice of the hazard to tenants, in 
addition to the participating jurisdiction.
    One commenter expressed concern regarding the proposed language at 
Sec.  92.253(f) requiring both a participating jurisdiction and an 
owner to notify the other party if one party has ``actual knowledge of 
an environmental, health, or safety hazard affecting a project, unit, 
or HOME tenants.'' The commenter noted that it is unclear what HUD 
intends ``environmental, health, or safety hazards'' to mean and 
expressed concern about the lack of any defining language to guide 
participating jurisdictions' and owners' actions to comply. The 
commenter stated that without definitions, several interpretations are 
possible. The commenter also noted concerns about the burden of 
paperwork and compliance monitoring on participating jurisdictions, 
their partners, and their staff.
    HUD Response: The Department has taken the comments into 
consideration and revised the language of Sec.  92.253(f) to specify 
that a summary of the nature, date, and scope of such hazards be 
provided in writing. The Department also revised paragraph (f) to state 
that an owner must provide notice of the environmental, health, or 
safety hazard affecting their project, units within their project, or 
tenants residing within their projects to tenants in addition to the 
participating jurisdiction. The Department believes both commenters 
making recommendations are right. The Department is not further 
defining the language in regulation and has provided examples of the 
types of hazards in the proposed rule. The Department will provide 
additional implementation guidance on this provision and other tenant 
protections after publication of the final rule. The Department is also 
declining to require owners to further specify how they will address 
the damage. While the commenter's intent is noble, most environmental, 
health, or safety hazards are not caused by owners of rental housing 
projects but by other intervening outside events. It is inappropriate 
to require owners to specify how they will address hazards they did not 
cause and are not responsible for resolving.
QQ. Increasing Tenant Protections Could Increase Litigation or Other 
Costs
    One commenter expressed concerns about the potential for litigation 
and increased costs for nonprofit affordable housing developers and 
operators. The commenter expressed concerns about the provision of the 
proposed rule requiring ``secure and confidential'' storage of the 
personal records of applicants and residents and how HUD will monitor 
and enforce this requirement. The commenter stated that the costs for 
information technology staff or software packages would be burdensome, 
particularly for smaller organizations or organizations in rural areas 
that do not already have that capacity. The commenter also questioned 
whether HUD intended to require a certain information security 
standard, and, if so, at what cost. The commenter also stated that the 
vague nature of proposed language in the lease addendum section could 
expose owners to frivolous lawsuits and be difficult to comply with. 
The commenter recommended further clarification and definitions 
regarding words like ``unreasonably'' or ``reasonable'' to avoid 
compliance issues, unnecessary litigation, or uneven application across 
participating jurisdictions.
    HUD Response: The Department disputes the commenter's assertion 
that litigation costs are likely to increase through the provision of a 
baseline level of tenant protections. In response to the commenter's 
concerns about how an owner can maintain confidential records, the 
Department notes that an owner can maintain confidentiality and 
securely store records through storing files in locked drawers, 
password protecting their computers, and using basic encryption if 
transmitting personally identifying information through email. This 
standard is not as burdensome as what the commenter describes and 
represents standard industry practices. Commonly used terms such as 
``reasonable'' and ``unreasonably'' have a body of jurisprudence and 
common law precedent that should provide greater predictability not 
less. The ``frivolous'' or ``unnecessary'' litigation that the 
commenter is describing would be litigation if an owner were to 
disclose or otherwise not protect confidential information of a tenant 
or household member participating in a Federal program. The Department 
does not believe that this is an accurate characterization and that 
violations of confidentiality are serious matters that may have major 
negative ramifications on people's lives. As such, the Department is 
not removing the confidentiality requirements in the final rule.
RR. Tenant Protections in the Rule May Conflict With Other Laws and 
Programs That Have Different Standards
    One commenter stated that the proposed language does not account 
for possible conflicts between local, State and other regulatory 
schemes and the protections in the proposed rule. Commenters 
recommended that HUD add language clarifying that the protections in 
the rule are not exhaustive and that they do not preempt participating 
jurisdictions, States or local governments from requiring other tenant 
protections.
    HUD Response: The Department revised the tenant protections to make 
the protections more consistent with Federal laws and HUD programs. The 
Department has revised Sec.  92.253(b)(10) to enable owners to 
terminate tenancy in accordance with the requirements in 24 CFR part 5, 
subpart I; 24 CFR 882.511; or 24 CFR 982.310. This will apply to 
tenants living in units or receiving assistance that are covered by one 
of these regulations and allows owners to maintain a consistent 
approach to termination of tenancy when overlapping HUD program 
requirements apply. Similarly, the Department withdrew the proposal to 
extend the notice period for termination of tenancy or refusal to renew 
tenancy in rental housing to also maintain alignment with other 
Departmental rulemaking efforts.
    The Department agrees with the commenter that these requirements do 
not preempt a participating jurisdiction, State, or local government 
from providing additional protections. The Department has revised Sec.  
92.253(b)(6) and Sec.  92.253(c)(6) to explicitly state that tenants 
may assert any protection under their lease and any applicable Federal, 
State, or local tenant protections. Where State or local landlord-
tenant laws are more restrictive than HUD requirements, then the owner 
must follow the more restrictive requirements.

Sec.  92.254--Qualification as Affordable Housing: Homeownership

A. Downpayment Assistance Programs Help Low-Income Households
    One commenter stated that downpayment assistance programs are vital 
for low-income households to be able to purchase homes.
    HUD Response: HUD agrees with the commenter.

[[Page 843]]

B. Homeownership Value Limits in Sec.  92.254(a)
    HUD received several comments on the HOME homeownership value 
limits, with many commentors stating that the limits are too low and 
that the data and process for calculating them should be updated to 
reduce burden on participating jurisdictions and increase options for 
homebuyers. One commenter noted that by limiting the value to 95 
percent of area median home prices, families at or below 80 percent of 
area median income struggle to access homeownership in the community of 
their choosing.
    Some commentors pointed out that the value limits disproportionally 
impact rural communities or concentrate opportunities in minority 
communities while limiting opportunities in predominately white 
neighborhoods. One commenter stated the 95 percent HOME price limit 
hinders developers and homebuyers from accessing high opportunity 
neighborhoods. Another commenter agreed that the limitation creates a 
barrier for both developers looking to meet housing demand and 
homebuyers wanting to live in communities of their choice. The 
commenter said that the home price limit has long been an impediment to 
fair housing but given unprecedented home prices it is now an 
insurmountable obstacle.
    Several commentors suggested that HUD revert to using the FHA 
203(b) Single Family Mortgage Market data. Commenters suggested the 
data from FHA 203(b) better supports rural communities as it is more 
dynamic than the current numbers and offers a higher national floor. 
Additionally, the commenters noted that there is precedent for this 
practice as HUD used 203(b) data as the basis for the 95 percent of 
median home price calculation ahead of its 2013 rulemaking.
    One commentor stated that the homeownership value limit has been a 
problem for years, particularly in rural areas, because it is too low 
to enable the construction of new units or the acquisition-rehab of 
homeownership units for affordable sale. The commenter noted that HUD 
cited statutory restrictions against changing the limit but argued that 
there is significant room for HUD to make regulatory changes. For 
example, the commenter said that the statute is silent on how HUD 
should determine the median purchase price for an area, and, in fact, 
in 2013 HUD changed the source of the median home purchase price data 
from the FHA Single Family Mortgage Limits (203(b) limits) to the 
current source.
    One commentor stated that the limits are too low to cover repairs 
to older homes or meet the needs of larger families due to a lack of 
flexibility in rural areas to account for high costs from limited local 
contractor availability and infrastructure.
    A commentor stated that giving local participating jurisdictions a 
chance to calculate their own price limits is well-intentioned but of 
limited use. Another commenter stated that participating jurisdictions 
struggle with cost and capacity issues while attempting to establish 
their own limits. Commenters recommended that HUD build out its 
regulations to further limit the effect of the HOME homeownership value 
limits as much as possible.
    Another commentor argued that homeownership value limits were not 
needed as other quantitative controls exist in the form of income 
limits and affordability limits but acknowledged that HUD is still 
statutorily required to provide them.
    One commentor suggested that HUD use an alternative maximum sales 
price allowed to align with certain State programs that use 90 percent 
of the IRS annually published Average Area and Nationwide Area Average 
Purchase Prices.
    Commentors acknowledged congressional action, or new legislation 
would be needed to eliminate the 95 percent limit, with one commentator 
suggesting that it be replaced with a 110 percent limit or a percentage 
established by the Secretary.
    HUD Response: HUD acknowledges the numerous challenges communities 
face implementing homebuyer and homeowner rehabilitation programs. 
Section 215(b) of NAHA requires that the initial purchase price or 
after-rehabilitation value of homeownership units assisted with HOME 
funds not exceed 95 percent of the area median purchase price for 
single family housing, as determined by HUD. Historically, HUD used the 
FHA Single Family Mortgage Limit (known as the 203(b) limits) as a 
surrogate for 95 percent of area median purchase price. However, 
statutory changes require the 203(b) limits to be set at 125 percent of 
area median purchase price. Consequently, in its July 2013 final rule, 
HUD eliminated the 203(b) limit as the sales price or after 
rehabilitation value limit for HOME-assisted homeownership housing. The 
2013 Final Rule established that HUD would begin to provide limits for 
affordable newly constructed housing based on 95 percent of the median 
purchase price of newly constructed housing in the area using data from 
the Federal Housing Administration (FHA) and other appropriate data 
sources, with a minimum limit based on 95 percent of the U.S. median 
purchase price for new construction for nonmetropolitan areas. For 
existing single family housing units being acquired or rehabilitated 
with HOME funds, HUD would begin to provide limits for affordable 
existing housing based on 95 percent of the median purchase price of 
existing housing in the area using data from the FHA and other 
appropriate data sources on sale prices of existing homes in standard 
condition, with a minimum limit based on 95 percent of the State-wide 
nonmetropolitan area median purchase price using this data.
    The Department understands the unique challenges rural communities 
face using the HUD published homeownership value limits and has begun 
taking steps to assist those communities. In 2024, HUD made a major 
revision to the homeownership value limit methodology outlined in 
section 92.254(a)(2)(iii) of the July 2013 Final Rule. For existing 
housing, HUD is now using the greater (rather than the lesser) of the 
State non-metropolitan and U.S. non-metropolitan media sales values as 
the minimum value in which the limit is calculated. This change will 
substitute more local, State-level data for national-level data.
C. Beginning the Period of Affordability at Project Completion
    One commenter stated that the period of affordability for homebuyer 
projects should be measured by the assisted-homebuyer's acquisition of 
the unit, not the project completion date. This is because the current 
rule is administratively burdensome, leads to unintentional 
noncompliance by participating jurisdictions, and confuses assisted 
buyers. The commenter noted that parties never know when the period of 
affordability ends because none of the parties knows for certain when 
the project is marked complete in the Integrated Disbursement and 
Information System (IDIS), which leaves participating jurisdictions 
confused. The commenter noted there is often unintentional compliance 
because participating jurisdictions need some time, if even only a few 
days, to review and compile final financial information needed to 
complete a project in IDIS, which means that project completion cannot 
be achieved on the same day an assisted buyer purchases the unit.
    One commenter noted that the period of affordability is a problem 
in multi-address homeownership projects

[[Page 844]]

because the buyer of the first HOME-assisted unit in a multi-address 
project may have taken possession and lived in their unit for months 
while other units were still under construction. The commenter stated 
that the project would not be considered complete under the definition 
until all assisted units have been transferred to eligible buyers, so 
no buyer's POA has started to run until the last assisted unit is sold. 
The commenter recommended that HUD could encourage this information to 
be disclosed to buyers.
    HUD Response: The Department agrees with the commenter and is 
revising Sec.  92.254(a)(4) to begin the period of affordability after 
execution of the instrument that requires the recapture of the HOME 
investment or recordation of the resale restrictions for sale to the 
next homebuyer. The Department is further requiring that execution of 
the instrument that requires the recapture of the HOME investment or 
recordation of the resale restrictions for sale to the next homebuyer 
only occur after the housing meets the participating jurisdiction's 
property standards in accordance with Sec.  92.251(c)(3) and the 
property title is transferred to the homebuyer. This will provide the 
same necessary protections for homebuyers (i.e., that the property 
meets property standards, that title has transferred, and that the 
resale or recapture provisions have been applied to the property) 
without conditioning the period of affordability on the participating 
jurisdiction's completion of the information in the disbursement and 
information system.
D. Data Sources and Methodology Recommendations
    Commenters suggested that HUD change the data that it uses to 
calculate the homeownership limit to make the data more accurate or 
timely, with one commentor even suggesting that HUD remove the value 
limits if more accurate data couldn't be used. One commentor 
recommended HUD incorporate an adjustment factor or inflation factor to 
make limits more current. Another commentor suggested using data that 
excludes investor-purchased homes and only includes owner-occupied 
sales, as investor purchases can skew data thereby undermining 
affordability goals. The commenter also suggested replacing the limit 
with a HOME Subsidy Limit focused on the ``appropriateness of the 
amount of assistance'' by participating jurisdictions to address 
concerns around the prudent use of funds without restricting 
homebuyers' choices in neighborhood or home.
    HUD Response: While the Department is somewhat limited by NAHA, HUD 
will continue to look for ways to ensure the data used to calculate 
area median purchase price is as accurate as possible to support the 
use of HOME funds for homeownership assistance. Unfortunately, for the 
reasons stated earlier in this preamble, the Department cannot change 
the 95% limit itself.
E. Support for Resale Formula Revisions in Sec.  92.254(a)(5)(i)
    Several commentors expressed support and appreciation for providing 
resale formulas. Commenters stated that the formulas would improve 
consistency and fairness to homebuyers while resolving the frustrations 
felt by participating jurisdictions as they develop provisions or rely 
on inconsistent guidance. Commenters also expressed appreciation for 
retaining the ability to submit their own resale formulas for HUD 
approval, with one commentor asking HUD to provide more detail on the 
HUD approval process for submitting their own formulas. A commenter 
encouraged HUD to work with Congress to amend the relevant statutory 
language to better facilitate the homebuyer resale provision process.
    HUD Response: Through this rule making, HUD has worked within the 
statutory requirements of the Act to amend and clarify the homebuyer 
requirements at Sec.  92.254 to assist participating jurisdictions that 
undertake homebuyer activities. HUD thanks the commenters for reviewing 
the proposed rule and is moving forward with the resale models without 
change.
F. Undefined Terms in Resale Sec.  92.254(a)(5)(i)
    One commenter stated that a ``reasonable range of low-income 
buyers'', ``capital improvement'', and how to value a capital 
improvement are not explained and are open to interpretation. A 
commenter suggested that HUD provide a definition of ``fair return on 
investment'' in precise percentage terms and recommended that HUD, or 
the participating jurisdiction, be responsible for providing down 
payment assistance to ensure the sale price provides an ROI that meets 
the definition.
    HUD Response: As a Federal block grant program, HOME provides 
flexibility to State and local governments to determine how best to 
address community needs. By giving participating jurisdictions the 
ability to define what constitutes a fair return on investment, and a 
reasonable range of low-income buyers, HUD is permitting participating 
jurisdictions to design resale provisions to address community goals 
and adapt to local market conditions. The Department also believes that 
``capital improvement'' is a known term in real estate and that a 
participating jurisdiction should not have difficulty determining 
whether a capital improvement has been made to the property. Capital 
improvements can be valued based on appraisals, the cost-to-build, or 
other commercially reasonable methods. The Department is providing four 
models that can be used to determine resale, some of which involve the 
selection of a fixed percentage or use of an index that can assist the 
participating jurisdiction in determining the fair return on investment 
in accordance with the HOME regulations and statute. The Department 
refuses, however, to provide a fixed percentage or range, as the 
commenter suggests. To assist participating jurisdictions in defining 
these terms, HUD has published guidance in CPD Notices and technical 
assistance products. For the reasons listed above, HUD has declined to 
further define these terms in regulation.
G. Use of HUD-Provided Formulas in Sec.  92.254(a)(5)(i) Will Not 
Provide Significant Return to Homebuyer
    One commenter, that does not use the resale option in its program, 
stated that a HOME-assisted buyer who sells their home wouldn't receive 
much of a return using HUD's four proposed formulas. The commenter 
noted that the benefit of homeownership is wealth building through the 
appreciation of home value and equity.
    HUD Response: HUD does not agree with this comment. HOME is a block 
grant program. Participating jurisdictions have the flexibility to 
establish fair return standards that are more or less generous 
depending on their markets and their policy objectives. Moreover, if an 
assisted homebuyer owns the housing as their principal residence 
through the period of affordability, then the resale provisions 
terminate, and they will be able to realize the full benefits of wealth 
accumulation that come with homeownership.
H. Support for Recapture of Investment Revisions in Sec.  
92.254(a)(5)(ii)
    A commenter stated that they support the proposed changes to the 
HOME recapture language clarifying that the recapture amount is the 
direct assistance to the homebuyer that enabled the homebuyer to 
purchase the unit.

[[Page 845]]

    HUD Response: HUD thanks the commenter for reviewing and is moving 
forward with this clarification.
I. Adding Rent Restrictions to Accessory Dwelling Units in Sec.  
92.254(a)(6)
    A commenter stated that the HOME program should set a rent cap on 
ADUs where a homebuyer is purchasing a multi-unit property with HOME 
assistance. The commenter stated that this would prevent the misuse of 
HOME funds. The commenter also stated that real estate tax exemptions 
should be provided to homebuyers who are operating within an ADU rent 
cap limit. The commenter stated that these suggestions would help 
increase community support for ADU projects and benefit the wider 
community while offering a modest boost to homeowners.
    HUD Response: Whether a unit is subject to the HOME rental housing 
period of affordability requirements in Sec.  92.252 depends upon 
whether HOME funds were used to assist in the acquisition of the unit, 
as described more fully in Sec.  92.254(a)(6), which was only revised 
for minor technical corrections. The Department believes that through 
its revisions to small-scale housing provisions in Sec. Sec.  92.2, 
92.251, 92.252, and 92.253, it has enabled purchasers of single family 
housing, including housing with ADUs, to more effectively manage these 
units as HOME rental housing units when those requirements apply. State 
and local property tax exemptions are outside the scope of this rule.
J. Preserving Affordability in Sec.  92.254(b)--Clarify the Parties 
That Have Rights of First Refusal
    One commenter expressed concerns that neither participating 
jurisdictions nor program participants fully understand that rights of 
first refusal and other preemptive rights are not acceptable beyond 
those permitted to a participating jurisdiction and a community land 
trust. The commenter noted that some developers seek to retain rights 
of first refusal, particularly in the case of homeownership units under 
recapture provisions, and the repurchase price prevents buyers from 
realizing any appreciation otherwise attributable to the owner. The 
commenter noted that HUD should make clear that only participating 
jurisdictions and community land trusts are permitted by statute to 
exercise rights of first refusal.
    HUD Response: The Department appreciates the commenter's concern 
that program participants often fail to understand when preemptive 
rights are granted and to whom. The Continuing Appropriations Act, 2016 
(Pub. L. 114-113) extended a participating jurisdiction's right to 
exercise purchase options, rights of first refusal or other preemptive 
rights provided in 42 U.S.C. 12742 of the Act to Community Land Trusts 
that developed the homeownership units. Neither the Act nor the 
Continuing Appropriations Act, 2016 (Pub. L. 114-113) provide any other 
entity the right to exercise purchase options, rights of first refusal 
or other preemptive rights to acquire housing when there is a 
termination event threatening the affordability restrictions (e.g., 
foreclosure, transfer in lieu of foreclosure or assignment of an FHA-
insured mortgage to HUD). If a developer of HOME-assisted homebuyer 
housing attempts to exercise a right of first refusal during the HOME 
period of affordability, the unit will no longer be in compliance with 
HOME period of affordability requirements. Section 12744(b) of the Act 
requires owners of HOME-assisted homebuyer units under a resale 
provision to sell only to another low-income homebuyer, while units 
under a recapture provision must be sold on the open market and the 
participating jurisdiction must use the recaptured funds for other 
eligible activities in accordance with HOME requirements. Thus, if 
another entity other than the participating jurisdiction or community 
land trust that developed the project attempts to exercise a right of 
first refusal, it could lead to repayment of the HOME investment 
because the unit will cease to be affordable housing under the Act.
K. Concerns With Sec.  92.254(b) Requirement That the Home Be Resold 
Within 6 Months to an Eligible Homebuyer
    Two commenters expressed concerns regarding the proposed 
requirement in Sec.  92.254(b)(1)(i) that would require a participating 
jurisdiction to resell a home acquired by the participating 
jurisdiction through preemptive rights to an eligible low-income 
homebuyer within 6 months. Both commenters recommended that HUD extend 
the deadline for the participating jurisdiction to resell a home 
acquired through preemptive rights to 12 months instead of 6 months. 
Several commenters expressed concern that the proposed Sec.  
92.254(b)(3)(i) would require community land trusts that acquire HOME-
assisted housing through preemptive rights to resell the housing to an 
eligible homebuyer within 6 months. These commenters stated that HUD 
should raise the 6-month resale requirement to 9 or 12 months, which 
several commenters noted would align with the current regulation or 
proposed revisions in Sec.  92.254(a)(3). One commenter noted that HUD 
may want to measure compliance with any established resale date against 
the date of a ratified sales contract. The commenter also suggested 
that HUD could establish provisions that would extend the period of 
affordability by the period the community land trust is in possession 
of the property prior to transferring it to another buyer. Another 
commenter stated that establishing a minimum deadline of no less than 
12 months for both community land trusts and participating 
jurisdictions to complete the sale of a property would allow community 
land trusts, which often have limited resources a reasonable amount of 
time to bring the housing to an appropriate standard and identify an 
appropriate buyer.
    HUD Response: HUD agrees that extending the timeframe from 6 to 12 
months to resell a homebuyer unit acquired through purchase options, 
rights of first refusal, or other preemptive rights will provide both 
participating jurisdictions and community land trusts additional time 
to rehabilitate a unit, identify a qualified buyer, and permit the 
buyer to obtain the financing necessary to acquire the unit. Extending 
the timeframe from 6 to 12 months will also align with the 12-month 
homebuyer sales deadline in Sec.  92.254(a)(3).
L. Confusion Over Preserving Affordability in Sec.  92.254(b)
    One commenter found the language on preserving affordability of 
housing assisted with HOME funds in Sec.  92.254(b) confusing and 
suggested reversing sections (1) and (2) such that the proposed 
language would begin by stating how the participating jurisdiction may 
acquire the housing by using additional HOME funds, followed by the 
requirements for selling the housing.
    HUD Response: HUD thanks the commenter for the suggested 
reorganization but is maintaining the order of sections (1) and (2) in 
Sec.  92.254(b), as section (b)(1) defines the specific actions a 
participating jurisdiction may take to preserve affordability of 
homebuyer housing when there is a termination event, and section (b)(2) 
defines the eligible use of additional HOME funds should the 
participating jurisdictions choose to preserve the affordability of the 
housing.

[[Page 846]]

M. Community Land Trusts Exercising Preemptive Purchase Rights Under 
Sec.  92.254(b)
    One commenter supported the inclusion of community land trusts' 
right to exercise preemptive purchase rights while several commenters 
expressed concern or opposition to HUD's proposed language codifying 
the amendments to NAHA in the Consolidated Appropriations Act, 2016 
(Pub. L. 114-113) that community land trusts may hold and exercise 
purchase options, rights of first refusal, or other preemptive rights 
to purchase housing to preserve affordability, including but not 
limited to the right to purchase the housing in lieu of foreclosure.
    One commenter expressed broad concerns about the proposed language 
in Sec.  92.254(b)(3) stating that it was unclear what would happen 
should a community land trust be unable to purchase a home prior to 
foreclosure, find an eligible household within 6 months, and the 
participating jurisdiction cannot provide additional HOME funds to 
assist the unit. The commenter noted that proposed language would 
create barriers for the community land trust, the participating 
jurisdiction because the unit would likely be sold on the private 
market, and the participating jurisdiction may be required to repay the 
HOME funds. The commenter stated it would welcome additional guidance 
from HUD.
    HUD Response: The Department appreciates the comments. HUD 
understands that a community land trust may need additional funds to 
exercise a preemptive purchase right on a HOME-assisted homebuyer unit 
to preserve affordability. Because it cannot use additional HOME funds 
for this purpose, community land trusts interested in exercising the 
preemptive rights pursuant to the Continuing Appropriations Act, 2016 
(Pub. L. 114-113) and the requirements promulgated in Sec.  
92.254(b)(3) must either use other non-HOME funds to acquire the unit 
and preserve affordability, or may request the participating 
jurisdiction to preserve affordability of the unit through the 
preemptive rights provided to the participating jurisdiction under 
Sec.  92.254(b)(1) and (2).
    Further, even if a community land trust may not assist the next 
homebuyer using HOME funds, the participating jurisdiction is permitted 
to provide additional HOME assistance directly to the next homebuyer 
should a community land trust exercise its preemptive purchase rights 
to preserve the affordability of the unit. HUD thanks the commenter 
that believed that a participating jurisdiction is prohibited from 
directly assisting the next homebuyer. This was not HUD's intent, and 
to address any confusion, HUD is adding clarifying language to Sec.  
92.254(b)(3)(iv) to state that a participating jurisdiction may provide 
direct assistance to the next homebuyer of a unit preserved by a 
community land trust through preemptive purchase rights.
N. Other Organizations Should Be Able To Use Preemptive Purchase Rights 
Under Sec.  92.254(b)
    Two commenters encouraged HUD to evaluate whether preemptive 
purchase rights could be made available to a wider range of 
organizations or affordable housing models. One commenter stated that 
they believed Congress meant to apply preemptive rights broadly to non-
profit organizations whose purpose and goal is to preserve affordable 
homeownership opportunities, including shared equity/long-term 
affordability homeownership programs and not just to community land 
trusts. The commenter noted that many participating jurisdictions do 
not have the capacity or desire to expend time and resources to 
repurchase properties and should be permitted to allow nonprofit 
developers to use a preemptive purchase option or to assign the 
participating jurisdiction's preemptive purchase options to nonprofit 
developers to ensure long-term affordability. The commenter also states 
that limiting preemptive rights to participating jurisdictions and 
community land trusts only in the case of foreclosure is too limiting, 
particularly if HUD and Congress' goal is for HOME-assisted housing to 
fulfill the required period of affordability. The commenter states that 
the homeowner is unnecessarily burdened by these restrictions because 
they are responsible for finding and qualifying a subsequent, eligible 
homebuyer. The commenter suggests that eligibility for using preemptive 
purchase options should be determined based on the intent of the 
nonprofit developer to exercise the right for the purpose of preserving 
affordability and reselling to another eligible homebuyer, not whether 
the nonprofit formerly owned the land after the initial sale or 
acquired both land and improvements through exercise of the preemptive 
purchase right.
    HUD Response: The Continuing Appropriation Act, 2016 (Pub. L. 114-
113) provided preemptive purchase rights only to community land trusts 
and only with respect to properties these community land trusts 
properties developed with HOME funds. Congress did not intend broader 
applicability of these preemptive purchase right than HUD is 
promulgating in this final rule.
    The Department disagrees with the commenter's statement that 
participating jurisdictions do not have the capacity or resources to 
exercise preemptive rights. HUD clarified in Sec.  92.254 (b)(2) that 
participating jurisdictions may use additional HOME funds for certain 
eligible costs. Specifically, a participating jurisdiction may use 
additional HOME funds in accordance with Sec.  92.254(b)(2) to obtain 
ownership of the housing, undertake any necessary rehabilitation, hold 
the housing pending sale to another homebuyer, and assist an eligible 
homebuyer in purchasing the unit. Consequently, a participating 
jurisdiction that chooses to exercise preemptive rights should have the 
resources necessary to preserve affordable housing.
    Further, a participating jurisdiction is not permitted to assign 
its preemptive rights to a developer to exercise in response to a 
termination event, or in the case of a right of first refusal should a 
developer wish to acquire a HOME-assisted unit at resale. The commenter 
incorrectly states that homeowners' seeking to sell the HOME-assisted 
unit during the period of affordability are responsible for identifying 
and qualifying another eligible low-income homebuyer. While a homebuyer 
unit under a resale provision must be sold to another low-income buyer 
at a price that provides the seller with a fair return on investment, 
the homeowner is not responsible for identifying the next buyer or 
determining whether the buyer is income eligible. The participating 
jurisdiction is responsible for overseeing the subsequent sale of a 
homebuyer unit under resale and ensuring that all HOME requirements are 
met. Homebuyer units under a recapture provision must be sold on the 
open market with any recaptured funds returned to the participating 
jurisdiction to use for other eligible activities in accordance with 
HOME requirements.
O. Recalculating the Period of Affordability When a Participating 
Jurisdiction or Community Land Trust Exercises a Preemptive Purchase 
Right Under Sec.  92.254(b)
    One commenter stated that the proposed requirement at Sec.  
92.254(b)(3)(iii) that the period of affordability for the eligible 
buyer must be equal to the remaining period of affordability of the 
former homeowner will inadvertently bar a community land trust from 
requiring a new 99-year affordability restrictions upon resale of

[[Page 847]]

a previously assisted home. The commenter stated that rather than 
requiring a fixed period of period of affordability upon resale as a 
condition to a community land trust's preemptive acquisition and resale 
of a HOME-assisted property in order to preserve its affordability, HUD 
should encourage long-term affordability by stating that the new period 
of affordability must be ``at least equal to'' or ``equal to or greater 
than'' the remaining period of affordability of the former homeowner.
    HUD Response: The Department appreciates the commenter's feedback 
but believes the commenter is confusing the community land trust long-
term ground lease with the HOME period of affordability required in 
Sec.  92.254(a)(4). The HOME period of affordability and associated 
affordability restrictions are separate from the long-term ground lease 
the homeowner executes with the community land trust. Nothing in the 
HOME regulations would prohibit a community land trust from continuing 
to enforce a 99-year ground lease on a new homebuyer following the 
community land trust executing its preemptive rights under Sec.  
92.254(b)(3). Should a community land trust choose to exercise its 
preemptive rights during the period of affordability in accordance with 
Sec.  92.254(b)(3), the new HOME-assisted homebuyer would be required 
to meet the HOME affordability restrictions (i.e., principal residency 
and resale requirements) for the remaining period of affordability on 
land held by the community land trust under a ground lease for a term 
established by the community land trust. Participating jurisdictions 
are permitted to impose longer periods of affordability, perhaps even 
aligning with the term of the ground lease but would be required to 
monitor the HOME affordability restrictions for the longer period.
P. Providing Additional HOME Assistance to Property Purchased Through 
Preemptive Purchase Rights Under Sec.  92.254(b)
    Several commenters expressed concern or opposition to the proposed 
language at Sec.  92.254(b)(3)(iv) that states that a participating 
jurisdiction may not provide additional HOME funds to a community land 
trust to obtain ownership, rehabilitate the housing, own/hold the 
housing pending sale to the next homebuyer, or provide down payment 
assistance to the next eligible homebuyer.
    A commenter questioned why HUD would prohibit community land trusts 
from providing additional HOME funds to rehabilitate units acquired 
through their right of first refusal or from assisting buyers of such 
units because a property may need renovations or upgrades to comply 
with codes between owners. Several commenters expressed concern or 
opposition to the proposed language at Sec.  92.254(b)(3)(iv) that 
states that a participating jurisdiction may not provide additional 
HOME funds to a community land trust to obtain ownership, rehabilitate 
the housing, own/hold the housing pending sale to the next homebuyer, 
or provide down payment assistance to the next eligible homebuyer. A 
commenter questioned why HUD would prohibit community land trusts from 
providing additional HOME funds to rehabilitate units acquired through 
the next eligible homebuyer.
    Two commenters questioned why participating jurisdictions may use 
additional HOME funds to obtain ownership, rehabilitate, hold the 
housing pending resale, or provide downpayment assistance, yet a 
community land trust is not. Both commenters questioned the policy 
rationale behind this distinction, and one commenter stated that this 
prohibition runs counter to the regulatory definition's purpose of 
enshrining the preemptive right to purchase,\68\ and urged HUD to 
provide community land trusts with a more complete array of tools to 
preserve the structure and affordability of their housing units.
---------------------------------------------------------------------------

    \68\ See the proposed definition of community land trust in 
Sec.  92.2, paragraph (4), in the proposed rule. 89 FR 46657.
---------------------------------------------------------------------------

    One commenter expressed concern regarding the proposed restrictions 
on community land trusts that would prevent community land trusts from 
obtaining ownership through a preemptive purchase option. The commenter 
argued that disallowing the use of HOME funds undercuts the benefit to 
a community land trust of having a preemptive purchase option at all, 
and as a result of this restriction participating jurisdictions would 
not support community land trusts' purchase option since exercising 
their own would allow them to apply additional funding to the HOME-
assisted project, and that the restriction places the burden of 
rehabilitation and management on a community land trust without 
providing additional resources to do so responsibly. The commenter said 
that it is essential that a community land trust exercising the 
preemptive purchase option be able to access HOME funds to rehab a home 
in preparation for a new homebuyer and recommended that community land 
trusts be able to use HOME funds for the same purposes as participating 
jurisdictions.
    One commenter stated that the proposed language creates ambiguity 
regarding assistance to subsequent homebuyers purchasing property in a 
community land trust. The commenter stated that the language is unclear 
on whether the term ``to the Community Land Trust'' modifies each of 
the following listed elements in Sec.  92.254(b)(3)(iv) or only applies 
to the ``to obtain ownership'' element. The commenter stated that the 
lack of clarity led to confusion on whether it could provide 
homeownership assistance directly to a subsequent buyer of a home in a 
community land trust where it had provided assistance to a previous 
buyer and the prior period of affordability was still applicable. The 
commenter suggested that HUD could address the issue by updating the 
proposed definition to the following: ``The participating jurisdiction 
may not provide additional HOME funds to the Community Land Trust to 
obtain ownership, to rehabilitate the housing, to own/hold the housing 
pending resale to the next homebuyer, or to provide homeownership 
assistance to the next eligible homebuyer.'' One commenter asked for 
clarification on the preemption of providing HOME funds to community 
land trusts for ownership, rehab, holds pending resale, or downpayment 
under proposed Sec.  92.254(b)(3)(iv). The commenter also sought 
clarification on the misalignment with Sec.  92.254(a)(9)(ii) that 
permits additional HOME funds if it meets the maximum-per-unit subsidy 
cap. One commenter explained that community land trusts require an 
enforcement mechanism due to their structure and purpose to provide 
permanent affordability, requiring financially sound operators to 
adhere to covenant enforcement and to retain sufficient resources to 
execute the right of first refusal. The commenter further explained 
that because of these additional measures, HUD should consider if 
participating jurisdictions should perform underwriting similar to that 
of a robust organization to cover these mechanisms, perhaps using the 
multifamily requirements as a template. The commenter stated that this 
could better ensure a sound operational foundation for the organization 
during the duration of the period of affordability.
    HUD Response: The Department thanks the commenters for their 
feedback. However, HUD is moving forward with the provisions in Sec.  
92.254(b)(3), which do not permit a participating jurisdiction from

[[Page 848]]

providing additional HOME funds to a community land trust that has 
exercised preemptive rights to preserve affordability of HOME-assisted 
homebuyer housing. The Continuing Appropriations Act, 2016 (Pub. L. 
114-113) did not authorize HUD to permit a community land trust, during 
the HOME period of affordability, to request additional HOME funds from 
a participating jurisdiction. Instead, the Continuing Appropriations 
Act, 2016 (Pub. L. 114-113) only allowed a community land trust to take 
possession of the property and resell to an eligible low-income 
homebuyer, thereby preventing the participating jurisdiction from 
having to repay the HOME investment because the property failed to meet 
the HOME requirements for the full period of affordability.
    While the Continuing Appropriations Act, 2016 (Pub. L. 114-113) 
permitted community land trusts to exercise preemptive rights to 
preserve the affordability of housing, a community land trust is not 
required to exercise such options and may instead notify the 
participating jurisdiction that action is required to preserve the 
HOME-assisted unit. The participating jurisdiction may invest 
additional HOME funds in accordance with Sec.  92.254(b)(1) and (2) to 
acquire, rehabilitate, hold the housing pending sale, and assist an 
eligible homebuyer to purchase the unit. The total amount of HOME funds 
invested, (i.e., the original investment plus additional investment) 
cannot exceed the maximum per-unit subsidy in effect at the time of the 
additional investment, subject to HUD approval.
    A community land trust that chooses to exercise its preemptive 
rights under Sec.  92.254(b)(3) may use existing organizational 
resources or other funding sources to acquire, rehabilitate, hold the 
unit pending sale to another eligible homebuyer, and assist the next 
eligible homebuyer. The Department is adding clarifying language to 
Sec.  92.254(b)(3)(iv) that a participating jurisdiction may provide 
direct assistance to an eligible homebuyer of a unit preserved by a 
community land trust through preemptive rights. The Department agrees 
with the commenter that the original proposed language in Sec.  
92.254(b)(3)(iv) was not clear about whether a participating 
jurisdiction could directly assist the subsequent buyer should a 
community land trust take action to preserve the affordability of the 
unit. The Department is also clarifying the period of affordability 
applicable to any homeownership assistance provided by the 
participating jurisdiction to the next eligible homebuyer.
    While the Department agrees with the commenter that community land 
trusts that exercise preemptive rights under Sec.  92.254(b)(3) should 
have sufficient resources to execute these rights and resell the unit 
to an eligible homebuyer, the Department is not requiring a 
participating jurisdiction to underwrite the community land trust. The 
participating jurisdiction may choose to exercise its own preemptive 
rights in lieu of the community land trust should the community land 
trust not have the financial resources needed.
Q. Revise the Lease-Purchase Requirements in Sec.  92.254(e)(7)
    One commenter recommended HUD extend the lease purchase completion 
deadline from 36 months to 5 years because they believe local 
experience suggests that the model is more effective when a client has 
more time from the date of offer and is offered homebuyer education. 
One commenter requested that the proposed Sec.  92.254(a)(7) enable a 
second chance at a successful lease-purchase agreement if an initial 
lease-purchase on the property fails. One commenter stated that if a 
lease-purchase fails, the developer is locked into a lengthy cycle of 
rental administration, closing off much-needed affordable inventory for 
homeownership.
    HUD Response: The Department appreciates the comments on the 
proposed lease-purchase changes and agrees that providing additional 
time to identify an eligible homebuyer is beneficial. However, if the 
first homebuyer is unable to acquire the housing within 36 months, the 
Department does not agree that entering into a subsequent lease-
purchase agreement with a new homebuyer is prudent as an indefinite 
period cannot be permitted to pass before the homeownership unit meets 
the HOME homeownership requirements. Instead, HUD is revising Sec.  
92.254(a)(7) to provide the owner with an additional 12 months to sell 
the housing to another eligible low-income homebuyer. While the owner 
would be prohibited from selling the unit through another lease-
purchase agreement, the participating jurisdiction could provide 
homeownership assistance to the next eligible homebuyer. If the owner 
is unable to sell the unit to an eligible homebuyer within 48 months of 
the execution of the original lease-purchase agreement, the unit must 
convert to rental housing in accordance with Sec.  92.252.
R. Support for Nonprofit Lender Revisions to Sec.  92.254(f)
    One commenter expressed support for HUD's clarification that 
participating jurisdictions may provide HOME funds to nonprofit lending 
institutions as a contractor or subrecipient. The commenter stated this 
would allow nonprofit lenders to provide HOME homeownership assistance 
alongside first mortgage financing and thereby strengthen the nonprofit 
delivery system's ability to meet affordable homeownership needs.
    HUD Response: HUD thanks the commenter for reviewing and is moving 
forward with revisions to specify that nonprofit lenders can be either 
contractors or subrecipients.
S. Changes to Homebuyer Underwriting in Sec.  92.254(g)
    Several commenters voiced support for the changes to Sec.  
92.254(g)(1) that revise the homebuyer underwriting standards. Some 
commenters praised the simplified focus on evaluating the projected 
overall after-purchase debt of a family, while others were concerned 
that families could be subjected to foreclosure if monthly expenses are 
not properly evaluated. Other commenters suggested HUD instead follow 
the standards provided by Qualified Mortgages or Community Development 
Financial Institutions while a few commentors disagreed with HUD's 
clarification on providing a single amount of assistance to all 
homebuyers.
    HUD Response: HUD appreciates the comments and is moving forward 
with the proposed change.
T. Standardize or Align Third-Party Underwriting Standards in Sec.  
92.254(g)
    Some commenters noted that the existing structure in which each 
participating jurisdiction develops their own underwriting standards 
can create confusion and inconsistencies and suggested that HUD 
standardize and align with existing mortgage products to help address 
the issue. These commenters suggested HUD consider establishing a safe 
harbor if the underwriting of the first mortgage meets the standards of 
a Qualified Mortgage as defined by the Consumer Financial Protection 
Bureau (CFPB). Two commentors suggested HUD defer to the underwriting 
standards of a certified Community Development Financial Institution 
(CDFI) as CDFIs have experience underwriting loans to low- and 
moderate-income borrowers.
    HUD Response: The Department disagrees with the commenters that HUD 
should align homebuyer

[[Page 849]]

underwriting requirements with standard mortgage requirements such as 
the Qualified Mortgage standards established by the CFPB. HOME 
participating jurisdictions must have separate underwriting standards 
for HOME-assisted homebuyers because the first mortgage underwriting is 
not a valid proxy for underwriting a second HOME-mortgage where the 
participating jurisdiction must consider the homebuyer's overall debt, 
including the first mortgage debt. Further, Qualified Mortgages, as 
defined by the CFPB, are not focused on evaluating the low-income 
populations participating jurisdictions are required to serve. While 
the CFPB requirements are a good starting point for assessing the 
appropriateness of private first mortgages, a participating 
jurisdiction's underwriting policy must consider additional factors 
because HOME-assisted homebuyers are low-income. Participating 
jurisdictions must continue to establish and use their own homebuyer 
underwriting standards in accordance with Sec.  92.254(g) to adequately 
protect the low-income homebuyers from risky and unsustainable 
mortgages. The Department is moving forward with the proposed change.
U. Changes to Evaluation of Family Debt in Underwriting in Sec.  
92.254(g)
    Two commenters noted that HUD correctly identified that the current 
regulation excludes households that have overall debt and monthly 
expenses that exceed a participating jurisdiction's underwriting 
standards but demonstrate an ability to sustain a mortgage through 
other indicators and argued that rigid ratios for housing expense and 
total debt is reflective of an outdated practice. The commenters stated 
that the current requirements can prevent a buyer from buying their 
preferred home in their location of choice because they favor borrowers 
with strong credit ratings, high down payments and cash reserves, and 
other factors. The commenters supported HUD's proposal to eliminate the 
requirement that a participating jurisdiction evaluate monthly 
expenses, to establish a standard to determine the maximum amount of 
direct HOME assistance, and to prohibit participating jurisdictions 
from providing a single, fixed amount of assistance to every homebuyer 
receiving assistance but asked HUD to provide additional guidance to 
participating jurisdictions as it finalizes this rulemaking and 
implements the requirements. One commenter agreed with some changes 
that would eliminate the need to evaluate both the housing debt and 
overall debt of the family in favor of evaluating overall debt of the 
family projected after purchase, but this commenter expressed concerns 
with the proposed rule's elimination of the requirement that 
participating jurisdictions evaluate the monthly expenses of the 
family. The commenter stated that the lender cannot see if a family can 
afford a loan if they are not doing their due diligence. The commenter 
recommended that HUD interpret the rule's language that ``the standards 
must evaluate the... financial resources to sustain housing'' as 
requiring robust evaluations to ensure that the overall financial 
health of the family is still assured prior to home purchase.
    Two commenters stated that they do not support HUD's proposal to 
eliminate the requirement that participating jurisdictions evaluate a 
family's debt during underwriting. One commenter explained that debt 
evaluation prevents a family from purchasing a home that is over their 
income capacity and from putting the family at risk of foreclosure. 
Another commenter stated that this proposed change is counterintuitive 
to protecting families from financial distress, jeopardizing the 
investment of HOME funds due to foreclosure, short sale, or other 
issues.
    HUD Response: HUD is removing the requirement that the overall debt 
of the family be reviewed as part of the HUD-required underwriting 
analysis performed by the participating jurisdiction but is retaining 
the requirement in Sec.  92.254(g)(1) that ``[t]hese standards must 
evaluate the projected overall debt of the family after the purchase of 
the housing.'' HUD believes that the evaluation of the overall debt of 
the family after the purchase of the housing is the correct measure for 
determining whether the housing would be at risk of foreclosure and 
whether the family would be in financial distress. HUD does not believe 
that separately accounting for the current overall debt of the family 
adds to this analysis. HUD notes that restructuring of debt can occur 
throughout the closing process, and so overall debt of the family pre-
closing is not as informative as overall debt of the family after 
closing and any necessary repair or rehabilitation work that may be 
needed on the property.
V. Prohibition of Providing a Single Amount of Assistance in Sec.  
92.254(g)
    Several commenters stated they do not support the proposed change 
to Sec.  92.254(g)(1) of explicitly stating that a participating 
jurisdiction may not provide a single, fixed amount of assistance to 
every homebuyer receiving assistance in the participating 
jurisdiction's homebuyer program. Two commenters expressed concerns 
that tailoring the amount of assistance to each homebuyer is difficult 
and could be seen as arbitrary. Other commenters stated that tailoring 
assistance may result in a higher subsidy amount to a higher income 
buyers or buyers purchasing more expensive homes.
    One commenter stated that HUD should base appropriateness of 
assistance on the local housing market through methods such as percent 
of median home value. Another commenter supported HUD's attempt to add 
clarity by stating that a participating jurisdiction establishes a 
standard to determine the maximum amount of assistance per family by 
market area but believes that by establishing a cap, a participating 
jurisdiction should be considered compliant. The commenter also 
recommended basing the appropriateness of the assistance on the local 
housing market and using a percentage of the median home value.
    HUD Response: While the Department appreciates the comments, the 
prohibition against providing a single amount of homebuyer assistance 
is not a proposed change. The 2013 HOME Final Rule required 
participating jurisdiction to establish homebuyer program policies and 
procedures, including but not limited to homebuyer underwriting 
guidelines. In accordance with Sec.  92.254(g), a participating 
jurisdiction must utilize underwriting standards to determine the 
amount of HOME assistance each applicant needs to sustain 
homeownership. HUD is declining to make a change that would permit 
participating jurisdictions to establish programs that provide the same 
amount of HOME assistance to every homebuyer irrespective of need. The 
Department is also not providing a safe harbor where the participating 
jurisdiction establishes a maximum cap. A participating jurisdiction 
can always establish a maximum cap for assistance, but if that cap is 
too low, and every homebuyer is provided the same amount, then the 
participating jurisdiction is not evidencing that it is appropriately 
sizing the assistance to meet the requirements of Sec.  92.254.
    The Department also disagrees with establishing the appropriateness 
of assistance based on a set percentage of median home value or the 
local housing market. Participating jurisdictions must perform the 
necessary underwriting to determine whether it is possible to assist 
the family, and how much assistance the family requires in order to be 
able to maintain sustainable

[[Page 850]]

homeownership. Establishing set percentages or basing assistance on 
factors that do not involve an evaluation of the family's finances and 
do not ensure that the homeownership is sustainable. Impact of other 
resale restrictions on the property.
X. Resale Restrictions
    One commenter stated that HUD should clarify whether it is 
appropriate to allow non-HOME resale restrictions to be imposed by non-
participating jurisdiction State or local government programs that are 
funded by HOME. The commenter noted this clarification is needed 
because participating jurisdictions have declined to provide homebuyer 
assistance to low-income buyers from local density bonus programs 
because the housing was deed restricted in a resale-like manner by non-
HOME State or local programs.
    HUD Response: The only resale or recapture restrictions that may be 
placed on a HOME homeownership property are those that are consistent 
with the restrictions provided in the participating jurisdiction's 
consolidated plan in accordance with 24 CFR 91.220(l)(2)(iii) or 24 CFR 
91.320(k)(2)(ii), as applicable, and included in the participating 
jurisdictions written agreement in accordance with Sec.  92.504.
Y. Manufactured Housing in HOME Homeownership Programs
    One commenter stated that it is important that when States and 
localities use funds for down payment assistance for affordable first-
time home purchase, that these programs do not inadvertently exclude 
manufactured homes. The commenter noted that personal property 
manufactured home loans have distinctive attributes that can sometimes 
result in down payment assistance programs not reaching these 
homebuyers. The commenter referenced 2003 guidance and requested that 
HUD updated the program to consider any changes to the regulations 
would negatively impact manufactured housing homeownership 
opportunities. The commenter also stated that since manufactured home 
purchases and financing can be sold differently than site-built home 
purchases, it is important that States and localities conduct 
appropriate outreach to these channels, to ensure manufactured 
homebuyers have the same access to these down payment programs.
    One commenter stated that while the purchase, rehabilitation, and 
development of manufactured homes and manufactured home communities are 
statutorily eligible uses of HOME funds, HOME is not being used to 
preserve and improve manufactured home communities as affordable 
housing and homebuyers and homeowners are routinely denied access to 
HOME-funded programs, even though they are some of the lowest-income 
homeowners in America and play a crucial role in the inventory of 
affordable housing. One commenter stated HUD should engage in outreach 
to States and localities to ensure that their HOME-funded downpayment 
assistance programs do not exclude manufactured homes. The commenter 
stated that this unintentional exclusion has persisted for some time 
often because manufactured homes are ordered in a different manner, and 
it is imperative to address the issue.
    HUD Response: HUD agrees that the acquisition, rehabilitation, and 
installation of manufactured homes and manufactured home communities 
are all eligible HOME projects if they meet the requirements in the 
HOME regulations. HUD also agrees that manufactured housing is an 
important source of affordable housing, and that participating 
jurisdictions and other program partners may not fully understand the 
ways in which HOME funds can be used for manufactured homes and 
manufactured home communities, including homeownership assistance and 
rehabilitation. Because manufactured homes may be personal property in 
some states and real property in others, there is variation in how HOME 
funds can be used to assist the acquisition of these units. HOME funds 
can be used to acquire both the unit and the lot, or to lease the lot 
for the period of affordability and purchase the housing unit. HOME 
funds can also be used to rehabilitate manufactured housing as 
homeowner rehabilitation projects, so long as the units meet the 
property standards in Sec.  92.251 upon completion. The Department will 
consider further ways in which to address any misunderstandings about 
the allowable use of HOME funds in supporting manufactured home 
homeownership through guidance or technical assistance products.
Z. Barriers to Using HOME To Purchase Manufactured Home Communities
    The commenter pointed to regulatory barriers that prevent HOME 
funds from being used for resident acquisition of manufactured home 
communities and stated that HOME funds for acquisition need to be 
implemented through an entity that can meet strict timeframes and work 
with manufactured home communities owners, that HOME funds should be 
used to reduce the cost of debt for acquisition, and that HOME funds 
should be used by participating jurisdictions to make equity grants in 
CDFIs to specifically finance resident purchases of manufactured home 
communities.
    HUD Response: The Department thanks the commenter for reviewing the 
rule and notes that some of the suggestions fall outside the scope of 
this rulemaking. However, HUD agrees that, while an eligible use of 
funds, it can be challenging to use HOME funds to acquire and 
rehabilitate manufactured home communities. A primary reason for this 
is that not all residents of a manufactured home community qualify as 
low-income, and ownership can vary from resident to resident. A more 
viable model might be to use another financing source such as CDBG to 
acquire the manufactured housing community and reserve HOME funds to 
acquire or rehabilitate manufactured housing units for income eligible 
residents. HUD can provide technical assistance to participating 
jurisdictions in structuring HOME projects involving manufactured home 
communities.
AA. Encourage Homeownership Activities
    One commenter also suggested that HUD take further steps to 
encourage participating jurisdictions to make HOME funding available in 
their communities for affordable homeownership construction, 
rehabilitation, and repair by promoting guidance for best practices by 
participating jurisdictions.
    HUD Response: Supporting State and local efforts to expand 
homeownership is a key goal of the HOME program. HUD appreciates the 
comment and will continue to provide technical assistance and guidance 
to participating jurisdictions interested in using HOME funds for 
homeownership. In recent years, HUD has developed and administered 
several webinars, and in-person trainings focused on providing in-depth 
guidance and sharing best practices to participating jurisdictions 
looking to create or expand their homebuyer programs. HUD will continue 
to offer trainings and look for new ways to ensure participating 
jurisdictions have the resources and capacity to expand affordable 
homeownership.
    Specific solicitation of comment #11: The Department requests 
public comment on whether the existing 9-month deadline for the sale of 
homebuyer units acquired, rehabilitated, or constructed with HOME funds 
is reasonable and whether

[[Page 851]]

extending the deadline to 12 months would increase the use of HOME 
funds for homeownership programs.
A. Comments in Support of a 12-Month Deadline for Purchase by an 
Eligible Homebuyer
    Several commenters supported the extension to 12 months. Commenters 
stated that they support the proposed extension for the sale of a 
homebuyer unit acquired, rehabilitated, or constructed with HOME funds 
to 12 months because 9 months is an insufficient amount of time. One 
commenter stated that less than 12 months is an unreasonable time 
period due to market volatility and because small cities do not have 
the capacity to become landlords or to repay HUD for HOME funds when a 
property does not sell or convert to a rental unit. In addition, the 
commenter recommended that HUD remove the requirement for renting all 
together so that participating jurisdictions have time to sell the 
home. Another commenter stated that the three additional months would 
give potential homeowners more time to comply with requirements such as 
homebuyer counseling and income qualifications. One commenter explained 
that they support the change because, currently, it takes longer to 
find income eligible buyers given higher sales prices and interest 
rates. Some commenters said the extension would add flexibility to the 
program and one commenter stated it would make it more attractive to 
use HOME in such projects. One commenter stated that the added time may 
incentivize some participating jurisdictions to add or expand 
homeownership programs using HOME funds.
    One commenter, in expressing support for the extension to a 12-
month deadline, stated that this change would especially benefit new 
construction and enable the local governments who encounter hurdles or 
delays to close the deal by providing an additional 3 months.
    One commenter supported extending the deadline from 9 to 12 months 
but warned that developers and non-profits building owner-occupied 
housing lack rental property management experience and warned of the 
risks and deterrent effects of this misalignment. The commenter 
suggested requiring homebuyer projects to convert to a lease-to-
purchase model instead of rental.
    One commenter noted that having an additional three months to sell 
HOME-assisted homeownership units may increase the use of HOME funds 
for homeownership programs for some participating jurisdictions, but 
high interest rates likely have more of an impact on the success of the 
program in most markets.
    HUD Response: HUD thanks the commenters and agrees that adding an 
additional three months to the homebuyer deadline will benefit local 
communities by alleviating potential noncompliance. The Department is 
moving forward with the proposed change by extending the homebuyer 
sales deadline from 9 to 12 months.
B. Comments in Support of a Sales Deadline of More Than 12 Months
    One commenter stated that because of the current economy the time 
to sell a home should be extended to 15 to 20 months.
    One commenter stated the requirement should be at least 12 months 
because of volatility in the housing market. The commenter suggested 
that a participating jurisdiction and owner can provide a mutually 
agreeable plan to obtain occupancy no later than an additional 6 months 
(total of 18 months) from the completion of construction if there is no 
sale at 12 months.
    One commenter stated they support increasing the number of months 
before converting a homeowner unit that hasn't sold to rental housing 
from 9 months to 12 months but would prefer that HUD eliminate the 
provision altogether.
    HUD Response: HUD acknowledges the volatility of the housing market 
but has determined that 12 months is an appropriate homebuyer sales 
deadline. A deadline of 15 months or greater is too long for HOME 
homeownership housing to remain on the housing market. If an owner is 
not able to sell the unit to an eligible homebuyer within 12 months, 
then the unit must be converted into rental housing and run in 
accordance with Sec.  92.252, or the participating jurisdiction must 
repay the investment.
C. Current Requirement of Nine Months Is Not Hard To Meet
    One commenter said that they do not have challenges closing on 
homebuyer units within the existing timeline but understand that other 
markets may not be similarly situated and that the shrinking pool of 
available Federal funding utilized as mortgages is leading to extremely 
long waiting periods for homebuyers. The commenter doubted whether 
extending the deadline would meaningfully impact the proportion of HOME 
funding used to support homeownership programs because the sales 
deadline is only one very small part of the barriers in the HOME 
regulations and laws. Rather, the commenter cites the primary reason 
for the decline in uses of HOME for homeownership is decision-making at 
the participating jurisdiction level that prioritizes rental uses for 
HOME funds over homeownership uses as well as shrinking appropriations 
and a national proportion of HOME set aside for CHDOs that has not 
exceeded 20 percent since 2015. The commenter recommended that HUD use 
its authority to ease barriers in HUD regulations, such as raising the 
Homeownership Value Limits and to work with homeownership advocates to 
identify ways to incentivize the use of the HOME program for 
homeownership activities.
    HUD Response: HUD thanks the commenters for their response and 
acknowledges that multiple factors impact the proportion of HOME funds 
that are used for homebuyer housing. In 2024, HUD made changes to the 
methodology used to calculate the homeownership value limits and will 
continue to explore how it can address other barriers facing HOME 
funded homeownership.
D. Clarify Rule on When Housing Is Not Sold by the Deadline
    One commenter stated that the extension of the proposed sales 
deadline to 12 months is appreciated, but the requirements for 
homeownership housing using HOME funds do not specify how a home that 
has been leased under the provision can subsequently be sold to an 
eligible homebuyer. The commenter stated that this has led to 
participating jurisdictions concluding that selling the home as 
originally intended is not allowed or that it can only be sold via the 
lease-purchase provisions of the regulations. The commenter recommended 
that HUD clarify how a home leased under Sec.  92.254(a)(3) can be sold 
to an eligible buyer within 12 months of a tenant voluntarily moving 
out of the rented home or after being legally evicted for cause. The 
commenter also recommended that HUD issue clear guidance on this matter 
for participating jurisdictions.
    HUD Response: HUD would like to clarify that a HOME-assisted 
homebuyer unit that fails to sell to an eligible homebuyer by the 12-
month deadline, must be converted to a rental project in accordance 
with Sec.  92.252. Once the unit is designated as a rental unit in 
accordance with Sec.  92.252, a participating jurisdiction cannot 
execute a lease purchase agreement with a potential homebuyer because 
the unit has become a rental unit and lease

[[Page 852]]

purchase is only permitted under Sec.  92.254(a)(7). In accordance with 
Sec.  92.255, a participating jurisdiction may permit the owner of a 
HOME-assisted rental unit to convert the unit to homeownership unit if 
the existing tenant is willing and eligible to buy the unit. The 
conversion of a HOME-assisted homebuyer unit into a rental unit after a 
12-month vacancy is not intended to serve as a temporary solution for 
periods of weak market demand. Participating jurisdictions that are 
unable to sell a homebuyer unit after a 12-month period should consider 
evaluating local market demand for low-income homebuyer projects. If 
the owner refuses to convert the unit into a rental housing unit under 
these provisions, then the participating jurisdiction must repay the 
investment of HOME funds for the development of that housing unit, as 
it failed to meet the requirements of Sec.  92.254 and Sec.  92.252.
E. Other Comments Received in the Solicitation
    One commenter said that HOME funds are currently unable to assist 
in areas of homeownership opportunities because of increasing home 
prices and recommended HUD allow higher per-unit subsidies and after 
rehabilitation values and sales prices to increase such opportunities. 
The commenter also supported a rehabilitation per unit subsidy limit 
that incorporates new construction and requested HUD provide an example 
of a proposed resale formula in its final rule.
    HUD Response: HUD acknowledges that increasing home prices pose a 
significant challenge to homebuyer programs. The final rule is 
proposing to make several revisions to the HOME program's maximum per-
unit subsidy limits at Sec.  92.250 and a revised methodology that 
allows HUD an improved ability to review ongoing construction cost 
changes will be published in a future Federal Register publication. HUD 
has also taken recent steps to update the methodology used to calculate 
the HOME homeownership value limits and will continue to evaluate how 
those numbers are calculated.
    HUD has published examples of each of the four resales models on 
HUD.gov, and will provide training, technical assistance, and publish 
updated guidance to support the implementation of the new resale 
models.

Sec.  92.255--Purchase of HOME Units By In-Place Tenants

    Commenters stated that HUD should make an exception to the current 
requirement that a tenant must qualify as low-income at the time of 
purchase of a HOME unit. One commenter encouraged HUD to consider 
regulatory changes that would provide more flexibility in income 
determination in the event of a purchase by an in-place tenants. Other 
commenters stated that if HOME units were originally developed using 
LIHTCs, then in-place LIHTC tenants that originally income qualified 
for both HOME and LIHTC should be able to purchase the units as in-
place tenants without need for income recertification. In many cases, 
the commenters specifically cited to lease-purchase programs but the 
lease-purchase arrangements they were describing were not lease-
purchases as defined under the HOME program but actually purchase of 
rental housing units by in-place tenants.
    Another commenter stated that homeownership is inadvertently 
disincentivized due to these existing regulations, and urged HUD to 
consider regulatory changes that would provide more flexibility in 
income determination in the event of a lease purchase agreement. The 
commenter noted that in Sec.  92.254(a)(7), current regulations state 
that ``HOME funds may be used to assist homebuyers through lease-
purchase programs for existing housing and for housing to be 
constructed.'' The commenter explained that during the rental period, 
the HOME rules defer to the LIHTC qualification standards for whether a 
renter is eligible to rent a HOME-assisted unit. The commenter further 
explained that LIHTC qualification standards require an initial 
qualification of the tenant at the time of lease, but if the tenant 
household income increases over the LIHTC and/or HOME maximum, the 
tenant is still qualified to live in the unit and is not displaced. 
However, the commenter pointed out that since HUD's adoption of the 
2013 HOME final rule, many participating jurisdictions are requiring a 
tenant to re-qualify under the homeownership rules at the time of the 
sales transaction once they are eligible to purchase their single 
family home at the end of the LIHTC compliance period. The commenter 
stated that if the tenant exceeds 80 percent of area median income at 
the time of requalifying, they are disqualified from purchasing the 
HOME-assisted unit.
    HUD Response: The Department considered its flexibility under 42 
U.S.C. 12745(a)(1)(E) to reduce or eliminate the remaining period of 
affordability on the rental unit to allow the in-place over-income 
tenant to purchase the property and determined that this was within the 
Secretary's discretion as it is consistent with the purposes of the 
Act, which emphasized moving families from poverty to stable 
homeownership. The Department has added language to Sec. Sec.  
92.254(a)(3), 92.255(b), and 92.255(c) to enable the purchase of units 
by in-place over-income HOME tenants. As a condition of allowing the 
in-place over-income tenant to purchase the property, the tenant must 
agree to the participating jurisdiction's resale restrictions for the 
remaining period of affordability, similar to other income eligible in-
place tenants that purchase their units (see Sec.  92.255(b)). Since an 
over-income tenant purchasing their HOME unit is no longer income 
eligible, the tenant may not receive additional HOME funds to assist 
them in the purchase of their unit.
    The Department understands that there is a lot of confusion about 
what rules control when HOME units are designated in a LIHTC project. 
The Department is correcting the commenter because HOME rules do not 
``defer'' to the LIHTC qualification standards. HOME tenants must be 
income eligible under the HOME program at initial occupancy. The 
commenter is correct that an owner may not refuse to renew a tenant's 
lease because the tenant has become over-income, as this is not good 
cause under the Act.\69\ However, the commenter is also incorrect that 
the 2013 HOME Rule revised the regulations to prohibit in-place over-
income tenants from purchasing their HOME rental housing units. Until 
this final rule, this has never been permitted in the HOME program.
---------------------------------------------------------------------------

    \69\ See 42 U.S.C. 12755 for good cause and 42 U.S.C. 
12745(a)(3), which contemplates over-income tenants and explains 
what rent they must be charged.
---------------------------------------------------------------------------

Sec.  92.300--Set-Aside for Community Housing Development Organizations 
(CHDOs)

A. Applicability of Proposed Changes
    A commenter requested additional clarity as to whether the 
proposals relating to CHDOs only applied to CHDOs in rural areas or if 
they are applicable to all CHDOs.
    HUD Response: The Department proposed several changes to the 
definition of community housing development organization at Sec.  92.2 
and the CHDO set-aside requirements at Sec.  92.300, many with the 
intent of improving CHDO availability and capacity in rural areas. 
However, the changes made are not specifically applicable to CHDOs in 
rural areas but any organization receiving CHDO set-aside funds through 
the HOME program.

[[Page 853]]

B. Changes to Role of CHDO in Sec.  92.300(a)--Support
    Commenters supported these changes. One commenter stated that the 
proposed revisions to the required role of the CHDO as owner, 
developer, or sponsor of housing at Sec.  92.300, when combined with 
the proposed changes to the CHDO definition at Sec.  92.2, would enable 
more community-based housing organizations to qualify as CHDOs and 
access the CHDO set-side.
    A commenter stated that they support the proposed change that 
allows CHDOs serving as rental housing sponsors to convey a project to 
a non-profit organization at a predetermined time after completion of 
the project.
    Several commenters supported the proposed change to sponsorship in 
Sec.  92.300(a)(4) that would allow a CHDO (or its subsidiary) 
sponsoring a project to be the ``managing general partner'' rather than 
the ``sole general partner,'' or the ``managing member'' rather than 
the ``sole managing member'' of a limited partnership.
    HUD Response: HUD thanks the commenters for their support. However, 
HUD notes that the provision at Sec.  92.300(a)(5) that permits CHDOs 
serving as rental housing sponsors to convey a project to a non-profit 
organization at a predetermined time after project completion is not 
new and is not being substantively changed by this rulemaking.
C. Changes to Role of CHDO in Sec.  92.300(a)--Opposition
    One commenter opposed the proposed changes regarding all three CHDO 
roles and stated they will have the unintended consequence of reducing 
CHDO requirements and allowing non-CHDOs to fully benefit from a CHDO 
designation while not being held accountable to CHDO standards. The 
commenter stated that for the CHDO owner, developer, and sponsor 
projects, many non-CHDO for-profit and non-profit developers document 
their relationships with CHDOs in a way that gives them an appearance 
of decision-making authority they do not actually have. For sponsorship 
projects, the commenter recommended that the regulations permit two 
CHDOs with service areas covering the same geography be permitted to be 
owners of the general partner entity.
    HUD Response: HUD shares the commenter's concern about entities 
other than the CHDO controlling the development process in 
contravention of the regulations and the statutory intent of the CHDO 
set-aside requirement, which is the reason why it strengthened and 
clarified the CHDO regulations in the 2013 final rule. However, the 
Department believes that the possibility that a non-CHDO entity will 
attempt to use this flexibility to access CHDO set-aside funds for a 
project it controls, is not a sufficient justification to deny many 
neighborhood-based nonprofit organizations the opportunity to 
participate in the CHDO set-aside. This is particularly significant 
because participating jurisdictions have the ability through recent 
appropriation provisions to use uncommitted CHDO set-aside funds for 
other HOME activities after two years. Participating jurisdictions and 
CHDOs must themselves be alert to efforts to evade the regulatory 
requirements applicable to CHDO set-aside funds.
    HUD also notes that under the sponsorship provisions of the current 
HOME regulations, two CHDOs that work in the same area are permitted to 
be the partners of the ownership entity, as long as one of the CHDOs is 
in charge of the project.
D. Request for Greater Flexibility Under Sec.  92.300(a) To Allow for 
Grant-to-Loan or Other Pass-Through Lending Structures To Facilitate 
Tax Credit Transactions
    Commenters asked HUD to consider permitting alternative funding 
structures with HOME funds for LIHTC projects, for example, allowing 
the participating jurisdiction to lend or grant the HOME funds to a 
CHDO which in turn would have an agreement to loan or contribute the 
HOME funds to the project.
    HUD Response: A participating jurisdiction may not grant or provide 
HOME funds to an entity that then lends the HOME funds to the owner of 
an affordable rental project because HOME statutory and regulatory 
requirements require the participating jurisdiction to ensure 
compliance with HOME requirements through binding contractual 
agreements with the project owner. A participating jurisdiction may 
only provide HOME funds to an entity to lend to the owner of an 
affordable rental project if the entity is a subrecipient to the 
participating jurisdiction. See HOMEfires, Vol. 16 No. 1, September 
2021, (HUD discusses the statutory and regulatory provisions governing 
how HOME project owners are assisted).
E. Ownership by a CHDO Throughout the Period of Affordability and 
Transfers of Ownership in Sec.  92.300(a)
    Commenters stated that they support the proposed change to 
eliminate the requirement that HOME-assisted rental projects must be 
owned by the CHDO during the period of affordability. Commenters stated 
that allowing conveyance of the CHDO-developed or -sponsored project to 
eligible private nonprofits would create an additional opportunity for 
long-term preservation and ongoing operation of existing properties. 
Some commenters stated that permitting a transfer of ownership to a 
non-CHDO when necessary to maintain compliance with HOME program 
requirements will help preserve HOME-assisted stock of affordable 
housing and preserve HOME affordability requirements.
    Commenters questioned why the same ability was not extended to 
projects under the CHDO ownership role and advocated that HUD make that 
change in the final rule. One commenter said that the same difficulties 
HUD cites with respect to housing that is ``developed'' and 
``sponsored'' by CHDOs, also applies to housing owned by CHDOs and 
urged HUD to consider eliminating the requirement that the project be 
owned by a CHDO throughout the period of affordability at Sec.  
92.300(a)(2) in addition to paragraphs (a)(3) and (a)(4).
    Commenters stated that they support the proposal to eliminate the 
requirement that HOME-assisted rental projects must be owned by the 
CHDO during the period of affordability. Several commenters requested 
that HUD issue sub-regulatory guidance on how to affect such a 
transfer. Another commenter recommended that the final rule explicitly 
state that ownership transfers are permitted when necessary to sustain 
a CHDO project and maintain compliance with HOME affordability 
requirements and requested HUD issue sub-regulatory guidance to 
facilitate such transfers.
    One commenter stated that when such transfers occur, the regulation 
should permit the participating jurisdiction to impose alternative 
affordability restrictions at the time of transfer, if the transfer is 
for the purpose of refinancing the property under the LIHTC program.
    Two commenters opposed the proposed changes that would permit 
transfer of CHDO set-aside projects to entities that are not CHDOs. One 
commenter recommended that HUD grant hardship exceptions rather than 
changing the regulations, stating that the change would allow for a 
CHDO-

[[Page 854]]

developed project to be transferred to a for-profit organization that 
has no connection to the community to benefit from the asset in the 
long-term. Another commenter stated that they prefer that CHDOs 
maintain ownership and asked for additional clarity on how the HOME 
Program proposed rule incentivizes CHDOs to maintain ownership rather 
than sell ownership.
    A commenter requested additional clarity on whether CHDOs are 
required to maintain ownership of rental housing for the full term of 
affordability.
    HUD Response: HUD appreciates the comments. In response to 
commenters recommending that HUD extend the flexibility provided to 
projects developed by a CHDO under paragraph (a)(3) and sponsored by a 
CHDO under (a)(4) to projects owned by the CHDO under Sec.  
92.300(a)(2), HUD believes that projects that were funded under the 
CHDO ownership model should continue to be owned by a CHDO throughout 
the period of affordability. HUD appreciates the suggestion that it 
provide hardship exceptions rather than revising the rule. However, HUD 
has been involved in situations in which a transfer had to occur on a 
timeframe inconsistent with a case-by-case waiver or exception process. 
HUD agrees with the commenter that recommended that the final rule 
explicitly state that ownership transfers are permitted when necessary 
to sustain a CHDO project and maintain compliance with HOME 
affordability requirements. As described in the preamble to the 
proposed rule, HUD intended to apply this flexibility to instances 
involving a CHDO's bankruptcy, decrease in capacity, or other business 
necessity that requires sale or other transfer of the housing to 
preserve the viability or affordability of the project. However, the 
proposed rule language was more permissive than intended. Consequently, 
while HUD is adopting the flexibility, it also is revising the final 
rule to make clear that a participating jurisdiction may permit a CHDO 
to sell or otherwise convey housing to a nonprofit organization that is 
not a CHDO only if determines and documents that the CHDO no longer has 
the capacity to own and manage the housing for the full period of 
affordability and there are no CHDOs with capacity to own and manage 
the project for the full period of affordability. This provision would 
prohibit transfer of a CHDO project to an entity that does not qualify 
for a CHDO for routine reasons such as refinancing of a project at the 
end of a LIHTC period.
F. Clarify CHDO Ownership Role
    A commenter asked for additional clarity regarding whether a CHDO 
is always required to be the sole owner or if it is permitted for CHDOs 
to have partners that are co-owners.
    HUD Response: The Department thanks the commenter for reviewing the 
proposed rule. A CHDO is not always required to be the sole owner of a 
rental housing project. Specifically, rental project partnerships are 
permitted under the CHDO ``sponsor'' definition if the CHDO, or its 
wholly owned subsidiary, is the managing general partner of a limited 
partnership or the managing member of a limited liability company.
G. Clarify How a CHDO May Share Responsibilities as a Developer Under 
Sec.  92.300(a)
    Commenters supported HUD's proposed changes to Sec.  92.300(a)(3) 
to permit the CHDO to share responsibilities in the development 
process, provided that the CHDO remains in charge of these 
responsibilities. Several commenters recommended that HUD better 
describe the sharing of responsibilities when the CHDO acts as 
developers in Sec.  92.300(a)(2), by stating that it means 
``partnering, contracting, or procuring services from other entities.'' 
These commenters requested that HUD include ``project management'' in 
the list of responsibilities that may be shared or contracted.
    HUD Response: HUD thanks commenters for their support of this 
provision. HUD declines to add project management to the list of 
responsibilities that may be shared as the term is vague and open to 
interpretation, whereas the list of responsibilities included in the 
proposed rule are discrete and easily understood. HUD is adopting the 
proposed rule language and, in response to comments, is adding language 
describing the mechanisms through which responsibilities can be shared 
and decision-making retained.
H. Removal of CHDO in Sponsored Limited Partnerships ``for cause'' in 
Sec.  92.300(a)
    A commenter supported the proposed change to sponsorship of rental 
housing in Sec.  92.300(a)(4)(i) that would allow a sponsored CHDO's 
limited partnership or limited liability company to be removed ``for 
cause'' as the managing general partner or managing member, provided 
that the CHDO must be replaced by another CHDO. The commenter 
recommended HUD issue sub-regulatory guidance to facilitate transfers 
necessary to sustain CHDO projects.
    HUD Response: HUD thanks the commenter and notes that this is not a 
change from the existing rule.
I. Opposition to the 10 Percent Limitation on Homeownership Assistance 
to Homebuyer in CHDO Homeownership Projects in Sec.  92.300(a)
    One commenter noted that only 10 percent of the funds awarded to a 
CHDO for development of housing may be used for downpayment assistance, 
which is in high demand. The commenter urged HUD to increase the 10 
percent threshold and coordinate with Congressional partners, where 
appropriate, to allow greater flexibility in the 10 percent ceiling.
    HUD Response: HUD is declining to make a change at this time. The 
downpayment assistance provided as part of a HOME homeownership project 
developed by a CHDO is only intended to be a small part of the overall 
homeownership program. HUD had proposed 10 percent as part of a 
previous rulemaking and this provision was not being revised as part of 
this rulemaking (see 78 FR 44628 for the final rule, 76 FR 78344 at 
78359 for proposed rule).
J. Encourage Participating Jurisdictions To Allow CHDOs To Retain 
Project Proceeds
    One commenter recommended that HUD encourage participating 
jurisdictions to allow CHDOs to retain proceeds from the sale of 
housing developed, owned, or sponsored by the CHDO, as permitted under 
Sec.  92.300(a)(6)(ii).
    HUD Response: Because HOME is a block grant program, each 
participating jurisdiction has the discretion to determine whether to 
allow an organization to retain proceeds from the sale of housing in 
accordance with Sec.  92.300(a)(6)(ii). This determination can be fact-
sensitive and organization- or deal-specific. It is best made by the 
participating jurisdiction in consideration of local housing needs.
K. Provide Easier Format for Designating a CHDO
    One commenter urged HUD to issue clarification on the registration 
requirements for CHDOs in a format that can be shared with 
organizations because many nonprofits struggle to understand and meet 
the requirements. The commenter pointed to the CHDO toolkit checklist 
as an example of clear guidance and urged HUD to align HUD guidance 
with the checklist.

[[Page 855]]

    HUD Response: There is no set format or ``registration 
requirements'' for an organization to be determined to be a CHDO under 
the regulations. In accordance with Sec.  92.300(a), ``[t]he 
participating jurisdiction must certify the organization as meeting the 
definition of ``community housing development organization'' and must 
document that the organization has capacity to own, develop, or sponsor 
housing each time it commits funds to the organization.'' The 
definition of CHDO is found in Sec.  92.2. The Department intends on 
providing further implementation guidance on qualifying an organization 
as a ``community housing development organization'' under the revised 
definition in Sec.  92.2. The Department will ensure that its guidance 
is aligned with the requirements and will consider other guidance 
materials that are currently available.
L. Frequency of CHDO Designation in Sec.  92.300(a)
    Commenters stated that HUD should remove the current requirement 
that ties CHDO certification to a HOME-funded project and make 
certification independent of project-based funding as well as allow 
certification to be valid for three years. The commenters stated that 
participating jurisdictions could certify a CHDO for three years and 
then use a simpler ``desktop certification'' process to confirm the 
organization is still eligible whenever funding is requested. A 
commenter expressed disappointment that the proposed rule does not 
address the administrative burden of CHDO certification and stated that 
CHDOs should be certified periodically instead of on a project-by-
project basis.
    HUD Response: The Department is declining to change the frequency 
with which a participating jurisdiction must certify that a CHDO meets 
the definition in Sec.  92.2 and demonstrates capacity to develop a 
HOME project. Tying this requirement to the date of commitment is the 
most consistent approach to implementing the set-aside provisions 
contained in 42 U.S.C. 12771, which does not contemplate an extended 
qualification process or a continuous designation for CHDOs. Further, 
the Consolidated Appropriations Act of 2012 (P. Law 112-55) and 
Consolidated Appropriations Act of 2013 (P. Law 113-6) stated that a 
participating jurisdiction may not reserve funds to a CHDO unless it 
has determined that the CHDO has paid staff with demonstrated 
development experience, thereby further reinforcing that Congress 
intended for the CHDO certification process to be a determination made 
each time a new CHDO project is assisted with set-aside funds.
    The requirement that qualification as a CHDO be examined each time 
a CHDO is funded was included in the Consolidated Appropriation Acts 
and the 2013 HOME final rule to address the prevalence of participating 
jurisdictions providing CHDO set-aside funds to organizations that 
lacked adequate development capacity to successfully complete projects. 
This lack of due diligence by participating jurisdictions resulted in 
significant numbers of incomplete and failed projects, which took 
several years to resolve through repayments by participating 
jurisdictions to their HOME accounts. In addition to questions of 
capacity, examining a CHDO's qualifications before committing CHDO set-
aside funds ensures that a CHDO meets requirements related to the 
governing board and other provisions, which will also prevent 
noncompliance. HUD is unable to make this change based on the 
provisions of the Act but also believes that the regulation is critical 
to ensuring HOME compliance and successful completion of projects.
M. HUD Should Allow Wholly Owned For-Profit Subsidiaries in Sec.  
92.300(a)(4)
    One commenter believed that HUD should not revise paragraph (a)(4) 
to require that wholly owned subsidiaries of CHDOs be nonprofit 
organizations.
    HUD Response: HUD thanks the commenter for reviewing the proposed 
rule. HUD agrees that a subsidiary of a CHDO may be either a for profit 
or non-profit entity and is making the change.
N. HUD Should Add Additional Oversight Requirements to Sec.  92.300(a)
    One commenter recommended that HUD add a subparagraph (a)(8) to 
implement explicit oversight requirements allowing participating 
jurisdictions to evaluate the CHDO's ongoing participation in the 
project as required under (2)-(6).
    HUD Response: The Department thanks the commenter for reviewing the 
proposed rule. This is already a requirement for participating 
jurisdictions, which under Sec.  92.504(a) includes ``ensuring that 
HOME funds are used in accordance with all program requirements and 
written agreements, and taking appropriate action when performance 
problems arise.'' Additionally, Sec.  92.504(a) also requires that the 
``participating jurisdiction must have and follow written policies, 
procedures, and systems, including a system for assessing risk of 
activities and projects and a system for monitoring entities consistent 
with this section, to ensure that the requirements of this part are 
met.'' Participating jurisdictions have the flexibility to determine 
how best to engage in ongoing oversight of the project owners and 
projects that it funds, consistent with Sec.  92.504 and the 
requirements of part 92. Consequently, additional regulatory language 
is not required to require or permit such oversight, and the Department 
is declining to make the change.
O. HUD Should Clarify the Effect of the Revisions to Sec.  92.300(b)
    A commenter requested clarification on the provision allowing up to 
20 percent of the minimum CHDO set-aside to be committed to 
organizations that meet all but the capacity requirement.
    HUD Response: The Department is revising Sec.  92.300(b) to allow 
for new participating jurisdictions that do not have existing CHDOs 
with capacity to award up to 20 percent of the new participating 
jurisdiction's set-aside funds in each of the participating 
jurisdiction's first two years to organizations that meet all but the 
capacity requirements contained in paragraph (9) of the CHDO definition 
in Sec.  92.2. This will enable the 12 new participating jurisdictions 
receiving their first HOME grants in Fiscal Year 2024 to use their CHDO 
set-aside funds effectively as they begin to establish their HOME 
programs.
P. HUD Should Explain the Conditions for Using Set-Aside Funds for non-
CHDO Projects
    Commenters stated that before redesignating uncommitted CHDO funds 
as non-CHDO funds, HUD should require a participating jurisdiction to 
demonstrate that it took all available actions to use the funds for 
CHDO-eligible projects. One commenter recommended that HUD require 
participating jurisdictions to document that it completed a specific 
set of actions, including: (1) provide the full five percent of CHDO 
operating funds under Sec.  92.208; (2) provide the full amount of 
capacity building funding under Sec.  92.300(b); and (3) implement 
``revolving CHDO fund'' policies, sometimes known as ``CHDO proceeds'' 
policies, to make their CHDO program as attractive and additive to 
capacity building growth, as possible.
    HUD Response: Congress via HUD Appropriations Acts annually 
provides relief to participating jurisdictions by enabling them without 
limitation to redesignate any CHDO set-aside funds that have not been 
committed to a project within 24 months for use in non-CHDO projects. 
As explained in the

[[Page 856]]

following paragraphs, HUD is declining to add additional limitations 
beyond those contained in NAHA and HUD Appropriations Acts.
    The requirement in 42 U.S.C. 12771(b) states that if any CHDO funds 
``remain uninvested for a period of 24 months, then the Secretary shall 
deduct such funds from the line of credit in the participating 
jurisdiction's HOME Investment Trust Fund and make such funds available 
by direct reallocation . . . .'' By statute, HUD is required to 
recapture and reallocate any funds that are not committed to projects 
developed, sponsored, or owned by CHDOs within 24 months.
    The requirement in 42 U.S.C. 12742 was suspended by section 233 of 
Division G of the Consolidated Appropriations Act, 2019 (Pub. L. 116-
6). Specifically, section 233 of Public Law 116-6 stated, ``[s]ection 
231(b) of such Act shall not apply to any uninvested funds that 
otherwise were deducted or would be deducted from the line of credit in 
the participating jurisdiction's HOME Investment Trust Fund in 2018, 
2019, 2020, or 2021 under that section.'' The 2020, 2021, 2022, 2023, 
and 2024 appropriations acts added 2022, 2023, 2024, 2025, and 2026 
respectively, to the years covered by the suspension.\70\
---------------------------------------------------------------------------

    \70\ Title II, Division H, Pub. L. 116-94 (133 Stat. 2989); 
Title II, Division L, Pub. L. 116-260, (134 Stat. 1881); Title II, 
Division L, Pub. L. 117-103 (136 Stat. 742); Title II, Division L, 
Pub. L. 117-328 (136 Stat. 5156); Title II, Division F, Pub. L. 118-
42 (138 Stat. 361).
---------------------------------------------------------------------------

    Additionally, section 242 of Division K of the Consolidated 
Appropriations Act, 2017 (Pub. L. 115-31) suspended the 24-month 
commitment deadline requirement set forth in Section 218(g) of NAHA (42 
U.S.C. 12748(g)). Section 242 of Public Law 115-31 stated that 
``Section 218(g) of the Cranston-Gonzalez National Affordable Housing 
Act (42 U.S.C. 12748(g)) shall not apply with respect to the right of a 
jurisdiction to draw funds from its HOME Investment Trust Fund that 
otherwise expired or would expire in 2016, 2017, 2018, or 2019 under 
that section.'' The 2018, 2019, 2020, 2021, 2022, 2023, and 2024 
appropriations acts added 2020, 2021, 2022, 2023, 2024, 2025, and 2026 
respectively, to the years covered by the suspension.\71\
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    \71\ Section 235, Title II, Division L, Pub. L. 115-141; Section 
233, Title II, Division K, Pub. L. 116-6; Title II, Division H, Pub. 
L. 116-94 (133 Stat. 2988); Title II, Division L, Pub. L. 116-260, 
(134 Stat. 1881); Title II, Division L, Pub. L. 117-103 (136 Stat. 
742); Title II, Division L, Pub. L. 117-328 (136 Stat. 5156); Title 
II, Division F, Pub. L. 118-42 (138 Stat. 361).
---------------------------------------------------------------------------

    The combined effect of the suspension of the 2-year commitment 
deadline at Section 218(g) of NAHA and the suspension of the 24-month 
CHDO reservation requirement at Section 231(b) of NAHA means that HUD 
will no longer deobligate a participating jurisdiction's CHDO set-aside 
funds that remain uncommitted to CHDO projects after 24 months of HUD 
obligating the participating jurisdiction's grant, or HOME funds that 
become uncommitted from a CHDO project after the 24-month deadline. 
Instead, a participating jurisdiction may continue to accumulate those 
funds for CHDO set-aside projects or may request HUD allow the funds to 
be used for non-CHDO projects consistent with its guidance.\72\ HUD 
does not believe this is an area that it could or should further 
regulate, given the ongoing Congressional action taken in this area of 
the HOME requirements.
---------------------------------------------------------------------------

    \72\ https://www.hud.gov/sites/dfiles/CPD/documents/HOMEfires-Vol-18-No1-CHDO-Setasidefunds.pdf.
---------------------------------------------------------------------------

Q. HUD Should Create a Public-Facing List of CHDOs
    One commenter recommended that HUD create and maintain a publicly 
available annual list of organizations certified as CHDOs with the 
information already submitted to participating jurisdictions. The 
commenter noted that it is currently challenging for researchers, 
intermediaries, capacity building organizations, and others to research 
trends among CHDOs, target non-governmental capacity building resources 
to CHDOs, and evaluate the extent to which the CHDO Program is meeting 
its goals. A commenter stated that HUD should create, maintain, and 
make publicly available on its website the organizations certified as 
CHDOs based on already available information.
    HUD Response: The Department does not have access to a list of 
designated and currently active CHDOs, as each participating 
jurisdiction is required to determine an organization's status on a 
project-by-project basis at the time of commitment (see Sec.  92.2 and 
earlier responses to comment on this issue). Moreover, the Department 
is unsure of the merit of obtaining information relative to the burden 
of continuously obtaining and updating this information. There is no 
guarantee that an organization that has met the qualifications of a 
CHDO in a given year for a specific project will continue to meet those 
criteria continuously. As the HOME requirements are based on a single 
point in time, at project commitment, and do not convey a CHDO's status 
for a specific period of time, whatever information is reflected on a 
list may not prove to be accurate at the time the participating 
jurisdiction wishes to commit funds to the organization. The Department 
will continue to consider how to better facilitate the participation of 
CHDOs in the HOME program. However, this rulemaking is not the 
appropriate method to convey this information.
R. CHDO Oversight
    A commenter requested additional clarity regarding how 
participating jurisdictions can use granted funds for the CHDO and how 
oversight will be conducted regarding this issue.
    HUD Response: In accordance with Sec.  92.300, a participating 
jurisdiction may use up to 15 percent of its HOME allocation for CHDO 
set-aside activities including housing that is owned, developed or 
sponsored by the CHDO. The HOME regulations at Sec.  92.504 require a 
participating jurisdiction to ensure that HOME funds are used in 
accordance with all program requirements and written agreements and 
take appropriate action when performance problems arise. In addition, 
the participating jurisdiction must have and follow written policies, 
procedures, and systems, including a system for assessing risk of 
activities and projects and a system for monitoring program partners, 
including CHDOs, to ensure all HOME requirements are met.
S. Changes to the CHDO Set-Aside
    Two commenters recommended that HUD expand the range of activities 
eligible for the CHDO set-aside (i.e., housing owned, developed, or 
sponsored by a CHDO). One commenter stated that HUD should allow CHDO 
operating funds to be used in conjunction with TBRA to encourage more 
utilization of this activity in the HOME program.
    Another commenter suggested that HUD permit participating 
jurisdictions to use CHDO set-aside funds to rehabilitate homes for 
existing low-income owner-occupants. The commenter explained that in 
areas without CHDOs, owner-occupied repair would be a low-barrier entry 
point for local nonprofit organizations to become CHDOs. The commenter 
stated that the ability of these nonprofits to move to administratively 
more difficult and costlier work, like new construction, is limited by 
their ability to grow their capacity.
    A commenter stated that HUD should eliminate the CHDO set-aside 
requirement and permit participating jurisdictions, whether in rural or 
urban areas, to exercise discretion in the amount of HOME funds they 
will award

[[Page 857]]

to a CHDO. The commenter stated that HUD's CHDO set-aside requirement 
hinders communities who have unqualified and inexperienced CHDOs or no 
eligible CHDO and affect the timeliness of meeting the encumbrance and 
expenditure deadline. Another also recommended that HUD eliminate the 
CHDO set-aside, stating that many community development entities do not 
want to change their board composition and can still access the non-
CHDO portion of their participating jurisdiction's HOME funds. This 
commenter opined that the 15 percent CHDO set-aside is too small to be 
useful.
    One commenter supported an increase in CHDO set asides for 
homeownership, not just rentals, as the current 10 percent leaves 
participating jurisdictions unable to assist CHDOs.
    HUD Response: The CHDO set-aside is statutory. 42 U.S.C. 12771(a) 
states that ``[f]or a period of 24 months after funds . . . are made 
available to a jurisdiction, the jurisdiction shall reserve not less 
than 15 percent of such funds for investment only in housing to be 
developed, sponsored, or owned by CHDOs . . .''
    The Department does not have the discretion to consider tenant-
based rental assistance or homeowner rehabilitation activities to be 
eligible for the CHDO set-aside, even if they are administered by a 
CHDO. The participating jurisdiction must enter into a subrecipient 
agreement with the CHDO to perform those projects. The Department 
cannot eliminate or reduce the percentage of HOME funds that are set-
aside nor require that an additional amount be set-aside beyond that 
which is required in the Act.

Sec.  92.352--Environmental Review

    One commenter requested HUD permit reliance on a single part 58 
Environmental Review by multiple participating jurisdictions funding a 
project. For example, if a city and county are both providing HOME 
funds to a project and one of the jurisdictions completes a part 58 
Environmental Review, HUD should allow the other jurisdiction to rely 
on this review for its determination and notification.
    One commenter recommended that HUD add language to Sec.  92.352 
that would expressly permit upcoming guidance from HUD's Office of 
Environment and Energy regarding the Fiscal Responsibility Act of 2023 
to be followed. The commenter recommended adding a paragraph (b)(4) 
that would read, ``(4) HUD or the jurisdiction may utilize a 
Categorical Exclusion and environmental review from other Federal 
agencies under the Fiscal Responsibility Act of 2023 and implementing 
regulations adopted by The Council on Environmental Quality (CEQ) and 
guidance from HUD's Office of Environment and Energy, when issued.''
    HUD Response: The environmental review requirements contained in 24 
CFR part 58 are outside the scope of this rulemaking. However, HUD 
notes that 24 CFR 58.14 allows cooperating responsible entities to 
prepare a single review for activities that require an Environmental 
Assessment or Environmental Impact Statement, if the coordinated and 
overall review responsibilities are established through a written 
agreement and the lead agency is responsible for preparing the review, 
coordinating consultation (including designating a lead agency for 
compliance with Section 106 of the National Historic Preservation Act 
pursuant to 36 CFR 800.2(a)(2)), and approving the review.

Sec.  92.356--Conflict of Interest

    A commenter stated that they support the proposed change to the 
conflict of interest requirements.
    HUD Response: The Department appreciates the commenter's review of 
the rule. The Department is making one minor revision for clarity to 
the conflict of interest requirements to state that of the publication 
methods, ``a combination of at least two of'' the list provided will be 
sufficient. The Department believes this will be clearer in what the 
Department means by ``combination.''

Sec.  92.502--Program Disbursement and Information System

    A commenter stated that they support the proposed removal of the 
requirement that participating jurisdictions enter HOME project 
completion within 120 days of the final project draw because the four-
year project completion is already in place to ensure compliance.
    HUD Response: HUD thanks the commenter for reviewing the rule and 
is moving forward with this change.

Sec.  92.503--Program Income, Repayments, and Recaptured Funds

A. Program Income Streamlining
    One commenter stated that HUD should create a narrow exception to 
the standard full review process for any use of program income. 
Specifically, the commenter proposed HUD streamline review for 
instances where there is no construction of a new unit and the 
participating jurisdiction, State, or local recipient is in good 
standing. This streamlining would allow HOME funds to recycle more 
rapidly and therefore support more low-income families.
    HUD Response: HUD permits participating jurisdictions to allow 
Subrecipients and State Recipients to retain program income through the 
written agreement provisions of Sec.  92.504. HUD believes this is the 
only time that a participating jurisdiction should be allowed to permit 
a streamlined process, as the State Recipient or Subrecipient already 
has an ongoing relationship under a written agreement with the 
participating jurisdiction. HUD also notes that the current HOME rule 
at Sec.  92.503(d) permits participating jurisdictions to retain 
program income received during its program year, include program income 
on-hand in its next annual action plan, and commit the program income 
to specific projects.
B. Recaptured Funds for CHDO Projects
    One commenter stated that Sec.  92.503(c) refers to a participating 
jurisdiction allowing a CHDO to retain recaptured funds, which 
contradicts provisions in Sec.  92.504(c)(3)(ii)(B) that require CHDOs 
to return recaptured funds. The commenter noted that this issue could 
be fixed by replacing ``. . .unless the participating jurisdiction 
permits the State recipient, subrecipient, or CHDO to retain . . .'' 
with ``. . .unless the participating jurisdiction permits the State 
recipient or subrecipient to retain . . .''
    HUD Response: The commenter is mistaken. The current rule and this 
final rule permit CHDOs to retain funds recaptured when a HOME-assisted 
homebuyer sells their home during the period of affordability and use 
those funds for additional HOME projects pursuant to the written 
agreement required by Sec.  92.504. There is no contradiction in the 
current regulations. Paragraph Sec.  92.504(c)(3)(x), the current 
regulation addressing CHDO projects, states that ``[r]ecaptured funds 
are subject to the requirements of Sec.  92.503.'' Paragraph Sec.  
92.503(c) of the current rule, as the commenter points out, states that 
CHDO may retain recaptured funds as follows: ``Recaptured funds must be 
deposited in the participating jurisdiction's HOME Investment Trust 
Fund local account unless the participating jurisdiction permits the 
State recipient, subrecipient, or community housing development 
organization to retain the recaptured funds for additional HOME 
projects pursuant to the written agreement required by Sec.  92.504.''

[[Page 858]]

Sec.  92.504--Participating Jurisdiction Responsibilities; Written 
Agreements

    One commenter cited to the written agreement provisions in Sec.  
92.504 and stated that participating jurisdictions should be permitted 
to require subrecipients, include members of a consortium to establish 
and comply with their own requirements, including income 
determinations, underwriting and subsidy layering, rehabilitation 
standards, refinancing guidelines, homebuyer program policies, and 
affordability requirements. The commenter stated that this change is 
important because the subrecipient or consortium member may be serving 
a different area or population where the participating jurisdiction's 
requirements may not be appropriate.
    HUD Response: HUD has established minimum requirements that 
participating jurisdictions must place into their written agreements 
with subrecipients in Sec.  92.504(c)(2). In many of these cases, HUD 
permits participating jurisdictions to create policies and procedures 
and implement their own standards so long as those standards meet or 
exceed HUD's minimum requirements. This allows participating 
jurisdictions the discretion to create jurisdiction-specific 
requirements such as underwriting standards, income verification 
methods, rehabilitation standards, etc. This type of discretion is due 
to HOME's nature as a block grant program. This type of discretion is 
warranted under statute and regulations because HUD's relationship is 
with the participating jurisdiction, and the participating jurisdiction 
has both certified to comply with program requirements and executed a 
grant agreement with HUD that makes them ultimately responsible in the 
event of program violations. Subrecipients do not have a direct 
contractual relationship with HUD and so certain requirements must be 
created and enforced by the participating jurisdiction and cannot be 
delegated to a Subrecipient. HUD did not propose revisions to this 
portion of Sec.  92.504(c)(2) and is declining to make this change to 
allow Subrecipients to create their own requirements. HUD notes that 
consortium members are not subrecipients to the consortium, as they are 
part of the participating jurisdiction (i.e., the consortium) itself. 
However, the lead entity of the consortium must enter into written 
agreements that meet the requirements of Sec.  92.504(c)(2) with 
consortium members to which it is distributing funds.

Sec.  92.551--Corrective and Remedial Actions

    A commenter stated that they support the proposed change that would 
allow participating jurisdictions to correct a deficiency in a HUD 
finding by taking a reduction in a HOME grant equal to the amount of 
HOME expenditures that were not in compliance with HOME requirements. 
Another commenter stated support for HUD's clarification on sanctions, 
in which HUD may permit a voluntary grant reduction in a participating 
jurisdiction's HOME grants, as long as the participating jurisdiction 
chooses which grant to reduce.
    HUD Response: HUD appreciates the comments and is adopting the 
proposed rule language without change.
    Specific solicitation of comment #1: The Department specifically 
solicits public comment about any additional changes it should 
consider, within statutory constraints, that will improve CHDO 
availability and capacity in rural areas.
A. Eligibility for Participants in USDA Mutual Help Housing and 
Homeownership Programs
    Commenters stated that CHDO rules should allow mutual self-help 
housing to be CHDO-eligible under the definition of owner, sponsor, or 
developer. The commenters stated that the proposed rule is not clear on 
whether a nonprofit can operate a USDA Rural Development Section 523 
mutual self-help housing program as a CHDO, but the rule should allow 
this as CHDO eligible. Commenters recommended providing targeted 
technical assistance to CHDOs in rural areas hoping to access HOME CHDO 
set-aside funds.
    One commenter further suggested that HUD should explicitly allow 
families to qualify for HOME funding based on the low-income limits of 
the USDA's Section 502 Homeownership Direct Loan Program, when the HOME 
project is either constructed via Section 523 Mutual Self-Help Housing 
or sold via the USDA Section 502 Loan Program.
    HUD Response: HUD recognizes that nonprofits operating Section 523 
mutual self-help housing programs successfully assist very low- and 
low-income households to build homes in rural areas. However, the 
Section 523 model does not qualify as homeownership housing developed 
by a CHDO under Sec.  92.300(a)(6). As commenters noted, these 
nonprofit organizations do not maintain fee simple ownership of the 
land and housing throughout the construction period, as required by 
Sec.  92.300(a)(6). Further, the Section 523 grantee's role managing 
homebuyers' mutual self-help activities is distinct from that of a 
housing developer with control of project financing and construction. 
HUD therefore declines to make a change to HOME CHDO regulations. HUD 
also notes that the income-banding approach used in USDA programs is 
not permissible under the HOME program statute. Consequently, HUD is 
not making changes to the final rule based on these comments.
B. Technical Assistance on HOME Requirements May Assist Rural CHDOs and 
Participating Jurisdictions
    One commenter stated that rural CHDOs often require targeted and 
specific technical assistance to succeed in competitive funding cycles 
and can benefit from local partnerships and business relationships and 
urged HUD to consider what existing regulations may limit those 
partnerships and rectify the barriers. One commenter recommended 
provision of targeted technical assistance around HOME underwriting 
requirements such as pro-forma development to support rural CHDOs 
applying for competitively awarded State HOME funds. A commenter also 
suggested that HUD provide participating jurisdictions with training on 
how to proactively award CHDO capacity building funds, such as when 
they see multiple unawarded funding applications from a rural CHDO.
    HUD Response: One commenter recommended providing technical 
assistance on HOME underwriting requirements, such as pro forma 
development for rural CHDOs. The HOME statute states that if a 
participating jurisdiction is unable to identify a sufficient number of 
capable community housing development organizations within the first 24 
months of their participation in the HOME program, the participating 
jurisdictions may allocate up to 20 percent of its funds--up to a 
maximum of $150,000--to activities that develop the capacity of CHDOs. 
In response, while training participating jurisdictions on how to award 
capacity-building funds to develop rural CHDOs is commendable, it will 
not assist many CHDOs since most participating jurisdictions have been 
in the program for more than 24 months. However, HUD has developed a 
CHDO training program that participating jurisdictions can use to train 
on CHDO requirements. Participating jurisdictions may also request 
direct technical assistance to build CHDO capacity, especially in rural 
areas where multiple applications go

[[Page 859]]

unfunded due to organizational capacity limitations.
    HUD also appreciates the suggestion to expand eligible activities 
for rural CHDOs to include the rehabilitation of owner-occupied homes 
and USDA Section 523 mutual self-help housing. While these activities 
support rural housing initiatives, the entities involved do not 
develop, own, or sponsor housing investments, which does not align with 
the statutory intent for a CHDO under HOME. The statute requires CHDOs 
to develop, sponsor, or own housing as a core requirement for 
participating in the HOME program.
C. Change How a Person Is Determined as Low-Income for Purposes of Low-
Income Board Representation Requirements in Paragraph (5) of the 
Definition of Community Housing Development Organization in Sec.  92.2
    One commenter recommended that HUD factor in a county's median 
income rather than median incomes of counties State-wide and that the 
county's median income be considered in CHDO board representation 
requirements of low-income residents or organizations.
    HUD Response: HUD thanks the commenter for reviewing the proposed 
rule. However, Title I of NAHA defines low-income families as 
``families whose incomes do not exceed 80 percent of the median income 
for the area, as determined by the Secretary with adjustments for 
smaller and larger families, except that the Secretary may establish 
income ceilings higher or lower than 80 percent of the median for the 
area on the basis of the Secretary's findings that such variations are 
necessary because of prevailing levels of construction costs or fair 
market rents, or unusually high or low family incomes.''
    HUD is declining to make this change because the current regulation 
faithfully implements the statute and introducing different standards 
for what constitutes low-income into the program will create confusion 
and potential noncompliance.
D. HUD Should Examine and Remove Barriers for Nonprofits in Rural 
Communities
    One commenter wants participating jurisdictions to make concerted 
efforts to remove barriers for nonprofit organizations in rural 
communities and encouraged HUD to examine barriers that maybe 
inadvertently be caused by participating jurisdiction policy and 
determine whether the barriers are disproportionately impacting rural 
areas.
    HUD Response: HUD thanks the commenter for reviewing the proposed 
rule. HUD agrees that participating jurisdictions should take steps to 
remove unnecessary barriers to rural nonprofit organizations to become 
CHDOs. HOME is a block grant program, and participating jurisdictions 
are free to establish policies and procedures for their programs. HUD 
believes that a more appropriate role is for HUD to offer technical 
assistance to participating jurisdictions interested in facilitating 
the entry of CHDOs to their programs.

Sec.  570.200--General Policies--Reimbursement for Pre-Award Costs

    A commenter stated that they do not support changing the effective 
date of the grant agreement to the date HUD executes the grant 
agreement. The commenter noted that this change would require them to 
front costs because HUD has timely executed grant agreements on only 
two occasions in the last twelve funding cycles.
    HUD Response: HUD appreciates the commenter's concern, especially 
since it originates from a grantee with a program year start date of 
July 1 or later, which accounts for more than 81 percent of Community 
Development Block Grant (CDBG) entitlement grantees. HUD's proposed 
change to the introductory text of 24 CFR 570.200(h), in conjunction 
with the proposed addition to Sec.  92.212(b) for the HOME program, was 
designed to eliminate the need for the Department to issue annual 
waivers to assist the approximately 19 percent of grantees particularly 
hampered in recent years by late Congressional appropriations. However, 
HUD's proposed change to Sec.  570.200(h) decoupled the effective date 
of a grant agreement from a grantee's program year start date and, as 
the commenter noted, would have subjected it and hundreds of other 
grantees with similar program year start dates to incurring pre-award 
costs on an annual basis. HUD sees the need to maintain the connection 
between the grant agreement effective date and program year start dates 
to reserve pre-award costs to those incurred before a program year 
start date. Therefore, HUD will retain the existing introductory text 
to Sec.  570.200(h) and instead add a new Sec.  570.200(h)(3) that 
makes the effective date of the grant agreement, in a year when an 
annual appropriation occurs less than 90 days before a grant 
recipient's program year start date, the earlier of either the program 
year start date or the date that the consolidated plan is received by 
HUD. This change addresses the commenter's concern, aligns CDBG better 
with the new HOME program regulation at Sec.  91.212(b)(2), and 
continues practices implemented through annual waivers.

Outside the Scope of the HOME Rulemaking

A. HUD Should Commission a Study of CHDOs
    Commenters stated HUD should commission a study every three to five 
years on the universe of nonprofit organizations that could potentially 
become CHDOs, and the research could evaluate trends in CHDO 
certification, financial health, production, and organizational needs.
    HUD Response: The Department thanks the commenters for reviewing 
but believes that the study that the commenters are requesting is 
beyond the scope of this rulemaking. The Department will consider this 
area as a research area in the future.
B. HUD Should Consider Metrics To Evaluate Needs of Rural Communities 
and Tribes
    One commenter encouraged HUD to consider metrics to measure the 
needs of rural and Tribal communities, and to encourage States to use 
HOME funds for projects that meet those identified needs.
    HUD Response: The Department is declining to develop metrics and 
measures on rural or Tribal needs as part of this rulemaking. 
Participating jurisdictions are required to engage in the consolidated 
planning process in 24 CFR part 91. This evaluation includes the 
consideration of the needs of rural communities within a participating 
jurisdiction, including rural homelessness. Separately, Tribes assisted 
under the Indian Housing Block Grant program engage in the preparation 
of an Indian Housing Plan in accordance with 24 CFR part 1000, subpart 
C. This includes an evaluation of housing needs for each assisted 
Tribe. Each of these planning processes enables HUD grantees to 
identify housing needs using their own data and metrics, as well as 
HUD-provided data, and determine how to best address the challenges 
within their jurisdictions. Additionally, these plans are public 
facing, thereby allowing the public to review the data as it sees fit.
C. HUD Should Increase Section 8 Assistance
    A commenter stated that HUD should increase funding allocations to 
HAP budgets to cover increased rents because of the expected increase 
of rent charged to PBVs and HCVs. The commenter

[[Page 860]]

noted that this change is necessary so as not to reduce the number of 
vouchers available. Another commenter requested an increase in the HAP 
budget for Section 8 programs to account for the additional rent costs 
that will result from applying the HOME rent limit only to the tenant 
contribution to rent. Another commenter urged HUD to consider the 
impact of participating jurisdiction to regulate the HOME rent limits 
on units assisted by PBV that this issue will have on a PHA's overall 
per unit cost and the long-term consequences for PHA budgets.
    HUD Response: While HUD is revising the rent reasonableness 
regulations for the Section 8 program, Section 8 funding is beyond the 
scope of this rulemaking.
D. Lead-Based Paint Regulations in 24 CFR Part 35 Should Be Updated
    One commenter stated that HUD's current lead paint regulations are 
out-of-date given higher construction costs and extended requirements. 
The commenter recommended that the ranges that determine intervention 
level be updated to the following: (1) Lead-safe work practices less 
than $20,000; (2) interim controls between $20,001 and $50,000; and (3) 
abatement for more than $50,000.
    HUD Response: Lead-based paint requirements are outside the scope 
of this rulemaking. HUD did not propose any revisions to 24 CFR part 35 
or to how HUD applies lead-based paint requirements to the HOME 
program. Further, the dollar thresholds in the part 35 regulations are 
established in Section 1012 of Title X of the Housing and Community 
Development Act of 1992 and are statutory for the HOME program.\73\
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    \73\ See 42 U.S.C. 12742(a)(5) and 42 U.S.C. 4822 for the lead-
based paint requirements for HOME.
---------------------------------------------------------------------------

E. Provide Build America, Buy America Guidance
    Commenters expressed frustration over the limited Buy America, 
Build America (BABA) waiver availability and increased cost incurred 
due to sourcing domestic materials. Commenters stated that the lack of 
guidance from HUD on BABA compliance has further compounded challenges 
for developers and contractors, hindering their ability to provide 
feedback and navigate problems. A commenter stated that HUD should 
clarify the impact of BABA on the green building standards because the 
impact is unclear at this time.
    HUD Response: BABA is beyond the scope of this rulemaking. The 
Department is developing guidance on how to implement BABA for HUD 
programs. Until this guidance is developed, HUD cannot determine the 
effect of BABA compliance on the green building incentive or overall 
compliance with the HOME final rule.
F. Create a Risk-Lowering Pilot Program
    One commenter recommended that HUD should consider creating a 
``risk-lowering pilot program for nonprofit affordable housing 
developers.'' The commenter suggested that the pilot program it 
suggests might offer a preapproval for nonprofits that enables those 
organization to bid for HOME funding with no or low environmental 
review process-based risk. The commenter stated that in the program it 
suggests that a limited number of nonprofits could enter an agreement 
with HUD that guarantees HUD reimbursed costs for environmental reviews 
for unsuccessful applicants. The commenter noted that the pilot program 
could be designed in a way that it would not cover overhead costs of 
the nonprofit but only cover the hard costs of specialists. The 
commenter stated that this design would lower the risk of high pre-
development costs being lost. The commenter suggested that this pilot 
program could be targeted at CHDOs already partnering with HUD or else 
be based on nonprofit operating budgets, geographic targeting, or other 
community characteristics, such as persistent poverty counties.
    HUD Response: Establishing a pilot program of the nature 
contemplated by the commenter is beyond the scope of this rulemaking. 
The Department recognizes that environmental requirements can pose a 
challenge to many aspiring developers and owners. In recognition of 
those challenges, HUD revised the regulations in Sec.  92.206(d) to 
allow HUD environmental review or other environmental studies or 
assessments to be reimbursable expenses if the participating 
jurisdiction agrees to pay for those costs in the written agreement.
G. Issue Waivers To Better Enable HOME Homeownership Activities
    One commenter asked HUD to provide waivers to Habitat for Humanity 
chapters so that participating jurisdictions can assist more with 
following HOME guidelines.
    HUD Response: HUD appreciates the comment but is uncertain what 
types of waivers the commenter is recommending. Outside of 
Presidentially-declared disasters or national emergencies, the 
Department is declining to announce the availability of waivers for the 
HOME program. The Department will still consider waiver requests on a 
case-by-case basis and determine whether the waiver states good cause 
upon which relief can be granted in accordance with 24 CFR 5.110 and 
applicable law.
H. Increase Opportunities for Persons With Disabilities
    Another commenter stated that opportunities for HUD loans for 
people with disabilities and those who may have medical needs should be 
explored in every State and territory and that HUD must support those 
who wish to rehabilitate homes in regard to accessibility. The 
commenter emphasized the need for access to universally designed 
housing for people with disabilities.
    HUD Response: HUD thanks the commenter for reviewing the proposed 
rule. The recommendation that HUD explore opportunities for HUD loans 
for people with disabilities or medical needs is outside the scope of 
this rulemaking. Other aspects of this rule are intended to provide 
clarity and enhance affordable housing opportunities for eligible 
beneficiaries, including individuals with disabilities. In addition, 
accessibility requirements for programs and activities apply to HUD 
recipients under HUD's existing Section 504 requirements, and housing 
may be subject to additional accessibility requirements under the Fair 
Housing Act and the Americans with Disabilities Act, as applicable.
I. HUD Should Perform Additional Rulemaking on the Consolidated 
Planning Regulations at 24 CFR Part 91
    One commenter recommended that HUD issue a separate advance notice 
of proposed rulemaking (ANPR) regarding how the Consolidated Plan could 
be improved and simplified. The commenter stated that the ANPR should 
consider improvements to the Annual Action Plan (AAP) and Consolidated 
Annual Performance and Evaluation Report (CAPER) with a special focus 
on reducing redundancies across planning documents. The commenter also 
urged HUD to facilitate greater consistency among local HUD offices in 
how Consolidated Plans and related planning regulations and guidance 
are interpreted.
    HUD Response: HUD thanks the commenter. However, as the commenter 
notes, the suggestion would require a separate rulemaking process and 
is outside the scope of this rulemaking.

[[Page 861]]

J. Incentivizing Use of Section 8 Housing Choice Vouchers in LIHTC 
Projects
    A commenter said HUD should help communities develop non-
discriminatory language and potential administrative rules so that many 
in the LIHTC system can access HCVs and adopt inclusive low-income 
energy assistance standards. Generally, the commenter said HUD should 
incentivize renting through HCVs and assisting communities by 
incorporating sources of income discrimination.
    HUD Response: By statute, owners of HOME-assisted rental housing 
may not discriminate against persons with Section 8 voucher assistance 
(42 U.S.C. 12745(a)(1)(D)). HUD is expanding this protection to include 
a source of income protection for all forms of Federal tenant-based 
rental assistance provided to an applicant of HOME-assisted rental 
housing through this final rule. Incentivizing HCV utilization in LIHTC 
projects or in housing that is not HOME-assisted is beyond the scope of 
rulemaking.
K. Provide Guidance on Participating Jurisdiction-Imposed Unit Caps in 
HOME Rental Housing Programs
    One commenter suggested that HUD should provide guidance to 
participating jurisdictions on maximum unit counts. For example, the 
commenter stated in one State, there is a 56-unit maximum rule for HOME 
funds, and that maximum makes HOME projects ineligible for utilizing 
four percent tax credits. Additionally, the commenter explained that 
anything less than a 100-unit maximum creates additional barriers to 
building integrated, inclusive housing communities for people with and 
without disabilities (i.e., HUD Section 811 PRA).
    HUD Response: The commenter's request for guidance is outside the 
scope of this rulemaking and HUD declines to make a change. The HOME 
regulations require that the HOME funds be cost-allocated in multi-unit 
properties to ensure that, at a minimum, an appropriate number of units 
are designated as HOME-assisted units; however, they do not cap the 
number of HOME-assisted units in a project. A participating 
jurisdiction imposed this cap as a matter of policy and any appeal 
should be handled at that level.
L. Healthy Homes Requirements Should Be Integrated Into Environmental 
Review Requirements for HUD Programs
    One commenter stated HUD should integrate healthy home inspection 
requirements into environmental assessments as well as cover them under 
the eligible cost framework. The commenter recommended that HUD use the 
healthy homes standard under 42 U.S.C. 711, the Maternal, Infant, and 
Early Childhood Home Visit Program. The commenter stated this standard 
is useful because it focuses on those most at risk from poor indoor air 
quality and would capture the health effects on a significant number of 
residents in public housing.
    HUD Response: HUD appreciates the comment. However, the required 
elements of environmental reviews conducted under 24 CFR part 58 are 
outside the scope of this rulemaking, and HUD declines to make any 
change.
M. Rents Under Tenant-Based Rental Assistance
    One commenter asked if HUD has considered changing the requirement 
from the fair market rent to rent reasonableness.
    HUD Response: HUD thanks the commenter. While HUD is revising the 
rent reasonableness regulations for the Section 8 program, HUD is not 
revising the rent reasonable requirement used in HOME tenant-based 
rental assistance programs. This is beyond the scope of this 
rulemaking.

V. Severability

    Consistent with the requirements of the Administrative Procedure 
Act, HUD has carefully responded to all public comments received in 
response to its notice of proposed rulemaking and acted within its 
statutorily delegated authority in the promulgation of regulations that 
are consistent with the Act. Nonetheless, if any provision of this 
final rule, or any provision of 24 CFR part 92, is held to be invalid 
or unenforceable as applied to any action, that provision should be 
construed so as to continue to give the maximum effect to the provision 
permitted by law. If such holding is that the provision of this part is 
invalid and unenforceable in all circumstances, then HUD views each 
provision as severable from the remainder of this part and a finding 
that a provision is invalid should not affect the remaining provisions. 
Additionally, if a provision should be held to be invalid or 
unenforceable, HUD would have its predecessor provision, the equivalent 
provision in effect prior to this rulemaking, come back into effect. As 
this rulemaking is comprehensive and concerns all aspects of the HOME 
program, the Department recognizes the need to maintain the regulations 
to the maximum effect, if permissible, and to sever them as necessary 
if a court challenge prevails. This provides stability for 
participating jurisdictions, which must rely upon regulations for all 
activities, regardless of litigation or court orders affecting certain 
provisions or for certain activities.

VI. Findings and Certifications

Regulatory Review--Executive Orders 12866, 13563, and 14094

    Under Executive Order 12866 (Regulatory Planning and Review), a 
determination must be made regarding whether a regulatory action is 
significant and, therefore, subject to review by the Office of 
Management and Budget 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 identify and consider regulatory approaches 
that reduce burdens and maintain flexibility and freedom of choice for 
the public. Executive Order 14094 (Modernizing Regulatory Review) 
amends section 3(f) of Executive Order 12866, among other things. 
Updating the HOME program regulation is consistent with the objectives 
of Executive Order 13563 to reduce burden, as well as the goal of 
modifying and streamlining regulations that are outmoded and 
ineffective.
    This final rule revises the HOME program regulations, which were 
first promulgated in 1991, and have not been significantly updated 
since 2013. This final rule: revises CHDO qualification requirements 
for community-based non-profit housing organizations to access CHDO 
set-aside funds to own, develop, and sponsor affordable housing; 
revises HOME rent requirements to implement statutory changes made to 
the U.S. Housing Act of 1937 by section 2835(a)(2) of HERA; facilitates 
the use of HOME funds for small one-to-four-unit rental projects; 
incentivizes inclusion of ambitious Green Building standards in new 
construction, reconstruction, and rehabilitation projects; and expands 
flexibilities for community land trusts to participate in the HOME 
program. The final rule also provides enhanced flexibility in TBRA 
programs; strengthens and expands tenant protections; and clarifies the 
resale requirements for homeownership housing. The final rule also 
includes

[[Page 862]]

technical amendments or simplifications to certain changes made in the 
2013 HOME Final Rule, the HOTMA Final Rule, and the NSPIRE Final Rule. 
This final rule was determined to be a significant regulatory action 
under section 3(f) of Executive Order 12866, as amended by Executive 
Order 14094, but was not deemed to be significant under section 
3(f)(1).

Regulatory Impact Analysis

    HUD prepared a regulatory impact analysis (RIA) that addresses the 
costs and benefits of the final rule. HUD's RIA is part of the docket 
file for this rule at https://www.regulations.gov.
    As described in the RIA, HUD anticipates that the economic impact 
of the final rule will be almost entirely within the HOME program. In 
other words, the changes to the HOME program will affect what 
participating jurisdictions do with the HOME funds they receive from 
HUD and how projects that accept this funding source operate. Many of 
the policy adjustments will only have a practical impact if 
participating jurisdictions choose to respond to the policy adjustments 
by altering how they use HOME funds. HUD strongly encourages the public 
to view the docket file.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
This rule aims to improve the HOME program by making several changes to 
the program's regulations through increasing flexibility for grantees 
in using their HOME grants, streamlining administrative requirements, 
implementing statutory changes regarding rent restrictions in HOME 
rental projects, and enhancing tenant protections for HOME-assisted 
rental households. As described in the RIA, HUD anticipates that the 
economic impacts of this rule will be almost entirely within the HOME 
program. In other words, the changes to the HOME program will affect 
what participating jurisdictions do with the HOME funds they receive 
from HUD and how projects that accept this funding source operate. Many 
of the policy adjustments will only have a practical impact if 
participating jurisdictions choose to respond to them by altering how 
they use HOME funds. For the reasons presented, the undersigned 
certifies that this rule will not have a significant economic impact on 
a substantial number of small entities.

Environmental Impact

    A Finding of No Significant Impact (FONSI) with respect to the 
environment was made, at the proposed rule stage, in accordance with 
HUD regulations in 24 CFR part 50 that implement section 102(2)(C) of 
the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). 
The FONSI remains applicable to this final rule and is available 
through the docket file at https://www.regulations.gov. The FONSI is 
also available for public inspection during regular business hours in 
the Regulations Division, Office of General Counsel, Room 10276, 
Department of Housing and Urban Development, 451 Seventh Street SW, 
Washington, DC 20410-0500. Due to security measures at the HUD 
Headquarters building, you must schedule an appointment in advance to 
review the FONSI by calling the Regulations Division at 202-708-3055 
(this is not a toll-free number). 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.

Federalism--Executive Order 13132

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has Federalism implications if the rule 
either: (i) imposes substantial direct compliance costs on State and 
local governments and is not required by statute, or (ii) preempts 
State law, unless the agency meets the consultation and funding 
requirements of section 6 of the Executive Order. This 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.

Unfunded Mandates Reform Act

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

Paperwork Reduction Act

    The information collection requirements contained in this final 
rule have been approved by OMB in accordance with the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned the OMB 
control number 2506-0171. In accordance with the Paperwork Reduction 
Act, 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 OMB control number.
    The final rule would change the annual income determination 
requirement for households assisted with HOME TBRA from annual to when 
a new rental assistance contract must be executed, which can be as long 
as 2 years, which reduces the burden hours. The final rule includes a 
new provision in 24 CFR 92.250 to increase the maximum subsidy limit 
allowed for HOME projects based on whether the project shall meet a 
more comprehensive property standard that includes Green Building 
criteria, which would lead to a slight increase in burden for 
participating jurisdictions with qualified projects. The final rule 
would amend 24 CFR 92.252 to eliminate the requirement that a 
participating jurisdiction must submit to HUD a marketing plan for any 
HOME-assisted rental units that have not achieved initial occupancy 
within six months of project completion in IDIS, which would reduce the 
reporting burden on participating jurisdictions with unoccupied HOME-
assisted rental units. The final rule adds paragraph (g)(1) to 24 CFR 
92.252 to permit an owner of small-scale housing to re-examine annual 
income every three years, rather than annually, therefore reducing 
burden for income determination. The tenancy lease addendum, described 
in 24 CFR 92.253, replaces multiple, separate functions, and results in 
a decrease in paperwork burden. The changes in 24 CFR 92.300 to define 
the qualifications for a CHDO result in increased applications and 
certification, which may lead to an increase of paperwork burden. 
Overall, the final rule results in a net decrease of burden by 28,852 
total estimated annual burden hours.
    The burden of the information collections in this final rule is 
estimated as follows:

[[Page 863]]



                                       Reporting and Recordkeeping Burden
----------------------------------------------------------------------------------------------------------------
                                                                                     Estimated
                                                                     Number of     average time        Total
   24 CFR section reference     Number of       Frequency of      responses  per        for          estimated
                                 parties          responses            party       requirements    annual burden
                                                                                      (hours)         (hours)
----------------------------------------------------------------------------------------------------------------
Sec.   92.252(g)(1) Small            2,000  Annual..............               1               2           4,000
 scale housing income
 determination.
Sec.   92.209(c)(1) Annual          72,000  Annual..............               1            0.75          54,000
 income determination for
 TBRA.
Sec.   92.250 Increase                 188  Annual..............               1               2             376
 maximum subsidy limits for
 ambitious green building.
Sec.   92.253 Tenant                 6,667  Annual..............               1               3          20,001
 protections (including lease
 addendum requirement).
Sec.   92.300 Designation of           600  Annual..............               1             1.5             900
 CHDOs.
Sec.   92.251 Property               6,000  Annual..............               1               3          18,000
 standards and inspection
 requirements.
Sec.   92.252 6-month                   60  Annual..............               1               1              60
 marketing plan for
 unoccupied rental units.
Sec.   92.507 Grant closeout           652  Annual..............               1               1             652
 procedures.
----------------------------------------------------------------------------------------------------------------

List of Subjects

24 CFR Part 91

    Aged, Grant programs--housing and community development, Homeless, 
Individuals with disabilities, Low and moderate income housing, 
Reporting and recordkeeping requirements.

24 CFR Part 92

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

24 CFR Part 570

    Administrative practice and procedure; American Samoa; Community 
development block grants; Grant programs--education; Grant programs--
housing and community development; Guam; Indians; Loan programs--
housing and community development; Low and moderate income housing; 
Northern Mariana Islands; Pacific Islands Trust Territory; Puerto Rico; 
Reporting and recordkeeping requirements; Student aid; Virgin Islands.

24 CFR Part 982

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

    For the reasons stated in the preamble, HUD amends 24 CFR parts 91, 
92, 570, and 982 as follows:

PART 91--CONSOLIDATED SUBMISSIONS FOR COMMUNITY PLANNING AND 
DEVELOPMENT PROGRAMS

0
1. The authority citation for part 91 continues to read as follows:

    Authority: 42 U.S.C. 3535(d), 3601-3619, 5301-5315, 11331-11388, 
12701-12711, 12741-12756, and 12901-12912.


Sec.  91.220  [Amended]

0
2. Amend Sec.  91.220 by:
0
a. Removing the words ``affordability period'' and adding in their 
place the words ``period of affordability'' in paragraph (l)(2)(iv)(B);
0
b. Removing ``92.254(a)(2)(iii)'' and adding in its place 
``92.254(a)(2)(iv)'' in paragraph (l)(2)(v);
0
c. Removing ``92.253(d)'' and adding in its place ``92.253(e)'' in 
paragraph (l)(2)(vii)(D);
0
d. Removing paragraph (l)(2)(viii).


Sec.  91.320  [Amended]

0
3. Amend Sec.  91.320 by:
0
a. Removing the words ``affordability period'' and adding in their 
place the words ``period of affordability'' in paragraph (k)(2)(iv)(B);
0
b. Removing ``92.254(a)(2)(iii)'' and adding in its place 
``92.254(a)(2)(iv)'' in paragraph (k)(2)(v);
0
c. Removing ``92.253(d)'' and adding in its place ``92.253(e)'' in 
paragraph (k)(2)(vii)(D);
0
d. Removing paragraph (k)(2)(viii).

PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM

0
4. The authority citation for part 92 continues to read as follows:

    Authority:  42 U.S.C. 3535(d) and 12701-12839; 12 U.S.C. 1701x.

0
5. Amend Sec.  92.2 by:
0
a. Removing the definition of ``ADDI funds'';
0
b. In the definition of ``Commitment'' by removing the word 
``official'' in paragraph (1) introductory text and adding in its place 
the word ``officials'', by removing the word ``downpayment'' in 
paragraph (1)(i) and adding in its place the word ``homeownership'', by 
removing the words ``or subrecipient'' wherever it appears in paragraph 
(2)(ii)(A), by removing the words ``owner or the tenant'' in paragraph 
(2)(iii) and adding in their place the words ``owner and tenant'', and 
by adding paragraph (2)(ii)(C);
0
c. Revising paragraphs (4), (5), (8)(i), and (9) in the definition of 
``Community housing development organization'';
0
d. Adding a definition for ``Community land trust'' in alphabetical 
order;
0
e. Removing the definitions of ``Displaced homemaker'' and ``First-time 
homebuyer'';
0
f. In the definition of ``Homeownership'' by revising the introductory 
text and paragraph (1) and by removing the words ``Low Income Housing 
Tax Credits'' in paragraph (4) and adding in their place the words 
``Low-Income Housing Credits (26 U.S.C. 42)'';
0
g. In the definition of ``Housing'' by removing the words ``single-
family dwellings'' and adding in their place the words ``single family 
housing units'';
0
h. Adding a definition for ``Period of affordability'' in alphabetical 
order;
0
i. Revising the introductory text and paragraphs (2) and (3) in the 
definition of ``Program income'';
0
j. Revising the last sentence in the definition of ``Reconstruction'';
0
k. Removing the words ``one-to four-family'' and adding in their place 
the words ``one-to four-unit'' in the definition of ``Single family 
housing'';
0
l. Removing the definition of ``Single parent'';
0
m. Removing the word ``dwelling'' and adding in its place the word 
``housing'' the definition of ``Single room occupancy (SRO) housing'';
0
n. Adding a definition for ``Small-scale housing'' in alphabetical 
order;
0
o. Removing the semicolon after ``this part'' and the words ``however, 
for purposes of the American Dream Downpayment Initiative (ADDI) 
described in subpart M of this part, the term ``state'' does not 
include the Commonwealth of Puerto Rico (except for FY2003 ADDI 
funds)'' in the definition of ``State'';

[[Page 864]]

0
p. Revising the definition of ``State recipient'';
0
q. In the definition of ``Subrecipient'' by removing the words ``public 
agency'' wherever they appear and adding in their place the words 
``governmental entity'', by removing the word ``downpayment'' and 
adding in its place the word ``homeownership'', and by removing the 
word ``solely''; and
0
r. Removing the word ``dwelling'' wherever it appears and adding in its 
place the word ``housing'' in the definition of ``Tenant-based rental 
assistance''.
    The additions and revisions read as follows:


Sec.  92.2  Definitions.

* * * * *
    Commitment: * * *
    (2) * * *
    (ii) * * *
    (C) If the participating jurisdiction (or State recipient or 
subrecipient) is providing HOME funds to a family to acquire single 
family housing for homeownership that does not meet the participating 
jurisdiction's property standards, as described in Sec.  92.251(c)(3), 
then the commitment must meet the requirements of this paragraph 
(2)(ii)(C). The participating jurisdiction (or State recipient or 
subrecipient) and the family must have executed a written agreement 
under which HOME assistance will be provided for the purchase of the 
single family housing. The written agreement will require the property 
to meet the standards in accordance with Sec.  92.251(c)(3) and will 
require the property title to be transferred to the family within six 
months of the agreement date.
* * * * *
    Community housing development organization * * *
    (4) Is tax exempt as follows:
    (i) The private nonprofit organization has a tax exemption ruling 
from the Internal Revenue Service under section 501(c)(3) or (4) of the 
Internal Revenue Code of 1986 (26 CFR 1.501(c)(3)-1 or 1.501(c)(4)-1));
    (ii) The private nonprofit organization is a subordinate 
organization that has been included in its 501(c)(3) or (4) central 
organization's group exemption letter by the Internal Revenue Service; 
or
    (iii) The private nonprofit organization is wholly owned by the 
community housing development organization, as defined in this part, 
and is disregarded as an entity separate from its owner organization 
for Federal tax purposes.
    (5) Is not a governmental entity (including the participating 
jurisdiction, other jurisdiction, Indian Tribe, public housing 
authority, Indian housing authority, housing finance agency, or 
redevelopment authority) and is not controlled by a governmental 
entity. An organization that is created by a governmental entity may 
qualify as a community housing development organization; however, no 
more than one-third of the board members of the organization may be 
officials or employees of the participating jurisdiction or 
governmental entity that created the community housing development 
organization. Further, no governmental entity may have the right to 
appoint more than one-third of the organization's board members. The 
board members appointed by a governmental entity and the board members 
that are officials or employees of the participating jurisdiction or 
governmental entity that created the organization may not appoint any 
of the remaining two-thirds of the board members. The officers or 
employees of a governmental entity may not be officers or employees of 
a community housing development organization;
* * * * *
    (8) * * *
    (i) Maintaining at least one-third of its governing board's 
membership for residents of low-income neighborhoods, low-income 
beneficiaries of HUD programs, other low-income community residents, 
designees of low-income neighborhood organizations, or designees of 
nonprofit organizations in the community that address the housing or 
supportive service needs of low-income residents or residents of low-
income neighborhoods, including homeless providers, Fair Housing 
Initiatives Program providers, Legal Aid, disability rights 
organizations, and victim service providers. For urban areas, 
``community'' may be a neighborhood or neighborhoods, city, county, or 
metropolitan area; for rural areas, it may be a neighborhood or 
neighborhoods, town, village, county, or multi-county area (but not the 
entire State); and
* * * * *
    (9) Has a demonstrated capacity for carrying out housing projects 
assisted with Federal funds, Low-Income Housing Credits (26 U.S.C. 42), 
Federal Home Loan Bank Affordable Housing Program (12 U.S.C. 1430) 
funds, or local and State affordable housing funds.
    (i) To satisfy this requirement and demonstrate capacity as a 
developer of a HOME-assisted project, the nonprofit organization must 
have paid employees with housing development experience who will work 
directly on the HOME-assisted project. Where the paid employees of the 
organization do not demonstrate capacity to develop a HOME-assisted 
project alone, the experience of paid employees may be supplemented by 
board members or officers of the organization that are volunteers. If a 
nonprofit organization is demonstrating capacity using a volunteer 
board member's or officer's experience, the volunteer may not be 
compensated by or have their services donated by another organization. 
For its first year of funding as a community housing development 
organization, an organization may satisfy this requirement through a 
contract with a consultant who has housing development experience to 
train appropriate key, paid staff of the organization;
    (ii) An organization that will own housing must demonstrate 
capacity to act as owner of a project and meet the requirements of 
Sec.  92.300(a)(2);
    (iii) An organization that will sponsor housing must demonstrate 
capacity as a developer or capacity to act as owner, as described in 
paragraphs (9)(i) and (ii) of this definition; and
* * * * *
    Community land trust means a nonprofit organization that:
    (1) Has as its primary purposes acquiring, developing, or holding 
land to provide housing that is permanently affordable to low-income 
persons;
    (2) Is not sponsored or controlled by a for-profit organization;
    (3) Uses a lease, covenant, agreement, or other enforceable 
mechanisms to require housing and related improvements on land held by 
the community land trust to be affordable to low-income persons for at 
least 30 years; and
    (4) Retains a right of first refusal or preemptive right to 
purchase the housing and related improvements on land held by the 
community land trust to maintain long-term affordability.
* * * * *
    Homeownership means ownership in fee simple title in single family 
housing or an equivalent form of ownership approved by HUD.
    (1) The land upon which the housing is located may be owned in fee 
simple or the homeowner may have a ground lease for the lowest of the 
following time periods, as applicable:
    (i) For housing, the ground lease must be for 99 years or more;
    (ii) For housing located in an insular area, the ground lease must 
be 40 years or more;
    (iii) For housing located on Indian trust or restricted Indian 
lands or a

[[Page 865]]

Community Land Trust, the ground lease must be 50 years or more; or
    (iv) For manufactured housing, the ground lease must be for a 
period at least equal to the applicable period of affordability in 
Sec.  92.254.
* * * * *
    Period of affordability means the period of time, as specified in 
Sec. Sec.  92.252 and 92.254, that requirements under this part apply 
to HOME-assisted housing.
* * * * *
    Program income means gross income received by the participating 
jurisdiction, State recipient, or a subrecipient at any time, generated 
from the use of HOME funds or matching contributions. When program 
income is generated by housing that is only partially assisted with 
HOME funds or matching funds, the program income shall be the amount 
prorated to reflect the percentage of HOME funds invested in the 
project. Program income includes, but is not limited to, the following:
* * * * *
    (2) Gross income from the use or rental of real property, owned by 
the participating jurisdiction or State recipient that was acquired, 
rehabilitated, or constructed, with HOME funds or matching 
contributions, less costs incidental to generation of the income. 
Program income does not include gross income from the use, rental, or 
sale of real property received by the project owner or developer, 
unless all or a portion of the income must be paid to the participating 
jurisdiction, subrecipient, or State recipient, in which case, the 
amount that must be paid to the participating jurisdiction, 
subrecipient, or State recipient is program income;
    (3) Payments and repayments on grants, loans (i.e., principal and 
interest), or investments made using HOME funds or matching 
contributions, including such payments and repayments made after the 
period of affordability;
* * * * *
    Reconstruction * * * Reconstruction is rehabilitation for purposes 
of this part, except that the property standards for new construction 
in Sec.  92.251(a) apply to all reconstruction projects.
* * * * *
    Small-scale housing means a rental housing project of no more than 
four units or a homeownership project with no more than three rental 
units on the same site.
* * * * *
    State recipient means a unit of general local government designated 
by a State participating jurisdiction to receive HOME funds to 
administer all or some of the State participating jurisdiction's HOME 
programs, own or develop affordable housing, provide homeownership 
assistance, or provide tenant-based rental assistance.
* * * * *

0
6. Revise Sec.  92.3 to read as follows:


Sec.  92.3  Applicability of 2025 regulatory changes.

    This part applies to projects based on when an income determination 
is made or when the HOME funds for the project were committed, as 
applicable. Projects where the HOME funds were committed before a 
certain date may be subject to previous versions of this part. This 
section provides instruction regarding which version of this part 
applies.
    (a) Effective date of this part as it exists on February 5, 2025. 
Except as described in this section, this part, as it exists on 
February 5, 2025 is applicable to projects for which HOME funds are 
committed on or after February 5, 2025. A participating jurisdiction 
must perform income determinations in accordance with Sec.  92.203 
after February 5, 2025.
    (b) One year compliance period. Participating jurisdictions are 
permitted to choose to continue to comply with the requirements of this 
part as they existed on February 4, 2025 for commitments made on or 
before February 5, 2026.
    (c) Delayed compliance date for income determinations. 
Participating jurisdictions are permitted to continue to comply with 
the income determination requirements in accordance with Sec.  92.203 
that the participating jurisdiction was implementing on February 4, 
2025 until February 5, 2026, or longer as determined by HUD.
    (d) Applicability of this part as it exists on February 5, 2025 to 
prior agreements. A participating jurisdiction may choose to amend its 
written agreements for funds committed prior to February 5, 2025 to 
conform to the requirements of this part, except that:
    (1) Certain costs allowed to be reimbursable under Sec.  
92.206(d)(1) and (2), as effective February 5, 2025 may only be 
included in written agreements for projects if the participating 
jurisdiction committed the HOME funds for the project on or after 
February 5, 2025.
    (2) Requesting an increase in maximum per-unit subsidy in 
accordance with Sec.  92.250(c) is only permitted for projects if the 
participating jurisdiction committed the HOME funds for the project on 
or after February 5, 2025.
    (3) Use of the revised dollar thresholds for the periods of 
affordability in Sec. Sec.  92.252 and 92.254 is only permitted for 
projects if the participating jurisdiction committed the HOME funds for 
the project on or after February 5, 2025.
    (4) Tenant protections provided in Sec.  92.253, including the 
tenancy addenda requirements in Sec.  92.253(b) through (d), apply for 
rental housing projects if the participating jurisdiction committed the 
HOME funds for the project, entered into the rental assistance 
contract, or entered into an agreement to provide security deposit 
assistance on or after February 5, 2025.
    (5) The revisions to the roles of community housing development 
organizations in owning, developing, and sponsoring affordable housing 
in Sec.  92.300 only apply if the participating jurisdiction committed 
the community housing development organization set-aside funds for the 
project on or after February 5, 2025.
    (e) The following table summarizes the information provided in this 
section:

   Table 1 to Paragraph (e)--Summary of Effective Dates and Compliance
                                Deadlines
------------------------------------------------------------------------
        2025 Rule effective date                 February 5, 2025
------------------------------------------------------------------------
Applicability..........................  Rule applies to projects for
                                          which HOME funds are committed
                                          on or after February 5, 2025.
Compliance Date........................  Participating jurisdictions
                                          must set compliance date: as
                                          early as February 5, 2025, and
                                          no later than February 5,
                                          2026.
Exceptions for Income Determinations...  Participating jurisdictions
                                          must set compliance date: as
                                          early as February 5, 2025, and
                                          no later than February 5,
                                          2026.

[[Page 866]]

 
                                         Participating jurisdictions may
                                          continue to calculate income
                                          in accordance with the
                                          provisions that were being
                                          implemented by the
                                          participating jurisdiction on
                                          February 4, 2025 until
                                          compliance date set by the
                                          participating jurisdiction, or
                                          longer as determined by HUD.
Applicability Limitations..............  Listed provisions are not
                                          applicable to commitments made
                                          to projects prior to February
                                          5, 2025. Participating
                                          jurisdictions may not amend
                                          written agreements of projects
                                          with commitments existing
                                          prior to February 5, 2025 to
                                          incorporate any of the
                                          following provisions:
                                            Sec.   92.206(d)(1) and (2).
                                            Sec.   92.250(c).
                                            Sec.  Sec.   92.252 and
                                             92.254.
                                            Sec.   92.253.
                                            Sec.   92.300.
------------------------------------------------------------------------

Sec.  92.50  [Amended]

0
7. Amend Sec.  92.50 in paragraph (c)(3) by removing the words ``poor 
households'' and adding in their place the words ``households below the 
poverty line''.

0
8. Amend Sec.  92.101 by revising paragraphs (a) introductory text and 
(d) and adding paragraph (g) to read as follows:


Sec.  92.101  Consortia.

    (a) A consortium of geographically contiguous units of general 
local government is a unit of general local government for purposes of 
this part if the requirements of this section are met. A unit of 
general local government separated by a body of water that is only 
accessible by the public through a permanent means other than a 
connecting road, bridge, railway, or highway may be considered 
geographically contiguous if the consortium demonstrates that the unit 
of general local government separated by the body of water is part of 
the same housing market and local commuting area as one or more members 
of the consortium. A local commuting area is the geographic area that 
encompasses neighborhoods where people live and are reasonably expected 
to routinely travel back and forth to a common employment hub, 
population center, or worksite.
* * * * *
    (d) If the representative unit of general local government 
distributes HOME funds to member units of general local government, the 
representative unit is responsible for applying to the member units of 
general local government the same requirements as are applicable to 
subrecipients, including the written agreement requirements in Sec.  
92.504(c)(2).
* * * * *
    (g) If a consortium changes its representative unit of general 
local government but retains the same membership, the consortium shall 
still be considered the same unit of general local government for 
purposes of this part. If the representative unit of general local 
government changes and the composition of the consortium changes, 
either by adding or removing individual members, then the consortium 
shall be a new unit of general local government for purposes of this 
part and shall be required to comply with all applicable consolidated 
plan requirements in 24 CFR part 91.

0
9. Amend Sec.  92.201 by:
0
a. Adding a sentence to the end of paragraph (a)(2);
0
b. Removing the last sentence of paragraph (b)(2); and
0
c. Removing the word ``ensure'' and adding in its place the word 
``require'' in paragraph (b)(3)(i).
    The addition reads as follows:


Sec.  92.201  Distribution of assistance.

    (a) * * *
    (2) * * * A participating jurisdiction may not commit HOME funds to 
a project outside its jurisdiction and within the boundaries of a 
contiguous local jurisdiction until it has secured the financial 
contribution of the jurisdiction in which the project is located.
* * * * *

0
10. Amend Sec.  92.203 by:
0
a. Revising the section heading and paragraph (a) introductory text;
0
b. Removing the words ``must accept'' and adding in their place the 
words ``may accept'' in paragraph (a)(1);
0
c. Redesignating paragraph (a)(3) as paragraph (a)(4);
0
d. Adding a new paragraph (a)(3);
0
e. Revising the paragraph (b) heading;
0
f. Removing the word ``any'', adding the word ``two'' after the phrase 
``one of the following'', and removing ``Sec.  92.252(h)'' and adding 
in its place ``Sec.  92.252(g)'' in paragraph (b)(1) introductory text;
0
g. Revising paragraph (b)(1)(ii);
0
h Removing paragraph (b)(1)(iii);
0
i. Revising paragraph (b)(2);
0
j. Adding paragraph (b)(3);
0
k. Revising the paragraph (c) heading;
0
l. Removing ``Sec. Sec.  5.609(a) and (b) of this title'' and adding in 
its place ``24 CFR 5.609(a) and (b)'' in paragraph (c)(1);
0
m. Revising paragraph (d);
0
n. In paragraph (e)(1), removing ``Sec.  5.618 of this title'' wherever 
it appears and adding in its place ``24 CFR 5.618'' and removing 
``Sec.  5.609(a)(2) of this title'' and adding in its place ``24 CFR 
5.609(a)(2)'';
0
o. Revising paragraph (e)(2);
0
p. Removing ``Sec.  5.617 of this title'' and adding in its place ``24 
CFR 5.617'' in paragraph (e)(3);
0
q. In paragraph (f)(1)(i), removing ``Sec.  5.611(a) of this title'' 
and adding in its place ``24 CFR 5.611(a)'' and removing ``Sec. Sec.  
5.611(c) through (e) of this title'' and adding in its place ``24 CFR 
5.611(c) through (e)'';
0
r. In paragraph (f)(1)(ii), removing ``Sec.  92.252(b)(2)(i)'' wherever 
it appears and adding in its place ``Sec.  92.252(a)(2)(ii)'', removing 
``Sec.  5.611(a) of this title'' and adding in its place ``24 CFR 
5.611(a)'', and removing ``Sec. Sec.  5.611(c) through (e) of this 
title'' and adding in its place ``24 CFR 5.611(c) through (e)'';
0
s. In paragraph (f)(1)(iii), removing ``Sec.  92.252(i)(2)'' and adding 
in its place ``Sec.  92.252(h)(2)'' and removing ``Sec.  5.611(a) of 
this title'' and adding in its place ``24 CFR 5.611(a)''; and
0
t. Revising paragraph (f)(2).
    The revisions and additions read as follows:


Sec.  92.203  Income determinations.

    (a) Income eligibility. To determine a family is income eligible, 
the participating jurisdiction must determine the family's income as 
follows:
* * * * *

[[Page 867]]

    (3) If a family is applying, renewing, or entering into a new 
rental assistance contract for tenant-based rental assistance pursuant 
to Sec.  92.209, or applying for or living in a HOME-assisted rental 
unit in accordance with Sec.  92.252, and the family is assisted by a 
form of Federal, State, or local public assistance (e.g., TANF, 
Medicaid, LIHTC, local rental subsidy programs, etc.) which examines 
the annual income of the family each year, then a participating 
jurisdiction may accept a written statement from a Federal or non-
Federal entity administering the assistance. The statement must 
indicate the tenant's family size and state the amount of the family's 
annual income. When accepting the statement from a government 
administrator, the participating jurisdiction must still adjust income 
in accordance with paragraph (f) of this section. The statement must be 
for an income determination made within the previous 12-month period.
* * * * *
    (b) Determining and documenting annual income.
    (1) * * *
    (ii) Obtain from the family a written statement or, where needed 
due to disability, a statement in another format, of the amount of the 
family's annual income and family size, along with a certification that 
the information is complete and accurate. The certification must state 
that the family will provide source documents upon request. If there is 
evidence that a tenant's statement and certification provided in 
accordance with this paragraph (b)(1)(ii) failed to completely and 
accurately state information about the family's size or income, a 
tenant's income must be re-examined in accordance with paragraph 
(b)(1)(i) of this section.
    (2) For families applying for HOME homeownership activities (i.e., 
homeowners receiving rehabilitation assistance, homebuyers), the 
participating jurisdiction must determine annual income by examining at 
least 2 months of source documents evidencing annual income (e.g., wage 
statement, interest statement, unemployment compensation statement) for 
the family.
    (3) For families applying for or receiving tenant-based rental 
assistance, the participating jurisdiction may determine annual income 
for the family in accordance with either paragraph (a)(3) or (b)(1)(i) 
of this section, as applicable. Income must be calculated at the times 
described in Sec.  92.209(e)(3).
    (c) Definitions of ``annual income.'' * * *
* * * * *
    (d) Use of income definitions. A participating jurisdiction may use 
either of the definitions of ``annual income'' in paragraph (c) of this 
section, however, the participating jurisdiction may use only one 
definition of ``annual income'' for each HOME-assisted program (e.g., 
homeownership assistance program) that it administers and only one 
definition for each rental housing project. For rental housing projects 
containing units assisted by a Federal or State project-based rental 
subsidy program or tenants receiving Federal tenant-based rental 
assistance, where a participating jurisdiction is accepting a public 
housing agency, owner, or rental assistance provider's determination of 
annual and adjusted income, the participating jurisdiction must 
calculate annual income in accordance with paragraph (c)(1) of this 
section so that only one definition of annual income is used in the 
rental housing project.
    (e) * * *
    (2) The participating jurisdiction is not required to redetermine 
the family's income eligibility at the time the HOME assistance (i.e., 
homeownership assistance and tenant-based rental assistance) is 
provided, unless more than six months has elapsed since the 
participating jurisdiction determined that the family is income 
eligible.
* * * * *
    (f) * * *
    (2) If a unit is assisted by a Federal or State project-based 
rental subsidy program, then a participating jurisdiction may accept 
the public housing agency, owner, or rental subsidy provider's 
determination of the family's adjusted income under that program's 
rules.

0
11. Amend Sec.  92.205 by:
0
a. Revising paragraph (a)(2);
0
b. Removing the last sentence of paragraph (b)(1);
0
c. Adding paragraph (b)(3); and
0
d. Revising the first sentence of paragraph (e)(2).
    The revisions and addition read as follows:


Sec.  92.205  Eligible activities: General.

    (a) * * *
    (2) Acquisition of vacant land or demolition may only be undertaken 
for a project that will provide affordable housing and meets the 
requirements for a specific local project in paragraph (2)(i) of the 
definition of ``commitment'' in Sec.  92.2.
* * * * *
    (b) * * *
    (3) The participating jurisdiction must establish the terms of 
assistance, subject to the requirements of this part.
* * * * *
    (e) * * *
    (2) If project completion, as defined in Sec.  92.2, does not occur 
within 4 years of the date of commitment of funds for a specific local 
project, the project is considered to be terminated, and the 
participating jurisdiction must repay all funds invested in the project 
to the participating jurisdiction's HOME Investment Trust Fund in 
accordance with Sec.  92.503(b). * * *

0
12. Amend Sec.  92.206 by:
0
a. Removing ``Sec.  92.251'' and adding in its place ``Sec.  
92.251(a)'' in paragraph (a)(1);
0
b. Removing ``Sec.  92.251'' and adding in its place ``Sec.  
92.251(b)'' in paragraph (a)(2);
0
c. Removing the word ``single-family'' and adding in its place the 
words ``single family'' in paragraph (b)(1);
0
d. Removing the words ``affordability period'' and adding in their 
place the words ``period of affordability'' in paragraph (b)(2) 
introductory text;
0
e. Revising paragraphs (b)(2)(ii), (c), and (d)(1), (2), and (8).
    The revisions read as follows:


Sec.  92.206  Eligible project costs.

* * * * *
    (b) * * *
    (2) * * *
    (ii) Require a review of management practices to demonstrate that 
disinvestment in the property has not occurred, that the long-term 
needs of the project can be met, and that the feasibility of serving 
the targeted population over the minimum period of affordability of 15 
years can be demonstrated;
* * * * *
    (c) Acquisition costs. Costs of acquiring improved or unimproved 
real property and costs for a long-term ground lease, including costs 
of acquisition by homebuyers.
    (d) * * *
    (1) Architectural, engineering, or related professional services 
required to prepare plans, drawings, specifications, work write-ups; 
for HUD environmental reviews or other environmental studies, 
assessments, or fees; and for certain costs to process and settle the 
financing for a project, such as private lender origination fees, 
credit reports, fees for title evidence, legal fees, accounting fees, 
filing fees for zoning or planning review and approval, private 
appraisal fees, fees for independent cost estimates, and other lender 
required third-party reporting fees. The costs may

[[Page 868]]

be paid if they were incurred not more than 24 months before the date 
that HOME funds are committed to the project and the participating 
jurisdiction expressly permits HOME funds to be used to pay the costs 
in the written agreement committing the funds.
    (2) Fees for recordation and filing of legal documents, building 
permits, and builders or developers fees.
* * * * *
    (8) Cost of property insurance during development.
* * * * *


Sec.  92.207  [Amended]

0
13. Amend Sec.  92.207 in paragraph (e) by removing the words ``under a 
cost allocation plan prepared''.

0
14. Amend Sec.  92.208 by adding paragraph (c) to read as follows:


Sec.  92.208  Eligible community housing development organization 
(CHDO) operating expense and capacity building costs.

* * * * *
    (c) An organization that meets the definition of ``community 
housing development organization'' in Sec.  92.2, except for the 
requirements in paragraph (9) of the definition, may receive HOME funds 
for operating expenses in accordance with paragraph (a) of this section 
in order to develop demonstrated capacity and qualify as a community 
housing development organization.

0
15. Amend Sec.  92.209 by:
0
a. Removing the last sentence of paragraph (c)(1);
0
b. Revising paragraphs (c)(2)(iv), (c)(3), (e), (g), (h)(2), 
(h)(3)(ii), and (i);
0
c. Removing the word ``dwelling'' and adding, in its place, the word 
``housing'' in paragraph (j)(1);
0
d. Revising paragraph (j)(5);
0
e. Adding paragraph (j)(6);
0
f. Revising paragraph (k); and
0
g. Removing paragraph (l).
    The revisions and addition read as follows:


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

* * * * *
    (c) * * *
    (2) * * *
    (iv) Homebuyer program. HOME tenant-based rental assistance may 
assist a tenant who has been identified as a potential low-income 
homebuyer through a lease-purchase agreement, with monthly rental 
assistance payments for a period up to 36 months (i.e., 24 months, with 
a 12-month renewal in accordance with paragraph (e) of this section). 
The HOME tenant-based rental assistance payment may not be used to 
accumulate a downpayment or closing costs for the purchase; however, 
all or a portion of the homebuyer-tenant's monthly contribution toward 
rent may be set aside for this purpose, in accordance with the lease-
purchase agreement. If a participating jurisdiction determines that the 
tenant has met the lease-purchase criteria and is ready to assume 
ownership, HOME funds may be provided for homeownership assistance in 
accordance with the requirements of this part.
* * * * *
    (3) Existing tenants in projects that will receive HOME assistance. 
A participating jurisdiction may select low-income families currently 
residing in housing units that will be rehabilitated or acquired with 
HOME funds under the participating jurisdiction's HOME program. 
Participating jurisdictions using HOME funds for tenant-based rental 
assistance programs may establish local preferences for the provision 
of this assistance. Families so selected may use the tenant-based 
rental assistance in the rehabilitated or acquired housing unit or in 
other qualified housing.
* * * * *
    (e) Rental assistance contract--(1) Parties to the rental 
assistance contract. A participating jurisdiction must enter into a 
rental assistance contract with the owner and the family. A 
participating jurisdiction may have one agreement with the owner and a 
separate agreement with the family, or one tri-party agreement with the 
participating jurisdiction, the owner, and the family.
    (2) Term of the rental assistance contract. The term of the rental 
assistance contract providing assistance with HOME funds may not exceed 
24 months, but the rental assistance contract may be amended or 
renewed, subject to the availability of HOME funds. The term of the 
rental assistance contract must begin on the first day of the term of 
the lease or the beginning of the first month in which tenant-based 
rental assistance is provided.
    (3) Amending or renewing a rental assistance contract. (i) A rental 
assistance contract within its term may only be amended through the 
consent of all parties. A rental assistance contract may be amended:
    (A) Because the lease between the family and owner has been amended 
or renewed, if the lease term or amount charged under the lease are the 
only terms of the contract being changed.
    (B) To extend its term up to 24 months from the original date of 
execution.
    (C) When a tenant changes units within the same building or 
development if the parties to the lease, the family size, and the 
number of bedrooms in the housing remain the same.
    (ii) Subject to the availability of HOME funds, a rental assistance 
contract may be renewed after the expiration of its initial term.
    (iii) In all other instances, the participating jurisdiction must 
enter into a new rental assistance contract with the family and the 
owner in accordance with this paragraph (e).
    (4) Initial and subsequent income determinations. (i) Before the 
participating jurisdiction enters into an initial or new rental 
assistance contract with the family, the participating jurisdiction 
must determine that the family is income eligible in accordance with 
Sec.  92.203.
    (ii) When a rental assistance contract is amended, the 
participating jurisdiction will not be required to perform a new income 
examination in accordance with Sec.  92.203.
    (iii) Before a rental assistance contract is renewed, the 
participating jurisdiction must determine that the family is income 
eligible in accordance with Sec.  92.203.
    (iv) If a family is participating in a HOME lease-purchase program 
and receiving tenant-based rental assistance, then the participating 
jurisdiction is only required to determine the family's income at the 
time that the family enters into the lease-purchase agreement and does 
not need to engage in further income examination during the term of the 
lease-purchase agreement.
* * * * *
    (g) Tenant protections. The tenant must have a lease that complies 
with the requirements in Sec.  92.253. Upon termination of the rental 
assistance contract, the HOME tenant-based rental assistance tenancy 
addendum shall automatically terminate.
    (h) * * *
    (2) The participating jurisdiction must establish a minimum tenant 
contribution to rent, except that the participating jurisdiction may 
establish conditions in its written policies under which a tenant would 
be relieved of all or a portion of the minimum contribution due to 
financial hardship.
    (3) * * *
    (ii) The Section 8 Housing Choice Voucher Program payment standard 
as determined in accordance with 24 CFR 982.503(a) through (c).
    (i) Housing standards. The participating jurisdiction must require 
the housing occupied by a family

[[Page 869]]

receiving tenant-based rental assistance under this section to meet the 
participating jurisdiction's property standards under Sec.  92.251. 
Initially and annually thereafter, the participating jurisdiction must 
determine the housing complies with its property standards and is 
decent, safe, sanitary, and in good repair in accordance with Sec.  
92.251(f).
    (j) * * *
    (5) Paragraphs (b), (c), (d), (f), (g), and (i) of this section are 
applicable when HOME funds are provided for security deposit 
assistance, except that income determinations pursuant to paragraph 
(c)(1) of this section and inspections pursuant to paragraph (i) of 
this section are required only at the time the security deposit 
assistance is provided.
    (6) Surety bonds, security deposit insurance, or instruments 
similar to surety bonds or security deposit insurance may not be used 
in lieu of or in addition to a security deposit in units occupied by 
tenants receiving tenant-based rental assistance.
    (k) Program operation. A tenant-based rental assistance program 
must be operated consistent with the requirements of this section. The 
participating jurisdiction may operate the program itself or may 
contract with a PHA or other entity with the capacity to operate a 
rental assistance program. The tenant-based rental assistance may be 
provided through a rental assistance contract in accordance with 
paragraph (e) of this section. The participating jurisdiction (or 
entity operating the program) must approve the lease.

0
16. Revise Sec.  92.210 to read as follows:


Sec.  92.210  Troubled HOME-assisted rental housing projects.

    (a) The provisions of this section apply only to an existing HOME-
assisted rental project that, within the HOME period of affordability, 
is no longer financially viable or its physical viability has 
substantively deteriorated due to unforeseen circumstances.
    (1) For purposes of this section, a HOME-assisted rental project is 
no longer financially viable through the period of affordability if:
    (i) The project's operating costs exceed its operating revenue, 
considering project reserves;
    (ii) The owner is unable to pay for necessary capital repair costs 
or ongoing expenses for the project; or
    (iii) The project reserves are insufficient to be able to operate 
the project.
    (2) For purposes of this section, physical viability means a 
project's current or future ability to maintain affordability based on 
the physical characteristics and factors of the project's site and 
improvements.
    (3) HUD may approve the actions described in paragraphs (b) and (c) 
of this section to strategically preserve the affordability of a rental 
project after consideration of market needs, available resources, and 
the likelihood of the long-term physical and financial viability of the 
project.
    (b) Notwithstanding Sec.  92.214, a participating jurisdiction may 
request and HUD may permit, pursuant to a written memorandum of 
agreement, a participating jurisdiction to invest additional HOME funds 
in the existing HOME-assisted rental project. The total HOME funding 
for the project (original investment plus additional investment) must 
be necessary to improve the physical and financial viability of the 
project and may not exceed the per-unit subsidy limit in Sec.  
92.250(a) in effect at the time of the additional investment. The use 
of HOME funds may include, but is not limited to, rehabilitation of the 
HOME units and recapitalization of project reserves for the HOME units 
(to fund capital costs). If additional HOME funds are invested, HUD may 
impose additional conditions, including requiring the participating 
jurisdiction to extend the period of affordability, increase the number 
of HOME-assisted units, and change the number or designation of Low 
HOME rent and High HOME rent units.
    (c) HUD may, through written approval, permit the participating 
jurisdiction to reduce the total number of HOME-assisted units or 
change the designation of units from Low HOME rent units to High HOME 
rent units where there are more than the minimum number of Low HOME 
rent units in the project. In determining whether to permit a reduction 
in the number of HOME-assisted units, HUD will take into account the 
required period of affordability and the amount of HOME assistance 
provided to the project.

0
17. Amend Sec.  92.212 by:
0
a. Removing ``may incur costs'' and adding in its place ``may incur 
costs described in this section'' in paragraph (a); and
0
b. Revising paragraph (b).
    The revision reads as follows:


Sec.  92.212  Pre-award costs.

* * * * *
    (b) Administrative and planning costs. (1) Eligible administrative 
and planning costs may be incurred as of the beginning of the 
participating jurisdiction's consolidated program year (see 24 CFR 
91.10) or the date HUD receives the consolidated plan describing the 
HOME allocation to which the costs will be charged, whichever is later.
    (2) In any year in which an appropriation has not been enacted 90 
days before a participating jurisdiction's program year start date, a 
participating jurisdiction may incur eligible administrative and 
planning costs as of the beginning of its program year or the date that 
HUD receives its consolidated plan describing the HOME allocation to 
which the costs will be charged, whichever is earlier.
* * * * *

0
18. Amend Sec.  92.214 by revising paragraphs (a)(6) through (9), 
adding paragraph (a)(10), revising paragraph (b)(3), and adding 
paragraph (b)(4) to read as follows.


Sec.  92.214  Prohibited activities and fees.

    (a) * * *
    (6) Provide assistance (other than tenant-based rental assistance, 
assistance to a homebuyer to acquire housing previously assisted with 
HOME funds, assistance permitted under Sec.  92.210, or assistance to 
preserve affordability of homeownership housing in accordance with 
Sec.  92.254(b)) to a project previously assisted with HOME funds 
during the period of affordability. However, additional HOME funds may 
be committed to a project for up to one year after project completion 
(see Sec.  92.502), but the amount of HOME funds in the project may not 
exceed the maximum per-unit subsidy amount established under Sec.  
92.250 at the time of underwriting;
    (7) Pay for the acquisition of property owned by the participating 
jurisdiction, unless such property is acquired by the participating 
jurisdiction in anticipation of carrying out a HOME project;
    (8) Pay delinquent taxes, fees, or charges on properties to be 
assisted with HOME funds;
    (9) Pay for any cost that is not eligible under Sec. Sec.  92.206 
through 92.209; or
    (10) Pay for surety bonds, security deposit insurance, or 
instruments similar to surety bonds or security deposit insurance, in 
lieu of or in addition to a security deposit in units occupied by 
tenants receiving tenant-based rental assistance (including assistance 
in paying security deposits).
    (b) * * *
    (3) The participating jurisdiction must prohibit project owners 
from charging for:
    (i) Surety bonds, security deposit insurance, or instruments 
similar to surety bonds or security deposit insurance, in lieu of or in 
addition to a security deposit in units;

[[Page 870]]

    (ii) Fees that are not customarily charged in rental housing (e.g., 
laundry room access fees); and
    (iii) Fees to inspect units or correct deficiencies in the property 
condition of units or common areas of the project that were not caused 
by the tenant or are only due to normal wear and tear.
    (4) Rental project owners may charge:
    (i) Reasonable application fees to prospective tenants;
    (ii) Parking fees to tenants only if such fees are customary for 
rental housing projects in the neighborhood; and
    (iii) Fees for services such as bus transportation or meals, as 
long as the services are voluntary and fees are charged for services 
provided.


Sec.  92.216  [Amended]

0
19. Amend Sec.  92.216 in paragraphs (a)(2) and (b)(2) by removing the 
word ``dwelling'' and adding in its place the word ``housing''.


Sec.  92.217  [Amended]

0
20. Amend Sec.  92.217 by removing the word ``dwelling'' and adding in 
its place the word ``housing''.

0
21. Amend Sec.  92.219 by:
0
a. Removing the word ``dwelling'' and adding in its place the word 
``housing'' in paragraph (a)(4);
0
b. Revising the first sentences of paragraphs (b)(2)(ii) and (iii);
    The revisions read as follows:


Sec.  92.219  Recognition of matching contribution.

* * * * *
    (b) * * *
    (2) * * *
    (ii) The participating jurisdiction must execute, with the owner of 
the housing (or, if the participating jurisdiction is the owner, with 
the manager or developer), a written agreement that imposes and 
enumerates all of the requirements applicable to the project, including 
affordability requirements in Sec.  92.252 or Sec.  92.254; tenant 
protection requirements in Sec.  92.253; property standards 
requirements in Sec.  92.251; and income determination requirements in 
Sec.  92.203. * * *
    (iii) A participating jurisdiction must establish a procedure to 
monitor HOME match-eligible housing to ensure continued compliance with 
the requirements of Sec.  92.203 (Income determinations), Sec.  92.252 
(Qualification as affordable housing: Rental housing), Sec.  92.253 
(Tenant protections), and Sec.  92.254 (Qualification as affordable 
housing: Homeownership). * * *
* * * * *


Sec.  92.220  [Amended]

0
22. Amend Sec.  92.220 by removing the words ``single-family'' and 
adding in their place ``single family'' in paragraph (a)(5)(ii).

0
23. Amend Sec.  92.221 by adding paragraphs (b)(1) and (2) to read as 
follows:


Sec.  92.221  Match credit.

* * * * *
    (b) * * *
    (1) To apply an excess matching contribution to a future fiscal 
year's match liability, the participating jurisdiction must have 
documentation, at the time of application, demonstrating the matching 
contribution complied with the matching requirements at Sec. Sec.  
92.218 through 92.221 at the time it was made. Documentation must 
include project records of the type and amount of the matching 
contribution.
    (2) A participating jurisdiction must maintain the records in 
paragraph (b)(1) of this section for five years from the date of 
application of the excess matching contribution to the liability.
* * * * *

0
24. Amend Sec.  92.250 by:
0
a. Revising paragraphs (a) and (b)(3)(i);
0
b. Removing the words ``downpayment assistance'' and in their place 
adding in their place the words ``homeownership assistance'' in 
paragraph (b)(4); and
0
c. Adding paragraph (c).
    The revisions and addition read as follows:


Sec.  92.250  Maximum per-unit subsidy amount, underwriting, and 
subsidy layering.

    (a) Maximum per-unit subsidy amount. The total amount of HOME funds 
that a participating jurisdiction may invest on a per-unit basis in 
affordable housing may not exceed the per-unit dollar limits 
established by HUD in accordance with section 212(e) of the Act. HUD 
will publish the per-unit dollar limits for the area in which the 
housing is located annually. HUD will publish its methodology for 
determining maximum per-unit dollar limits through a publication in the 
Federal Register with the opportunity for comment.
    (b) * * *
    (3) * * *
    (i) An underwriting analysis of the homeowner's ability to repay 
the HOME-funded rehabilitation loan is required only if the loan is an 
amortizing loan; and
* * * * *
    (c) A participating jurisdiction may exceed the per-unit dollar 
limits described in paragraph (a) of this section by up to 10 percent 
if the project meets one of the green building standards identified by 
HUD and published in the Federal Register.

0
25. Amend Sec.  92.251 by:
0
a. Revising the section heading and paragraph (a)(2);
0
b. Adding paragraph (a)(3);
0
c. Revising paragraph (b)(1)(vi);
0
d. Adding paragraphs (b)(1)(viii)(A) and (B);
0
e. Adding paragraphs (b)(1)(xi) and (xii);
0
f. Removing the words ``must ensure'' and adding in their place the 
words ``must require'' and by removing the words ``The construction 
documents'' and adding in their place the words ``The construction 
contract and documents'' in paragraph (b)(2);
0
g. Revising paragraph (b)(3), the first sentence of paragraph (c)(1), 
and paragraph (c)(3);
0
h. Adding paragraph (d);
0
i. Revising the paragraph (f) heading;
0
j. Removing the words ``affordability period'' and adding in their 
place the words ``period of affordability'' and by removing the words 
``each of the following'' and adding in their place the words ``all of 
the following'' in paragraph (f)(1) introductory text;
0
k. Revising paragraph (f)(1)(i);
0
l. Adding paragraph (f)(1)(iv);
0
m. Revising paragraphs (f)(3) through (5); and
0
n. Adding paragraph (g).
    The revisions and additions read as follows:


Sec.  92.251  Property standards and inspections.

    (a) * * *
    (2) Construction progress and final inspections. The participating 
jurisdiction must conduct on-site progress and final inspections of 
construction to ensure that work is done in accordance with the 
applicable codes, the construction contract, and construction 
documents. Before completing the project in the disbursement and 
information system established by HUD, the participating jurisdiction 
must perform an on-site inspection of the project to determine that all 
contracted work has been completed and that the project complies with 
the property standards and requirements in this paragraph (a). All 
inspections performed by the participating jurisdiction must be 
conducted in accordance with the participating jurisdiction's 
inspection procedures.
    (3) HUD requirements. All new construction projects must also meet 
the following requirements upon project

[[Page 871]]

completion, unless an earlier deadline is otherwise required by the 
applicable statute, regulation, or standard:
    (i) Accessibility. The housing must meet the accessibility 
requirements of 24 CFR part 8, which implements section 504 of the 
Rehabilitation Act of 1973 (29 U.S.C. 794), and Titles II and III of 
the Americans with Disabilities Act (42 U.S.C. 12131-12189) implemented 
at 28 CFR parts 35 and 36, as applicable. Covered multifamily 
dwellings, as defined at 24 CFR 100.201, must also meet the design and 
construction requirements at 24 CFR 100.205, which implements the Fair 
Housing Act (42 U.S.C. 3601-3619).
    (ii) Energy efficiency standards. Newly constructed housing shall 
qualify as affordable housing under this part only if it meets the 
energy efficiency standards promulgated by the Secretary in accordance 
with section 109 of the Cranston-Gonzalez National Affordable Housing 
Act (42 U.S.C. 12709).
    (iii) Disaster mitigation. Where relevant, the housing must be 
constructed to mitigate the impact of future disasters (e.g., 
earthquakes, hurricanes, flooding, and wildfires) in accordance with 
State and local codes, ordinances, and requirements, and such other 
requirements that HUD may establish.
    (iv) Written cost estimates, construction contracts, and 
construction documents. The participating jurisdiction must require the 
construction contract(s) and construction documents to describe the 
work to be undertaken in adequate detail so that inspections can be 
conducted. The participating jurisdiction must review and approve 
written cost estimates for construction and determine that costs are 
reasonable.
    (v) Broadband infrastructure. For new commitments made after 
January 19, 2017, for a new construction housing project of a building 
with more than 4 rental units, the construction must include 
installation of broadband infrastructure, as this term is defined in 24 
CFR 5.100, except where the participating jurisdiction determines and, 
in accordance with Sec.  92.508(a)(3)(iv), documents the determination 
that:
    (A) The location of the new construction makes installation of 
broadband infrastructure infeasible; or
    (B) The cost of installing the infrastructure would result in a 
fundamental alteration in the nature of its program or activity or in 
an undue financial burden.
    (vi) Carbon monoxide and smoke detection--(A) Carbon monoxide 
detection. A carbon monoxide alarm must be installed in the housing 
unit in a manner that meets or exceeds the carbon monoxide detection 
standards set by HUD through Federal Register publication.
    (B) Smoke detection. (1) A hardwired smoke alarm must be installed:
    (i) On each level of each housing unit;
    (ii) In or near each sleeping area in each housing unit;
    (iii) In the basement of each housing unit and in each common area 
of a project. A hardwired smoke alarm is not required in crawl spaces 
or unfinished attics of housing units;
    (iv) Within 21 feet of any door to a sleeping area measured along a 
path of travel; and
    (v) Where a smoke alarm installed outside a sleeping area is 
separated from an adjacent living area by a door, a smoke alarm must 
also be installed on the living area side of the door.
    (2) Each hardwired smoke alarm must have an alarm system designed 
for hearing-impaired persons.
    (3) The Secretary may establish additional standards through 
Federal Register publication.
    (4) Following the relevant specifications of the International Code 
Council (ICC) or the National Fire Protection Association Standard 
(NFPA) 72 satisfies the requirements of this paragraph (a)(3)(vi)(B).
    (vii) Green building standards. If a participating jurisdiction 
exceeds the maximum per-unit subsidy limit pursuant to Sec.  92.250(c), 
then upon completion, the housing must meet one of the green building 
standards established by HUD through Federal Register publication.
    (b) * * *
    (1) * * *
    (vi) Disaster mitigation. Where relevant, the participating 
jurisdiction's standards must require the housing to be improved to 
mitigate the impact of future disasters (e.g., earthquake, hurricanes, 
flooding, and wildfires) in accordance with State and local codes, 
ordinances, and requirements, and such other requirements that HUD may 
establish.
* * * * *
    (viii) * * *
    (A) The participating jurisdiction may accept a determination in 
satisfaction of another funding source's requirements that, upon the 
completion of the rehabilitation, the HOME-assisted project and units 
are decent, safe, sanitary, and in good repair in an inspection 
conducted under the National Standards for the Condition of HUD housing 
(24 CFR part 5, subpart G) or an alternative inspection standard, which 
HUD may establish through Federal Register publication.
    (B) If a participating jurisdiction is accepting a determination 
pursuant to paragraph (b)(1)(viii)(A) of this section, then the 
participating jurisdiction must document the determination in 
accordance with Sec.  92.508(a)(3)(iv) and is not required to perform a 
HOME inspection of the project and units for compliance with 24 CFR 
5.703.
* * * * *
    (xi) Carbon monoxide and smoke detection--(A) Carbon monoxide 
detection. A carbon monoxide alarm must be installed in the housing 
unit in a manner that meets or exceeds the carbon monoxide detection 
standards set by HUD through Federal Register publication.
    (B) Smoke detection. (1) A hardwired smoke alarm must be installed:
    (i) On each level of each housing unit;
    (ii) In or near each sleeping area in each housing unit;
    (iii) In the basement of each housing unit, and in each common area 
of a project. A hardwired smoke alarm is not required in crawl spaces 
or unfinished attics of housing units;
    (iv) Within 21 feet of any door to a sleeping area measured along a 
path of travel; and
    (v) Where a smoke alarm installed outside a sleeping area is 
separated from an adjacent living area by a door, a smoke alarm must 
also be installed on the living area side of the door.
    (2) Each hardwired smoke alarm must have an alarm system designed 
for hearing-impaired persons.
    (3) The Secretary may establish additional standards through 
Federal Register publication.
    (4) Where the use of hardwired smoke detectors places an undue 
financial burden on the owner or is infeasible, a participating 
jurisdiction may provide a written exception to allow the owner to 
install a smoke detector that uses 10-year non rechargeable, 
nonreplaceable primary batteries. The smoke detector must be sealed, 
tamper-resistant, contain a means to silence the alarm, and otherwise 
comply with the requirements of this section.
    (5) Following the relevant specification of the International Code 
Council (ICC) or the National Fire Protection Association Standard 
(NFPA) 72 satisfies the requirements of this paragraph (b)(1)(xi)(B).
    (xii) Green building standards. If a participating jurisdiction 
exceeds the maximum per-unit subsidy limit pursuant to Sec.  92.250(c), 
then upon completion of the rehabilitation the housing must meet one of 
the green

[[Page 872]]

building standards established by HUD through Federal Register 
publication.
* * * * *
    (3) Frequency of inspections. The participating jurisdiction must 
conduct an initial property inspection to identify the deficiencies 
that must be addressed and must conduct on-site progress and final 
inspections to determine that work was done in accordance with the 
construction contract and construction documents. Before completing the 
project in the disbursement and information system established by HUD, 
the participating jurisdiction must perform an on-site inspection of 
the project to determine that all contracted work has been completed 
and that the project complies with the property standards and 
requirements in this paragraph (b). All inspections performed by the 
participating jurisdiction must be conducted in accordance with the 
participating jurisdiction's inspection procedures.
    (c) * * *
    (1) Existing housing that is acquired with HOME assistance for 
rental housing, and that was newly constructed or rehabilitated less 
than 12 months before the date of commitment of HOME funds, must meet 
the property standards for new construction in paragraph (a) or 
rehabilitation in paragraph (b) of this section, as applicable. * * *
* * * * *
    (3) Existing housing that is acquired for homeownership using 
homeownership assistance must be decent, safe, sanitary, and in good 
repair. The participating jurisdiction must establish standards to 
determine that the housing is decent, safe, sanitary, and in good 
repair. At minimum, the standards must provide that the housing meets 
all applicable State and local housing quality standards and code 
requirements, and the housing does not contain the specific 
deficiencies established by HUD based on the applicable standards in 24 
CFR 5.703 and published in the Federal Register for HOME-assisted 
projects and units. The housing must also meet or exceed the carbon 
monoxide and smoke detection standards contained in the participating 
jurisdiction's rehabilitation standards pursuant to paragraph (b) of 
this section. If the use of hardwired smoke detectors places an undue 
financial burden on the homebuyer or is infeasible, a participating 
jurisdiction may provide a written exception to the homebuyer 
consistent with the requirements contained in paragraph (b) of this 
section.
    (i) The participating jurisdiction must inspect the housing and 
document compliance with this paragraph (c)(3) based upon an inspection 
that is conducted no earlier than 90 days before the commitment of HOME 
assistance. If the housing does not meet these standards, the housing 
must be rehabilitated to meet the standards of this paragraph (c)(3) 
before the acquisition, except as provided in paragraph (c)(3)(ii) of 
this section.
    (ii) If the housing is not rehabilitated to meet the standards in 
this paragraph (c)(3) before acquisition, then the housing may still be 
acquired if all of the following conditions are satisfied:
    (A) The written agreement between the participating jurisdiction 
and the homebuyer requires the property to meet the standards within 6 
months of acquisition with HOME assistance;
    (B) Funding is secured to complete the rehabilitation necessary to 
comply with the standards; and
    (C) Unless an extension is provided pursuant to paragraph 
(c)(3)(ii)(D) of this section, the participating jurisdiction conducts 
a final inspection within six months after acquisition and determines 
that the property meets the standards.
    (D) The participating jurisdiction may provide the homebuyer with 
an extension of up to 12 months from acquisition to meet the standards. 
If the participating jurisdiction provides an extension, the 
participating jurisdiction must amend the written agreement to reflect 
the extension and conduct a final inspection within 12 months of 
acquisition and determine that the property meets the standards.
    (iii) All inspections performed by the participating jurisdiction 
must be conducted in accordance with the participating jurisdiction's 
inspection procedures.
    (d) Projects involving a combination of rehabilitation and either 
new construction or reconstruction. If a project includes both 
rehabilitation of housing units and either new construction or 
reconstruction of housing units, then the participating jurisdiction 
must apply the rehabilitation standards to the housing units that are 
rehabilitated and the new construction requirements to housing that is 
either newly constructed or reconstructed.
* * * * *
    (f) Ongoing property condition standards and inspections: Rental 
housing and housing occupied by tenants receiving HOME tenant-based 
rental assistance. * * *
    (1) * * *
    (i) Compliance with State and local codes, ordinances, and 
requirements. The participating jurisdiction's standards must require 
the housing to meet all applicable State and local code requirements 
and ordinances. In the absence of existing applicable State or local 
code requirements and ordinances, at a minimum, the participating 
jurisdiction's ongoing property standards must provide that the 
property does not contain the specific deficiencies established by HUD 
based on the applicable standards in 24 CFR 5.703 and published in the 
Federal Register for HOME rental housing (including manufactured 
housing) and housing occupied by tenants receiving HOME tenant-based 
rental assistance, except that the carbon monoxide detection 
requirements at 24 CFR 5.703(b)(2) and (d)(6) shall not apply. The 
participating jurisdiction's property standards are not required to 
comply with 24 CFR 5.705 through 5.713.
* * * * *
    (iv) Carbon monoxide and smoke detection--(A) Carbon monoxide 
detection. A carbon monoxide alarm must be installed in the housing 
unit in a manner that meets or exceeds the carbon monoxide detection 
standards set by HUD through Federal Register publication.
    (B) Smoke detection. The participating jurisdiction's standards 
must require housing to contain smoke detectors in accordance with the 
requirements contained in 24 CFR 5.703(b) and (d).
* * * * *
    (3) Ongoing inspections of HOME-assisted rental housing. During the 
period of affordability, the participating jurisdiction must perform 
on-site inspections of HOME-assisted rental housing to determine 
compliance with the property standards in paragraph (f)(1) of this 
section and to verify the information submitted by owners in accordance 
with the requirements of Sec.  92.252. The participating jurisdiction 
must perform inspections in accordance with its established inspection 
procedures. These procedures, at minimum, must include the following 
requirements:
    (i) Frequency of inspections. The participating jurisdiction must 
perform an on-site inspection within 12 months after project completion 
and complete one of the following every 3 years during the period of 
affordability:
    (A) Perform an on-site inspection in accordance with the 
participating jurisdiction's inspection procedures to determine 
compliance with the property standards; or

[[Page 873]]

    (B) Accept a determination made within the past 12 months in 
satisfaction of another funding source's requirements, that the HOME-
assisted project and units are decent, safe, sanitary, and in good 
repair in an inspection conducted under the National Standards for the 
Condition of HUD housing (24 CFR part 5, subpart G) or an alternative 
inspection standard, which HUD may establish through Federal Register 
publication. If a participating jurisdiction is accepting a 
determination, then the participating jurisdiction must document the 
determination in accordance with Sec.  92.508(a)(3)(iv) and is not 
required to perform an on-site HOME inspection of the project and the 
units for compliance with 24 CFR 5.703.
    (ii) Annual certification. The owner must annually certify to the 
participating jurisdiction that each building and all HOME-assisted 
units in the project are suitable for occupancy, taking into account 
State and local health, safety, and other applicable codes, ordinances, 
and requirements, and the ongoing property standards established by the 
participating jurisdiction.
    (iii) Units inspected. Inspections must be based on a random sample 
of the HOME-assisted units in the project with a mix of unit sizes 
(e.g., a mix of one-bedroom, two-bedroom, and three-bedroom units) in 
accordance with the chart contained in this paragraph. All inspections 
must include the inspectable areas for each building containing HOME-
assisted units. For projects with one-to-four HOME-assisted units, the 
participating jurisdiction must inspect 100 percent of the HOME-
assisted units and the inspectable areas for each building with HOME-
assisted units.

  Table 1 to Paragraph (f)(3)(iii)--Minimum Inspection Sample Size for
                      HOME Rental Housing Projects
------------------------------------------------------------------------
                                                             Number of
                                                            units that
                                                              must be
                                                            selected in
    Number of HOME-assisted units in the HOME project       the random
                                                           sample (i.e.,
                                                           minimum unit
                                                           sample size)
------------------------------------------------------------------------
1-20....................................................               4
21-25...................................................               5
26-30...................................................               6
31-35...................................................               7
36-40...................................................               8
41-45...................................................               9
46-50...................................................              10
51-55...................................................              11
56-60...................................................              12
61-65...................................................              13
66-70...................................................              14
71-75...................................................              15
76-80...................................................              16
81-85...................................................              17
86-90...................................................              18
91-95...................................................              19
96-100..................................................              20
101-105.................................................              21
106-110.................................................              22
111-115.................................................              23
116-120.................................................              24
121-125.................................................              25
126-130.................................................              26
131-166.................................................              27
167-214.................................................              28
215-295.................................................              29
296-455.................................................              30
456-920.................................................              31
921+....................................................              32
------------------------------------------------------------------------

    (iv) Financial oversight. During the period of affordability, the 
participating jurisdiction must at least annually examine the financial 
condition of projects with 10 or more HOME-assisted units to determine 
the continued financial viability of the housing and must take actions 
to correct problems, to the extent feasible.
    (4) Annual inspections for housing with tenants receiving HOME 
tenant-based rental assistance. All housing occupied by tenants 
receiving HOME tenant-based rental assistance must meet the property 
standards of paragraph (f)(1) of this section. The participating 
jurisdiction must annually determine that the housing is decent, safe, 
sanitary, and in good repair through one of the following methods:
    (i) An annual on-site inspection in accordance with its inspection 
procedures for annual inspections to determine the housing meets the 
property standards in paragraph (f)(1) of this section; or
    (ii) An inspection conducted within the past 3 months in 
satisfaction of another funding source's requirements under the 
National Standards for the Condition of HUD housing (24 CFR part 5, 
subpart G) or an alternative inspection standard, which HUD may 
establish through Federal Register publication. A participating 
jurisdiction may move its inspection cycle to align with an inspection 
covered by this paragraph. If a participating jurisdiction is accepting 
an inspection pursuant to this paragraph, then the participating 
jurisdiction must document the inspection's determination that the 
housing is decent, safe, sanitary, and in good repair in accordance 
with Sec.  92.508(a)(3)(iv) and is not required to perform a HOME 
inspection of the project and units for compliance with 24 CFR 5.703.
    (5) Corrective and remedial actions. The participating jurisdiction 
must have procedures for requiring that timely corrective and remedial 
actions are taken by the owner to address identified deficiencies.
    (i) Health and safety deficiencies. Health and safety deficiencies 
must be corrected immediately. Except for small-scale housing, the 
participating jurisdiction must adopt a more frequent inspection 
schedule for properties that have been found to have health and safety 
deficiencies. For small-scale housing, the participating jurisdiction 
may adopt a more frequent inspection schedule if the small-scale 
housing is found to have health and safety deficiencies, as described 
in its inspection procedures.
    (ii) Other deficiencies. If there are observed deficiencies for any 
of the inspectable areas in the property standards established by the 
participating jurisdiction, in accordance with the inspection 
procedures, a follow-up on-site inspection to verify that deficiencies 
are corrected must occur within 12 months. The participating 
jurisdiction may establish a list of non-hazardous deficiencies for 
which correction can be verified by third party documentation (e.g., 
paid invoice for work order) rather than re-inspection.
    (g) Inspection procedures. The participating jurisdiction must 
establish written inspection procedures. The procedures must include 
detailed inspection checklists, a description of how and by whom 
inspections will be carried out, and procedures for training and 
certifying qualified inspectors. For ongoing property inspections, the 
procedures must also describe how frequently the property will be 
inspected, consistent with this section and Sec.  92.209.

0
26. Revise Sec.  92.252 to read as follows:


Sec.  92.252  Qualification as affordable housing: Rental housing.

    The HOME-assisted units in a rental housing project must be 
occupied by households that are eligible as low-income families and 
must meet the requirements of this section to qualify as affordable 
housing. If the housing is not occupied by eligible tenants within six 
months following the date of project

[[Page 874]]

completion, the participating jurisdiction must revise its marketing 
plan to enable the project to reach required occupancy. The 
participating jurisdiction must repay HOME funds invested in any 
housing unit that has not been rented to eligible tenants within 18 
months after the date of project completion. The affordability 
requirements in this section also apply to the HOME-assisted non-owner-
occupied units in single family housing purchased with HOME funds in 
accordance with Sec.  92.254. A tenant must have a written lease that 
complies with Sec.  92.253.
    (a) HOME rent limits. The rent for a HOME-assisted unit must not 
exceed the rent limits in this section. HUD will publish the HOME rent 
limits on an annual basis, with adjustments for number of bedrooms in 
the unit. The rent limits do not apply to any rental assistance or 
subsidy payment provided under a Federal, State, or local rental 
assistance or subsidy program. Regardless of changes in fair market 
rents and in median income over time, the rents for a project are not 
required to be lower than the HOME rent limits for the project in 
effect at the time of project commitment. The participating 
jurisdiction may designate (in its written agreement with the owner) 
more than the minimum HOME units in a rental housing project, 
regardless of project size. The rent limits apply to the rent plus the 
utilities or utility allowance.
    (1) High HOME rent limits. If a low-income family is participating 
in a program where the family pays as a contribution toward rent no 
more than 30 percent of the family's monthly adjusted income or 10 
percent of the family's monthly income, then the maximum rent due from 
the family is the family's contribution. For all other cases, the rent 
does not exceed the lesser of:
    (i) The fair market rent for existing housing for comparable units 
in the area as established by HUD under 24 CFR 888.111; or
    (ii) 30 percent of the adjusted income of a family whose annual 
income equals 65 percent of the median income for the area, as 
determined by HUD.
    (2) Low HOME rent limits. In rental projects with five or more 
HOME-assisted rental units, at least 20 percent of the HOME-assisted 
units must be occupied by very low-income families. If a very low-
income family is participating in a program where the family pays as a 
contribution toward rent no more than 30 percent of the family's 
monthly adjusted income or 10 percent of the family's monthly income, 
then the maximum rent due from the family is the family's contribution. 
All other Low HOME Rent units must have rent that meet one of the 
following requirements:
    (i) The rent does not exceed 30 percent of the annual income of a 
family whose income equals 50 percent of the median income for the 
area, as determined by HUD. If the rent determined under this paragraph 
is higher than the fair market rent under paragraph (a)(1)(i) of this 
section, then the maximum rent for units under this paragraph is the 
fair market rent under paragraph (a)(1)(i);
    (ii) The rent contribution of the family is not more than 30 
percent of the family's adjusted income; or
    (iii) The unit is a LIHTC unit and has rents not greater than the 
gross rent for rent-restricted residential units as determined under 26 
U.S.C. 42(g)(2).
    (3) HOME rent limits for SRO projects. (i) For SRO units that have 
both sanitary and food preparation facilities, the rent limit is the 
zero-bedroom fair market rent as established by HUD under 24 CFR part 
888. The project must meet the requirements of paragraphs (a)(1) and 
(2) of this section.
    (ii) For SRO units that have no sanitary or food preparation 
facilities or only one of the two, the rent limit is 75 percent of the 
zero-bedroom fair market rent as established by HUD under 24 CFR part 
888. The project must be occupied by very low-income tenants.
    (b) Utility allowances. The participating jurisdiction must 
establish maximum monthly allowances for utilities and services 
(excluding telephone, cable, and broadband) and update the allowances 
annually. The participating jurisdiction may determine the utility 
allowance for the project based on the type of utilities and services 
paid by the tenant, including any energy efficiency measures. The 
participating jurisdiction may use any of the following for its maximum 
monthly allowances: the HUD Utility Schedule Model, the utility 
allowance established by the applicable local public housing authority, 
or another method approved by HUD.
    (c) Review and approval of rents. The participating jurisdiction 
must review and approve rents proposed by the owner for units, subject 
to the rent limits in paragraph (a) of this section. For all units 
subject to the rent limits in paragraph (a) for which the tenant is 
paying utilities and services, the participating jurisdiction must 
require that the rents do not exceed the rent limits in paragraph (a) 
minus the monthly allowances for utilities and services in paragraph 
(b) of this section.
    (d) Period of affordability. The HOME-assisted units must meet 
requirements under this part for the applicable period specified in the 
table in this paragraph (d), beginning from project completion.
    (1) The affordability requirements, including the applicable rent 
limits, period of affordability, and income requirements:
    (i) Apply without regard to the term of any loan or mortgage, 
repayment of the HOME investment, or the transfer of ownership;
    (ii) Must be imposed by a deed or use restriction, lien on real 
property, a covenant running with the land, a recorded agreement 
restricting the use of the property, or other mechanisms approved by 
HUD in writing, under which the participating jurisdiction has the 
right to require specific performance (except that the participating 
jurisdiction may provide that the affordability requirements may 
terminate upon foreclosure or transfer in lieu of foreclosure); and
    (iii) Must be recorded in accordance with State recordation laws.
    (2) The participating jurisdiction may use purchase options, rights 
of first refusal, or other preemptive rights to purchase the housing 
before foreclosure or deed in lieu of foreclosure in order to preserve 
affordability.
    (3) The affordability restrictions shall be revived according to 
the original terms if, during the original period of affordability, the 
owner of record before the foreclosure, or deed in lieu of foreclosure, 
or any entity that includes the former owner or those with whom the 
former owner has or had family or business ties, obtains an ownership 
interest in the project or property.
    (4) The termination of the affordability requirements on the 
project does not terminate the participating jurisdiction's repayment 
obligation under Sec.  92.503(b).

 Table 1 to Paragraph (d)(4)--Minimum Period of Affordability for Rental
                                 Housing
------------------------------------------------------------------------
                                                              Minimum
                                                             period of
                 Rental housing activity                   affordability
                                                             in years
------------------------------------------------------------------------
Rehabilitation or acquisition of existing housing per-                 5
 unit amount of HOME funds: Under $25,000...............
  $25,000 to $50,000....................................              10
  Over $50,000 or rehabilitation involving refinancing..              15

[[Page 875]]

 
  New construction or acquisition of newly constructed                20
   housing..............................................
------------------------------------------------------------------------

    (e) Subsequent rents during the period of affordability. (1) The 
HOME rent limits are recalculated on a periodic basis after HUD 
determines fair market rents and median incomes. HUD then publishes the 
updated HOME rent limits.
    (2) The participating jurisdiction must provide project owners with 
information on updated HOME rent limits so that rents may be adjusted 
(not to exceed the rent limits in paragraph (a) of this section) in 
accordance with the written agreement between the participating 
jurisdiction and the owner. Owners must annually provide the 
participating jurisdiction with information on rents and occupancy of 
HOME-assisted units to demonstrate compliance with this section. The 
participating jurisdiction must review rents for compliance and approve 
or disapprove them every year.
    (3) Any increase in rents for HOME-assisted units is subject to the 
provisions of outstanding leases, and in any event, the owner must 
provide tenants of those units not less than 60 days prior written 
notice before implementing any increase in rents.
    (f) Adjustment of HOME rent limits for an existing project. (1) 
Changes in fair market rents and in median income over time should be 
sufficient to maintain the financial viability of a project within the 
HOME rent limits in this section.
    (2) HUD may adjust the HOME rent limits for a project, only if HUD 
finds that an adjustment is necessary to support the continued 
financial viability of the project and only by an amount that HUD 
determines is necessary to maintain continued financial viability of 
the project. HUD expects that this authority will be used sparingly.
    (g) Tenant Income. The income of each tenant must be determined 
initially in accordance with Sec.  92.203(b)(1)(i) unless the 
participating jurisdiction accepts an annual income determination 
pursuant to Sec.  92.203(a)(1), (2), or (3) or determines income in 
accordance with Sec.  92.203(b)(3). In addition, each year during the 
period of affordability, the participating jurisdiction must require 
the project owner to re-examine each tenant's annual income in 
accordance with the option in Sec.  92.203(b)(1) selected by the 
participating jurisdiction and included in the written agreement, 
except as follows:
    (1) A participating jurisdiction may permit an owner of small-scale 
housing to re-examine each tenant's annual income in accordance with 
the chart in this paragraph (g)(1), instead of annually, during the 
period of affordability.

  Table 2 to Paragraph (g)(1)--Alternative Income Examination Cycle for
                   Small-Scale Rental Housing Projects
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Initial Examination..........  The income of each tenant must be
(All Projects)...............   determined initially in accordance with
                                Sec.   92.203(b)(1)(i) unless the
                                participating jurisdiction accepts an
                                annual income determination pursuant to
                                Sec.   92.203(a)(1), Sec.
                                92.203(a)(2), or Sec.   92.203(a)(3), or
                                determines income in accordance with
                                Sec.   92.203(b)(3).
Year 3.......................  The income of each tenant must be
                                examined in accordance with the option
                                selected by the participating
                                jurisdiction in Sec.   92.203(b)(1) and
                                included in the written agreement
                                between the owner and the participating
                                jurisdiction pursuant to Sec.
                                92.504(c)(3).
Year 6.......................  The income of each tenant must be
(Projects with a period of      examined in accordance with Sec.
 affordability of greater       92.203(b)(1)(i).
 than 5 years).
Year 9.......................  The income of each tenant must be
(Projects with a period of      examined in accordance with the option
 affordability of greater       selected by the participating
 than 5 years).                 jurisdiction in Sec.   92.203(b)(1) and
                                included in the written agreement
                                between the owner and the participating
                                jurisdiction pursuant to Sec.
                                92.504(c)(3).
Year 12......................  The income of each tenant must be
(Projects with a period of      examined in accordance with Sec.
 affordability of greater       92.203(b)(1)(i).
 than 10 years).
Year 15......................  The income of each tenant must be
(Projects with a period of      examined in accordance with the option
 affordability of 20 years).    selected by the participating
                                jurisdiction in Sec.   92.203(b)(1) and
                                included in the written agreement
                                between the owner and the participating
                                jurisdiction pursuant to Sec.
                                92.504(c)(3).
Year 18......................  The income of each tenant must be
(Projects with a period of      examined in accordance with Sec.
 affordability of 20 years).    92.203(b)(1)(i).
------------------------------------------------------------------------

    (2) A participating jurisdiction that permits an owner of a rental 
project (including small-scale housing projects) with a period of 
affordability of ten years or more to re-examine a tenant's annual 
income through a statement and certification in accordance with Sec.  
92.203(b)(1)(ii), must require the owner to re-examine the income of 
each tenant, in accordance with Sec.  92.203(b)(1)(i), at minimum, 
every sixth year during the period of affordability; and,
    (3) If the participating jurisdiction accepts an annual income 
determination pursuant to Sec.  92.203(a)(1), (2), or (3), an owner is 
not required to re-examine a tenant's annual income in accordance with 
Sec.  92.203(b) for HOME.
    (h) Over-income tenants. (1) HOME-assisted units continue to 
qualify as affordable housing despite a temporary noncompliance caused 
by increases in the incomes of existing tenants if actions satisfactory 
to HUD are being taken to ensure that all vacancies are filled in 
accordance with this section until the noncompliance is corrected.
    (2) A tenant who no longer qualifies as low-income must pay a rent 
amount equal to the lesser of the amount payable by the tenant under 
State or local law or 30 percent of the family's adjusted income, 
except that:
    (i) A tenant of a HOME-assisted unit subject to rent restrictions 
under section 42 of the Internal Revenue Code of 1986 (26 U.S.C. 42) 
must pay a rent amount that complies with that section;
    (ii) A tenant in a HOME-assisted unit designated as floating 
pursuant to paragraph (j) of this section shall pay a rent amount no 
greater than the fair market rent for comparable, unassisted units in 
the neighborhood; and

[[Page 876]]

    (iii) The rent limits do not apply to any rental assistance or 
subsidy payment provided under a Federal, State, or local rental 
assistance or subsidy program.
    (i) Surety bonds. Surety bonds, security deposit insurance, or 
instruments similar to surety bonds and security deposit insurance may 
not be used in lieu of or in addition to a security deposit in HOME-
assisted units.
    (j) Fixed and floating HOME units. In a project containing HOME-
assisted and other units, the participating jurisdiction may designate 
fixed or floating HOME units. This designation must be made at the time 
of project commitment in the written agreement between the 
participating jurisdiction and the owner, and the HOME units must be 
identified not later than the time of initial unit occupancy. Fixed 
units remain the same throughout the period of affordability. Floating 
units are changed to maintain conformity with the requirements of this 
section during the period of affordability so that the total number of 
housing units meeting the requirements of this section remains the 
same, and each substituted unit is comparable in terms of size, 
features, and number of bedrooms to the originally designated HOME-
assisted unit.
    (k) Tenant selection. The tenants must be selected in accordance 
with Sec.  92.253(e).
    (l) Ongoing responsibilities. The participating jurisdiction's 
responsibilities for on-site inspections and financial oversight of 
rental projects are set forth in Sec.  92.251(f).

0
27. Revise Sec.  92.253 to read as follows:


Sec.  92.253  Tenant protections and selection.

    (a) Lease contents. (1) For rental housing assisted with HOME funds 
and tenant-based rental assistance, there must be a written lease 
between the tenant and the owner that is for a period of not less than 
1 year, unless by mutual agreement between the tenant and the owner, a 
shorter period is specified. Any changes to the lease must be in 
writing. The owner must provide the participating jurisdiction with a 
written lease or a revision to a written lease before it is executed. 
The lease shall contain:
    (i) More than one convenient and accessible method to communicate 
directly with the owner or the property management staff, including in 
person, by telephone, email, or through a web portal;
    (ii) The participating jurisdiction's contact information for the 
HOME program;
    (iii) The VAWA lease term/addendum required under Sec.  92.359(e), 
except as otherwise provided by Sec.  92.359(b); and
    (iv)(A) For rental housing, the HOME rental housing tenancy 
addendum described in paragraph (b) of this section;
    (B) For tenant-based rental assistance, the HOME tenant-based 
rental assistance tenancy addendum described in paragraph (c) of this 
section.
    (2) For tenants receiving security deposit assistance only, there 
must be a written lease between the tenant and the owner that is for a 
period of not less than 1 year, unless by mutual agreement between the 
tenant and the owner, a shorter period is specified. The owner must 
provide the participating jurisdiction with a copy of the written lease 
before security deposit assistance is provided. The lease shall contain 
the HOME security deposit assistance tenancy addendum in paragraph (d) 
of this section.
    (b) HOME rental housing tenancy addendum. The terms of the HOME 
rental housing tenancy addendum shall prevail over any conflicting 
provisions of the lease. The terms and conditions of the written lease, 
the HOME rental housing tenancy addendum, the VAWA addendum listed in 
paragraph (a) of this section, and any addendum required by another 
Federal, State, or local affordable housing program shall constitute 
and contain the sole and entire agreement between the owner and the 
tenant and no prior or contemporaneous oral or written representation 
or agreement between the owner or tenant shall have legal effect. The 
HOME rental housing tenancy addendum shall contain the following 
minimum requirements:
    (1) Physical condition of unit and project. (i) The owner shall 
maintain the physical condition of the unit and project so that it 
meets the participating jurisdiction's property standards and State and 
local code requirements in accordance with Sec.  92.251(f);
    (ii) With respect to maintenance and repairs to a housing unit, the 
owner shall:
    (A) Provide tenants with written expected time frames for 
maintaining or repairing units as soon as practicable;
    (B) Professionally maintain and repair units and the common areas 
of the project in accordance with the participating jurisdiction's 
property standards as soon as practicable; and
    (C) Not charge a tenant for normal wear and tear or damage to the 
unit or common areas of a project unless due to negligence, 
recklessness, or intentional acts by the tenant.
    (iii) If the owner is required to repair a life-threatening 
deficiency impacting the tenant, and the repairs cannot be completed on 
the day the life-threatening deficiency is identified, the tenant shall 
promptly be relocated into housing that is decent, safe, sanitary, and 
in good repair and that provides the same or a greater level of 
accessibility, or other physically suitable lodging, at no additional 
cost to the tenant, until the repairs are completed and where it may be 
necessary, reasonable accommodations must continue to be provided 
during the relocation;
    (iv) The owner shall provide tenants with continued, uninterrupted 
utility service in projects with owner-controlled utility services 
unless the interruption is not within the control of the owner (e.g., a 
general power outage).
    (2) Use and occupancy of the unit and project. (i) Subject to 
applicable occupancy requirements under Federal, State or local law, a 
family may reside in the unit with a foster child, foster adult, and/or 
live-in aide;
    (ii) Except for shared housing, the tenant's household shall have 
the right to exclusive use and occupancy of the leased unit;
    (iii) The owner may only enter the housing unit:
    (A) When the owner provides reasonable advance notification to the 
tenant and enters during reasonable hours for the purpose of performing 
routine inspections and maintenance, for making improvement or repairs, 
or to show the housing unit for re-leasing. A written statement 
specifying the purpose of the owner's entry delivered to the housing 
unit at least 2 days before such entry is reasonable advance 
notification;
    (B) At any time without advance notification when there is 
reasonable cause to believe that an emergency requiring entry to the 
unit exists; and
    (C) The owner shall provide the tenant a written statement 
specifying the date, time, and purpose of entry if the tenant and all 
adult members of the household are absent from the housing unit at the 
time of entry or if the owner is entering the housing unit pursuant to 
paragraph (b)(2)(iii)(B) of this section.
    (iv) The tenant's household shall have reasonable access to and use 
of the common areas of the project;
    (v) Tenants shall be able to organize, create tenant associations, 
convene meetings, distribute literature, and post information; and
    (vi) A tenant may not be required to accept supportive services 
that are offered unless the tenant is living in transitional housing 
and such supportive services are required in

[[Page 877]]

connection with the transitional housing.
    (3) Notice. (i) Before an owner may take an adverse action against 
a tenant, the tenant must be notified in writing, or where necessary to 
accommodate an individual with a disability or language access needs, 
must be provided a statement that is accessible and understandable to 
the tenant, of the specific grounds for any proposed adverse action by 
the owner. Such notice should be provided in a translated format when 
needed to ensure meaningful access for limited English proficient (LEP) 
persons. Such adverse action includes, but is not limited to, 
imposition of charges for damages that require maintenance and repair;
    (ii) An owner must notify tenants about changes affecting property 
ownership and management as follows:
    (A) 30 calendar days before a sale or foreclosure, tenants must be 
notified of the impending sale or foreclosure of the property;
    (B) Within 5 business days of any changes of ownership, tenants 
must be notified of the change in ownership;
    (C) Within 5 business days of any change in the property management 
company managing the property, tenants must be notified of the change 
in management company; and
    (iii) The owner may not institute a lawsuit against the tenant 
without providing notice to the tenant.
    (4) A tenant's rights to available legal proceedings and remedies. 
(i) The tenant shall not be required by the owner to agree to be sued, 
to admit guilt, or agree to a judgment in favor of the owner in a 
lawsuit brought in connection with the lease;
    (ii) The owner may not take, hold, or sell personal property of a 
household member without notice to the tenant and a court decision on 
the rights of the parties. This prohibition, however, does not apply to 
an agreement by the tenant concerning disposition of personal property 
remaining in the housing unit after the tenant has moved out of the 
unit. The owner may dispose of this personal property in accordance 
with State law;
    (iii) The tenant may hold the owner or the owner's agents legally 
responsible for any action or failure to act, whether intentional or 
negligent;
    (iv) In any legal proceedings involving tenant and owner, the owner 
and tenant agree that the tenant shall be able to exercise the tenant's 
right to:
    (A) Obtain independent legal representation in any legal 
proceedings in connection with the lease, including in any non-binding 
arbitration or alternative dispute resolution process;
    (B) Have a trial by jury where such right is available to a tenant 
under Federal, State, or local law; and
    (C) Appeal, or to otherwise challenge in court, a court decision in 
connection with the lease where such right is available to the tenant 
under Federal, State, or local law;
    (v) The tenant may only be required to pay the owner's attorney's 
fees or other legal costs if the tenant loses in a court proceeding 
between the owner and the tenant and the court so orders.
    (5) Protection against unreasonable interference or retaliation. 
(i) An owner may not unreasonably interfere with the tenant's safety or 
peaceful enjoyment of a rental housing unit or the common areas of the 
rental housing project.
    (ii) An owner may not retaliate against a tenant for taking any 
action allowable under the lease and applicable law.
    (iii) Actions that evidence unreasonable interference or 
retaliation against a tenant include actions taken for the purpose of 
causing the housing to become vacant or otherwise, including but not 
limited to:
    (A) Recovery of, or attempt to recover, possession of the housing 
unit in a manner that is not in accordance with paragraph (b)(10) of 
this section;
    (B) Decreasing services to the housing unit (e.g., trash removal, 
maintenance) or increasing the obligations of a tenant (e.g., new or 
increased monetary obligations, etc.) in a manner that is not in 
accordance with the requirements of this part;
    (C) Interfering with a tenant's right to privacy under applicable 
State or local law;
    (D) Harassing a household or their lawful guests; and
    (E) Refusing to honor the terms of the lease.
    (iv) If an owner unreasonably interferes or retaliates against a 
tenant, then this shall constitute a material breach under the lease, a 
violation of HOME program requirements, and a breach of the written 
agreement between the owner and the participating jurisdiction. A 
tenant may use evidence of such unreasonable interference or 
retaliation in a court of law, and the participating jurisdiction must 
take reasonable actions to address any violation in accordance with the 
participating jurisdiction's responsibilities under Sec.  92.504(a) and 
(c).
    (6) Exercise of rights under tenancy. A tenant may exercise any 
right of tenancy and assert any protection under their lease and any 
applicable Federal, State, local tenant protections including but not 
limited to:
    (i) Reporting inadequate housing conditions of the housing unit or 
project to the owner, the participating jurisdiction, code enforcement 
officials, or HUD;
    (ii) Reporting lease violations and requesting enforcement of the 
written lease or any protections guaranteed under this part; and
    (iii) Requesting or obtaining enforcement of any applicable 
protections under Federal, State, or local law.
    (7) Confidentiality. An owner will keep all records containing 
personally identifying information of any individual or family who 
applies for or lives in a HOME-assisted rental unit secure and 
confidential.
    (8) Prohibition on discrimination. The owner shall operate housing 
assisted under this part in accordance with all applicable 
nondiscrimination and equal opportunity requirements pursuant to Sec.  
92.350 and the Violence Against Women Act (VAWA) requirements at Sec.  
92.359;
    (9) Security deposits. Security deposits must be refundable and no 
greater than two months' rent. Surety bonds, security deposit 
insurance, and instruments similar to surety bonds and security deposit 
insurance may not be used in lieu of or in addition to a security 
deposit. Upon termination of tenancy by the owner or tenant, if the 
owner charges any amount against a tenant's security deposit, the owner 
must give the tenant a list of all items charged against the security 
deposit and the amount of each item. After deducting the amount, if 
any, used to reimburse the owner, the owner must promptly refund the 
full amount of the unused balance to the tenant.
    (10) Termination of tenancy. (i) An owner may not terminate the 
tenancy of any tenant or household member or refuse to renew the lease 
of a tenant of rental housing assisted with HOME funds, except for 
serious or repeated violation of the material terms and conditions of 
the lease; for violation of applicable Federal, State, or local law; 
for completion of the tenancy period for transitional housing or 
failure to follow any required transitional housing supportive services 
plan; or for other good cause. The owner is permitted to terminate the 
tenancy of any tenant or household member or refuse to renew the lease 
of a tenant of rental housing assisted with HOME funds if the owner is 
permitted to do so pursuant to the provisions contained in 24 CFR part 
5, subpart I; 24 CFR 882.511; or 24 CFR 982.310.

[[Page 878]]

    (A) Other good cause does not include a change in the tenant's 
income or assets or the amount or type of income or assets the tenant 
possesses. Good cause does not include refusal of the tenant to 
purchase the housing unless the tenant is refusing to purchase the 
housing pursuant to their lease-purchase agreement.
    (B) Other good cause includes:
    (1) When a tenant or household member is a direct threat to the 
safety of the tenants or employees of the housing or an imminent and 
serious threat to the property;
    (2) When a tenant unreasonably refuses to provide the owner access 
to the unit to allow the owner to repair the unit;
    (3) When an owner must terminate a tenancy to comply with an order 
issued by a governmental entity or court that requires the tenant 
vacate the project or unit;
    (4) When an owner must terminate a tenancy to comply with a local 
ordinance that necessitates vacating the project or unit; or
    (5) When a tenant fails to purchase a housing unit within the 
timeframes listed within the tenant's lease-purchase agreement.
    (C) An owner may establish good cause for a violation of an 
applicable Federal, State, or local law through a record of conviction 
of a crime that directly threatens the health, safety, or right to 
peaceful enjoyment of the premises by other tenants in the project. The 
owner shall not use a record of arrest, parole or probation, or current 
indictment to establish such a violation.
    (ii) To terminate or refuse to renew tenancy, the owner must serve 
written notice upon the tenant specifying the grounds for the action at 
least 30 days before the termination of tenancy and provide a copy of 
the notice to vacate to the participating jurisdiction within 5 
business days of issuing notice to the tenant. The minimum 30-day 
period is not required if the termination of tenancy or refusal to 
renew is due to a direct threat to the safety of the tenants or 
employees of the housing or an imminent and serious threat to the 
property and the termination of tenancy or refusal to renew is in 
accordance with the requirements of Sec.  92.253(b)(10)(iii).
    (iii) The termination of tenancy or refusal to renew must be in 
accordance with Federal, State, local law, and the requirements of this 
part, including but not limited to requirements regarding fair housing, 
nondiscrimination, and VAWA;
    (iv) An owner may not terminate the tenancy or evict the tenant or 
household members without instituting a civil court proceeding in which 
the tenant or household member has the opportunity to present a 
defense, or before a court decision on the rights of the parties; and
    (v) An owner may not perform a constructive eviction such as 
locking a tenant out of their unit or stopping service on utilities 
servicing the tenant's unit. An owner may not create a hostile living 
environment or refuse to provide a reasonable accommodation in order to 
cause a tenant to terminate their tenancy in a HOME-assisted unit.
    (c) HOME tenant-based rental assistance tenancy addendum. The terms 
of the HOME tenant-based rental assistance tenancy addendum shall 
prevail over any conflicting provisions of the lease. The terms and 
conditions of the written lease, the HOME tenant-based rental 
assistance tenancy addendum, the VAWA addendum listed in paragraph (a) 
of this section, and any addendum required by another Federal, State, 
or local affordable housing program shall constitute and contain the 
sole and entire agreement between the owner and the tenant and no prior 
or contemporaneous oral or written representation or agreement between 
the owner or tenant shall have legal effect. The terms of the HOME 
tenant-based rental assistance tenancy addendum shall terminate upon 
termination of the rental assistance contract. The HOME tenant-based 
rental assistance tenancy addendum shall contain the following minimum 
requirements:
    (1) Physical condition of unit and project. (i) The owner shall 
maintain the physical condition of the unit and property so that it 
meets the participating jurisdiction's property standards and State and 
local code requirements in accordance with Sec.  92.251(f);
    (ii) With respect to maintenance and repairs to a housing unit, the 
owner shall:
    (A) Provide the tenant with written expected time frames for 
maintaining or repairing units as soon as practicable;
    (B) Professionally maintain and repair units in accordance with the 
participating jurisdiction's property standards as soon as practicable; 
and
    (C) Not charge the tenant for normal wear and tear or damage to the 
unit or common areas of the property unless due to negligence, 
recklessness, or intentional acts by the tenant.
    (iii) The owner shall provide the tenant with continued, 
uninterrupted utility service in a property with owner-controlled 
utility services unless the interruption is not within the control of 
the owner (e.g., a general power outage).
    (2) Use and occupancy of the unit and property. (i) Subject to 
applicable occupancy requirements under Federal, State or local law, a 
family may reside in the unit with a foster child, foster adult, and/or 
live-in aide;
    (ii) Except for shared housing, the tenant's household shall have 
the right to exclusive use and occupancy of the leased unit;
    (iii) The owner may only enter the housing unit:
    (A) When the owner provides reasonable advance notification to the 
tenant and enters during reasonable hours for the purpose of performing 
routine inspections and maintenance, for making improvement or repairs, 
or to show the housing unit for re-leasing. A written statement 
specifying the purpose of the owner's entry delivered to the housing 
unit at least 2 days before such entry is reasonable advance 
notification;
    (B) At any time without advance notification when there is 
reasonable cause to believe that an emergency requiring entry to the 
unit exists; and
    (C) The owner shall provide the tenant a written statement 
specifying the date, time, and purpose of entry if the tenant and all 
adult members of the household are absent from the housing unit at the 
time of entry or if the owner is entering the housing unit pursuant to 
paragraph (c)(2)(iii)(B) of this section;
    (iv) The tenant's household shall have reasonable access to and use 
of the common areas of the property; and
    (v) A tenant may not be required to accept supportive services that 
are offered unless the tenant is living in transitional housing and 
such supportive services are required in connection with the 
transitional housing.
    (3) Notice. (i) Before an owner may take an adverse action against 
the tenant, the tenant must be notified in writing, or where necessary 
to accommodate an individual with a disability or language access 
needs, must be provided a statement that is accessible and 
understandable to the tenant, of the specific grounds for any proposed 
adverse action by the owner. Such notice should be provided in a 
translated format when needed to ensure meaningful access for limited 
English proficient (LEP) persons. Such adverse action includes, but is 
not limited to, imposition of charges for damages that require 
maintenance and repair;
    (ii) An owner must notify the tenant about changes affecting 
property ownership and management as follows:
    (A) Thirty (30) calendar days before a sale or foreclosure, tenants 
must be

[[Page 879]]

notified of the impending sale or foreclosure of the property;
    (B) Within 5 business days of any changes of ownership, tenants 
must be notified of the change in ownership;
    (C) Within 5 business days of any change in the property management 
company managing the property, tenants must be notified of the change 
in management company; and
    (iii) The owner may not institute a lawsuit against the tenant 
without providing notice to the tenant.
    (4) A Tenant's rights to available legal proceedings and remedies. 
(i) The tenant shall not be required by the owner to agree to be sued, 
to admit guilt, or agree to a judgment in favor of the owner in a 
lawsuit brought in connection with the lease;
    (ii) The owner may not take, hold, or sell personal property of a 
household member without notice to the tenant and a court decision on 
the rights of the parties. This prohibition, however, does not apply to 
an agreement by the tenant concerning disposition of personal property 
remaining in the housing unit after the tenant has moved out of the 
unit. The owner may dispose of this personal property in accordance 
with State law;
    (iii) The tenant may hold the owner or the owner's agents legally 
responsible for any action or failure to act, whether intentional or 
negligent;
    (iv) In any legal proceedings involving tenant and owner, the owner 
and tenant agree that the tenant shall be able to exercise the tenant's 
right to:
    (A) Obtain independent legal representation in any legal 
proceedings in connection with the lease, including in any non-binding 
arbitration or alternative dispute resolution process;
    (B) Have a trial by jury where such right is available to a tenant 
under Federal, State, or local law; and
    (C) Appeal, or to otherwise challenge in court, a court decision in 
connection with the lease where such right is available to the tenant 
under Federal, State, or local law;
    (v) The tenant may only be required to pay the owner's attorney's 
fees or other legal costs if the tenant loses in a court proceeding 
between the owner and the tenant and the court so orders.
    (5) Protection against unreasonable interference or retaliation. 
(i) An owner may not unreasonably interfere with the tenant's safety or 
peaceful enjoyment of a rental unit or the common areas of the 
property.
    (ii) An owner may not retaliate against a tenant for taking any 
action allowable under the lease and applicable law.
    (iii) Actions that evidence unreasonable interference or 
retaliation against a tenant include actions taken for the purpose of 
causing the housing to become vacant or otherwise, including but not 
limited to:
    (A) Recovery of, or attempt to recover, possession of the housing 
unit in a manner that is not in accordance with paragraph (c)(10) of 
this section;
    (B) Decreasing services to the housing unit (e.g., trash removal, 
maintenance) or increasing the obligations of a tenant (e.g., new or 
increased monetary obligations, etc.) in a manner that is not in 
accordance with the requirements of this part;
    (C) Interfering with a tenant's right to privacy under applicable 
State or local law;
    (D) Harassing a household or their lawful guests; and
    (E) Refusing to honor the terms of the lease.
    (iv) If an owner unreasonably interferes or retaliates against a 
tenant, then this shall constitute a material breach under the lease, a 
violation of HOME program requirements, and a breach of the written 
agreement between the owner and the participating jurisdiction. A 
tenant may use evidence of such unreasonable interference or 
retaliation in a court of law, and the participating jurisdiction must 
take reasonable actions to address any violation in accordance with the 
participating jurisdiction's responsibilities under Sec.  92.504(a) and 
(c).
    (6) Exercise of rights under tenancy. A tenant may exercise any 
right of tenancy and assert any protection under their lease and any 
applicable Federal, State, or local tenant protections including but 
not limited to:
    (i) Reporting inadequate housing conditions of the housing unit or 
property to the owner, the participating jurisdiction, code enforcement 
officials, or HUD;
    (ii) Reporting lease violations and requesting enforcement of the 
written lease or any protections guaranteed under this part; and
    (iii) Requesting or obtaining enforcement of any applicable 
protections under Federal, State, or local law.
    (7) Confidentiality. An owner will keep all records containing 
personally identifying information of any family who is assisted with 
tenant-based rental assistance secure and confidential.
    (8) Prohibition on discrimination. The owner shall operate housing 
assisted under this part in accordance with all applicable 
nondiscrimination and equal opportunity requirements pursuant to Sec.  
92.350 and the VAWA requirements at Sec.  92.359;
    (9) Security deposits. (i) Security deposits must be refundable and 
no greater than two months' rent. Surety bonds, security deposit 
insurance, and instruments similar to surety bonds or security deposit 
insurance may not be used in lieu of or in addition to a security 
deposit. Upon termination of tenancy by the owner or tenant, if the 
owner charges any amount against a tenant's security deposit, the owner 
must give the tenant a list of all items charged against the security 
deposit and the amount of each item. After deducting the amount, if 
any, used to reimburse the owner, the owner must promptly refund the 
full amount of the unused balance to the tenant.
    (ii) For tenants that are already under a lease and have already 
fulfilled the security deposit requirements under the lease before 
entering into a rental assistance contract to receive tenant-based 
rental assistance, the provisions of paragraph (c)(9)(i) of this 
section do not apply.
    (10) Termination of tenancy. (i) An owner may not terminate the 
tenancy of any tenant or household member or refuse to renew the lease 
of a tenant with tenant-based rental assistance, except for serious or 
repeated violation of the material terms and conditions of the lease; 
for violation of applicable Federal, State, or local law; for 
completion of the tenancy period for transitional housing or failure to 
follow any required transitional housing supportive services plan; or 
for other good cause.
    (A) Other good cause does not include a change in the tenant's 
income or assets or the amount or type of income or assets the tenant 
possesses. Good cause does not include refusal of the tenant to 
purchase the housing unless the tenant is refusing to purchase the 
housing pursuant to their lease-purchase agreement.
    (B) Good cause includes:
    (1) When a tenant or household member is a direct threat to the 
safety of the tenants or employees of the housing or an imminent and 
serious threat to the property;
    (2) Serious or repeated violation of the terms and conditions of 
the lease;
    (3) Violation of applicable Federal, State, or local law through a 
tenant's record of conviction of a crime that directly threatens the 
health, safety, or right to peaceful enjoyment of the premises by other 
tenants in the property. The owner shall not use a record of arrest, 
parole or probation, or current indictment to establish such a 
violation;
    (4) When a tenant unreasonably refuses to provide the owner access 
to

[[Page 880]]

the unit to allow the owner to repair the unit;
    (5) When an owner intends to withdraw the unit from the rental 
market to occupy the unit; allow an owner's family member to occupy the 
unit; or demolish or substantially rehabilitate the unit;
    (6) When an owner must terminate a tenancy to comply with an order 
issued by a governmental entity or court that requires the tenant 
vacate the project or unit;
    (7) When an owner must terminate a tenancy to comply with a local 
ordinance that necessitates vacating the residential real property; or
    (8) When a tenant fails to purchase a housing unit within the 
timeframes listed within the tenant's lease-purchase agreement.
    (ii) To terminate or refuse to renew tenancy, the owner must serve 
a written notice to vacate upon the tenant specifying the grounds for 
the action at least 30 days before the termination of tenancy and 
provide a copy of the notice to vacate to the participating 
jurisdiction in accordance with the rental assistance contract or the 
participating jurisdiction's policies and procedures. The minimum 30-
day period is not required if the termination of tenancy or refusal to 
renew is due to a direct threat to the safety of the tenants or 
employees of the housing or an imminent and serious threat to the 
property and the termination of tenancy or refusal to renew is in 
accordance with the requirements of Sec.  92.253(c)(10)(iii).
    (iii) The termination of tenancy or refusal to renew must be in 
accordance with Federal, State, local law, and the requirements of this 
part, including but not limited to requirements regarding fair housing, 
nondiscrimination, and VAWA.
    (iv) An owner may not perform a constructive eviction such as 
locking a tenant out of their unit or stopping service on utilities 
servicing the tenant's unit. An owner may not create a hostile living 
environment or refuse to provide a reasonable accommodation in order to 
cause a tenant to terminate their tenancy in a HOME-assisted unit.
    (d) HOME security deposit assistance tenancy addendum. The terms of 
the HOME security deposit assistance tenancy addendum shall prevail 
over any conflicting provisions of the lease. The terms and conditions 
of the written lease, the HOME security deposit assistance tenancy 
addendum, and any addendum required by another Federal, State, or local 
affordable housing program shall constitute and contain the sole and 
entire agreement between the owner and the tenant and no prior or 
contemporaneous oral or written representation or agreement between the 
owner or tenant shall have legal effect. The lease for a tenant 
receiving security deposit assistance shall contain a security deposit 
tenancy addendum that prohibits the following terms from being present 
in the lease:
    (1) Agreement to be sued. Agreement by the tenant to be sued, to 
admit guilt, or to a judgment in favor of the owner in a lawsuit 
brought in connection with the lease;
    (2) Treatment of property. Agreement by the tenant that the owner 
may take, hold, or sell personal property of household members without 
notice to the tenant and a court decision on the rights of the parties. 
This prohibition, however, does not apply to an agreement by the tenant 
concerning disposition of personal property remaining in the housing 
unit after the tenant has moved out of the unit. The owner may dispose 
of this personal property in accordance with State law;
    (3) Excusing owner from responsibility. Agreement by the tenant not 
to hold the owner or the owner's agents legally responsible for any 
action or failure to act, whether intentional or negligent;
    (4) Waiver of notice. Agreement of the tenant that the owner may 
institute a lawsuit without notice to the tenant;
    (5) Waiver of legal proceedings. Agreement by the tenant that the 
owner may evict the tenant or household members without instituting a 
civil court proceeding in which the tenant has the opportunity to 
present a defense, or before a court decision on the rights of the 
parties;
    (6) Waiver of a jury trial. Agreement by the tenant to waive any 
right to a trial by jury;
    (7) Waiver of right to appeal court decision. Agreement by the 
tenant to waive the tenant's right to appeal, or to otherwise challenge 
in court, a court decision in connection with the lease;
    (8) Tenant chargeable with cost of legal actions regardless of 
outcome. Agreement by the tenant to pay attorney's fees or other legal 
costs even if the tenant wins in a court proceeding by the owner 
against the tenant. The tenant, however, may be obligated to pay costs 
if the tenant loses and the court so orders; and
    (9) Mandatory supportive services. Agreement by the tenant (other 
than a tenant in transitional housing) to accept supportive services 
that are offered.
    (e) Tenant selection. An owner of rental housing assisted with HOME 
funds must comply with the affirmative marketing requirements 
established by the participating jurisdiction pursuant to Sec.  
92.351(a). The owner must adopt and follow written tenant selection 
policies and criteria that:
    (1) Limit the housing to very low-income and low-income families;
    (2) Are reasonably related to the applicants' ability to perform 
the obligations of the lease (i.e., to pay the rent, not to damage the 
housing; not to interfere with the rights and quiet enjoyment of other 
tenants);
    (3) Limit eligibility or give a preference to a particular segment 
of the population if permitted in its written agreement with the 
participating jurisdiction (and only if the limitation or preference is 
described in the participating jurisdiction's consolidated plan).
    (i) Any limitation or preference must not violate nondiscrimination 
requirements in Sec.  92.350. A limitation or preference does not 
violate nondiscrimination requirements if the housing also receives 
funding from a Federal program that limits eligibility to a particular 
segment of the population (e.g., the Housing Opportunity for Persons 
with AIDS program under 24 CFR part 574, the Shelter Plus Care program 
under 24 CFR part 582, the Supportive Housing program under 24 CFR part 
583, supportive housing for the elderly or persons with disabilities 
under 24 CFR part 891), and the limit or preference is tailored to 
serve that segment of the population.
    (ii) If a project does not receive funding from a Federal program 
that limits eligibility to a particular segment of the population, the 
project may have a limitation or preference for persons with 
disabilities who need services offered at a project only if:
    (A) The limitation or preference is limited to the population of 
families (including individuals) with disabilities that significantly 
interfere with their ability to obtain and maintain housing;
    (B) Such families will not be able to obtain or maintain themselves 
in housing without appropriate supportive services; and
    (C) The families must not be required to accept the services 
offered at the project. The owner may advertise the project as offering 
various supportive services, including a description of the specific 
supportive services available. The project must be open to all eligible 
persons with disabilities.
    (4) Do not exclude an applicant with Federal, State, or local 
tenant-based rental assistance, such as an applicant with a voucher 
under the Housing Choice Voucher Program (24 CFR part 982) or an 
applicant participating in a HOME tenant-based rental assistance

[[Page 881]]

program, because of the status of applicant as a holder of such type of 
assistance;
    (5) Except for small-scale housing, provide for the selection of 
tenants from a written waiting list in the chronological order of their 
application, insofar as is practicable. The participating jurisdiction 
may establish alternative procedures to a written waiting list for the 
selection of tenants in small-scale housing;
    (6) Give prompt written notification to any rejected applicant of 
the grounds for any rejection;
    (7) Comply with the VAWA requirements prescribed in Sec.  92.359; 
and
    (8) Comply with the nondiscrimination requirements prescribed in 
Sec.  92.350.
    (f) Health and safety. In addition to the requirements in Sec.  
92.355, if a participating jurisdiction has actual knowledge of an 
environmental, health, or safety hazard affecting a project, unit, or 
HOME tenants, the participating jurisdiction must contact the affected 
owner and tenants in writing and provide them with a summary of the 
nature, date, and scope of such hazards. If an owner has actual 
knowledge of an environmental, health, or safety hazard affecting their 
project, units within their project, or tenants residing within their 
projects, the owner must inform the participating jurisdiction and 
HOME-assisted tenants in writing and provide them with a summary of the 
nature, date, and scope of such hazards. This notification requirement 
only applies to environmental, health, and safety hazards that are 
discovered after an environmental review performed pursuant to Sec.  
92.352 has already taken place. When either the participating 
jurisdiction or the owner notifies the tenants of the housing, this 
satisfies the requirement for the other party.

0
28. Amend Sec.  92.254 by:
0
a. Revising paragraph (a)(2)(iii);
0
b. Adding paragraph (a)(2)(iv);
0
c. Revising paragraphs (a)(3) and (4), (a)(5)(i) and (ii), and (a)(6) 
through (8);
0
d. Redesignating paragraphs (b) through (f) as paragraphs (c) through 
(g) and redesignating paragraph (a)(9) as paragraph (b);
0
e. Revising newly redesignated paragraph (b); and
0
f. Revising newly redesignated paragraphs (f) introductory text and 
(g)(1) and (3),
    The revisions and additions read as follows:


Sec.  92.254  Qualification as affordable housing: Homeownership.

    (a) * * *
    (2) * * *
    (iii) If a participating jurisdiction intends to use HOME funds for 
homebuyer assistance or for the rehabilitation of owner-occupied single 
family properties, the participating jurisdiction must use the HOME 
affordable homeownership limits provided by HUD for newly constructed 
housing and for existing housing.
    (A) HUD will provide limits for affordable newly constructed 
housing based on 95 percent of the median purchase price for the area 
using Federal Housing Administration (FHA) single family mortgage 
program data for newly constructed housing, with a minimum limit based 
on 95 percent of the U.S. median purchase price for new construction 
for nonmetropolitan areas.
    (B) HUD will provide limits for affordable existing housing based 
on 95 percent of the median area purchase price for the area using FHA 
single family mortgage program data for existing housing and other 
appropriate data that are available Nation-wide for purchase of 
existing housing, with a minimum limit based on 95 percent of the 
State-wide nonmetropolitan area median area purchase price using this 
data.
    (iv) In lieu of the limits provided by HUD, the participating 
jurisdiction may determine 95 percent of the median area purchase price 
for single family housing in the jurisdiction annually, as follows:
    (A) The participating jurisdiction must set forth the limits for 
single family housing of one, two, three, and four units, for the 
jurisdiction. The participating jurisdiction may determine separate 
limits for existing housing and newly constructed housing.
    (B) For the limits on housing located outside of metropolitan 
areas, a State may aggregate sales data from more than one county if 
the counties are contiguous and similarly situated.
    (C) The participating jurisdiction must include the following 
information in the annual action plan of the Consolidated Plan 
submitted to HUD for review and must update the information in each 
action plan.
    (1) The 95 percent of median area purchase price must be 
established in accordance with a market analysis that ensured that a 
sufficient number of recent housing sales are included in the survey;
    (2) Sales must cover the requisite number of months based on 
volume: For 500 or more sales per month, a 1-month reporting period; 
for 250 through 499 sales per month, a 2-month reporting period; for 
less than 250 sales per month, at least a 3-month reporting period. The 
data must be listed in ascending order of purchase price;
    (3) The address of the listed properties must include the location 
within the participating jurisdiction. Lot, square, and subdivision 
data may be substituted for the street address;
    (4) The housing sales data must reflect all, or nearly all, of the 
single family housing sales in the entire participating jurisdiction; 
and.
    (5) To determine the median area purchase price, a participating 
jurisdiction must take the middle sale on the list if an odd number of 
sales, and if an even number, take the higher of the middle numbers and 
consider it the median. After identifying the median area purchase 
price, the amount should be multiplied by 0.95 to determine the 95 
percent of the median area purchase price.
    (3) The housing must be acquired by a homebuyer whose family 
qualifies as a low-income family, and the housing must be the principal 
residence of the family throughout the period described in paragraph 
(a)(4) of this section. If there is no ratified sales contract with an 
eligible homebuyer for the housing within 12 months of the date of 
completion of construction or rehabilitation, the housing must be 
rented to an eligible tenant as affordable rental housing and must 
comply with the requirements in Sec.  92.252, including the period of 
affordability in Sec.  92.252(d). In determining the income eligibility 
of the family, the participating jurisdiction must include the income 
of all persons living in the housing. The homebuyer must receive 
housing counseling. If housing is being purchased by an in-place tenant 
pursuant to Sec.  92.255, then the housing may be acquired if the 
homebuyer's family was low-income at the time the homebuyer's family 
began occupying the HOME rental housing unit. If the housing does not 
meet the participating jurisdiction's property standards in Sec.  
92.251 at the time of acquisition, then the housing may still be 
acquired if the written agreement between the participating 
jurisdiction and the homebuyer requires the property to meet the 
standards within the period specified in Sec.  92.251(c)(3)(ii) and 
funding is secured to complete the rehabilitation necessary to comply 
with the standards.
    (4) Periods of affordability. The HOME-assisted housing must meet 
the affordability requirements for not less than the applicable period 
specified in the following table, beginning after execution of the 
instrument that requires the recapture of the HOME investment or 
recordation of the resale restrictions for sale to the next

[[Page 882]]

homebuyer. Execution of the instrument that requires the recapture of 
the HOME investment or recordation of the resale restrictions for sale 
to the next homebuyer may only occur after the housing meets the 
participating jurisdiction's property standards in accordance with 
Sec.  92.251(c)(3) and the property title is transferred to the 
homebuyer. The per unit amount of HOME funds and the period of 
affordability that they trigger are described more fully in paragraphs 
(a)(5)(i) (resale) and (ii) (recapture) of this section. The period of 
affordability is based on the total amount of HOME funds invested in 
the housing.

                       Table 1 to Paragraph (a)(4)
------------------------------------------------------------------------
                                                              Minimum
                                                             period of
      Homeownership assistance HOME amount per-unit        affordability
                                                             in years
------------------------------------------------------------------------
Under $25,000...........................................               5
$25,000 to $50,000......................................              10
Over $50,000............................................              15
------------------------------------------------------------------------

    (5) * * *
    (i) Resale. Resale requirements must ensure, if the housing does 
not continue to be the principal residence of the family for the 
duration of the period of affordability, that the housing is made 
available for subsequent purchase only to a buyer whose family 
qualifies as a low-income family and will use the property as the 
family's principal residence. The resale requirement must also ensure 
that the price at resale provides the HOME-assisted homeowner a fair 
return on investment (including the homeowner's investment and any 
improvements) and ensure the housing will remain affordable to a 
reasonable range of low-income homebuyers. The resale price is the fair 
return on investment added to the original sales price of the property, 
subject to market conditions. The participating jurisdiction must 
specifically define ``fair return on investment'' and ``affordability 
to a reasonable range of low-income homebuyers,'' and specifically 
address how it will make the housing affordable to a low-income 
homebuyer in the event that the resale price necessary to provide a 
fair return is not affordable to the subsequent homebuyer. The period 
of affordability is based on the total amount of HOME funds invested in 
the housing.
    (A) Permissible methods of determining fair return and the resale 
price include but are not limited to the following:
    (1) Itemized formula. To determine fair return on investment and 
resale price, the participating jurisdiction may use an itemized 
formula to add or subtract common, clearly defined factors that 
increase or decrease the value of a homeowner's investment in the 
property over the term of ownership. This formula must include the 
value of capital improvements and the sum of the downpayment and all 
principal payments by the homeowner on the loan secured by the 
property. The formula may depreciate the value of the capital 
improvements and may take into consideration any reduction in value due 
to property damage or delayed or deferred maintenance of the property 
condition. The fair return on a homeowner's investment under this 
formula is calculated by taking the sum of the defined factors for the 
homeowner's investment in the property over the term of ownership and 
multiplying this amount by a clearly defined, publicly accessible index 
or standard.

Formula 1 to Paragraph (a)(5)(i)(A)(1)
[GRAPHIC] [TIFF OMITTED] TR06JA25.000

    (2) Appraisal formula. The participating jurisdiction may use an 
appraisal formula to determine fair return on investment and resale 
price based on the amount of market appreciation, if any, over the term 
of ownership. Under this method, the appraisals must be conducted by a 
State licensed or certified third-party appraiser. The amount of market 
appreciation over the term of ownership is determined by subtracting 
the appraised value at the time of initial purchase from the appraised 
value of the property at the time of resale. The fair return on a 
homeowner's investment under this formula is calculated by multiplying 
a clearly defined, publicly accessible standard or index by the amount 
of market appreciation over the term of homeownership.

Formula 2 to Paragraph (a)(5)(i)(A)(2)
[GRAPHIC] [TIFF OMITTED] TR06JA25.001

    (3) Index formula. The participating jurisdiction may use an index 
formula to determine fair return on investment and resale price based 
on the change in value of a homeowner's investment over the term of 
ownership. Index formulas adjust the value of the homeowner's 
investment in proportion to changes in an index, such as the change in 
median household income. To determine the homeowner's fair return using 
this model, the sum of the property's original purchase price and the 
value of any capital improvements to the property is multiplied by the 
change in the specified index during the term of ownership. The formula 
may also depreciate the value of the capital improvements and may take 
into consideration any reduction in value due to property damage or 
delayed or

[[Page 883]]

deferred maintenance of the property condition.

Formula 3 to Paragraph (a)(5)(i)(A)(3)
[GRAPHIC] [TIFF OMITTED] TR06JA25.002

    (4) Fixed-rate formula. The participating jurisdiction may use a 
fixed-rate formula to determine the homeowner's fair return on 
investment. Fixed-rate formulas adjust the value of the homeowner's 
investment by a fixed percentage (rate) per year (e.g., 3.5 percent). 
To determine the fair return on investment using this model, the fixed 
rate is multiplied by the number of years the homeowner owned and 
occupied the home (e.g., 3.5 percent x 10 years = 35%). The resulting 
rate is then multiplied by the sum of the original purchase price of 
the home and the value of any capital improvements to the property to 
calculate the fair return to the homeowner. The formula may also 
depreciate the value of the capital improvements and may take into 
consideration any reduction in value due to property damage or delayed 
or deferred maintenance of the property condition.

Formula 4 to Paragraph (a)(5)(i)(A)(4)
[GRAPHIC] [TIFF OMITTED] TR06JA25.003

    (B) Except as provided in paragraph (a)(5)(i)(C) of this section, 
deed or use restrictions, a recorded agreement restricting the use of 
the property, liens on real property, covenants running with the land, 
or other similar mechanisms approved by HUD in writing must be used to 
impose the resale requirements.
    (C) The affordability restrictions may terminate upon occurrence of 
any of the following termination events: foreclosure, transfer in lieu 
of foreclosure, or assignment of an FHA-insured mortgage to HUD. If the 
owner of record before the termination event obtains an ownership 
interest in the property after the termination event, then the 
affordability restrictions shall be revived under the same terms prior 
to the termination event, including a minimum period of affordability 
equal to the terminated period of affordability.
    (D) Certain housing may be presumed to meet the resale restrictions 
(i.e., the housing will be available and affordable to a reasonable 
range of low-income homebuyers; a low-income homebuyer will occupy the 
housing as the family's principal residence; and the original owner 
will be afforded a fair return on investment) during the period of 
affordability without the imposition of enforcement mechanisms by the 
participating jurisdiction. The presumption must be based upon a market 
analysis of the neighborhood in which the housing is located. The 
market analysis must include an evaluation of the location and 
characteristics of the housing and residents in the neighborhood (e.g., 
sale prices, age and amenities of the housing stock, incomes of 
residents, percentage of owner-occupants) in relation to housing and 
incomes in the housing market area. An analysis of the current and 
projected incomes of neighborhood residents for an average period of 
affordability for homebuyers in the neighborhood must support the 
conclusion that a reasonable range of low-income families will continue 
to qualify for mortgage financing. For example, an analysis shows that 
the housing is modestly priced within the housing market area and that 
families with incomes of 65 percent to 80 percent of the area median 
income can afford monthly payments under average FHA terms without 
other government assistance and housing will remain affordable at least 
during the next five to seven years compared to other housing in the 
market area; the size and amenities of the housing are modest and 
substantial rehabilitation will not significantly increase the market 
value; the neighborhood has housing that is not currently owned by the 
occupants, but the participating jurisdiction is encouraging 
homeownership in the neighborhood by providing homeownership assistance 
and by making improvements to the streets, sidewalks, and other public 
facilities and services. If a participating jurisdiction in preparing a 
neighborhood revitalization strategy under Sec.  91.215(e)(2) of its 
Consolidated Plan has incorporated the type of market data described 
above, that submission may serve as the required analysis under this 
section. If the participating jurisdiction continues to provide 
homeownership assistance for housing in the neighborhood, it must

[[Page 884]]

periodically update the market analysis to verify the original 
presumption of continued affordability.
    (ii) Recapture. (A) Recapture provisions must require that the 
participating jurisdiction recoups all or a portion of the HOME 
assistance provided to the homebuyers if the housing does not continue 
to be the principal residence of the family for the duration of the 
period of affordability. The participating jurisdiction may structure 
its recapture provisions based on its program design and market 
conditions. The period of affordability is based upon the amount of 
HOME funds that directly assisted the homebuyer to buy the housing 
unit. This amount includes any HOME assistance that assisted the 
homebuyer to purchase the housing or reduced the purchase price paid by 
the homebuyer from fair market value to an affordable price but 
excludes the amount of HOME assistance provided to develop the unit 
that does not assist the homebuyer or reduce the purchase price paid by 
the homebuyer. Recapture provisions may permit the subsequent homebuyer 
to assume the HOME assistance (subject to the HOME requirements for the 
remainder of the period of affordability) if the subsequent homebuyer 
is low-income and no additional HOME assistance is provided.
    (B) The following options for recapture requirements are acceptable 
to HUD. The participating jurisdiction may adopt, modify, or develop 
its own recapture requirements for HUD approval. In establishing its 
recapture requirements, the participating jurisdiction is subject to 
the limitation that when the recapture requirement is triggered by a 
sale (voluntary or involuntary) of the housing unit, the amount 
recaptured cannot exceed the net proceeds, if any. The net proceeds are 
the sales price minus superior loan repayment (other than HOME funds) 
and any closing costs.
    (1) Recapture entire amount. The participating jurisdiction may 
recapture the entire amount of the HOME investment from the homeowner.
    (2) Reduction during period of affordability. The participating 
jurisdiction may reduce the HOME investment amount to be recaptured on 
a pro rata basis for the time the homeowner has owned and occupied the 
housing measured against the required period of affordability.
    (3) Shared net proceeds. If the net proceeds are not sufficient to 
recapture the full HOME investment (or a reduced amount as provided for 
in paragraph (a)(5)(ii)(A)(2) of this section) plus enable the 
homeowner to recover the amount of the homeowner's downpayment and any 
capital improvement investment made by the owner since purchase, the 
participating jurisdiction may share the net proceeds. The net proceeds 
are the sales price minus loan repayment (other than HOME funds) and 
closing costs. The net proceeds may be divided proportionally as set 
forth in the following mathematical formulas:

Formula 5 to Paragraph (a)(5)(ii)(A)(2)
[GRAPHIC] [TIFF OMITTED] TR06JA25.004

    (4) Owner investment returned first. The participating jurisdiction 
may permit the homebuyer to recover the homebuyer's entire investment 
(downpayment and capital improvements made by the owner since purchase) 
before recapturing the HOME investment.
    (5) Amount subject to recapture. The HOME investment subject to 
recapture is the amount of HOME funds that directly assisted the 
homebuyer to buy the housing. This includes the amount that assisted 
the homebuyer to purchase the housing or reduced the purchase price 
paid by the homebuyer from fair market value to an affordable price but 
excludes the amount of HOME assistance provided to develop the unit 
that did not assist the homebuyer or reduce the purchase price paid by 
the homebuyer. The recaptured funds must be used to carry out HOME-
eligible activities in accordance with the requirements of this part. 
If the HOME assistance is only used for the development subsidy and 
therefore not subject to recapture, the resale option must be used.
    (6) Special considerations for single family properties with more 
than one unit. If the HOME funds are only used to assist a low-income 
homebuyer to acquire one unit in single family housing containing more 
than one unit and the assisted unit will be the principal residence of 
the homebuyer, the affordability requirements of this section apply 
only to the assisted unit. If HOME funds are also used to assist the 
low-income homebuyer to acquire one or more rental units in the single-
family housing, the affordability requirements of Sec.  92.252 apply to 
the assisted rental units, except that the participating jurisdiction 
may impose resale or recapture restrictions on all assisted units 
(owner-occupied and rental units) in the single-family housing. If 
resale restrictions are used, the affordability requirements on all 
assisted units continue for the period of affordability. If recapture 
restrictions are used, the affordability requirements on the assisted 
rental units may be terminated, at the discretion of the participating 
jurisdiction, upon recapture of the HOME investment. If HOME funds are 
used to assist only the rental units in a single-family property, then 
the requirements of Sec.  92.252 would apply and the owner-occupied 
unit would not be subject to the income targeting or affordability 
provisions of Sec.  92.254.
    (7) Lease-purchases in the HOME program. A homeownership project 
may consist of acquisition, rehabilitation, or new construction of 
housing to be sold to an eligible low-income homebuyer through a lease-
purchase program.
    (i) The homebuyer must qualify as a low-income family at the time 
of signing the lease-purchase agreement. In determining the income 
eligibility of the family, the participating jurisdiction must include 
the income of all persons living in the housing. If a family is also 
receiving HOME tenant-based rental assistance, the participating 
jurisdiction is not required to reexamine the family's income during 
the term of the lease-purchase agreement.
    (ii) The owner and homebuyer must execute a lease-purchase 
agreement under an existing lease-purchase program prior to occupancy 
of the unit. The lease-purchase agreement must require the purchase of 
the housing within 36 months of execution. Owners and homebuyers that 
have entered into a lease-purchase agreement pursuant to the 
requirements in this paragraph are

[[Page 885]]

subject to the affordability requirements in this section unless the 
housing is not purchased within the required timeframes in this 
paragraph in accordance with the lease-purchase agreement.
    (iii) If the first homebuyer does not acquire the housing in 
accordance with the lease-purchase agreement, the owner must sell the 
housing to another eligible low-income homebuyer within 48 months from 
the execution of the original lease-purchase agreement. The next 
homebuyer is eligible for homeownership assistance from the 
participating jurisdiction. The owner is not permitted to sell the unit 
through another lease-purchase agreement. When the next homebuyer 
purchases the housing, the homebuyer shall be subject to the 
affordability requirements in this section.
    (iv) If the owner is unable to sell the unit within 48 months from 
the execution of the lease-purchase agreement, the housing is subject 
to the requirements for affordable rental housing in Sec.  92.252.
    (8) Contract to purchase. If HOME funds are used to assist a 
homebuyer who has entered into a contract to purchase housing to be 
constructed, the homebuyer must qualify as a low-income family at the 
time the contract is signed.
    (b) Preserving affordability of housing assisted with HOME funds. 
When there is a termination event for affordability restrictions, a 
participating jurisdiction may take the following actions to preserve 
the affordability of the property:
    (1) The participating jurisdiction may exercise purchase options, 
rights of first refusal, or other preemptive rights to obtain ownership 
of the housing before foreclosure to preserve affordability, subject to 
the following requirements:
    (i) The housing must be sold to an eligible homebuyer in accordance 
with paragraph (a)(3) of this section within 12 months of the date the 
participating jurisdiction obtains ownership;
    (ii) The period of affordability for the eligible homebuyer must be 
equal to the remaining period of affordability of the former homeowner 
unless additional HOME funds are used to directly assist the eligible 
homebuyer (i.e., homeownership assistance);
    (iii) If the participating jurisdiction directly assists the 
eligible homebuyer with additional HOME funds, then the period of 
affordability must be recalculated in accordance with the table in 
Sec.  92.254(a)(4) based on the total amount of additional HOME funds 
invested. The additional investment must be treated as a new project; 
and
    (iv) The total HOME funds for a project (original investment plus 
additional investment) must not exceed the per-unit subsidy limit in 
Sec.  92.250(a) in effect at the time of the additional investment, 
subject to HUD approval.
    (2) The participating jurisdiction may use additional HOME funds 
for the following costs:
    (i) The cost for the participating jurisdiction to obtain ownership 
of the HOME-assisted housing through a purchase option, right of first 
refusal, or other preemptive right before foreclosure or at the 
foreclosure sale. This cost must be treated as an amendment to the 
original project. The foreclosure costs to acquire housing with a HOME 
loan in default is an eligible cost; however, HOME funds may not be 
used to repay a loan made with HOME funds.
    (ii) The cost of the participating jurisdiction to undertake any 
necessary rehabilitation for the housing acquired. This includes the 
rehabilitation required for the housing to meet applicable property 
standards in Sec.  92.251. This cost must be treated as an amendment to 
the original project.
    (iii) The cost to the participating jurisdiction of owning the 
housing pending resale to another homebuyer. This cost must be treated 
as an amendment to the original project.
    (iv) The cost to assist an eligible homebuyer in purchasing the 
housing. This cost must be treated as a cost for a new project and not 
as an amendment to the original project.
    (v) As an alternative to charging costs to the HOME program under 
Sec.  92.206, the participating jurisdiction may charge the costs to 
the HOME program under Sec.  92.207 as a reasonable administrative cost 
of its HOME program. To the extent administrative funds are used, they 
may be reimbursed, in whole or in part, when the housing is sold to a 
new eligible homebuyer. If the housing is sold for more than the amount 
of administrative funds that the participating jurisdiction expended to 
preserve the affordability, then the excess sale proceeds shall be 
program income.
    (3) The participating jurisdiction may permit the Community Land 
Trust, as defined in Sec.  92.2, that originally developed the HOME-
assisted housing, to exercise a purchase option, right of first 
refusal, or other preemptive right to obtain ownership of the housing 
to preserve affordability, including but not limited to the right to 
purchase the housing in lieu of foreclosure, under the following 
conditions:
    (i) The Community Land Trust obtains ownership of the housing, 
subject to existing HOME affordability restrictions;
    (ii) The housing must be resold to an eligible homebuyer in 
accordance with paragraph (a)(3) of this section within 12 months;
    (iii) The period of affordability for the eligible homebuyer is 
equal to the remaining period of affordability of the former homeowner, 
unless the participating jurisdiction provides additional HOME funds to 
directly assist the eligible homebuyer in accordance with subparagraph 
(b)(3)(iv) below (i.e., homeownership assistance); and,
    (iv) The participating jurisdiction may not provide additional HOME 
funds to the Community Land Trust to obtain ownership, rehabilitate the 
housing, own/hold the housing pending resale to the next homebuyer, or 
provide homeownership assistance to the next eligible homebuyer. The 
participating jurisdiction may provide homeownership assistance to the 
next eligible homebuyer and the period of affordability shall be based 
upon the homeownership assistance provided to the homebuyer, in 
accordance with subparagraphs (b)(1)(iii) and (b)(1)(iv) of this 
section.
* * * * *
    (f) Providing homeownership assistance through lenders. Subject to 
the requirements of paragraph (f) of this section, the participating 
jurisdiction may provide homeownership assistance through a lending 
institution that is a contractor or nonprofit lending institution that 
is a subrecipient that also provides the first mortgage loan to a low-
income family.
* * * * *
    (g) * * *
    (1) Underwriting standards for homeownership assistance to 
determine the amount of assistance necessary to achieve sustainable 
homeownership. These standards must evaluate the projected overall debt 
of the family after the purchase of the housing, the maximum amount 
that a participating jurisdiction may provide a family, the 
appropriateness of the amount of assistance, assets available to a 
family to acquire the housing, and financial resources to sustain 
homeownership. A participating jurisdiction may not provide a single, 
fixed amount of assistance to each homebuyer that participates in the 
participating jurisdiction's homebuyer program;
* * * * *
    (3) Refinancing loans to which HOME loans are subordinated to 
require that the terms of the new loan are reasonable.

[[Page 886]]


0
29. Revise Sec.  92.255 to read as follows:


Sec.  92.255  Purchase of HOME units by in-place tenants.

    (a) During a HOME-assisted rental unit's period of affordability, 
the participating jurisdiction may permit an owner to sell or otherwise 
convey a HOME-assisted rental unit to an existing tenant in accordance 
with the requirements of Sec.  92.254. However, refusal by the tenant 
to purchase the housing does not constitute good cause for termination 
of tenancy or failure to renew the lease. The participating 
jurisdiction may not permit the use of a lease-purchase program under 
this section.
    (b) If no additional HOME funds are used to enable the tenants to 
become homeowners, the homeownership units are subject to a period of 
affordability equal to the remaining period of affordability if the 
units continued as rental units. The participating jurisdiction must 
impose resale requirements that comply with Sec.  92.254(a) for the 
required period of affordability. The period of affordability and 
resale restrictions must be applied to the property regardless of the 
income of the family at purchase. If the tenant's family is no longer 
low-income at the time of the purchase, then the family must occupy the 
housing as a principal residence in accordance with Sec.  92.254(a)(3) 
and must agree to the imposition of resale restrictions on the housing, 
in accordance with Sec.  92.254(a)(5), for the period of affordability 
specified in this paragraph (b).
    (c) If additional HOME funds are used to directly assist the 
tenants to become homeowners, the period of affordability is the 
remaining period of affordability if the unit had remained a rental 
unit or the required period under Sec.  92.254(a)(4) for the amount of 
direct homeownership assistance provided, whichever is longer. No 
additional HOME funds may be provided to an in-place tenant to become a 
homebuyer if the tenant's family is no longer low-income at the time of 
the purchase.


Sec.  92.258  [Amended]

0
30. Amend Sec.  92.258 by:
0
a. Removing the words ``single-family dwelling'' and adding in their 
place the words ``single family housing units'' in paragraph (a);
0
b. Removing the word ``single-family'' and adding in their place the 
words ``single family'' paragraph (b)(1); and
0
c. Removing the words ``affordability period'' and adding in their 
place the words ``period of affordability'' paragraphs (c) and (d)(3) 
introductory text; and
0
d. Removing ``Sec.  92.252(e)'' and adding in its place ``Sec.  
92.252(d)'' in paragraph (d)(3) introductory text.

0
31. Amend Sec.  92.300 by:
0
a. Removing the words ``developed or sponsored'' and adding in their 
place the words ``developed, or sponsored'' in the first sentence of 
paragraph (a) introductory text;
0
b. Revise paragraphs (a)(2) through (4) and (a)(5) introductory text;
0
c. Removing the word ``nonprofit'' and adding in its place the words 
``private nonprofit'' in paragraph (a)(5)(iii) introductory text;
0
d. Removing ``community development housing organization'' and adding 
in its place ``community housing development organization'' and by 
removing the word ``new'' in paragraph (a)(6) introductory text;
0
e. Revising paragraphs (a)(6)(i), (a)(6)(ii)(A), and (a)(7) and the 
last sentence of paragraph (b);
0
f. Removing the words ``developed or sponsored'' and adding in their 
place the words ``developed, or sponsored'' and by removing the words 
``and specifies'' and adding in their place the words ``and must 
specify'' in paragraph (e); and
0
g. Revising the first sentence of paragraph (f).
    The revisions read as follows:


Sec.  92.300  Set-aside for community housing development organizations 
(CHDOs).

    (a) * * *
    (2) Rental housing is ``owned'' by the community housing 
development organization if the community housing development 
organization is the owner in fee simple absolute of rental housing (or 
has a long term ground lease running for the full period of 
affordability in Sec.  92.252) leased to low-income families in 
accordance with Sec.  92.252. If the housing is to be rehabilitated or 
constructed, the community housing development organization hires and 
oversees the developer that rehabilitates or constructs the housing. 
The community housing development organization must oversee or hire and 
contract with an experienced project manager to oversee all aspects of 
the development, including obtaining zoning, securing non-HOME 
financing, selecting a developer or general contractor, overseeing the 
progress of the work, and determining the reasonableness of costs. The 
community housing development organization must own the rental housing 
during development and for a period at least equal to the period of 
affordability in Sec.  92.252. If the CHDO acquires housing that meets 
the property standards in Sec.  92.251, the CHDO must own the rental 
housing for a period at least equal to the period of affordability in 
Sec.  92.252.
    (3) Rental housing is ``developed'' by the community housing 
development organization if the community housing development 
organization is the owner in fee simple absolute (or has a long term 
ground lease running for the full period of affordability in Sec.  
92.252) and the developer of new housing that will be constructed or 
existing substandard housing that will be rehabilitated for rent to 
low-income families in accordance with Sec.  92.252. To be the 
``developer,'' the community housing development organization may share 
developer responsibilities with another entity but must be in charge of 
all aspects of the development process, including selecting the site, 
obtaining permit approvals and all project financing, selecting 
architects, engineers, and general contractors, overseeing project 
progress, and determining the reasonableness of costs. The requirement 
that a community housing development organization is in charge of all 
aspects of the development process must be enforceable through a 
written agreement (e.g., a joint venture agreement or master 
development agreement). At a minimum, the community housing development 
organization must own the housing during development and for a period 
at least equal to the period of affordability in Sec.  92.252. The 
participating jurisdiction may permit the community housing development 
organization to sell or otherwise convey the housing to a nonprofit 
organization other than a community housing development organization, 
subject to all applicable requirements of this part, if the 
participating jurisdiction determines and documents that the community 
housing development organization no longer has the capacity to own and 
manage the housing for the full period of affordability and there are 
no other community housing development organizations within the 
jurisdiction with capacity to own and manage the project for the full 
period of affordability.
    (4) Rental housing is ``sponsored'' by the community housing 
development organization if it is rental housing ``owned'' or 
``developed'' in accordance with paragraph (a)(2) or (3) of this 
section, as applicable, by a subsidiary of a community housing 
development organization, a limited partnership of which the community 
housing development organization or its subsidiary is the managing 
general partner, or a limited liability company

[[Page 887]]

of which the community housing development organization or its 
subsidiary is the managing member.
    (i) The subsidiary of the community housing development 
organization may be a for-profit or nonprofit organization and must be 
wholly owned by the community housing development organization. If the 
limited partnership or limited liability company agreement permits the 
community housing development organization or its subsidiary to be 
removed as the managing general partner or managing member, the 
agreement must provide that the removal must be for cause and that the 
community housing development organization must be replaced with 
another community housing development organization.
    (ii) The HOME funds must be provided by the participating 
jurisdiction directly to the entity that owns the project.
    (5) HOME-assisted rental housing is also ``sponsored'' by a 
community housing development organization if the community housing 
development organization ``developed'' the rental housing project in 
accordance with paragraph (a)(3) of this section and agrees to convey 
the project to an identified private nonprofit organization at a 
predetermined time after completion of the project. Sponsored rental 
housing, as provided in this paragraph (a)(5), is subject to the 
following requirements:
* * * * *
    (6) * * *
    (i) To be the ``developer,'' the community housing development 
organization may share the developer role with another entity but must 
be in charge of all aspects of the development process, including 
selecting the site, obtaining permit approvals and all project 
financing, selecting architects, engineers, and general contractors, 
overseeing project progress, determining the reasonableness of costs, 
identifying eligible homebuyers, and overseeing the sale of 
homeownership units. The community housing development organization may 
provide direct homeownership assistance (e.g., assistance with a 
downpayment, payment of closing costs, mortgage rate buy-downs, etc.) 
when it sells the housing to low-income families and the community 
housing development organization will not be considered a subrecipient. 
The HOME funds for homeownership assistance shall not be greater than 
10 percent of the amount of HOME funds for development of the housing.
    (ii) * * *
    (A) While proceeds retained by the community housing development 
organization are not subject to the requirements of this part, the 
participating jurisdiction must specify in the written agreement with 
the community housing development organization whether the proceeds are 
to be used for HOME-eligible activities or other housing activities to 
benefit low-income families.
* * * * *
    (7) The participating jurisdiction must determine the form of 
assistance (e.g., grant or loan) in accordance with Sec.  92.205(b) 
that it will provide to the community housing development organization 
for a rental housing project under paragraph (a)(4) of this section and 
must provide the assistance directly to the entity that owns the 
project.
    (b) * * * If during the first 24 months of its participation in the 
HOME Program a participating jurisdiction cannot identify a sufficient 
number of capable community housing development organizations, up to 20 
percent of the minimum community housing development organization set 
aside specified in paragraph (a) of this section (but not more than 
$150,000 during the 24 month period) may be committed to an 
organization that meets the definition of ``community housing 
development organization'' in Sec.  92.2, except for the requirements 
in paragraph (9) of the definition, in order to develop demonstrated 
capacity and qualify as a community housing development organization in 
the jurisdiction.
* * * * *
    (f) The participating jurisdiction must ensure that a community 
housing development organization does not receive HOME funding for any 
fiscal year in an amount that provides more than $50,000 or 50 percent 
of the community housing development organization's total operating 
expenses in that fiscal year, whichever is greater. * * *

0
32. Revise Sec.  92.302 to read as follows:


Sec.  92.302  Housing education and organizational support.

    HUD is authorized to provide education and organizational support 
assistance, in conjunction with HOME funds made available to community 
housing development organizations in accordance with section 233 of the 
Act.
    (a) HUD will issue a publication in the Federal Register announcing 
the availability of funding under this section, as appropriate. The 
publication need not include funding for each of the eligible 
activities but may target funding from among the eligible activities.
    (b) Notwithstanding the definition of ``community land trust'' in 
Sec.  92.2, HUD may provide housing education and organizational 
support assistance under this section to a community land trust only if 
the following requirements are met:
    (1) The community land trust meets the definition of a ``community 
housing development organization'' at Sec.  92.2, except for the 
requirements in paragraphs (9) and (10) of the definition.
    (2) The community land trust is established to complete the 
activities in paragraph (b)(3) of this section.
    (3) The community land trust:
    (i) Acquires land to hold in perpetuity and primarily for 
conveyance under long-term ground leases;
    (ii) Transfers ownership of any structural improvements located on 
such leased land to the lessees; and
    (iii) Retains a preemptive option to purchase any such structural 
improvement at a price determined by formula that is designed to ensure 
that the improvement remains affordable to low- and moderate-income 
families in perpetuity;
    (4) The community land trust's corporate membership is open to 
residents of a particular geographic area, as specified in the 
organization's bylaws; and
    (5) The board of directors:
    (i) Includes a majority of members who are elected by the corporate 
membership; and
    (ii) Is composed of equal numbers of lessees pursuant to paragraph 
(b)(2)(ii), members who are not lessees, and any other category of 
persons described in the organization's bylaws.


Sec.  92.351  [Amended]

0
33. Amend Sec.  92.351 by removing the words ``downpayment assistance'' 
and adding in their place the words ``homeownership assistance'' and 
removing the words ``If participating'' and adding in their place the 
words ``If the participating'', and by removing the citation ``Sec.  
92.253(d)(3)'' and adding in its place the citation ``Sec.  
92.253(e)(3)'' in in paragraph (a)(1).


Sec.  92.352  [Amended]

0
34. Amend Sec.  92.352 by:
0
a. Removing the words ``the cost'' and adding in their place the word 
``cost'' in paragraph (a); and
0
b. Removing the word ``decisionmaking'' and adding in its place the 
words ``decision making'' in paragraph (b)(1).

0
35. Amend Sec.  92.353 by:
0
a. Removing the words ``preceded by at least 30 days advance written 
notice

[[Page 888]]

to the tenant specifying the grounds for the action'' and adding in 
their place the words ``in accordance with Sec.  92.253'' in paragraph 
(c)(2)(ii)(A); and
0
b. Revising paragraph (c)(2)(ii)(C).
    The revision reads as follows:


Sec.  92.353  Displacement, relocation, and acquisition.

* * * * *
    (c) * * *
    (2) * * *
    (ii) * * *
    (C) For purposes of the URA, the person meets the definition of 
``persons not displaced'' as defined in 49 CFR 24.2; or
* * * * *


Sec.  92.354  [Amended]

0
36. Amend Sec.  92.354 in paragraph (a)(2) by removing the word 
``single-family'' and adding in its place the words ``single family''.

0
37. Amend Sec.  92.356 by:
0
a. Revising paragraph (d)(1);
0
b. Redesignating paragraphs (e)(2) through (6) as paragraphs (e)(3) 
through (7), respectively;
0
c. Adding new paragraph (e)(2); and
0
d. Removing the citation ``Sec.  92.252(e)'' and adding in its place 
the citation ``Sec.  92.252(d)'' in paragraph (f)(1).
    The revisions and additions read as follows:


Sec.  92.356  Conflict of interest.

* * * * *
    (d) * * *
    (1) A disclosure of the nature of the conflict, accompanied by an 
assurance that there has been public disclosure of the conflict (public 
disclosure is considered a combination of at least two of the 
following: publication on the recipient's website, including social 
media; electronic mailings; media advertisements; public service 
announcements; and display in public areas such as libraries, grocery 
store bulletin boards, and neighborhood centers), evidence of the 
public disclosure, and a description of how the public disclosure was 
made; and
* * * * *
    (e) * * *
    (2) Whether an opportunity was provided for open competitive 
bidding or negotiation;
* * * * *


Sec.  92.359  [Amended]

0
38. Amend Sec.  92.359 in paragraph (f) by removing the words 
``affordability period'' and adding in their place the words ``period 
of affordability''.

0
39. Amend Sec.  92.454 by:
0
a. Removing the word ``and'' in paragraph (a)(3);
0
b. Removing the text ``participating jurisdiction.'' and adding in its 
place the text ``participating jurisdiction; and'' in paragraph (a)(4);
0
c. Adding paragraph (a)(5); and
0
d. Removing the words ``participating jurisdictions that'' and adding 
in their place the words ``participating jurisdictions whose funds were 
reduced under Sec.  92.551 or that'' in paragraph (b).
    The addition reads as follows:


Sec.  92.454  Reallocations by formula.

    (a) * * *
    (5) Any HOME funds available for reallocation as a result of any 
reductions under 24 CFR 92.551 or 92.552.
* * * * *

0
40. Amend Sec.  92.500 by revising paragraph (c)(2)(ii) to read as 
follows:


Sec.  92.500  The HOME Investment Trust Fund.

* * * * *
    (c) * * *
    (2) * * *
    (ii) The statute or local ordinance requires repayments from its 
own affordable housing trust fund to be made to the local account;
* * * * *

0
41. Amend Sec.  92.502 by:
0
a. Revising paragraph (b);
0
b. Removing the words ``set-up'' in paragraph (c)(1); and
0
c. Revising paragraphs (d)(1) and (2).
    The revisions read as follows:


Sec.  92.502  Program disbursement and information system.

* * * * *
    (b) Project funding. After the participating jurisdiction executes 
the HOME Investment Partnership Agreement, submits the applicable 
banking and security documents, complies with the environmental 
requirements under 24 CFR part 58 for release of funds, and commits 
funds to a specific local project, the participating jurisdiction may 
provide funding to an activity by identifying specific investments in 
the disbursement and information system. The participating jurisdiction 
is required to enter complete project set-up information before 
providing funding to the project.
* * * * *
    (d) * * *
    (1) Complete project completion information must be entered into 
the disbursement and information system, or otherwise provided to HUD.
    (2) Additional HOME funds may be committed to a project up to one 
year after project completion, but the amount of HOME funds in the 
project may not exceed the maximum per-unit subsidy amount established 
under Sec.  92.250 at the time of underwriting.
* * * * *

0
42. Amend Sec.  92.504 by:
0
a. Revising the section heading and paragraph (b) and revising and 
republishing paragraph (c); and
0
b. Removing paragraph (d).
    The revisions and republication read as follows:


Sec.  92.504  Participating jurisdiction responsibilities; written 
agreements.

* * * * *
    (b) Executing a written agreement. Before disbursing any HOME funds 
to any entity, the participating jurisdiction must enter into a legally 
binding written agreement with that entity. Before disbursing any HOME 
funds to any entity, a State recipient, subrecipient, or contractor 
that is administering all or a part of the HOME program on behalf of 
the participating jurisdiction, must also enter into a legally binding 
written agreement with that entity. The written agreement must ensure 
compliance with the requirements of this part and be a separate 
agreement from project financing documents (e.g., mortgage or deed of 
trust, regulatory agreement, or promissory note).
    (c) Provisions in written agreements. The contents of the agreement 
may vary depending upon the role the entity is asked to assume or the 
type of project undertaken. This section details basic requirements and 
the minimum provisions by role and type of entity that must be included 
in a written agreement.
    (1) State recipient. The provisions in the written agreement 
between the State and a State recipient will depend on the program 
functions that the State specifies the State recipient will carry out 
in accordance with Sec.  92.201(b). In accordance with Sec.  92.201, 
the written agreement must either require the State recipient to comply 
with the requirements established by the State or require the State 
recipient to establish its own requirements to comply with this part, 
including requirements for income determinations and underwriting 
subsidy layering guidelines, rehabilitation standards, refinancing 
guidelines, homebuyer program policies, and affordability.
    (i) Use of the HOME funds. The agreement must describe the amount 
and use of the HOME funds to administer one or more programs to produce 
affordable housing, provide homeownership assistance, or provide 
tenant-based rental assistance, including the anticipated type and 
number of housing projects to be funded (e.g., the number of single 
family homeowner

[[Page 889]]

loans to be made or number of homebuyers to receive homeownership 
assistance), tasks to be performed, a schedule for completing the tasks 
(including a schedule for committing funds to projects that meet the 
deadlines established by this part), a budget for each program, and any 
requirement for matching contributions. These items must be in 
sufficient detail to provide a sound basis for the State to effectively 
monitor performance under the agreement.
    (ii) Affordability. The agreement must require housing assisted 
with HOME funds to meet the affordability requirements of Sec.  92.252 
or Sec.  92.254, as applicable, and must require repayment of the funds 
if the housing does not meet the affordability requirements for the 
period of affordability. The agreement must require a means of 
enforcement of the affordability requirements by the State 
participating jurisdiction or, if the State recipient will be the owner 
at project completion of the affordable housing, the intended 
beneficiaries. The means of enforcement may include liens on real 
property, deed or use restrictions, a recorded agreement restricting 
the use of the property, covenants running with the land, or other 
mechanisms approved by HUD in writing, under which the participating 
jurisdiction has the right to require specific performance. The 
agreement must establish whether repayment of HOME funds must be 
remitted to the State or retained by the State recipient for additional 
eligible activities.
    (iii) Program income. The agreement must state whether program 
income is to be remitted to the State or retained by the State 
recipient for additional eligible activities.
    (iv) Uniform administrative requirements. The agreement must 
require the State recipient to comply with applicable uniform 
administrative requirements, as described in Sec.  92.505.
    (v) Project requirements. The agreement must require compliance 
with project requirements in subpart F of this part, as applicable in 
accordance with the type of project assisted. For any projects 
involving HOME rental housing, tenant-based rental assistance, or 
security deposit assistance, the agreement must require that the 
applicable HOME tenancy addendum is used in accordance with Sec.  
92.253 for all HOME-assisted units or tenants.
    (vi) Other program requirements. The agreement must require the 
State recipient to carry out each activity in compliance with all 
Federal laws and regulations described in subpart H of this part, 
except that the State recipient does not assume the State's 
responsibilities for release of funds under Sec.  92.352 and the 
intergovernmental review process in Sec.  92.357 does not apply to the 
State recipient. If HOME funds are provided for development of rental 
housing or provision of tenant-based rental assistance, the agreement 
must set forth all obligations the State imposes on the State recipient 
in order to meet the Violence Against Women Act (VAWA) requirements 
under Sec.  92.359, including notice obligations and any obligations 
with respect to the emergency transfer plan (including whether the 
State recipient must develop its own plan or follow the State's plan).
    (vii) Affirmative marketing. The agreement must specify the State 
recipient's affirmative marketing responsibilities in accordance with 
Sec.  92.351.
    (viii) Requests for disbursement of funds. The agreement must 
specify that the State recipient may not request disbursement of HOME 
funds under this agreement until the funds are needed for payment of 
eligible costs. The amount of each request must be limited to the 
amount needed. Program income must be disbursed before the State 
recipient requests funds from the State.
    (ix) Records and reports. The agreement must specify the particular 
records that must be maintained and the information or reports that 
must be submitted in order to assist the State in meeting its 
recordkeeping and reporting requirements.
    (x) Enforcement of the written agreement. The agreement must 
specify remedies for breach of the provisions of the written agreement. 
The agreement must specify that, in accordance with 2 CFR 200.339, 
suspension or termination may occur if the State recipient materially 
fails to comply with any term of the agreement. The State may permit 
the agreement to be terminated in whole or in part in accordance with 2 
CFR 200.340.
    (xi) Written agreement. Before providing HOME funds to any owner, 
community housing development organization, subrecipient, homeowner, 
homebuyer, tenant (or landlord) receiving tenant-based rental 
assistance, or contractor providing services to or on behalf of the 
State recipient, the State recipient must have a fully executed written 
agreement with such person or entity that meets the requirements of 
this section. For affordable housing assisted with HOME funds, the 
State recipient must provide HOME funds directly to the owner under the 
terms and conditions of the written agreement. The agreement must 
establish that any repayment on any form of assistance of HOME funds 
must be remitted to the State or, if permitted by the State, retained 
by the State recipient for additional eligible activities.
    (xii) Duration of the agreement. The duration of the agreement will 
depend on which functions the State recipient performs (e.g., whether 
the State recipient or the State has responsibility for monitoring 
rental projects for the period of affordability) and which activities 
are funded under the agreement.
    (xiii) Fees. The agreement must prohibit the State recipient and 
its subrecipients and community housing development organizations from 
charging for any of the prohibited costs listed in Sec.  92.214, 
including but not limited to servicing, origination, processing, 
inspection, or other fees for the costs of administering a HOME 
program.
    (2) Subrecipient. The agreement must set forth and require the 
subrecipient to follow the participating jurisdiction's requirements, 
including requirements for income determinations, underwriting and 
subsidy layering guidelines, rehabilitation standards, refinancing 
guidelines, homebuyer program policies, and affordability requirements. 
The agreement between the participating jurisdiction and the 
subrecipient must include the following:
    (i) Use of the HOME funds. The agreement must describe the amount 
and use of the HOME funds for one or more programs, including the 
anticipated type and number of housing projects to be funded (e.g., the 
number of single family homeowner loans to be made or the number of 
homebuyers to receive homeownership assistance), tasks to be performed, 
a schedule for completing the tasks (including a schedule for 
committing funds to projects in accordance with deadlines established 
by this part), a budget, any requirement for matching contributions, 
and the period of the agreement. These items must be in sufficient 
detail to provide a sound basis for the participating jurisdiction to 
effectively monitor performance under the agreement.
    (ii) Program income. The agreement must state if program income is 
to be remitted to the participating jurisdiction or retained by the 
subrecipient for additional eligible activities.
    (iii) Uniform administrative requirements. The agreement must 
require the subrecipient to comply with applicable uniform 
administrative requirements, as described in Sec.  92.505.
    (iv) Other program requirements. The agreement must require the 
subrecipient

[[Page 890]]

to carry out each activity in compliance with all Federal laws and 
regulations described in subpart H of this part, except that the 
subrecipient does not assume the participating jurisdiction's 
responsibilities for environmental review under Sec.  92.352 and the 
intergovernmental review process in Sec.  92.357 does not apply. The 
agreement must set forth the requirements the subrecipient must follow 
to enable the participating jurisdiction to carry out environmental 
review responsibilities before HOME funds are committed to a project. 
If the subrecipient is administering a HOME rental housing program or 
tenant-based rental assistance program on behalf of the participating 
jurisdiction, the participating jurisdiction must set forth in the 
written agreement all obligations of the subrecipient to meet the VAWA 
requirements under Sec.  92.359, including notice obligations and 
obligations under the emergency transfer plan.
    (v) Affirmative marketing. The agreement must specify the 
subrecipient's affirmative marketing responsibilities in accordance 
with Sec.  92.351.
    (vi) Requests for disbursement of funds. The agreement must specify 
that the subrecipient may not request disbursement of funds under the 
agreement until the funds are needed for payment of eligible costs. The 
amount of each request must be limited to the amount needed. Program 
income must be disbursed before the subrecipient requests funds from 
the participating jurisdiction.
    (vii) Reversion of assets. The agreement must specify that upon 
expiration of the agreement, the subrecipient must transfer to the 
participating jurisdiction any HOME funds on hand at the time of 
expiration and any accounts receivable attributable to the use of HOME 
funds.
    (viii) Records and reports. The agreement must specify the 
particular records that must be maintained and the information or 
reports that must be submitted in order to assist the participating 
jurisdiction in meeting its recordkeeping and reporting requirements.
    (ix) Enforcement of the written agreement. The agreement must 
specify remedies for breach of the provisions of the written agreement. 
The agreement must specify that, in accordance with 2 CFR 200.339, 
suspension or termination may occur if the subrecipient materially 
fails to comply with any term of the agreement. The participating 
jurisdiction may permit the agreement to be terminated in whole or in 
part in accordance with 2 CFR 200.340.
    (x) Written agreement. Before the subrecipient provides HOME funds 
to any owner, community housing development organization, subrecipient, 
homeowner, homebuyer, tenant (or landlord) receiving tenant-based 
rental assistance, or contractor providing services to or on behalf of 
the subrecipient, the subrecipient must have a fully executed written 
agreement with such entity that meets the requirements of this section. 
For housing projects assisted with HOME funds, the subrecipient must 
provide HOME funds directly to the owner under the terms and conditions 
of the written agreement. The agreement must establish whether 
repayment of HOME funds must be remitted to the participating 
jurisdiction or may be retained by the subrecipient for additional 
eligible activities.
    (xi) Fees. The agreement must prohibit the subrecipient from 
charging for any of the prohibited costs listed in Sec.  92.214, 
including but not limited to servicing, origination, or other fees for 
the costs of administering the HOME program.
    (xii) Project requirements. The agreement must require enforcement 
of project requirements in subpart F of this part, as applicable in 
accordance with the type of project assisted. For any projects 
involving HOME rental housing, tenant-based rental assistance, or 
security deposit assistance, the agreement must require that the 
applicable HOME tenancy addendum is used in accordance with Sec.  
92.253 for all HOME-assisted units or tenants.
    (3) For-profit or nonprofit housing owner (other than a community 
housing development organization or single family owner-occupant). The 
participating jurisdiction may preliminarily award HOME funds for a 
proposed project, contingent on conditions such as obtaining other 
financing for the project. This preliminary award is not a commitment 
to a project. The written agreement committing the HOME funds to the 
project must meet the requirements of ``commit to a specific local 
project'' in the definition of ``commitment'' in Sec.  92.2. The HOME 
assistance must be provided directly to the owner under the terms and 
conditions of a written agreement that complies with the requirements 
of this part and contains the following:
    (i) Use of the HOME funds. The agreement between the participating 
jurisdiction and a for-profit or nonprofit housing owner must include 
the address of the project or the legal description of the property if 
a street address has not been assigned to the property, the specific 
amount and use of the HOME funds and other funds for the project, 
including the tasks to be performed for the project, a schedule for 
completing the tasks and the project, and a complete budget. These 
items must be in sufficient detail to provide a sound basis for the 
participating jurisdiction to effectively monitor performance under the 
agreement to achieve project completion and compliance with the HOME 
requirements. If HOME funds are being used to reimburse costs incurred 
not more than 24 months before the date that the HOME funds are 
committed to the project, the written agreement must explicitly permit 
the use of HOME funds for costs described in Sec.  92.206(d)(1). The 
agreement must state that any and all repayments made by the owner on 
HOME assistance (e.g., grants or loans) must be remitted to the 
participating jurisdiction, unless the participating jurisdiction 
permits a subrecipient or State recipient to retain the funds.
    (ii) Affordability. The agreement must require housing assisted 
with HOME funds to meet the affordability requirements of Sec.  92.252 
or Sec.  92.254, as applicable, and must require repayment of the funds 
if the housing does not meet the affordability requirements for the 
specified period of affordability. The agreement must require a means 
of enforcement of the affordability requirements by the participating 
jurisdiction and the intended beneficiaries. The means of enforcement 
may include liens on real property, deed or use restrictions, a 
recorded agreement restricting the use of the property, covenants 
running with the land, or other mechanisms approved by HUD in writing, 
under which the participating jurisdiction has the right to require 
specific performance.
    (A) If an owner is undertaking a rental project, the agreement must 
establish the initial rents, the procedures for rent increases pursuant 
to Sec.  92.252(e)(2), the number of HOME units, the size of the HOME 
units, the designation of the HOME units as fixed or floating, and 
include the requirement that the owner provide the address (e.g., 
street address and apartment number) of each HOME unit no later than 
the time of initial occupancy. In accordance with Sec.  92.252(g), the 
written agreement must specify the option in Sec.  92.203(b)(1) that 
the participating jurisdiction selected for calculating annual income.
    (B) If the owner is undertaking a homeownership project for sale to 
homebuyers in accordance with Sec.  92.254(a), the agreement must set 
forth the resale or recapture requirements that must be imposed on the 
housing, the

[[Page 891]]

sales price or the basis upon which the sales price will be determined, 
and the disposition of the sales proceeds. Recaptured funds must be 
returned to the participating jurisdiction. If the owner is a Community 
Land Trust, as defined in Sec.  92.2, the Community Land Trust may 
preserve affordability in accordance with Sec.  92.254.
    (iii) Project requirements. As applicable and in accordance with 
the type of project assisted, the agreement must require compliance 
with the project requirements in subpart F of this part, including 
compliance with tenant protections in 24 CFR 92.253. The agreement may 
permit the owner to limit eligibility or give a preference to a 
particular segment of the population in accordance with Sec.  
92.253(e).
    (iv) Property standards. The agreement must require the housing to 
meet the property requirements as specified in Sec.  92.251. The 
agreement must also require owners of rental housing assisted with HOME 
funds to maintain the housing in compliance with Sec.  92.251 for the 
duration of the period of affordability.
    (v) Other program requirements. The agreement must require the 
owner to carry out each project in compliance with the following 
requirements of subpart H of this part:
    (A) The agreement must specify the owner's affirmative marketing 
responsibilities as enumerated by the participating jurisdiction in 
accordance with Sec.  92.351.
    (B) The Federal and nondiscrimination requirements in Sec.  92.350.
    (C) Any displacement, relocation, and acquisition requirements 
imposed by the participating jurisdiction consistent with Sec.  92.353.
    (D) The labor requirements in Sec.  92.354.
    (E) The conflict of interest provisions prescribed in Sec.  
92.356(f).
    (F) If HOME funds are being provided to develop rental housing, the 
agreement must set forth all obligations the participating jurisdiction 
imposes on the owner in order to meet the VAWA requirements under Sec.  
92.359, including the owner's notice obligations and owner obligations 
under the emergency transfer plan.
    (vi) Records and reports. The agreement must specify the particular 
records that must be maintained and the information or reports that 
must be submitted in order to assist the participating jurisdiction in 
meeting its recordkeeping and reporting requirements. The written 
agreement must require the owner of rental housing to annually provide 
the participating jurisdiction with information on rents (including 
rental amounts charged to the tenant), and occupancy of HOME-assisted 
units to demonstrate compliance with Sec.  92.252. If the rental 
housing project has floating HOME units, the written agreement must 
require that the owner provide the participating jurisdiction with 
information regarding unit substitution and filling vacancies so that 
the project remains in compliance with Sec.  92.252. The agreement must 
specify the reporting requirements (including copies of financial 
statements) to enable the participating jurisdiction to determine the 
financial condition (and continued financial viability) of the rental 
project.
    (vii) Enforcement of the written agreement. The agreement must 
specify remedies for breach of the provisions of the written agreement. 
The agreement must require a means of enforcement of the affordability 
requirements by the participating jurisdiction and the intended 
beneficiaries. The means of enforcement may include liens on real 
property, deed or use restrictions, a recorded agreement restricting 
the use of the property, covenants running with the land, or other 
mechanisms approved by HUD in writing, under which the participating 
jurisdiction has the right to require specific performance.
    (viii) Requests for disbursement of funds. The agreement must 
specify that the owner may not request disbursement of funds under the 
agreement until the funds are needed for payment of eligible costs. The 
amount of each request must be limited to the amount needed.
    (ix) Duration of the agreement. The agreement must specify the 
duration of the agreement. If the housing assisted under this agreement 
is rental housing, the agreement must be in effect through the period 
of affordability required by the participating jurisdiction under Sec.  
92.252. If the housing assisted under this agreement is homeownership 
housing, the agreement must be in effect at least until completion of 
the project and ownership by the low-income family.
    (x) Fees. The agreement must state the fees that may be charged by 
the owner in accordance with Sec.  92.214(b)(4) and prohibit owners 
from charging tenants for any of the prohibited charges listed in Sec.  
92.214(b), including but not limited to fees that are not customarily 
charged in rental housing, such as laundry room access fees. The 
agreement must also prohibit the owner undertaking a homeownership 
project from charging servicing, origination, processing, inspection, 
or other fees for the costs of providing homeownership assistance.
    (4) Contractor. The participating jurisdiction selects a contractor 
through applicable procurement procedures and requirements. The 
contractor provides goods or services in accordance with a written 
agreement (the contract). For contractors who are administering any of 
the participating jurisdiction's HOME programs or specific services for 
one or more programs, the contract must include at a minimum the 
following provisions:
    (i) Use of the HOME funds. The agreement must describe the use of 
the HOME funds, including the tasks to be performed, a schedule for 
completing the tasks, and budget.
    (ii) Program requirements. The agreement must provide that the 
contractor is subject to the requirements in this part that are 
applicable to the participating jurisdiction, except for Sec. Sec.  
92.505 and 92.506, and the contractor cannot assume the participating 
jurisdiction responsibilities for environmental review, decision 
making, and action under Sec.  92.352. The agreement must provide that 
the requirements at 2 CFR part 200 applicable to a contractor apply. 
The agreement must list the requirements applicable to the activities 
the contractor is administering. If applicable to the work under the 
contract, the agreement must set forth all obligations the 
participating jurisdiction imposes on the contractor in order to meet 
the VAWA requirements under Sec.  92.359, including any notice 
obligations and any obligations under the emergency transfer plan.
    (iii) Duration of agreement. The agreement must specify the 
duration of the contract.
    (5) Homebuyer, homeowner, tenant, or owner receiving tenant-based 
rental or security deposit assistance. When a participating 
jurisdiction provides assistance to a homebuyer, homeowner, tenant, or 
owner for tenant-based rental assistance, the written agreement may 
take many forms depending upon the nature of assistance. At minimum, it 
must include the following:
    (i) For homebuyers, the agreement must contain the requirements in 
Sec.  92.254(a), the value of the property, principal residence, lease-
purchase, if applicable, and the resale or recapture provisions.
    (A) The agreement must specify the amount of HOME funds, the form 
of assistance, (e.g., grant, amortizing loan, deferred payment loan), 
the use of the funds (e.g., downpayment, closing costs, 
rehabilitation), and the time by which the housing must be acquired.

[[Page 892]]

    (B) For existing housing that is acquired for homeownership, the 
agreement must require the participating jurisdiction to inspect the 
housing to determine that the project meets the property standards in 
Sec.  92.251 and require compliance with the requirements in Sec.  
92.251(c)(3).
    (ii) For homeowners, the agreement must contain the requirements in 
Sec.  92.254(b) and specify the amount and form of HOME assistance, 
rehabilitation work to be undertaken, date for completion, and property 
standards to be met.
    (iii) For tenants or owners receiving payments under a HOME tenant-
based rental assistance program, the rental assistance contract or the 
security deposit assistance contract must meet the requirements in 
Sec.  92.209 and applicable requirements in Sec.  92.253.
    (6) Community housing development organization. When HOME funds are 
provided to a community housing development organization, the 
requirements in the written agreement depend upon the type of HOME 
assistance. At minimum, the agreement must comply with the following 
requirements for the type of HOME assistance:
    (i) Using set-aside funds under Sec.  92.300 for affordable 
housing. The written agreement must contain the requirements described 
in paragraph (c)(3) of this section and the following additional 
requirements:
    (A) Role of community housing development organization. The 
agreement must state whether the community housing development 
organization will own, develop, or sponsor rental housing, as described 
in Sec.  92.300(a)(2) through (5), and require the community housing 
development organization to comply with the applicable requirements in 
Sec.  92.300(a), based on its role.
    (B) Developer of homeownership housing--(1) Retaining proceeds and 
recaptured funds. If the community development organization is a 
``developer'' of homeownership housing, as defined in Sec.  
92.300(a)(6), the agreement must specify whether the organization may 
retain proceeds from the sale of the housing and whether the proceeds 
are to be used for HOME-eligible or other housing activities to benefit 
low-income families. A participating jurisdiction may permit a 
community housing development organization to retain recaptured funds 
for additional HOME projects pursuant to the written agreement required 
under this paragraph.
    (2) Providing homeownership assistance. If a community housing 
development organization is providing homeownership assistance, then 
the agreement between the participating jurisdiction and the community 
housing development organization must describe the amount and use of 
the HOME funds for homeownership assistance, the number of homebuyers 
to receive homeownership assistance, any requirement for matching 
contributions, and the period of the agreement. The HOME funds for 
homeownership assistance shall not be greater than 10 percent of the 
amount of HOME funds for development of the housing. The community 
housing development organization must enter into agreements with 
homebuyers that meet the requirements in paragraph (c)(5)(i) of this 
section.
    (C) Sharing of developer responsibilities. If the community housing 
development organization will share developer responsibilities with 
another entity pursuant to Sec.  92.300(a)(3) or (6), the participating 
jurisdiction must enter into a written agreement only with the 
community housing development organization. The written agreement must 
require the community housing development organization to enter into a 
separate agreement with the co-developer. At minimum, the agreement 
between the community housing development organization and its co-
developer must contain the following:
    (1) The responsibilities of the community housing development 
organization and co-developer with descriptions of the responsibilities 
in sufficient detail to demonstrate compliance with Sec.  92.300(a)(3) 
or (a)(6), as applicable;
    (2) A description of the amount of developer fee and other 
compensation, if any, to be paid to the co-developer;
    (3) A description of any ownership interest in the community 
housing development organization and, if applicable, any membership or 
partnership interest in the owner held by the co-developer; and
    (4) A provision that the agreement's terms and conditions are 
subject to review by the participating jurisdiction and if such terms 
and conditions affect a project's compliance with HOME requirements, 
the terms and conditions are subject to approval by the participating 
jurisdiction.
    (ii) Receiving assistance for operating expenses. The agreement 
must describe the use of HOME funds for operating expenses (e.g., 
salaries, wages, and other employee compensation and benefits); 
employee education, training, and travel; rent; utilities; 
communication costs; taxes; insurance; equipment; and materials and 
supplies. If the community housing development organization is not also 
receiving funds for a housing project to be developed, sponsored, or 
owned by the community housing development organization, the agreement 
must provide that the community housing development organization is 
expected to receive funds for a project within 24 months of the date of 
receiving the funds for operating expenses, and must specify the terms 
and conditions upon which this expectation is based and the 
consequences of failure to receive funding for a project. If the 
community housing development organization is also receiving funds for 
a project, there must be a separate written agreement that complies 
with this section for the use of HOME funds for the project and the 
agreement must contain the applicable requirements in paragraph 
(c)(6)(i) of this section.
    (iii) Receiving assistance for project-specific technical 
assistance and site control loans or project-specific seed money loans. 
The agreement must identify the specific site or sites and describe the 
amount and use of the HOME funds (in accordance with Sec.  92.301), 
including a budget for work, a period of performance, and a schedule 
for completion. The agreement must also set forth the basis upon which 
the participating jurisdiction may waive repayment of the loans, 
consistent with Sec.  92.301, if applicable.
    (7) Technical assistance provider to develop the capacity of 
community housing development organizations in the jurisdiction. The 
agreement must identify the specific nonprofit organization(s) to 
receive capacity building assistance. The agreement must describe the 
amount and use (scope of work) of the HOME funds, including a budget, a 
period of performance, and a schedule for completion.

0
43. Amend Sec.  92.505 by revising the first sentence to read as 
follows:


Sec.  92.505  Applicability of uniform administrative requirements.

    The requirements of 2 CFR part 200 apply to participating 
jurisdictions, State recipients, and subrecipients receiving HOME 
funds, except for the following provisions: Sec. Sec.  200.306, 
200.307, 200.308 (not applicable to participating jurisdictions), 
200.311 (except as provided in Sec.  92.257), 200.312, 200.328, 
200.330, 200.334, 200.335, and 200.344 (except as provided in Sec.  
92.507). * * *

0
44. Revise Sec.  92.507 to read as follows:

[[Page 893]]

Sec.  92.507  Closeout.

    This section specifies the procedure and actions that must be 
completed by a participating jurisdiction and HUD to closeout a grant. 
The requirements of 2 CFR 200.344 apply to closeouts, except to the 
extent that such requirements conflict with the following:
    (a) Closeout process. (1) HUD will close out a grant after the 
period of performance has ended. A participating jurisdiction must 
complete all required activities and closeout actions for the grant, as 
required by HUD. If the participating jurisdiction fails to complete 
the requirements in accordance with this section, HUD may close out the 
Federal award with the information available. HUD may close out 
individual grants or multiple grants simultaneously.
    (2) To prepare for closeout, before the end of the budget period of 
the grant, the participating jurisdiction shall. review all eligible 
activities under the grant and reconcile its accounts as follows:
    (i) For any eligible costs incurred under the grant and not yet 
drawn down from the U.S. Treasury account, the grantee must draw down 
those funds in a timely manner.
    (ii) The participating jurisdiction must promptly refund to the 
proper accounts any previously disbursed balances of unobligated cash 
paid in advance. All such refunds must be completed prior to submission 
of the information and reports required in paragraph (b) of this 
section.
    (3) At the end of the grant budget period, no additional eligible 
activities may be undertaken by the participating jurisdiction using 
the grant funds and no additional eligible costs incurred after the 
budget period may be submitted by the participating jurisdiction. 
Unused funds remaining on the grant will be returned to the U.S. 
Treasury by HUD. The participating jurisdiction must promptly refund 
any unused grant funds not authorized to be retained, consistent with 
HUD's instructions.
    (4) HUD will initiate closeout actions in the computerized 
disbursement and information system when the participating jurisdiction 
has met the requirements established in paragraph (b) of this section.
    (i) If the participating jurisdiction does not submit and enter all 
required data, information, and reports or complete the actions 
described in paragraph (b) of this section, HUD will proceed to close 
out the grant with the information available within one year of the 
period of performance end date.
    (ii) HUD may report the participating jurisdiction's material 
failure to comply with the terms and conditions of the award or 
requirements or the requirements of this section in SAM.gov. HUD may 
also pursue other enforcement actions in 2 CFR 200.339.
    (5) A participating jurisdiction may request, and HUD may provide 
an extension of the period of performance or closeout deadlines 
provided good cause is demonstrated.
    (b) Actions required for closeout. A participating jurisdiction 
must complete the following actions for closeout of the grant:
    (1) Submit a complete and final Federal Financial Report for the 
grant to HUD within 120 days of the end date of the period of 
performance, as indicated in the grant agreement;
    (2) Demonstrate that it has fulfilled all programmatic and 
administrative requirements for the project (i.e., property 
inspections, obtaining certificates of occupancy, etc.) within the 
period of performance in accordance with 2 CFR 200.344(a);
    (3) Enter all data for activities in the computerized disbursement 
and information system established by HUD, within one year from the end 
of the period of performance, as required by the grant agreement;
    (4) Demonstrate that all HOME-assisted units are occupied by 
eligible occupants by entering accurate beneficiary data in the 
computerized disbursement and information system established by HUD, 
within one year from the end of the period of performance, as required 
by the grant agreement;
    (5) Comply with the requirements in 2 CFR 200.313(e) for the 
disposition of any equipment acquired under one or more HOME grants, 
that is no longer needed for the HOME program, or for other activities 
previously supported by a Federal agency;
    (6) Resolve and close all HOME monitoring findings for the grant 
(if applicable);
    (7) Resolve and close all OIG audit findings for the grant (if 
applicable);
    (8) Resolve and close all Single Audit findings for the grant (if 
applicable);
    (9) Carry out all other responsibilities under the grant agreement 
and applicable laws and regulations satisfactorily; and
    (10) Complete a closeout certification prepared by HUD. The 
certification shall identify the grant being closed out and include 
provisions with respect to the following:
    (i) Identification of any unused grant funds that were returned to 
the U.S. Treasury by HUD;
    (ii) Compliance with the recordkeeping requirements in Sec.  
92.508, including maintaining program, project, financial, program 
administration, community housing development organization records, 
records concerning other Federal requirements, and such other records 
as necessary to carry out responsibilities for the grant by the 
participating jurisdiction, its State recipients, and subrecipients;
    (iii) Monitoring and enforcement of the requirements for all HOME-
assisted units set forth in this part for the period specified in the 
HOME written agreement with the property owner;
    (iv) Compliance with use of program income, recaptured funds, and 
repayments in accordance with Sec.  92.503. If the jurisdiction is not 
a participating jurisdiction (as a State, metropolitan city, urban 
county, consortium, or consortium member) when it receives funds, the 
funds are not subject to the requirements of this part;
    (v) All actions required in 2 CFR 200.344 applicable to the grant 
have been taken by the participating jurisdiction;
    (vi) All actions required in 2 CFR 200.344 applicable to the 
participating jurisdiction's subrecipients have been taken;
    (vii) Other provisions appropriate to any special circumstances of 
the grant closeout, in modification of or in addition to the 
obligations in paragraphs (c)(1) and (2) of this section;
    (viii) Acknowledge future monitoring by HUD, including that 
findings of noncompliance may be taken into account by HUD as 
unsatisfactory performance of the participating jurisdiction and in any 
risk-based assessment of a future grant award under this part; and
    (ix) Unless otherwise provided in a closeout certification, the 
Consolidated Plan will remain in effect after closeout until the 
expiration of the program year covered by the most recent Consolidated 
Plan.
    (c) Post closeout adjustments and continuing responsibilities. The 
closeout of a grant does not affect any of the obligations required 
under this part and under 2 CFR 200.345, including:
    (1) The right of HUD to disallow costs and recover funds on the 
basis of a later audit or other review. HUD must make any cost 
disallowance determination and notify the participating jurisdiction 
within the record retention period;
    (2) Compliance with the requirements in Sec.  92.508;
    (3) Compliance with the requirements in Sec.  92.509;

[[Page 894]]

    (4) Records retention as required in 2 CFR 200.345, as applicable;
    (5) Monitoring and enforcement of the requirements for all HOME-
assisted units set forth in this part for the period of affordability 
specified in the HOME written agreement with the property owner;
    (6) Compliance with use of program income, recaptured funds, and 
repayments in accordance with Sec.  92.503. If the jurisdiction is not 
a participating jurisdiction (as a metropolitan city, urban county, 
State, consortium, or consortium member) when it receives funds, the 
funds are not subject to the requirements of this part;
    (7) Compliance with the requirement in 2 CFR 200.345(a)(2) that the 
participating jurisdiction return any funds due as a result of a later 
refund, corrections, or other transactions including final indirect 
cost rate adjustments; and
    (8) Compliance with the audit requirements at 2 CFR part 200, 
subpart F).

0
45. Amend Sec.  92.508 by:
0
a. Adding a sentence to the end of paragraph (a)(2)(ix);
0
b. Revising paragraph (a)(3)(iii);
0
c. Removing the citation ``Sec.  92.504(d)'' and adding in its place 
the citation ``Sec.  92.251(f)'' in paragraph (a)(3)(iv);
0
d. Revising paragraph (a)(3)(vi);
0
e. Revising the first sentence of paragraph (a)(3)(vii);
0
f. Revising paragraph (a)(3)(ix);
0
g. Removing the citation to ``2 CFR 200.302'' and adding in its place a 
citation to ``2 CFR 200.302 and 200.303'' in paragraph (a)(5)(iv); and
0
h. Removing the words ``affordability period'' and adding in their 
place the words ``period of affordability'' in paragraphs (c)(1) and 
(2).
    The revisions and additions read as follows:


Sec.  92.508  Recordkeeping.

    (a) * * *
    (2) * * *
    (ix) * * * If the participating jurisdiction will apply excess 
matching contribution to a future fiscal year's liability, records 
demonstrating compliance with the matching requirements of Sec. Sec.  
92.218 through 92.221 for the excess amount applied, as described in 
Sec.  92.221(b)(1), must be provided at the time of application and 
maintained for five years from the date of application.
* * * * *
    (3) * * *
    (iii) Records demonstrating that each rental housing or 
homeownership project meets the minimum per-unit subsidy amount of 
Sec.  92.205(c), the maximum per-unit subsidy amount in accordance with 
the requirement in Sec.  92.250(a), the subsidy layering and 
underwriting evaluation adopted in accordance with Sec.  92.250(b), 
and, if applicable, compliance with a green building standard 
established by HUD in accordance with the requirements in Sec.  
92.250(c).
* * * * *
    (vi) Records demonstrating that each tenant-based rental assistance 
project meets the written tenant selection policies and criteria of 
Sec.  92.209(c), including any targeting requirements, the rent 
reasonableness requirements of Sec.  92.209(f), the maximum subsidy 
provisions of Sec.  92.209(h), housing standards of Sec.  92.209(i) 
(including property inspection reports), security deposit requirements 
of Sec.  92.209(j), and calculation of the HOME subsidy.
    (vii) Records demonstrating that each rental housing project met 
the affordability and income targeting requirements of Sec.  92.252 for 
the required period or met the requirements in Sec.  92.255 for 
conversion to homeownership for in-place tenants. * * *
* * * * *
    (ix) Records demonstrating that each lease for a tenant receiving 
tenant-based rental assistance, security deposit assistance, and for an 
assisted rental housing unit complies with the applicable tenant and 
participant protections of Sec.  92.253. Records must be kept for each 
family.
* * * * *

0
46. Amend Sec.  92.551 by adding paragraph (c)(3) to read as follows:


Sec.  92.551  Corrective and remedial actions.

* * * * *
    (c) * * *
    (3) A participating jurisdiction may request HUD reduce grant 
payments by an amount equal to the amount of expenditures that did not 
comply with the requirements of this part. The amount of a reduction 
may be for the entire grant amount.

0
47. Amend Sec.  92.552 by removing the period at the end of paragraph 
(a)(2)(iv) and adding in its place a semicolon and adding paragraphs 
(a)(2)(v) through (vii) to read as follows:


Sec.  92.552  Notice and opportunity for hearing; sanctions.

    (a) * * *
    (2) * * *
    (v) Reduce grant amounts paid to the participating jurisdiction by 
an amount equal to the amount of any expenditures that did not comply 
with the requirements of this part. The amount of a reduction may be 
for the entire grant amount;
    (vi) Revoke a jurisdiction's designation as a participating 
jurisdiction; and
    (vii) Terminate the assistance in whole or in part in accordance 
with 2 CFR 200.340.
* * * * *

Subpart M [Removed]

0
48. Remove subpart M, consisting of Sec. Sec.  92.600 through 92.618.

PART 570--COMMUNITY DEVELOPMENT BLOCK GRANTS

0
49. The authority citation for part 570 continues to read as follows:

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

0
50. Amend Sec.  570.200 by adding paragraph (h)(3) to read as follows:


Sec.  570.200  General policies.

* * * * *
    (h) * * *
    (3) In a Federal fiscal year when an annual appropriation is signed 
into law less than 90 days before a grant recipient's program year 
start date, the effective date of the grant agreement will be the 
earlier of the recipient's program year start date or the date that the 
Consolidated Plan incorporating the recipient's allocation amount for 
the Federal fiscal year is received by HUD.
* * * * *

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

0
51. The authority citation for part 982 continues to read as follows:

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

0
52. Amend Sec.  982.507 by revising paragraphs (c)(2) and (3) to read 
as follows:


Sec.  982.507  Rent to owner: Reasonable rent.

* * * * *
    (c) * * *
    (2) LIHTC. If the rent requested by the owner exceeds the LIHTC 
rents for non-voucher families, the PHA must determine the rent to 
owner is a reasonable rent in accordance with paragraph (b) of this 
section and the rent shall not exceed the lesser of the:
    (i) Reasonable rent; and
    (ii) The payment standard established by the PHA for the unit size 
involved.

[[Page 895]]

    (3) HOME program. If the rent requested by the owner exceeds the 
HOME rents for non-voucher families, the PHA must determine the rent to 
owner is a reasonable rent in accordance with paragraph (b) of this 
section and the rent shall not exceed the lesser of the:
    (i) Reasonable rent; and
    (ii) The payment standard established by the PHA for the unit size 
involved.
* * * * *

Adrianne R. Todman,
Deputy Secretary Performing the Duties of the Secretary of HUD.
[FR Doc. 2024-29824 Filed 1-3-25; 8:45 am]
BILLING CODE 4210-67-P`