[Federal Register Volume 75, Number 201 (Tuesday, October 19, 2010)]
[Notices]
[Pages 64322-64348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-26292]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5447-N-01]


Notice of Formula Allocations and Program Requirements for 
Neighborhood Stabilization Program Formula Grants

AGENCY: Office of the Secretary, HUD.

ACTION: Notice of allocation method, waivers granted, alternative 
requirements applied, and statutory program requirements.

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SUMMARY: This notice advises the public of the allocation formula and 
allocation amounts, the list of grantees, alternative requirements, and 
the waivers of regulations granted to grantees under Section 2301(b) of 
the Housing and Economic Recovery Act of 2008 (Pub. L. 110-289, 
approved July 30, 2008) (HERA), as amended, and an additional 
allocation of funds provided under Section 1497 of the Wall Street 
Reform and Consumer Protection Act of 2010 (Pub. L. 111-203, approved 
July 21, 2010) (Dodd-Frank Act) for additional assistance in accordance 
with the second undesignated paragraph under the heading `Community 
Planning and Development--Community Development Fund' in Title XII of 
Division A of the American Recovery and Reinvestment Act of 2009 (Pub. 
L. 111-5, approved February 17, 2009) (Recovery Act), as amended, for 
the purpose of assisting in the redevelopment of abandoned and 
foreclosed homes. Except where provided for otherwise, these amounts 
are distributed based on funding formulas for such amounts established 
by the Secretary in accordance with HERA.
    The additional allocation represents the third round of 
Neighborhood Stabilization Program funding and is referred to 
throughout this notice as NSP3. HERA provided a first round of formula 
funding to States and units of general local government, and is 
referred to herein as NSP1. The Recovery Act provided a second round of 
funds awarded by competition and is referred to herein as NSP2. The 
three rounds of funding are collectively referred to as NSP. As 
described in the Supplementary Information section of this notice, HUD 
is authorized by statute to specify alternative requirements and make 
regulatory waivers for this purpose. This notice also notes statutory 
issues affecting program design and implementation.

    Note:  This notice is intended to provide unified program 
requirements for grantees of the two formula NSP grant programs, 
NSP1 and NSP3. The allocation and application information under 
Section I.A and Section II.B below is only applicable to NSP3 
grants. For NSP1, HUD awarded grants to a total of 309 grantees 
including the 55 states and territories and selected local 
governments to stabilize communities hardest hit by foreclosures and 
delinquencies. For the allocation formula and application process 
for NSP1, please see the October 6, 2008 Federal Register Notice (73 
FR 58330), as amended by the June 19, 2009 ``Bridge'' Notice (74 FR 
29223), and Appendix A attached hereto. For NSP2, HUD awarded a 
combined total $1.93 billion in NSP2 grants to 56 grantees 
nationwide on January 14, 2010. Funds under NSP2 were distributed by 
competition under criteria described in the May 4, 2009 Notice of 
Funding Availability. Where requirements differ between the rounds 
of funding, it is so noted.


DATES: Effective Date: October 19, 2010.

FOR FURTHER INFORMATION CONTACT: Stanley Gimont, Director, Office of 
Block Grant Assistance, Department of Housing and Urban Development, 
451 Seventh Street, SW., Room 7286, Washington, DC 20410, telephone 
number 202-708-3587. Persons with hearing or speech impairments may 
access this number via TTY by calling the Federal Information Relay 
Service at 800-877-8339. FAX inquiries may be sent to Mr. Gimont at 
202-401-2044. (Except for the ``800'' number, these telephone numbers 
are not toll-free.)

SUPPLEMENTARY INFORMATION: 

Program Background and Purpose

    Recipients will use the funds awarded under this notice to 
stabilize neighborhoods whose viability has been, and continues to be, 
damaged by the economic effects of properties that have been foreclosed 
upon and abandoned. In 2008, Congress appropriated funds for 
neighborhood stabilization under HERA. In 2009, Congress appropriated 
additional neighborhood stabilization funds under the Recovery Act. In 
2010, Congress appropriated a third round of neighborhood stabilization 
funds in the Dodd-Frank Act.
    When referring to a provision of the first appropriations statute, 
this notice will refer to HERA; when referring to a provision of the 
second appropriations statute, this notice will refer to the Recovery 
Act; and when referring to the third appropriations statute this notice 
will refer to the Dodd-Frank Act. When referring to the grants, 
grantees, assisted activities, and implementation rules under the Dodd-
Frank Act, this notice will use the term ``NSP3.'' When referring to 
the grants, grantees, assisted activities, and implementation rules 
under the Recovery Act, this notice will use the term ``NSP2''. When 
referring to the grants, grantees, assisted activities, and 
implementation rules under HERA, this notice will use the term 
``NSP1.'' Collectively, the grants, grantees, assisted activities, and 
implementation rules under these three rounds of funding is referred to 
as NSP. NSP is a component of the Community Development Block Grant 
(CDBG) program (authorized under Housing and Community Development Act 
of 1974, as amended (42 U.S.C. 5301 et seq.) (HCD Act)).

[[Page 64323]]

Program Principles

    Programs under NSP should aim to integrate the following 
principles:
    <bullet> Retain CDBG distinctive requirements. Congress gave HUD 
broad waiver and alternative requirement authority, which HUD used in 
designing NSP program requirements. However, distinctive 
characteristics of the CDBG program including the objectives of the HCD 
Act, financial accountability, local citizen participation and 
information, grantee selection of activities within broad Federal 
policy parameters, and income targeting of beneficiaries were retained. 
All of these elements are required in NSP1, NSP2, and NSP3.
    <bullet> Target and reconnect neighborhoods. Invest funds in 
programs and projects that will revitalize targeted neighborhood(s) and 
reconnect those targeted neighborhoods with the economy, housing 
market, and social networks of the community and metropolitan area as a 
whole.
    <bullet> Rapidly arrest decline. Support NSP uses and activities 
that will rapidly arrest the decline of a targeted neighborhood(s) that 
has been negatively affected by abandoned or foreclosed properties.
    <bullet> Assure compliance with the NSP ``deep targeting'' 
requirement. No less than 25 percent of the funds shall be used to 
house individuals and families whose incomes do not exceed 50 percent 
of area median income.
    <bullet> Ensure longest feasible continued affordability. Invest in 
affordable housing that will remain desirable and affordable for the 
longest feasible period.
    <bullet> Support projects that optimize economic activity, and the 
number of jobs created or retained or that will provide other long-term 
economic benefits.
    <bullet> Build inclusive and sustainable communities free from 
discrimination.
    <bullet> Coordinate planning and resources. Integrate neighborhood 
stabilization programs with other Federal policy priorities and 
investments, including energy conservation and efficiency, sustainable 
and transit-oriented development, integrated metropolitan area-wide 
planning and coordination, improvements in public education, and access 
to healthcare.
    <bullet> Leverage resources and remove destabilizing influences. 
Augment neighborhood stabilization programs with other Federal, public 
and private resources. Eliminate destabilizing influences, such as 
blighted homes, that can prevent programs from producing results.
    <bullet> Set goals. Set aggressive, but achievable, goals for 
outputs and outcomes.
    <bullet> Ensure accountability. Ensure accountability for all 
programs, keep citizens actively informed, and provide all required NSP 
reporting elements.

Objectives and Outcomes

    1. Objectives. The primary objective of the CDBG program is the 
development of viable urban communities, by providing decent housing, a 
suitable living environment, and economic opportunity, principally for 
persons of low- and moderate-income. NSP grantees must strive to meet 
this objective in neighborhoods that are in decline (or further 
decline) due to the negative effects of a high number and percentage of 
homes that have been foreclosed upon. The first goal is to arrest the 
decline. Then the grantee must stabilize the neighborhood and position 
it for a sustainable role in a revitalized community.
    2. Outcomes. Measurable NSP short term program outcomes may 
include, but are not limited to:
    <bullet> Arresting decline in home values based on average sales 
price in targeted neighborhoods, and
    <bullet> Reduction or elimination of vacant and abandoned 
residential property in targeted neighborhoods.
    The long term outcomes may include, but are not limited to:
    <bullet> Increased sales of residential property in targeted 
neighborhoods, and
    <bullet> Increased median market values of real estate in targeted 
neighborhoods.

Authority To Provide Alternative Requirements and Grant Regulatory 
Waivers

    The Dodd-Frank Act states that, except where provided for 
otherwise, assistance shall be provided in accordance with the same 
provisions applicable under the NSP2 authorization. In turn, the 
Recovery Act provides that assistance shall be made available as 
authorized under HERA. The Recovery Act authorizes the Secretary to 
specify waivers and alternative requirements for any provision of any 
statute or regulation in connection with the obligation by the 
Secretary or the use of funds except for requirements related to fair 
housing, nondiscrimination, labor standards, and the environment 
(including lead-based paint), upon a finding that such a waiver is 
necessary to expedite or facilitate the use of such funds.
    The Secretary finds that the following alternative requirements are 
necessary to expedite the use of these funds for their required 
purposes.
    Except as described in this notice, statutory and regulatory 
provisions governing the CDBG program, including those at 24 CFR part 
570 subpart I for states, and those at 24 CFR part 570 subparts A, C, 
D, J, K, and O for CDBG entitlement communities, as appropriate, shall 
apply to the use of these funds. The State of Hawaii will be allocated 
funds and will be subject to part 570, subpart I, as modified by this 
notice. Other sections of the notice provide further details of the 
changes, the majority of which deal with adjustments necessitated by 
statutory provisions, simplify program rules to expedite 
administration, or relate to the ability of state grantees to act 
directly instead of solely through distribution to local governments. 
Additional guidance and technical assistance will be available at 
http://www.hud.gov/nspta.

Table of Contents

I. Allocations
    A. Formula: NSP3 Allocation
    B. Formula: Reallocation
II. Alternative Requirements and Regulatory Waivers
    A. Definitions for Purposes of the CDBG Neighborhood 
Stabilization Program
    B. NSP3 Pre-Grant Process
    1. General
    2. Contents of an NSP Action Plan Substantial amendment or 
abbreviated plan
    3. Continued affordability
    4. Citizen participation alternative requirement
    5. Joint requests
    6. Effect of existing cooperation agreements governing joint 
programs and urban counties
    C. Reimbursement for Pre-Award Costs
    D. Grantee Capacity and Grant Conditions
    E. Income Eligibility Requirement Changes
    F. State Distribution to Entitlement Communities and Indian 
Tribes
    G. State's Direct Action
    H. Eligibility and Allowable Costs
    I. Rehabilitation Standards
    J. Sale of Homes
    K. Acquisition and Relocation
    L. Note on Eminent Domain
    M. Timeliness of Use and Expenditure of NSP Funds
    N. Alternative Requirement for Program Income (Revenue) 
Generated by Activities Assisted With Grant Funds
    O. Reporting
    P. FHA First Look
    Q. Purchase Discount
    R. Removal of Annual Requirements
    S. Affirmatively Furthering Fair Housing
    T. Certifications
    U. Additional NSP3 Requirements-- Preferences for Rental Housing 
and Local Hiring
    V. Note on Statutory Limitation on Distribution of Funds
    W. Information Collection Approval Note
    X. Duration of Funding

[[Page 64324]]

I. Allocations

    A. Formula: Allocation. Grants awarded under NSP1 were allocated to 
States and local governments according to the formula described in 
Attachment A. The Dodd-Frank Act makes available an additional $1 
billion that is generally to be construed as CDBG program funds (NSP3) 
for the communities and in the amounts listed in Attachment B to this 
notice.
    B. Formula: Reallocation.
    1.a. Failure to Apply (NSP3). To expedite the use of NSP3 funds, 
the Department is specifying alternative requirements to 42 U.S.C. 
5306(c). If a unit of general local government receiving an allocation 
of NSP3 funds under this notice (as designated in Attachment B) fails 
to submit a substantially complete application for its grant allocation 
by March 1, 2011, or submits an application for less than the total 
allocation amount, HUD will notify the jurisdiction of the cancellation 
of all or part of its allocation amount and proceed to reallocate the 
funds to the state in which the jurisdiction is located.
    b. If a state or insular area receiving an allocation of funds 
under this notice fails to submit a substantially complete application 
for its allocation by March 1, 2011, or submits an application for less 
than the total allocation amount, HUD will notify the state or insular 
area of the reduction in its allocation amount and proceed to 
reallocate the funds to the 10 highest-need states based on original 
rankings of need.
    2.a. Failure to Meet 18-Month Obligation Deadline (NSP1). 
Consistent with the August 23, 2010 Notice of NSP Reallocation Process 
Changes (Docket No. FR-5435-N-01), HUD will block each grantee's 
ability to obligate NSP1 grant funds in the Disaster Recovery Grant 
Reporting System (DRGR) on the first business day after the statutory 
18-month deadline for use of funds. HUD will notify the grantee of this 
action by electronic mail. Grantees will not be able to obligate grant 
funds after the deadline without requesting and receiving permission 
from HUD, and HUD determines that the grantee is not high risk 
consistent with this notice. The grantee will still be able to expend 
grant funds obligated before the deadline. Receipt and use of any 
program income will also be unaffected.
    b. Grantees that fail to obligate an amount equal to or greater 
than its initial grant amount may submit information to HUD, for up to 
30 days following its 18-month deadline, documenting any additional 
obligation of funds not already recorded in the DRGR system and 
demonstrating to HUD that the obligation occurred on or before the 18-
month deadline. Before the 18-month deadline, each grantee should also 
review its recorded obligations and notify HUD within 30 days following 
the deadline of any necessary adjustments to the amount and the reason 
for such an adjustment. For example, the grantee has become aware that 
an obligation amount that was previously recorded for an acquisition 
will not proceed, therefore a downward adjustment is necessary.
    c. After the deadline, if a grantee needs to decrease or increase 
the amount of grant funds obligated to an activity, it must first ask 
HUD to remove the DRGR block on changing the amount obligated. If the 
amount of decrease is more than 15 percent of the obligation for any 
activity, the grantee must submit to HUD a written request that clearly 
demonstrates with compelling information that factors beyond the 
grantee's reasonable control caused the need to adjust after the 
deadline. If HUD agrees to grant the request, it will restore the 
grantee's ability to obligate grant funds in DRGR. If HUD does not 
grant the request, the grantee must either complete the activity as 
originally obligated or the amount previously obligated for that 
activity will be recaptured. HUD may also remove the obligations block 
following risk assessment of the grantee or a review of some or all of 
a grantee's obligation documentation.
    d. Before HUD determines the appropriate corrective action or 
recaptures grant funds, HUD will review the submitted information, 
consider the grantee's capacity as described in 24 CFR 570.905 and 24 
CFR 570.493, and the grantee's continuing need for the funds.
    e. Following the review and consistent with the procedures 
described in 24 CFR 570.900(b), HUD will proceed to notify the grantee 
of the selected corrective action it is required to undertake.
    f. HUD will recapture and reallocate up to $19.6 million from any 
state grantee with unused NSP1 grant funds. Additional corrective 
actions may be taken related to any amount of unused funds greater than 
$19.6 million.
    g. HUD will reallocate recaptured NSP1 grant funds in accordance 
with the reallocation formula described in a separate reallocation 
notice. A grantee receiving a reallocation must apply for the grant in 
accordance with the NSP1 Notice or this notice, as applicable. A 
nonentitlement grantee that is not required to submit a consolidated 
plan to HUD under the CDBG program will prepare an abbreviated plan. 
The substance of an abbreviated plan must include all the required 
elements that entitlement communities provide as part of an NSP Action 
Plan substantial amendment as described under Section II.B.2 of the 
NSP1 Notice or this Notice, as applicable.
    h. Each grantee must meet the statutory requirement to expend 25 
percent of its grant amount for activities that will provide housing 
for households whose income is at or under 50 percent of area median 
income. This cannot occur unless the funds are first obligated to 
activities for this purpose, or program income is received and used for 
eligible activities. Therefore, if a grantee fails to obligate or 
record program income use of at least 25 percent of its original grant 
amount for activities that will provide housing for households whose 
income is at or under 50 percent of area median income, HUD may issue a 
concern or a finding of noncompliance. Consistent with the procedures 
described in 24 CFR 570.900(b), HUD will require as a corrective action 
that the grantee either adjust its remaining NSP1 planned activities to 
ensure that 25 percent of the original NSP1 formula grant amount and 
program income supports activities providing housing to households with 
incomes at or under 50 percent of area median income, or make a firm 
commitment to provide such housing with nonfederal funds in an amount 
sufficient to offset any deficiency to comply with the requirement 
before the expenditure deadline for the NSP1 grant.
    i. The NSP1 Notice allows each grantee to use up to 10 percent of 
its NSP1 grant for general administration and planning activities. If 
HUD recaptures funds from a grant, this percentage limitation will 
still apply to the remaining grant funds, reducing the amount available 
for administration activities.
    3. Failure to Meet Expenditure Deadline for NSP3.
    NSP3 grantees must expend 50 percent of their grants within 2 years 
and 100 percent of their grants within 3 years. HUD will recapture and 
reallocate the amount of funds not expended by those deadlines or 
provide for other corrective action(s) or sanction. Further guidance 
will be issued prior to the deadline.

II. Alternative Requirements and Regulatory Waivers

    This section of the notice briefly provides a justification for 
alternative requirements, where additional explanation is necessary, 
and describes

[[Page 64325]]

the necessary basis for each regulatory waiver. This section also 
highlights some of the statutory requirements applicable to the grants. 
This background narrative is followed by the NSP requirements. While 
program requirements across the three rounds of NSP funding are 
similar, certain requirements differ in accordance to statutory 
provisions.
    Each grantee eligible for an NSP grant that already receives annual 
CDBG allocations has carried out needs hearings, has a consolidated 
plan, an annual action plan, a citizen participation plan, a monitoring 
plan, an analysis of impediments to fair housing choice, and has made 
CDBG certifications. The consolidated plan already discusses housing 
needs related to up to four major grant programs: CDBG, HOME, Emergency 
Shelter Grants (ESG), and Housing Opportunities for Persons with AIDS 
(HOPWA). A grantee's annual action plan describes the activities 
budgeted under each of those annual programs.
    HUD is treating a state and entitlement grantee's use of its NSP 
grant to be a substantial amendment to its current approved 
consolidated plan and 2010 annual action plan. The NSP grant is a 
special CDBG allocation to address the problem of abandoned and 
foreclosed homes. Treating NSP3 as a substantial amendment will 
expedite the distribution of NSP3 funds, while ensuring citizen 
participation on the specific use of the funds. HUD is waiving the 
consolidated plan regulations on the certification of consistency with 
the consolidated plan to the extent necessary to mean NSP funds will be 
used to meet the congressionally identified needs of abandoned and 
foreclosed homes in the targeted areas set forth in the grantee's 
substantial amendment. In addition, HUD is waiving the consolidated 
plan regulations to the extent necessary to adjust reporting to fit the 
requirements of HERA and the use of DRGR.
    Non-entitlement local government grantees receiving NSP3 funds that 
are not required to submit a consolidated plan to HUD under the CDBG 
program will prepare an abbreviated plan. The substance of an 
abbreviated plan must include all the required elements that 
entitlement communities provide as part of an NSP Action Plan 
substantial amendment as described under Section II.B.2.
    The waivers, alternative requirements, and statutory changes apply 
only to the grant funds appropriated under NSP and not to the use of 
regular formula allocations of CDBG, even if they are used in 
conjunction with NSP funds for a project. They provide expedited 
program implementation and implement statutory requirements unique to 
the covered NSP appropriations.

A. Definitions for Purposes of the Neighborhood Stabilization Program

Background

    Certain terms are used in HERA that are not used in the regular 
CDBG program, or the terms are used differently in HERA and the HCD 
Act. In the interest of clarity of administration, HUD is defining 
these terms in this notice for all grantees, including states. For the 
same reason, HUD is also defining eligible fund uses for all grantees, 
including states. States may define other program terms under the 
authority of 24 CFR 570.481(a), and will be given maximum feasible 
deference in accordance with 24 CFR 570.480(c) in matters related to 
the administration of their NSP programs.

Requirement

    Abandoned. A home or residential property is abandoned if either 
(a) mortgage, tribal leasehold, or tax payments are at least 90 days 
delinquent, or (b) a code enforcement inspection has determined that 
the property is not habitable and the owner has taken no corrective 
actions within 90 days of notification of the deficiencies, or (c) the 
property is subject to a court-ordered receivership or nuisance 
abatement related to abandonment pursuant to state or local law or 
otherwise meets a state definition of an abandoned home or residential 
property.
    Blighted structure. A structure is blighted when it exhibits 
objectively determinable signs of deterioration sufficient to 
constitute a threat to human health, safety, and public welfare.
    CDBG funds. CDBG funds means, in addition to the definition at 24 
CFR 570.3, grant funds distributed under this notice.
    Current market appraised value. The current market appraised value 
means the value of a foreclosed upon home or residential property that 
is established through an appraisal made in conformity with either: (1) 
The appraisal requirements of the URA at 49 CFR 24.103, or (2) the 
Uniform Standards of Professional Appraisal Practice (USPAP), or (3) 
the appraisal requirements of the Federal Housing Administration (FHA) 
or a government sponsored enterprise (GSE); and the appraisal must be 
completed or updated within 60 days of a final offer made for the 
property by a grantee, subrecipient, developer, or individual 
homebuyer. However, if the anticipated value of the proposed 
acquisition is estimated at $25,000 or less, the current market 
appraised value of the property may be established by a valuation of 
the property that is based on a review of available data and is made by 
a person the grantee determines is qualified to make the valuation.
    Date of Notice of Foreclosure. For purposes of the NSP tenant 
protection provisions described at Section K, the date of notice of 
foreclosure shall be deemed to be the date on which complete title to a 
property is transferred to a successor entity or person as a result of 
an order of a court or pursuant to provisions in a mortgage, deed of 
trust, or security deed. If none of these events occur in the 
acquisition of a foreclosed property (e.g. in a short sale), in order 
to ensure fair and equitable treatment of bona fide tenants and 
consistency with the NSP definition of foreclosed, the date of notice 
of foreclosure shall be deemed to be the date on which the property is 
acquired for the NSP-assisted project. Note: This definition does not 
affect or otherwise alter the definition of ``foreclosed'' as provided 
in this notice.
    Foreclosed. A home or residential property has been foreclosed upon 
if any of the following conditions apply: (a) The property's current 
delinquency status is at least 60 days delinquent under the Mortgage 
Bankers of America delinquency calculation and the owner has been 
notified; (b) the property owner is 90 days or more delinquent on tax 
payments; (c) under state, local, or tribal law, foreclosure 
proceedings have been initiated or completed; or (d) foreclosure 
proceedings have been completed and title has been transferred to an 
intermediary aggregator or servicer that is not an NSP grantee, 
contractor, subrecipient, developer, or end user.
    Land bank. A land bank is a governmental or nongovernmental 
nonprofit entity established, at least in part, to assemble, 
temporarily manage, and dispose of vacant land for the purpose of 
stabilizing neighborhoods and encouraging re-use or redevelopment of 
urban property. For the purposes of NSP, a land bank will operate in a 
specific, defined geographic area. It will purchase properties that 
have been foreclosed upon and maintain, assemble, facilitate 
redevelopment of, market, and dispose of the land-banked properties. If 
the land bank is a governmental entity, it may also maintain foreclosed 
property that it does not own, provided it charges the owner of the 
property the full cost

[[Page 64326]]

of the service or places a lien on the property for the full cost of 
the service.
    Subrecipient. Subrecipient shall have the same meaning as at the 
first sentence of 24 CFR 570.500(c). This includes any nonprofit 
organization (including a unit of general local government) that a 
state awards funds to.
    Use (for the purposes of HERA section 2301(c)(1)). Funds are used 
when they are obligated by a state, unit of general local government, 
or any subrecipient thereof, for a specific NSP activity; for example, 
for acquisition of a specific property. Funds are obligated for an 
activity when orders are placed, contracts are awarded, services are 
received, and similar transactions have occurred that require payment 
by the state, unit of general local government, or subrecipient during 
the same or a future period. Note that funds are not obligated for an 
activity when subawards (e.g., grants to subrecipients or to units of 
local government) are made.
    Vicinity. For the purposes of NSP3, HUD defines ``vicinity'' as 
each neighborhood identified by the NSP3 grantee as being the areas of 
greatest need.

B. NSP3 Pre-Grant Process

Background

    With this notice, HUD is establishing the NSP3 allocation formula, 
including reallocation provisions, and announcing the distribution of 
funds. CDBG grantees receiving NSP3 allocations may immediately begin 
to prepare and submit action plan substantial amendments for NSP3 
funds, in accordance with this notice. (Insular areas should follow the 
requirements for entitlement communities.) Non-entitlement local 
government grantees will follow entitlement requirements except for the 
submission of an abbreviated plan rather than a substantial amendment 
or as otherwise explained in this notice.
    To receive NSP3 funding, each grantee listed in Attachment B must 
submit an action plan substantial amendment or abbreviated plan to HUD 
in accordance with this notice by March 1, 2011.
    HUD encourages each grantee to carry out its NSP activities in the 
context of a comprehensive plan for the community's vision of how it 
can make its neighborhoods not only more stable, but also more 
sustainable, inclusive, competitive, and integrated into the overall 
metropolitan fabric, including access to transit, affordable housing, 
employers, and services. HUD also encourages grantees to incorporate 
green and sustainable development practices, such as the examples in 
Attachment C.
    HUD encourages each local jurisdiction receiving an allocation to 
carefully consider its administrative capacity to use the funds within 
the statutory deadline.
    Jurisdictions may cooperate to carry out their grant programs 
through a joint request to HUD. HUD is providing regulatory waivers and 
alternative requirements to allow joint requests among units of general 
local government and to allow joint requests between units of general 
local government and a state. Any two or more contiguous units of 
general local government that are in the same metropolitan area and 
that are eligible to receive an NSP grant may instead make a joint 
request to HUD to implement a joint NSP program. A jurisdiction need 
not have a joint agreement with an urban county under the regular CDBG 
entitlement program to request a joint program for NSP funding. 
Similarly, any community eligible to receive an NSP grant may instead 
make a request for a joint NSP program with its state. An NSP joint 
request under a cooperation agreement results in a single combined 
grant and a single action plan substantial amendment. Potential 
requestors should contact HUD as soon as possible (as far as possible 
in advance of publishing a proposed NSP substantial amendment) for 
technical guidance. The requestors will specify which jurisdiction will 
receive the funds and administer the combined grant on behalf of the 
requestors; in the case of a joint request between a local government 
jurisdiction and a state, the state will administer the combined grant. 
(Grantees choosing this option should consider the Consolidated Plan 
and citizen participation implications of this approach. The lead 
entity's substantial amendment or abbreviated plan will cover any 
participating members. The citizen participation process must include 
citizens of all jurisdictions participating in the joint NSP program, 
not just those of the lead entity.)
    Given the rule of construction in HERA that NSP funds generally are 
construed as CDBG program funds, subject to CDBG program requirements, 
HUD generally is treating NSP3 funds as a special allocation of Fiscal 
Year (FY) 2010 CDBG funding. This has important consequences for local 
governments presently participating in an existing urban county 
program, and for metropolitan cities that have joint agreements with 
urban counties. HUD will consider any existing cooperation agreements 
between a local government and an urban county governing FY2010 CDBG 
funding (for purposes of either an urban county or a joint program) to 
automatically cover NSP funding as well. These cooperation agreements 
will continue to apply to the use of NSP funds for the duration of the 
NSP grant, just as cooperation agreements covering regular CDBG 
Entitlement program funds continue to apply to any use of the funds 
appropriated during the 3-year period covered by the agreements. For 
example, a local government presently has a cooperation agreement 
covering a joint program or participation in an urban county for 
Federal FYs 2009, 2010 and 2011. The local government may choose to 
discontinue its participation with the county at the end of the 
applicable qualification period for purposes of regular CDBG 
entitlement funding. However, the county will still be responsible for 
any NSP3 projects funded in that community, and for any NSP3 funding 
the local government receives from the county, until those funds are 
expended and the funded activities are completed.
    A third method of cooperating is also available. A jurisdiction may 
choose to apply for its entire grant, and then enter into a 
subrecipient agreement with another jurisdiction or nonprofit entity to 
administer the grant. In this manner, for example, all of the grantees 
operating in a single metropolitan area could designate the same land-
bank entity (or the state housing finance agency) as a subrecipient for 
some or all of their NSP activities.
    Each NSP3 grantee will have until March 1, 2011, to complete and 
submit a substantial amendment to its annual action plan or an 
abbreviated plan. A grantee that wishes to submit its action plan 
amendment to HUD electronically in the DRGR system rather than by paper 
may do so by contacting its local field office for the DRGR submission 
directions. Paper submissions to HUD also will be allowed, although 
each grantee must set up its action plan in DRGR prior to the deadline 
for the first required performance report after receiving a grant.
    HUD encourages grantees, during development of their action plan 
amendments or abbreviated plans, to contact HUD field offices for 
guidance in complying with these requirements, or if they have any 
questions regarding meeting grant requirements.
    Normally, in the CDBG program, a grantee takes at least 30 days 
soliciting comment from its citizens before it submits an annual action 
plan to HUD, which then has 45 days to accept or reject the plan. To 
expedite the process and to ensure that the NSP grants are

[[Page 64327]]

awarded in a timely manner, while preserving reasonable citizen 
participation, HUD is waiving the requirement that the grantee follow 
its citizen participation plan for this substantial amendment. HUD is 
shortening the minimum time for citizen comments and requiring the 
substantial amendment or abbreviated plan to be posted on the grantee's 
official Web site as the materials are developed, published, and 
submitted to HUD.
    A grantee will be deemed by HUD to have received its NSP grant at 
the time HUD signs its NSP grant agreement (or amendment thereof, in 
the case of a state that later receives reallocated grant funds).
    Grantees are cautioned that, despite the expedited application and 
plan process, they are still responsible for ensuring that all citizens 
have equal access to information about the programs. Among other 
things, this means that each grantee must ensure that program 
information is available in the appropriate languages for the 
geographic area served by the jurisdiction. This will be a particular 
issue for states that make grants covering regular CDBG entitlement 
areas (or to entitlement grantees). Because regular State CDBG funds 
are not used in entitlement areas, State CDBG staffs may not be aware 
of limited English proficient (LEP) speaking populations in those 
metropolitan jurisdictions.
    HUD will review each grantee submission for completeness and 
consistency with the requirements of this notice and will disapprove 
incomplete and inconsistent action plan amendments or abbreviated 
plans. HUD will allow revision and resubmission of a disapproved 
amendment or abbreviated plan in accordance with 24 CFR 91.500(d) so 
long as any such resubmission is received by HUD 45 days or less 
following the date of first disapproval.
    In combination, the notice alternative requirements provide the 
following expedited steps for NSP grants:
    <bullet> Proposed action plan amendment or abbreviated plan 
published via the usual methods and on the Internet for no less than 15 
calendar days of public comment;
    <bullet> Final action plan amendment or abbreviated plan posted on 
the Internet and submitted to HUD by March 1, 2011 (grant application 
includes Standard Form 424 (SF-424) and certifications);
    <bullet> HUD expedites review;
    <bullet> HUD accepts the plan and prepares a cover letter, grant 
agreement, and grant conditions;
    <bullet> Grant agreement signed by HUD and immediately transmitted 
to the grantee;
    <bullet> Grantee signs and returns the grant agreements;
    <bullet> HUD establishes the line of credit and the grantee 
requests and receives DRGR access (if it does not already have access);
    <bullet> After completing the environmental review(s) pursuant to 
24 CFR part 58 and, as applicable, receiving from HUD or the state an 
approved Request for Release of Funds and certification, the grantee 
may draw down funds from the line of credit.
    In consideration of the shortened comment period, it is essential 
that grantees ensure that affected parties have sufficient notice of 
the opportunity to comment. The action plan substantial amendment or 
abbreviated plan and citizen participation alternative requirement will 
permit an expedited grant-making process, but one that still provides 
for public notice, appraisal, examination, and comment on the 
activities proposed for the use of NSP3 grant funds.

    Note:  HUD believes an adequate and acceptable substantial 
amendment or abbreviated plan should be no longer than 25 pages. A 
plan should provide sufficient detail for citizens and HUD 
reviewers. Internet address links can be provided to longer elements 
that may change, such as detailed rehabilitation standards.

Requirement

    1. General. Except as described in this notice, statutory and 
regulatory provisions governing the CDBG program for states and 
entitlement communities, as applicable, shall apply to the use of these 
funds. Except as described in this notice, non-entitlement local 
government grantees receiving a grant directly from HUD shall follow 
statutory and regulatory provisions governing the CDBG program for 
entitlement communities.
    2. Contents of an NSP Action Plan substantial amendment or 
abbreviated plan. The elements in the NSP substantial amendment to the 
Annual Action Plan or an abbreviated plan required for the CDBG program 
under part 91 are:
    a. General information about needs, distribution, use of funds, and 
definitions:
    i. Each grantee must use the HUD Foreclosure Need Web site as 
linked to from http://www.hud.gov/nsp to submit to HUD the locations of 
its NSP3 areas of greatest need. On this site, HUD provides estimates 
of foreclosure need and a foreclosure related needs scores at the 
Census Tract level. The score rank need from 1 to 20, with 20 being 
census tracts with the HUD-estimated greatest need.
    ii. The neighborhood or neighborhoods identified by the NSP3 
grantee as being the areas of greatest need must have an individual or 
average combined index score for the grantee's identified target 
geography that is not less than the lesser of 17 or the twentieth 
percentile most needy score in an individual state. For example, if a 
state's twentieth percentile most needy census tract is 18, the 
requirement will be a minimum need of 17. If, however, a state's 
twentieth percentile most needy census tract is 15, the requirement 
will be a minimum need of 15. HUD will provide the minimum threshold 
for each state at its Web site http://www.hud.gov/nsp. If more than one 
neighborhood is identified in the Action Plan, HUD will average the 
neighborhood NSP3 scores, weighting the scores by the estimated number 
of housing units in each identified neighborhood.
    iii. A narrative describing how the distribution and uses of the 
grantee's NSP funds will meet the requirements of Section 2301(c)(2) of 
HERA, as amended by the Recovery Act and the Dodd-Frank Act;
    iv. For the purposes of the NSP3, the narratives will include:
    (A) A definition of ``blighted structure'' in the context of state 
or local law;
    (B) A definition of ``affordable rents;''
    (C) A description of how the grantee will ensure continued 
affordability for NSP-assisted housing; and
    (D) A description of housing rehabilitation standards that will 
apply to NSP-assisted activities.
    b. Information by activity describing how the grantee will use the 
funds, identifying:
    i. The eligible use of funds under NSP3;
    ii. The eligible CDBG activity or activities;
    iii. The areas of greatest need addressed by the activity or 
activities;
    vi. The expected benefit to income-qualified persons or households 
or areas;
    v. Appropriate performance measures for the activity (e.g., units 
of housing to be acquired, rehabilitated, or demolished for the income 
levels represented in DRGR, which are currently 50 percent of area 
median income and below, 51 to 80 percent, and 81 to 120 percent);
    vi. Amount of funds budgeted for the activity;

[[Page 64328]]

    vii. The name and location of the entity that will carry out the 
activity; and
    viii. The expected start and end dates of the activity.
    c. A brief description of the general terms under which assistance 
will be provided, including:
    i. Range of interest rates (if any);
    ii. Duration or term of assistance;
    iii. Tenure of beneficiaries (e.g., renters or homeowners); and
    vi. If the activity produces housing, how the design of the 
activity will ensure continued affordability;
    v. How the grantee shall, to the maximum extent feasible, provide 
for the hiring of employees who reside in the vicinity of NSP3 projects 
or contract with small businesses that are owned and operated by 
persons residing in the vicinity of such project, including information 
on existing local ordinances that address these requirements;
    vi. The procedures used to create preferences for the development 
of affordable rental housing developed with NSP3 funds; and
    vii. Whether the funds used for the activity are to count toward 
the requirement to provide benefit to low-income persons (earning 50 
percent or less of area median income).
    d. The action plan narrative should specifically address how the 
grantee's program design will address the local housing market 
conditions.
    e. Information on how to contact grantee program administrators, so 
that citizens and other interested parties know whom to contact for 
additional information.
    3. Continued affordability. Grantees shall ensure, to the maximum 
extent practicable and for the longest feasible term, that the sale, 
rental, or redevelopment of abandoned and foreclosed-upon homes and 
residential properties under this section remain affordable to 
individuals or families whose incomes do not exceed 120 percent of area 
median income or, for units originally assisted with funds under the 
requirements of section 2301(f)(3)(A)(ii) of HERA, as amended, remain 
affordable to individuals and families whose incomes do not exceed 50 
percent of area median income.
    a. In its NSP action plan substantial amendment, a grantee will 
define ``affordable rents'' and the continued affordability standards 
and enforcement mechanisms that it will apply for each (or all) of its 
NSP activities. HUD will consider any grantee adopting the HOME program 
standards at 24 CFR 92.252(a), (c), (e), and (f), and 92.254, to be in 
minimal compliance with this standard and expects any other standards 
proposed and applied by a grantee to be enforceable and longer in 
duration. (Note that HERA's continued affordability standard is longer 
than that required of subrecipients and participating units of general 
local government under 24 CFR 570.503 and 570.501(b).)
    b. The grantee must require each NSP-assisted homebuyer to receive 
and complete at least 8 hours of homebuyer counseling from a HUD-
approved housing counseling agency before obtaining a mortgage loan. If 
the grantee is unable to meet this requirement for a good cause (e.g., 
there are no HUD-approved housing counseling agencies within the 
grantee's jurisdiction, or there are no HUD-approved housing counseling 
agencies within the grantee's jurisdiction that engage in homebuyer 
counseling), the grantee may submit a request for an exception to this 
requirement to the responsible HUD field office, and the HUD field 
office has the authority to grant an exception for good cause. The 
grantee must ensure that the homebuyer obtains a mortgage loan from a 
lender who agrees to comply with the bank regulators' guidance for non-
traditional mortgages (see, Statement on Subprime Mortgage Lending 
issued by the Office of the Comptroller of the Currency, Board of 
Governors of the Federal Reserve System, Federal Deposit Insurance 
Corporation, Department of the Treasury, and National Credit Union 
Administration, available at http://www.fdic.gov/regulations/laws/rules/5000-5160.html). Grantees must design NSP programs to comply with 
this requirement and must document compliance in the records, for each 
homebuyer. Grantees are cautioned against providing or permitting 
homebuyers to obtain subprime mortgages for whom such mortgages are 
inappropriate, including homebuyers who qualify for traditional 
mortgage loans.
    4. Citizen participation alternative requirement. HUD is providing 
an alternative requirement to 42 U.S.C. 5304(a)(2) and (3), to expedite 
distribution of grant funds and to provide for expedited citizen 
participation for the NSP substantial amendment. Provisions of 24 CFR 
91.105(k), 91.115(i), 570.302 and 570.486, with respect to following 
the citizen participation plan, are waived to the extent necessary to 
allow implementation of the requirements below.
    a. Initial Allocation. To receive its grant allocation, a grantee 
must submit to HUD for approval an NSP3 application by March 1, 2011. 
This submission will include a signed SF-424, signed certifications, 
and a substantial action plan amendment or abbreviated plan meeting the 
requirements of paragraph b below. (24 CFR 91.505 is waived to the 
extent necessary to require submission of the substantial amendment to 
HUD for approval in accordance with this notice.)
    Reallocation. To receive an NSP reallocation, a grantee must submit 
to HUD for approval an NSP application by the deadline indicated in a 
reallocation announcement. This submission will include a signed 
standard Federal form SF-424, signed certifications, and a substantial 
action plan amendment or abbreviated plan meeting the requirements of 
paragraph B.3.b below. (24 CFR 91.505 is waived to the extent necessary 
to require submission of the substantial amendment to HUD for approval 
in accordance with this notice.)
    b. Each grantee must prepare and submit its annual Action Plan 
amendment or abbreviated plan to HUD in accordance with the 
consolidated plan procedures under the CDBG program as modified by this 
notice, or HUD will reallocate the funds allocated for that grantee. 
HUD is providing alternative requirements to 42 U.S.C. 5304(a)(2) and 
waiving 24 CFR 91.105(c)(2), 91.105(k), 91.115(c)(2), and 91.115(i) to 
the extent necessary to allow the grantee to provide no fewer than 15 
calendar days for citizen comment (rather than 30 days) for its initial 
NSP submission and any subsequent substantial NSP action plan 
amendment, and to require that, at the time of submission to HUD, each 
grantee post its approved action plan amendment and any subsequent NSP 
amendments on its official Web site along with a summary of citizen 
comments received within the 15-day comment period. After HUD processes 
and approves the plan amendment and both HUD and the grantee have 
signed the grant agreement, HUD will establish the grantee's line of 
credit in the amount of funds included in the Action Plan amendment, up 
to the allocation amount.
    5. Joint requests. To expedite the use of funds, HUD is providing 
an alternative requirement to 42 U.S.C. 5304(i) and is waiving 24 CFR 
570.308 to the extent necessary to allow for additional joint programs 
described below.
    a. Unit of General Local Government Joint Agreements. Two or more 
contiguous jurisdictions that are eligible to receive a NSP allocation 
and are located in the same metropolitan area

[[Page 64329]]

may enter into joint agreements. All members to the joint agreement 
must be eligible to receive NSP1 or NSP3 funds, and one unit of general 
local government must be designated as the lead entity. The lead entity 
must execute the NSP grant agreement with HUD. Consistent with 24 CFR 
570.308, the lead entity must assume responsibility for administering 
the NSP grant on behalf of all members, in compliance with applicable 
program requirements. The lead entity's substantial amendment to the 
action plan or abbreviated plan will include all participating 
communities.
    b. Joint agreements with a state. Any jurisdiction that is eligible 
to receive an NSP allocation may enter into a joint agreement with its 
state. The state shall be the lead entity and must assume 
responsibility for administering the NSP grant on behalf of the local 
government, in compliance with applicable program requirements. The 
substantial amendment to the state's action plan will include any 
participating unit of general local government.
    c. Local jurisdictions receiving reallocation funds may enter into 
joint agreements in accordance with paragraph B.5.a. or b., regardless 
of whether the local jurisdiction had a joint agreement for the 
original NSP allocation.
    6. Effect of existing cooperation agreements governing joint 
programs and urban counties for NSP3 (see NSP1 Notice for parallel 
language for NSP1 grantees). Any cooperation agreement between a unit 
of general local government and a county, concerning either a joint 
program or participation in an urban county under 24 CFR 570.307 or 
570.308, and governing CDBG funds appropriated for Federal FY 2010, 
will be considered to incorporate and apply to NSP3 funding. Any such 
cooperation agreements will continue to apply to the use of NSP3 funds 
until the NSP3 funds are expended and the NSP3 grant is closed out. 
Grantees should note that certain provisions in existing cooperation 
agreements that govern CDBG funding may be inconsistent with parts of 
HERA, the Recovery Act, the Dodd-Frank Act or this notice. For 
instance, set minimum and/or maximum allocation amounts may conflict 
with priority distributions to areas of greatest need identified in the 
grantee's action plan substantial amendment. Conforming amendments 
should be made to existing cooperation agreements, as necessary, to 
comply with NSP statutory requirements and this notice.

C. Reimbursement for Pre-Award Costs

Background

    NSP grantees will need to move forward rapidly to prepare the NSP 
substantial amendment or abbreviated plan and to undertake other 
administrative actions, including environmental reviews, as soon as 
allocations are known. Therefore, HUD is granting permission to states 
and jurisdictions receiving a direct allocation of NSP funds to incur 
pre-award costs as if each was a new grantee preparing to receive its 
first allocation of CDBG funds.

Requirement

    HUD is waiving 24 CFR 570.200(h) to the extent necessary to grant 
permission to jurisdictions receiving a direct NSP allocation under 
this notice to incur pre-award costs as if each was a new grantee 
preparing to receive its first allocation of CDBG funds. Similarly, in 
accordance with OMB Circular A-87, Attachment B, paragraph 31, HUD is 
allowing states to incur pre-award costs as if each was a new grantee 
preparing to receive its first allocation of CDBG funds. NSP grantees 
will be allowed to incur costs necessary to develop the NSP substantial 
action plan amendment and undertake other administrative actions 
necessary to receive its first grant, prior to the costs being included 
in the final plan, provided that the other conditions of 24 CFR 
570.200(h) are met. (For units of general local government applying to 
the state (including entitlements not receiving a direct NSP allocation 
under this notice), 24 CFR 570.489(b) applies unmodified. Units of 
general local government receiving direct NSP allocations may incur 
pre-award costs as would an entitlement community.)

D. Grantee Capacity and Grant Conditions

Background

    In the October 6, 2008 Notice, HUD encouraged each local 
jurisdiction receiving an allocation to carefully consider its 
administrative capacity to use the funds within the statutory deadline. 
To support this consideration, HUD will provide each grantee a self-
assessment tool that grantees may find useful in better understanding 
their capacity to undertake and manage NSP activities. This is 
essentially the same self-assessment tool that is used for NSP 
Technical Assistance purposes and it will allow HUD to more rapidly 
identify capacity gaps and technical assistance needs and to provide 
appropriate technical assistance. Although HUD suggests that every NSP 
grantee complete and submit the self-assessment with its substantial 
amendment or abbreviated plan, HUD will require some grantees to 
complete and submit such a self-assessment as a special condition of 
receiving funding.

Requirement

    For NSP grantees that HUD determines are high risk in accordance 
with 24 CFR 85.12(a), HUD will apply additional grant conditions in 
accordance with 24 CFR 85.12(b).

E. Income Eligibility Requirement Changes

Background

    The NSP program includes two low- and moderate-income requirements 
at HERA section 2301(f)(3)(A) that supersede existing CDBG income 
qualification requirements. Under the heading ``Low and Moderate Income 
Requirement,'' HERA states that:

all of the funds appropriated or otherwise made available under this 
section shall be used with respect to individuals and families whose 
income does not exceed 120 percent of area median income.

    This provision does two main things. First, for the purposes of 
NSP, it effectively supersedes the overall benefit provisions of the 
HCD Act and the CDBG regulations, which allow up to 30 percent of a 
grant to be used for activities that meet a national objective other 
than low- and moderate-income benefit. Thus, NSP allows the use of only 
the low- and moderate-income benefit national objective. Activities may 
not qualify under NSP using the ``prevent or eliminate slums and 
blight'' or ``address urgent community development needs'' objectives.
    Second, this provision also redefines and supersedes the definition 
of ``low- and moderate-income,'' effectively allowing households whose 
incomes exceed 80 percent of area median income but do not exceed 120 
percent of area median income to qualify as if their incomes did not 
exceed the published low- and moderate-income levels of the regular 
CDBG program. To prevent confusion, HUD will refer to this new income 
group as ``middle income,'' and keep the regular CDBG definitions of 
``low-income'' and ``moderate income'' in use. Further, HUD will 
characterize aggregated households whose incomes do not exceed 120 
percent of median income as ``low-, moderate-, and middle-income 
households,'' abbreviated as LMMH. For the purposes of NSP only, an 
activity may meet the HERA low- and moderate-income national objective 
if the assisted activity:

[[Page 64330]]

    <bullet> Provides or improves permanent residential structures that 
will be occupied by a household whose income is at or below 120 percent 
of area median income (abbreviated as LMMH);
    <bullet> Serves an area in which at least 51 percent of the 
residents have incomes at or below 120 percent of area median income 
(LMMA); or
    <bullet> Serves a limited clientele whose incomes are at or below 
120 percent of area median income (LMMC).
    HUD will use the parenthetical terms above to refer to NSP national 
objectives in program implementation, to avoid confusion with the 
regular HCD Act definitions.
    Land banks are not allowed in the regular CDBG program because of 
the very high risk that the delay between acquiring property and 
meeting a national objective can be excessively long, attenuating the 
intended CDBG program benefits by delaying benefit far beyond the 
annual or even the 5-year consolidated plan cycles. In the regular CDBG 
program (and in NSP other than in an eligible land-bank use), a 
property acquisition activity is dependent on the subsequent re-use of 
the property meeting a national objective in order to demonstrate 
program compliance. Given this, the HERA direction that assistance to 
land banks is an eligible use of NSP funds requires an alternative 
requirement and policy clarification.
    For grantees choosing to assist land banks or demolition of 
structures with NSP funds, the change to the income qualification level 
for low-, moderate- and middle-income areas will likely include most of 
the neighborhoods where property stabilization is required. If an 
assisted land bank is not merely acquiring properties, but is also 
working in an area in which other activities are being carried out that 
are intended to arrest neighborhood decline, such as maintenance, 
demolition, and facilitating redevelopment of the properties, HUD will, 
for NSP-assisted activities only, accept that the acquisition and 
management activities of the land bank may provide sufficient benefit 
to an area generally (as described in 24 CFR 570.208(a)(1) and 
570.483(b)(1)) to meet a national objective (LMMA) prior to final 
disposition of the banked property. HUD notes that the grantee must 
determine the actual service area benefiting from a land bank's 
activities, in accordance with the regulations.
    However, HUD does not believe the benefits of just holding property 
are sufficient to stabilize most neighborhoods or that this is the best 
use of limited NSP funds absent a re-use plan. Therefore, HUD requires 
that a land bank may not hold a property for more than 10 years without 
obligating the property for a specific, eligible redevelopment of that 
property in accordance with NSP requirements.
    Note that if a state provides funds to an entitlement community, 
the entitlement community must apply the area median income levels 
applicable to its regular CDBG program geography and not the ``balance 
of state'' levels.
    Other than the change in the applicable low- and moderate-income 
qualification level from 80 percent to 120 percent and this notice's 
change to the calculation at 570.483(b)(3), the area benefit, housing, 
and limited clientele benefit requirements at 24 CFR 570.208(a) and 
570.483(b) remain unchanged, as does the required documentation.
    The other NSP low- and moderate-income related provision, as 
modified by the Dodd-Frank Act, states that:

``not less than 25 percent of the funds appropriated or otherwise 
made available under this section shall be used to house individuals 
or families whose incomes do not exceed 50 percent of area median 
income.''

    The Dodd-Frank Act struck language in HERA that specified that 
funds meeting the 25 percent requirement must be used specifically for 
the purchase and redevelopment of abandoned and foreclosed homes or 
residential properties. This means that, as of the effective date of 
the Dodd-Frank Act, any NSP eligible activity used to house individuals 
or families at or below 50 percent area medium income may be used to 
satisfy this requirement (i.e., vacant properties that are not 
abandoned or foreclosed may be used to meet the requirement as well as 
eligible commercial properties that are reused to house individuals and 
families at or below 50% AMI). However, NSP1 and NSP2 funds already 
obligated or expended prior July 21, 2010, do not retroactively satisfy 
this requirement.
    HUD advises grantees to take note of this threshold as they design 
NSP activities. This provision does not have a parallel in the regular 
CDBG program. Grantees must document that an amount equal to at least 
25 percent of a grantee's NSP grant (initial allocation plus any 
program income) has been budgeted in the initial approved action plan 
substantial amendment or abbreviated plan for activities that will 
provide housing for income-qualified individuals or families. Prior to 
and at grant closeout, HUD will review grantees for compliance with 
this provision by determining whether at least 25 percent of grant 
funds have been expended for housing for individual households whose 
incomes do not exceed 50 percent of area median income.
    HUD is providing a waiver and alternative requirement to allow 
grantees to determine low- and moderate income benefit on a unit basis 
to allow greater support of mixed income housing than the structure 
basis required by 24 CFR 570.483(b)(3). (Under the cited regulation, 
the general rule is that at least 51 percent of the residents of an 
assisted structure must be income eligible.) Under the unit approach, 
one or more of the units in a structure must house income-eligible 
families, but the remainder of the units may be market rate, so long as 
the proportion of assistance provided compared to the overall project 
budget is no more than the proportion of units that will be occupied by 
income-eligible households compared to the number of units in the 
overall project. Under the unit approach, the number of income-eligible 
units is proportional to the amount of assistance provided. Note that 
this approach may only be used if the units are generally comparable in 
size and finishes. Based on HUD experience, this approach is generally 
more compatible with large-scale development of mixed-income housing 
than the structure approach under which a dollar of CDBG assistance to 
a structure means that 51 percent of the units must meet income 
requirements.
    For the purposes of NSP, adopting the unit basis continues to 
benefit individuals and families whose income does not exceed 120 
percent of area median income by limiting the proportion of the funding 
to the proportion of units that are being assisted with NSP funds. This 
approach also helps to avoid displacing existing over-income tenants in 
a building being treated with NSP. Finally, it promotes the type of 
mixed-income developments that experience shows to be more successful 
both economically and socially. Therefore, the waiver and alternative 
requirements allow the grantee a choice. The grantee may measure 
benefit within a housing development project (1) according to the 
existing CDBG requirements, (2) according to the HOME program 
requirements at 24 CFR 92.205(d) or (3) according to the modified CDBG 
alternative requirements specified in this notice, which extend the 
CDBG exception noted above. The grantee must select and use just one 
method for each project.

[[Page 64331]]

Requirements

    1. Overall benefit supersession and alternative requirement. The 
requirements at 42 U.S.C. 5301(c), 42 U.S.C. 5304(b)(3)(A), 24 CFR 
570.484 (for states), and 24 CFR 570.200(a)(3) that 70 percent of funds 
are for activities that benefit low- and moderate-income persons are 
superseded and replaced by section 2301(f)(3)(A) of HERA. One hundred 
percent of NSP funds must be used to benefit individuals and households 
whose income does not exceed 120 percent of area median income. NSP 
shall refer to such households as ``low-, moderate-, and middle-
income.''
    2. National objectives supersession and alternative requirements. 
The requirements at 42 U.S.C 5301(c) are superseded and 24 CFR 
570.208(a) and 570.483 are waived to the extent necessary to allow the 
following alternative requirements:
    a. for purposes of NSP only, the term ``low- and moderate-income 
person'' as it appears throughout the CDBG regulations at 24 CFR part 
570 shall be defined as a member of a low-, moderate-, and middle-
income household, and the term ``low- and moderate-income household'' 
as it appears throughout the CDBG regulations shall be defined as a 
household having an income equal to or less than 120 percent of area 
median income, measured as 2.4 times the current Section 8 income limit 
for households below 50 percent of median income, adjusted for family 
size. A state choosing to carry out an activity directly must apply the 
requirements of 24 CFR 570.208(a) to determine whether the activity has 
met the low-, moderate-, and middle-income (LMMI) national objective 
and must maintain the documentation required at 24 CFR 570.506 to 
demonstrate compliance to HUD.
    b. The national objectives related to prevention and elimination of 
slums and blight and addressing urgent community development needs (24 
CFR 570.208(b) and (c) and 570.483(c) and (d)) are not applicable to 
NSP-assisted activities.
    c. Each grantee whose plan includes assisting rental housing shall 
develop and make public its definition of affordable rents for NSP-
assisted rental projects.
    d. An NSP-assisted property may not be held in a land bank for more 
than 10 years without obligating the property for a specific, eligible 
redevelopment of that property in accordance with NSP requirements.
    e. Not less than 25 percent of any NSP grant shall be used to house 
individuals or families whose incomes do not exceed 50 percent of area 
median income.
    f. HUD will consider assistance for a multi-unit housing project 
involving new construction, acquisition, reconstruction, or 
rehabilitation to benefit LMMI households in the following 
circumstances:
    (i)(A) The NSP assistance defrays the development costs of a 
housing project providing eligible permanent residential units that, 
upon completion, will be occupied by income-qualified households; and
    (B) if the project is rental, the units occupied by income-
qualified households will be leased at affordable rents. The grantee or 
unit of general local government shall adopt and make public its 
standards for determining ``affordable rents'' for this purpose; and
    (C) The proportion of the total cost of developing the project to 
be borne by NSP assistance is no greater than the proportion of units 
in the project that will be occupied by income-qualified households; or
    (ii) When NSP assistance defray the development costs of eligible 
permanent residential units, such assistance shall be considered to 
benefit LMMI persons if the grantee follows the provisions of 24 CFR 
92.205(d); or
    (iii) The requirements of 24 CFR 570.208(a)(3) or 570.483(b)(3) are 
met, as applicable.
    (iv) The grantee must select and use just one method for each 
project.
    (v) The term ``project'' will be defined as in the HOME Program at 
24 CFR 92.2.
    (vi) If the grantee applies option (i) or (ii) above to a housing 
project, 24 CFR 570.208(a)(3) or 570.483(b)(3), as applicable, is 
waived for that project.

F. State Distribution to Entitlement Communities and Indian Tribes

Background

    This notice includes an alternative requirement to the HCD Act and 
a regulatory waiver allowing distribution of funds by a state to CDBG 
regular entitlement communities and Tribes. This is consistent with the 
provision of HERA that specifically sets distribution priorities for 
areas with the greatest need, including ``metropolitan areas, 
metropolitan cities, urban areas, rural areas, low- and moderate-income 
areas * * *.'' Therefore, states receiving allocations under this 
notice may distribute funds to or within any jurisdiction within the 
state that is among those with the greatest need, even if the 
jurisdiction is among those receiving a direct formula allocation of 
funds from HUD under the regular CDBG program or this notice.

Requirement

    Alternative requirement for distribution to CDBG metropolitan 
cities, urban counties, and Tribes. In accordance with the direction of 
HERA that grantees distribute funds to the areas of greatest need, HUD 
is providing an alternative requirement to 42 U.S.C. 5302(a)(7) 
(definition of ``nonentitlement area'') and waiving provisions of 24 
CFR part 570, including 24 CFR 570.480(a), that would prohibit states 
electing to receive CDBG funds from distributing such funds to units of 
general local government in entitlement communities or to Tribes. The 
appropriations law supersedes the statutory distribution prohibition at 
42 U.S.C. 5306(d)(1) and (2)(A). Alternatively, the state is required 
to distribute funds without regard to a local government status under 
any other CDBG program and must use funds in entitlement jurisdictions 
if they are identified as areas of greatest need, regardless of whether 
the entitlement receives its own NSP allocation.

G. State's Direct Action

Background

    In the State CDBG Program, states receiving CDBG funds may not 
directly use the funds for activities, but must distribute them to 
units of general local government, which then use the funds for program 
activities. HUD also notes the language of HERA section 2301(c) that 
says, in part, that:

    ``Any State * * * that receives amounts pursuant to this section 
shall * * * use such amounts to purchase and redevelop * * *.''

    This clearly speaks to the states using funds directly for projects 
and supersedes the HCD Act direction for states to only distribute 
funds to nonentitlement areas. Direct use of funds by a state may also 
result in more expeditious use of NSP funds. Therefore, a state 
receiving NSP funds may carry out NSP activities directly for some or 
all of its assisted grant activities, just as CDBG entitlement 
communities do under 24 CFR 570.200(f), including, but not limited to, 
carrying out activities using its own employees, procuring contractors, 
private developers, and providing loans and grants through nonprofit 
subrecipients (including local governments and other public nonprofits 
such as regional or local planning or development authorities and 
public housing authorities).

[[Page 64332]]

    For those activities a state chooses to carry out directly, HUD 
strongly advises the state to adopt the recordkeeping required for an 
entitlement community at 24 CFR 570.506 and the subrecipient agreement 
provisions at 24 CFR 570.503. Also, in such cases, as an alternative 
requirement to 42 U.S.C. 5304(i), the state may retain and re-use 
program income as if it were an entitlement community.
    HUD is granting regulatory waivers of State CDBG regulations to 
conform the applicable management, real property change of use, and 
recordkeeping rules when a state chooses to carry out activities as if 
it were an entitlement community.

Requirements

    1. Responsibility for state review and handling of noncompliance. 
This change conforms NSP requirements with the waiver allowing the 
state to carry out activities directly. 24 CFR 570.492 is waived and 
the following alternative requirement applies: The state shall make 
reviews and audits, including on-site reviews of any subrecipients, 
designated public agencies, and units of general local government as 
may be necessary or appropriate to meet the requirements of 42 U.S.C. 
5304(e)(2), as amended, as modified by this notice. In the case of 
noncompliance with these requirements, the state shall take such 
actions as may be appropriate to prevent a continuance of the 
deficiency, mitigate any adverse effects or consequences, and prevent a 
recurrence. The state shall establish remedies for noncompliance by any 
designated public agencies or units of general local governments and 
for its subrecipients.
    2. Change of use of real property for state grantees acting 
directly. This waiver conforms the change of use of real property rule 
to the waiver allowing a state to carry out activities directly. For 
purposes of this program, in 24 CFR 570.489(j), (j)(1), and the last 
sentence of (j)(2), ``unit of general local government'' shall be read 
as ``unit of general local government or state.''
    3. Recordkeeping for a state grantee acting directly. Recognizing 
that the state may carry out activities directly, 24 CFR 570.490(b) is 
waived in such a case and the following alternative provision shall 
apply:
    State Records. The state shall establish and maintain such records 
as may be necessary to facilitate review and audit by HUD of the 
state's administration of NSP funds under 24 CFR 570.493. Consistent 
with applicable statutes, regulations, waivers and alternative 
requirements, and other Federal requirements, the content of records 
maintained by the state shall be sufficient to: (1) Enable HUD to make 
the applicable determinations described at 24 CFR 570.493; (2) make 
compliance determinations for activities carried out directly by the 
state; and (3) show how activities funded are consistent with the 
descriptions of activities proposed for funding in the action plan. For 
fair housing and equal opportunity purposes, and as applicable, such 
records shall include data on the racial, ethnic, and gender 
characteristics of persons who are applicants for, participants in, or 
beneficiaries of the program.
    4. State compliance with certifications for state grantees acting 
directly. This is a conforming change related to the waiver to allow a 
state to act directly. Because a state grantee under this appropriation 
may carry out activities directly, HUD is applying the regulations at 
24 CFR 570.480(c) with respect to the basis for HUD determining whether 
the state has failed to carry out its certifications, so that such 
basis shall be that the state has failed to carry out its 
certifications in compliance with applicable program requirements.
    5. Clarifying note on the process for environmental release of 
funds when a state carries out activities directly. Usually, a state 
distributes CDBG funds to units of local government and takes on HUD's 
role in receiving environmental certifications from the grantees and 
approving releases of funds. For NSP, HUD allows a state grantee to 
also carry out activities directly instead of distributing them to 
other governments. According to the environmental regulations at 24 CFR 
58.4, when a state carries out activities directly, the state must 
submit the certification and request for release of funds to HUD for 
approval.

H. Eligibility and Allowable Costs

Background

    Most of the activities eligible under NSP are correlated with CDBG-
eligible activities under 42 U.S.C. 5305(a). This correlation reduces 
implementation risks, because it ensures that the NSP grants are 
administered largely in accordance with long-established CDBG rules and 
controls. The table in the requirements paragraph below shows the 
eligible uses under NSP and the eligible activities from the 
regulations for the regular CDBG entitlement program that HUD has 
determined best correspond to those uses. If a grantee creates a 
program design that includes a CDBG-eligible activity that is not shown 
in the table to support an NSP-eligible use, the Department is 
providing an alternative requirement to 42 U.S.C. 5305(a) that HUD may 
allow a grantee an additional eligible-activity category if HUD finds 
the activity to be in compliance with NSP statutory requirements. As 
under the regular CDBG program, grantees may fund costs, such as 
reasonable developer's fees, related to NSP-assisted housing 
rehabilitation or construction activities. Only NSP1 funds may be used 
to redevelop acquired property for nonresidential uses, such as public 
parks, commercial uses, or mixed residential and commercial uses. 
Redevelopment activities using NSP2 and NSP3 funds must be for housing.
    The annual entitlement CDBG program allows up to 20 percent of any 
grant amount plus program income may be used for general administration 
and planning costs. The State CDBG Program is also subject to the 20 
percent limitation, but within that cap up to 3 percent may be used by 
the state for state administrative costs and technical assistance to 
potential local government program grantees, with the remainder 
available to be granted to local government grantees for their 
administrative costs. Because some of the costs usually allocated under 
these caps are not applicable to NSP grants (for example, the costs of 
completing the entire consolidated plan process), these amounts seem 
excessive to HUD in the context of the NSP program. On the other hand, 
HUD wants to encourage and support expeditious, appropriate, and 
compliant use of grant funds, and to prevent fraud, waste, and abuse of 
funds. Therefore, HUD is providing an alternative requirement that an 
amount of up to 10 percent of an NSP grant provided to a jurisdiction 
and of up to 10 percent of program income earned may be used for 
general administration and planning activities as those are defined at 
24 CFR 570.205 and 206. For all grantees, including states, the 10 
percent limitation applies to the grant as a whole.
    The regulatory and statutory requirements for state match for 
program administration at 24 CFR 570.489(a)(i) are superseded by the 
statutory direction at section 2301(e)(2) of HERA that no matching 
funds shall be required for a state or unit of general local government 
to receive a grant.

Requirements

    1. Use of grant funds must constitute an eligible use under HERA.
    2. In addition to being an eligible NSP use of funds, each activity 
funded under NSP must also be CDBG-eligible under

[[Page 64333]]

42 U.S.C. 5305(a) and meet a CDBG national objective.
    3.a. Certain CDBG-eligible activities correlate to specific NSP-
eligible uses and vice versa. 42 U.S.C. 5305(a) and 24 CFR 570.201-207 
and 570.482(a) through (d) are superseded to the extent necessary to 
allow the eligible uses described under section 2301(c)(4) of HERA in 
accordance with this paragraph (including the table and subparagraphs 
below) or with permission granted, in writing, by HUD upon a written 
request by the grantee that demonstrates that the proposed activity 
constitutes an eligible use under NSP. All NSP grantees, including 
states, will use the NSP categories and CDBG entitlement regulations 
listed below.

------------------------------------------------------------------------
                                     Correlated eligible activities from
         NSP-eligible uses             the CDBG entitlement regulations
------------------------------------------------------------------------
(A) Establish financing mechanisms   <bullet> As part of an activity
 for purchase and redevelopment of    delivery cost for an eligible
 foreclosed upon homes and            activity as defined in 24 CFR
 residential properties, including    570.206.
 such mechanisms as soft-seconds,    <bullet> Also, the eligible
 loan loss reserves, and shared-      activities listed below to the
 equity loans for low- and moderate-  extent financing mechanisms are
 income homebuyers.                   used to carry them out.
(B) Purchase and rehabilitate homes  <bullet> 24 CFR 570.201(a)
 and residential properties that      Acquisition (b) Disposition, (i)
 have been abandoned or foreclosed    Relocation , and (n) Direct
 upon, in order to sell, rent, or     homeownership assistance (as
 redevelop such homes and             modified below);
 properties.                         <bullet> 24 CFR 570.202 eligible
                                      rehabilitation and preservation
                                      activities for homes and other
                                      residential properties.
                                     <bullet> HUD notes that any of the
                                      activities listed above may
                                      include required homebuyer
                                      counseling as an activity delivery
                                      cost.
(C) Establish and operate land       <bullet> 24 CFR 570.201(a)
 banks for homes and residential      Acquisition and (b) Disposition.
 properties that have been           <bullet> HUD notes that any of the
 foreclosed upon.                     activities listed above may
                                      include required homebuyer
                                      counseling as an activity delivery
                                      cost.
(D) Demolish blighted structures...  <bullet> 24 CFR 570.201(d)
                                      Clearance for blighted structures
                                      only.
(E) Redevelop demolished or vacant   <bullet> 24 CFR 570.201(a)
 properties as housing.*.             Acquisition, (b) Disposition, (c)
                                      Public facilities and
                                      improvements, (e) Public services
                                      for housing counseling, but only
                                      to the extent that counseling
                                      beneficiaries are limited to
                                      prospective purchasers or tenants
                                      of the redeveloped properties, (i)
                                      Relocation, and (n) Direct
                                      homeownership assistance (as
                                      modified below).
                                     <bullet> 24 CFR 570.202 Eligible
                                      rehabilitation and preservation
                                      activities for demolished or
                                      vacant properties.
                                     <bullet> 24 CFR 570.204 Community
                                      based development organizations.
                                     <bullet> HUD notes that any of the
                                      activities listed above may
                                      include required homebuyer
                                      counseling as an activity delivery
                                      cost.
------------------------------------------------------------------------
* NSP1 funds used under eligible use (E) may be used for nonresidential
  purposes, while NSP2 and NSP3 funds must be used for housing.

    b. HUD will not consider requests to allow foreclosure prevention 
activities, or to allow demolition of structures that are not blighted. 
Neither will it allow purchase of residential properties and homes that 
have not been abandoned or foreclosed upon, except under paragraph (E) 
of the eligible use chart above. HUD does not have the authority to 
permit uses or activities not authorized by HERA.
    c. New construction of housing is eligible as part the 
redevelopment of demolished or vacant properties as provided in 
paragraph (E) of the eligible use chart above.
    d. 24 CFR 570.201(n) is waived and an alternative requirement 
provided for 42 U.S.C. 5305(a) to the extent necessary to allow 
provision of NSP-assisted homeownership assistance to persons whose 
income does not exceed 120 percent of median income.
    e. No NSP2 or NSP3 funds may be used to demolish any public housing 
(as defined by Section 3 of the U.S. Housing Act of 1937 (42 U.S.C. 
1437a)).
    f. For NSP2 and NSP3, a grantee may not use more than 10 percent of 
its grant for demolition activities under HERA sections 2301(c)(4)(C) 
and (D), unless the Secretary determines that such use represents an 
appropriate response to local market conditions. NSP2 and NSP3 grantees 
seeking to use more than 10 percent of their grant amounts on 
demolition activities must request a waiver from HUD.
    4. Alternative requirement for the limitation on planning and 
administrative costs. 24 CFR 570.200(g) and 570.489(a)(3) are waived to 
the extent necessary to allow each grantee under this notice to expend 
no more than 10 percent of its grant amount, plus 10 percent of the 
amount of program income received by the grantee, for activities 
eligible under 24 CFR 570.205 or 206. The requirements at 24 CFR 
570.489 are waived to the extent that they require a state match for 
general administrative costs. (States may use NSP funds under this 10 
percent limitation to provide technical assistance to local governments 
and nonprofit program participants.)

I. Rehabilitation Standards

Background

    HERA provides that any NSP-assisted rehabilitation of a foreclosed-
upon home or residential property shall be to the extent necessary to 
comply with applicable laws, codes, and other requirements relating to 
housing safety, quality, and habitability, in order to sell, rent, or 
redevelop such homes and properties. HUD is also imposing this 
requirement for NSP3-assisted new construction. This imposes a 
requirement that does not exist in the CDBG program. This means that 
each grantee must describe or reference in its NSP action plan 
amendment what rehabilitation standards it will apply for NSP-assisted 
rehabilitation. As a reminder, grantees are subject to Section 504 of 
the Rehabilitation Act of 1973 and the Fair Housing Act, including 
their respective provisions related to physical accessibility standards 
for persons with disabilities. See 24 CFR part 8; 24 CFR 100.205. See 
also 24 CFR 570.487 and 24 CFR 570.602. HUD will monitor to ensure the 
standards are implemented.
    HERA defines rehabilitation to include improvements to increase the 
energy efficiency or conservation of such homes and properties or to 
provide a renewable energy source or sources for such homes and 
properties. Such improvements are also eligible under the regular CDBG 
program. HUD strongly encourages grantees to use NSP funds not only to 
stabilize neighborhoods in the short-term, but to strategically 
incorporate modern, green

[[Page 64334]]

building and energy-efficiency improvements in all NSP activities to 
provide for long-term affordability and increased sustainability and 
attractiveness of housing and neighborhoods. At minimum, NSP3 grantees 
must have the rehabilitation standards required below. See Appendix C 
for examples of green and energy-efficiency actions. Additional 
resources related to sustainable and energy-efficient construction are 
available on the NSP Resource Exchange Web site (http://www.hud.gov/nspta).
    Requirement. For NSP3, HUD is requiring that all gut rehabilitation 
(i.e., general replacement of the interior of a building that may or 
may not include changes to structural elements such as flooring 
systems, columns or load bearing interior or exterior walls) or new 
construction of residential buildings up to three stories must be 
designed to meet the standard for Energy Star Qualified New Homes. All 
gut rehabilitation or new construction of mid -or high-rise multifamily 
housing must be designed to meet American Society of Heating, 
Refrigerating, and Air-Conditioning Engineers (ASHRAE) Standard 90.1-
2004, Appendix G plus 20 percent (which is the Energy Star standard for 
multifamily buildings piloted by the Environmental Protection Agency 
and the Department of Energy). Other rehabilitation must meet these 
standards to the extent applicable to the rehabilitation work 
undertaken, e.g., replace older obsolete products and appliances (such 
as windows, doors, lighting, hot water heaters, furnaces, boilers, air 
conditioning units, refrigerators, clothes washers and dishwashers) 
with Energy Star-labeled products. Water efficient toilets, showers, 
and faucets, such as those with the WaterSense label, must be 
installed. Where relevant, the housing should be improved to mitigate 
the impact of disasters (e.g., earthquake, hurricane, flooding, fires).

J. Sale of Homes

Background

    Section 2301(d)(3) of HERA directs that, if an abandoned or 
foreclosed-upon home or residential property is purchased, redeveloped, 
or otherwise sold to an individual as a primary residence, then such 
sale shall be in an amount equal to or less than the cost to acquire 
and redevelop or rehabilitate such home or property up to a decent, 
safe, and habitable condition. (Sales and closing costs are eligible 
NSP redevelopment or rehabilitation costs). Note that the maximum sales 
price for a property is determined by aggregating all costs of 
acquisition, rehabilitation, and redevelopment (including related 
activity delivery costs, which generally may include, among other 
items, costs related to the sale of the property).

Requirements

    1. In its records, each grantee must maintain sufficient 
documentation about the purchase and sale amounts of each property and 
the sources and uses of funds for each activity so that HUD can 
determine whether the grantee is in compliance with this requirement. A 
grantee will be expected to provide this documentation individually for 
each activity.
    2. In determining the sales price limitation, HUD will not consider 
the costs of boarding up, lawn mowing, simply maintaining the property 
in a static condition, or, in the absence of NSP-assisted 
rehabilitation or redevelopment of the property, the costs of 
completing a sales transaction or other disposition to be redevelopment 
or rehabilitation costs. These costs may not be included by the grantee 
in the determination of the sales price for an NSP-assisted property.
    3. For reporting purposes only, for a housing program involving 
multiple single-family structures under the management of a single 
entity, HUD will permit reporting the aggregation of activity delivery 
costs across the total portfolio of projects until completion of the 
program or closeout of the grant with HUD, whichever comes earlier.

K. Acquisition and Relocation

Background

    Acquisition of Foreclosed-Upon Properties. HUD notes that section 
2301(d)(1) of HERA conflicts with section 301(3) of the URA (42 U.S.C. 
4651) and related regulatory requirements at 49 CFR 24.102(d). As 
discussed further, section 2301(d)(1) of HERA requires that any 
acquisition of a foreclosed-upon home or residential property under NSP 
be at a discount from the current market-appraised value of the home or 
property and that such discount shall ensure that purchasers are paying 
below-market value for the home or property. Section 301(3) of the URA, 
as implemented at 49 CFR 24.102(d), provides that an offer of just 
compensation shall not be less than the agency's approved appraisal of 
the fair market value of such property. These URA acquisition policies 
apply to any acquisition of real property for a federally funded 
project, except for acquisitions described in 49 CFR 24.101(b)(1) 
through (5) (commonly referred to as ``voluntary acquisitions''). As 
the more recent and specific statutory provision, section 2301(d)(1) of 
HERA prevails over section 301 of the URA for purposes of NSP-assisted 
acquisitions of foreclosed-upon homes or residential properties.
    NSP Appraisal Requirements. Section 2301(d)(1) of HERA requires an 
appraisal for purposes of determining the statutory purchase discount. 
This appraisal requirement applies to any NSP-assisted acquisition of a 
foreclosed-upon home or residential property (including voluntary 
acquisitions). As noted above, section 301 of the URA does not apply to 
voluntary acquisitions. While the URA and its regulations do not 
require appraisals for such acquisitions, the URA acquisition policies 
do not prohibit acquiring agencies from obtaining appraisals. Appendix 
A, 49 CFR 24.101(b)(1)(iv) and (2)(ii), acknowledges that acquiring 
agencies may still obtain an appraisal to support their determination 
of fair market value.
    One-for-One Replacement. HUD is providing an alternative 
requirement to the one-for-one replacement requirements set forth in 42 
U.S.C. 5304(d)(2), as implemented at 24 CFR 42.375. The Department 
anticipates a large number of requests from grantees for whom the 
requirements will be onerous given the pressing rush to implement NSP, 
and several of the major housing markets affected by the foreclosure 
crisis have a surplus of abandoned and foreclosed-upon residential 
properties. The additional workload of reviewing requests under 42 
U.S.C. 5304(d)(3) and 24 CFR 42.375(d) could cause a substantial 
backlog at HUD and delay NSP program operations. Therefore, the 
alternative requirement is that an NSP grantee is not required to meet 
the requirements of 42 U.S.C. 5304(d), as implemented at 24 CFR 42.375, 
to provide one-for-one replacement of low- and moderate-income dwelling 
units demolished or converted in connection with activities assisted 
with NSP funds. Alternatively, each grantee must submit the information 
described below relating to its demolition and conversion activities in 
its action plan substantial amendment or abbreviated plan. The grantee 
will report to HUD and citizens (via prominent posting of the DRGR 
reports on the grantee's official Internet site) on progress related to 
these measures until the closeout of its grant with HUD. HUD reminds 
grantees to be aware of the requirement to have and follow a 
residential antidisplacement and relocation plan for the CDBG and HOME 
programs. This requirement is not waived for those programs and

[[Page 64335]]

continues to apply to activities assisted with regular CDBG and HOME 
funds.
    Relocation Assistance. HUD is not waiving or specifying alternative 
requirements to the URA's relocation provisions. Those requirements 
that do not conflict with HERA continue to apply. HUD is not specifying 
alternative requirements to the relocation assistance provisions at 42 
U.S.C. 5304(d). Guidance on meeting these requirements is available on 
the HUD Web site and through local HUD field offices. HUD urges 
grantees to consider URA requirements in designing their programs and 
to remember that there are URA obligations related to voluntary and 
involuntary property acquisition activities, even for vacant and 
abandoned property.
    Tenant Protections. The Recovery Act included tenant protections 
applicable to NSP grants. First, the Recovery Act included a provision 
applicable to any foreclosed upon dwelling or residential real property 
that was acquired by the initial successor in interest pursuant to the 
foreclosure after February 17, 2009 and was occupied by a bona fide 
tenant at the time of foreclosure. The use of NSP funds for acquisition 
of such property is subject to a determination by the grantee that the 
initial successor in interest complied with these requirements. Second, 
NSP grantees may not refuse to lease a dwelling unit in housing with 
such loan or grant to a participant under section 8 of the United 
States Housing Act of 1937 (42 U.S.C 1437f) because of the status of 
the prospective tenant as such a participant.

Requirements

    One for One Replacement Requirements.
    1. The one-for-one replacement requirements at 24 CFR 570.488, 
570.606(c), and 42.375 are waived for low- and moderate-income dwelling 
units demolished or converted in connection with an activity assisted 
with NSP funds. As an alternative requirement to 42 U.S.C. 
5304(d)(2)(A)(i) and (ii), each grantee planning to demolish or convert 
any low- and moderate-income dwelling units as a result of NSP-assisted 
activities must identify all of the following information in its NSP 
substantial amendment or abbreviated plan:
    (a) The number of low- and moderate-income dwelling units 
reasonably expected to be demolished or converted as a direct result of 
NSP-assisted activities;
    (b) The number of NSP affordable housing units (made available to 
low-, moderate-, and middle-income households) reasonably expected to 
be produced, by activity and income level as provided for in DRGR, by 
each NSP activity providing such housing (including a proposed time 
schedule for commencement and completion); and
    (c) The number of dwelling units reasonably expected to be made 
available for households whose income does not exceed 50 percent of 
area median income.
    The grantee must also report on actual performance for demolitions 
and production, as required elsewhere in this notice.
    Tenant Protections.
    2. The following requirements apply to any foreclosed upon dwelling 
or residential real property that was acquired by the initial successor 
in interest pursuant to the foreclosure after February 17, 2009 and was 
occupied by a bona fide tenant at the time of foreclosure. The use of 
NSP funds for acquisition of such property is subject to a 
determination by the grantee that the initial successor in interest 
complied with these requirements.
    a. The initial successor in interest in a foreclosed upon dwelling 
or residential real property shall provide a notice to vacate to any 
bona fide tenant at least 90 days before the effective date of such 
notice. The initial successor in interest shall assume such interest 
subject to the rights of any bona fide tenant, as of the date of such 
notice of foreclosure: (i) Under any bona fide lease entered into 
before the date of notice of foreclosure to occupy the premises until 
the end of the remaining term of the lease, except that a successor in 
interest may terminate a lease effective on the date of sale of the 
unit to a purchaser who will occupy the unit as a primary residence, 
subject to the receipt by the tenant of the 90-day notice under this 
paragraph; or (ii) without a lease or with a lease terminable at will 
under State law, subject to the receipt by the tenant of the 90-day 
notice under this paragraph, except that nothing in this section shall 
affect the requirements for termination of any Federal- or State-
subsidized tenancy or of any State or local law that provides longer 
time periods or other additional protections for tenants.
    b.i. In the case of any qualified foreclosed housing in which a 
recipient of assistance under section 8 of the United States Housing 
Act of 1937 (42 U.S.C 1437f) (the ``Section 8 Program'') resides at the 
time of foreclosure, the initial successor in interest shall be subject 
to the lease and to the housing assistance payments contract for the 
occupied unit.
    ii. Vacating the property prior to sale shall not constitute good 
cause for termination of the tenancy unless the property is 
unmarketable while occupied or unless the owner or subsequent purchaser 
desires the unit for personal or family use.
    iii. If a public housing agency is unable to make payments under 
the contract to the immediate successor in interest after foreclosure, 
due to (A) an action or inaction by the successor in interest, 
including the rejection of payments or the failure of the successor to 
maintain the unit in compliance with the Section 8 Program or (B) an 
inability to identify the successor, the agency may use funds that 
would have been used to pay the rental amount on behalf of the family--
(1) to pay for utilities that are the responsibility of the owner under 
the lease or applicable law, after taking reasonable steps to notify 
the owner that it intends to make payments to a utility provider in 
lieu of payments to the owner, except prior notification shall not be 
required in any case in which the unit will be or has been rendered 
uninhabitable due to the termination or threat of termination of 
service, in which case the public housing agency shall notify the owner 
within a reasonable time after making such payment; or (2) for the 
family's reasonable moving costs, including security deposit costs.
    c. For purposes of this section, a lease or tenancy shall be 
considered bona fide only if: (i) the mortgagor under the contract is 
not the tenant; (ii) the lease or tenancy was the result of an arm's 
length transaction; and (iii) the lease or tenancy requires the receipt 
of rent that is not substantially less than fair market rent for the 
property. See Section II.A for the definition of date of notice of 
foreclosure.
    d. The grantee shall maintain documentation of its efforts to 
ensure that the initial successor in interest in a foreclosed upon 
dwelling or residential real property has complied with the 
requirements under section K.2.a. and K.2.b. If the grantee determines 
that the initial successor in interest in such property failed to 
comply with such requirements, it may not use NSP funds to finance the 
acquisition of such property unless it assumes the obligations of the 
initial successor in interest specified in section K.2.a. and K.2.b.
    e. Grantees must provide the relocation assistance required 
pursuant to 24 CFR 570.606 to tenants displaced as a result of an NSP-
assisted activity and maintain records in sufficient detail to 
demonstrate compliance with the provisions of that section. For 
purposes

[[Page 64336]]

of clarification, grantees need to be aware that the NSP tenant 
protection requirements under the Recovery Act are separate and apart 
from the obligations imposed on grantees by the URA. The URA applies to 
any person displaced as a direct result of acquisition, rehabilitation, 
and/or demolition of real property for a federally-assisted project. 
Eligibility determinations under the URA and the required notices and 
relocation assistance requirements are separate and distinct from the 
NSP tenant protections in the Recovery Act. Grantees cannot assume that 
a person entitled to the NSP tenant protections under the Recovery Act 
is also eligible for assistance under the URA (or vice versa). Any 
tenant lawfully occupying the property evicted by the owner/mortgagor 
in order to facilitate an acquisition under the NSP program (including 
short sales) is most likely eligible for URA relocation assistance and 
payments as a displaced person.
    3. The grantee of any grant or loan made from NSP funds may not 
refuse to lease a dwelling unit in housing with such loan or grant to a 
participant under the Section 8 Program because of the status of the 
prospective tenant as such a participant.
    4. This section shall not preempt any Federal, State or local law 
that provides more protections for tenants.

L. Note on Eminent Domain

    Although section 2303 of HERA appears to allow some use of eminent 
domain for public purposes, HUD cautions grantees that HERA section 
2301(d)(1) may effectively ensure that all NSP-assisted property 
acquisitions must be voluntary acquisitions as the term is defined by 
the URA and its implementing regulations. Section 2301(d)(1) of HERA 
directs that any purchase of a foreclosed-upon home or residential 
property under NSP be at a discount from the current market appraised 
value of the home or residential property and that such discount shall 
ensure that purchasers are paying below-market value for the home or 
property. However, the Fifth Amendment to the U.S. Constitution 
provides that private property shall not be taken for public use 
without just compensation. The Supreme Court has ruled that a 
jurisdiction must pay fair market value for the purchase of property 
through eminent domain. A grantee contemplating using NSP funds to 
assist an acquisition involving an eminent domain action is advised to 
consult appropriate legal counsel before taking action.

M. Timeliness of Use and Expenditure of NSP Funds

Background

    One of the most critical NSP1 provisions is the HERA requirement at 
section 2301(c)(1) that any grantee receiving a grant:

``* * * shall, not later than 18 months after the receipt of such 
amounts, use such amounts to purchase and redevelop abandoned and 
foreclosed homes and residential properties.''

    HUD has defined the term ``use'' in this notice to include 
obligation of funds.
    A further complication is that HERA clearly expects grantees to 
earn program income under this grant program. As provided under 24 CFR 
85.21, entitlements grantees and subrecipients shall disburse program 
income before requesting additional cash withdrawals from the U.S. 
Treasury. States are governed similarly by 24 CFR 570.489(e)(3) and 31 
CFR part 205. This requirement is reflected in the regulations 
governing use of program income by states and units of general local 
government under the CDBG program. This means that a grantee that 
successfully and quickly deploys its program and generates program 
income may obligate, draw down, and expend an amount equal to its NSP1 
allocation amount, and still have funds remaining in its line of 
credit, possibly subject to recapture at the 18-month deadline.
    On consideration, the Department chose to implement the NSP1 use 
test based on whether the state or unit of general local government has 
expended or obligated the NSP1 grant funds and program income in an 
aggregate amount at least equal to the NSP1 allocation. HUD also 
imposed a deadline for expending NSP1 grant funds because the intent of 
these grants clearly is to quickly address an emergency situation in 
areas of the greatest need.
    NSP2 and NSP3 grants follow the statutory expenditure deadlines 
described under the Recovery Act, which provides that grantees:

    ``shall expend at least 50 percent of allocated funds within 2 
years of the date funds become available to the [recipient] for 
obligation, and 100 percent of such funds within 3 years of such 
date.''

    NSP2 and NSP3 expenditure timelines are tighter than under NSP1. In 
the NSP2 NOFA, HUD required NSP2 grantees to expend their entire grant, 
including program income, within the statutory timeframes. Upon 
reflection, HUD has determined that the better interpretation would be 
similar to the NSP1 requirement that requires the expenditure of grant 
funds and program income in an aggregate amount at least equal to the 
NSP2 or NSP3 allocation. HUD is therefore including a revision to the 
NSP2 NOFA program requirements in this Notice. If any NSP grantee fails 
to meet the requirement to expend an amount equal to its grant within 
the relevant timelines, HUD, on the first business day after that 
deadline, will notify the grantee and restrict the amount of unused 
funds in the grantee's line of credit. HUD will allow the grantee 30 
days to submit information to HUD regarding any additional expenditure 
of funds not already recorded in DRGR. Then HUD may proceed to 
recapture the unused funds or provide for other corrective action(s) or 
sanction.

Requirements

    1. Timely use of NSP1 funds. At the end of the statutory 18-month 
use period, which begins when the NSP grantee receives its funds from 
HUD, the state or unit of general local government NSP grantee's 
accounting records and DRGR information must reflect outlays 
(expenditures) and unliquidated obligations for approved activities 
that, in the aggregate, are at least equal to the NSP allocation. (The 
DRGR system collects information on expenditures and obligations.) 
Grantees receiving a reallocation of NSP1 funds must also comply with 
the 18-month use requirement.
    2. Timely expenditure of NSP1 funds. The timely distribution or 
expenditure requirements of sections 24 CFR 570.494 and 570.902 are 
waived to the extent necessary to allow the following alternative 
requirement: All NSP1 grantees must expend on eligible NSP activities 
an amount equal to or greater than the initial allocation of NSP1 funds 
within 4 years of receipt of those funds or HUD will recapture and 
reallocate the amount of funds not expended.
    3. Timely expenditure of NSP2 and NSP3 funds. The timely 
distribution or expenditure requirements of sections 24 CFR 570.494 and 
570.902 are waived to the extent necessary to allow the following 
alternative requirement: NSP2 and NSP3 grantees must expend on eligible 
NSP activities an amount equal to or greater than the 50 percent of the 
initial allocation of NSP funds within 2 years of receipt of those 
funds and 100 percent of the initial allocation of NSP funds within 3 
years of receipt of those funds or HUD will recapture and reallocate 
the amount of funds not expended or provide for other corrective 
action(s) or sanction. A grantee will be deemed by HUD to have received 
its

[[Page 64337]]

NSP grant at the time HUD signs its NSP grant agreement.

N. Alternative Requirement for Program Income (Revenue) Generated By 
Activities Assisted With Grant Funds

Requirement

    1. Revenue (i.e., gross income) received by a state, unit of 
general local government, or subrecipient (as defined at 24 CFR 
570.500(c)) that is directly generated from the use of CDBG funds 
(which term includes NSP grant funds) constitutes CDBG program income. 
To ensure consistency of treatment of such program income, the 
definition of program income at 24 CFR 570.500(a) shall be applied to 
amounts received by states, units of general local government, and 
subrecipients.
    2. Cash management. Substantially all program income must be 
disbursed for eligible NSP activities before additional cash 
withdrawals are made from the U.S. Treasury.
    3. Agreements with subrecipients. States and units of general local 
government must incorporate in subrecipient agreements such provisions 
as are necessary to ensure compliance with the requirements of this 
section.

O. Reporting

Background

    HUD is requiring regular reporting on each NSP grant in the DRGR 
system to ensure the Department has sufficient management information 
to follow-up promptly if a grantee lags in implementation and risks 
recapture of its grant funds. For NSP, HUD is waiving the annual 
reporting requirements of the consolidated plan to allow HUD to collect 
more regular information on various aspects of the uses of funds and of 
the activities funded with these grants. HUD will use the reports to 
exercise oversight for compliance with the requirements of this notice 
and for prevention of fraud, waste, and abuse of funds.
    The regular CDBG performance measurement requirements will not 
apply to the NSP funds. HUD has configured DRGR performance measures to 
fit the NSP activities and will provide additional guidance on NSP 
performance measures.
    To collect these data elements and to meet its reporting 
requirements, HUD is requiring each grantee to report on its NSP funds 
to HUD using the online DRGR system, which uses a streamlined, 
Internet-based format. HUD will use grantee reports to monitor for 
anomalies or performance problems that suggest fraud, waste, and abuse 
of funds; to reconcile budgets, obligations, fund draws, and 
expenditures; to calculate applicable administrative and public service 
limitations and the overall percent of benefit to LMMI persons; and as 
a basis for risk analysis in determining a monitoring plan.
    The grantee must post the NSP report on a Web site for its citizens 
when it submits the report to HUD (DRGR generates a version of the 
report that the grantee can download, save, and post).
    The Office of Management and Budget has established October 1, 2010 
as the deadline for Federal agencies to initiate sub-award reporting in 
compliance with the Federal Funding Accountability and Transparency Act 
(Pub. L. 109-282) (FFATA). NSP3 grantees will be required to comply 
with this additional reporting requirement. Additional HUD guidance on 
compliance with the FFATA requirements is forthcoming.

Requirements

    1. Performance report alternative requirement. The Secretary may 
specify the form and timing of reports provided by the grantee under 
both 42 U.S.C. 5304(e) (the HCD Act) and 42 U.S.C. 12708 (NAHA). 
Therefore, the consolidated plan regulation at 24 CFR 91.520 is waived 
and the alternative reporting form and timing for the NSP funds is 
that:
    a. Each grantee must enter its NSP Action Plan amendment or 
abbreviated plan into HUD's web-based DRGR system in sufficient detail 
to meet the NSP action plan content requirements of this notice and to 
serve as the basis for acceptable performance reports.
    b. NSP1 and NSP3 grantees must submit a quarterly performance 
report, as HUD prescribes, no later than 30 days following the end of 
each quarter, beginning 30 days after the completion of the first full 
calendar quarter after grant award and continuing until the end of the 
grant. In addition to this quarterly performance reporting, beginning 
three months prior to its use or expenditure deadline, as applicable, 
each grantee will report monthly on its NSP use and expenditure of 
funds, and continuing monthly until reported total uses or expenditure 
of funds are equal to or greater than the total NSP grant or the 
deadline occurs. After HUD has accepted a report from a grantee showing 
such use or expenditure of funds, the monthly reporting requirement 
will end. Quarterly reports will continue until all NSP funds 
(including program income) have been expended and those expenditures 
are included in a report to HUD, or until HUD issues other 
instructions. Each report will include information about the uses of 
funds, including, but not limited to, the project name, activity, 
location, national objective, funds budgeted and expended, the funding 
source and total amount of any non-NSP funds, numbers of properties and 
housing units, beginning and ending dates of activities, beneficiary 
characteristics, and numbers of low- and moderate-income persons or 
households benefiting. Reports must be submitted using HUD's web-based 
DRGR system and, at the time of submission, be posted prominently on 
the grantee's official Web site.
    c. Additional reporting requirements consistent with the Federal 
Funding Accountability and Transparency Act will be required for NSP3 
Grantees. HUD guidance on these requirements is forthcoming.

P. FHA First Look Program

    The Department notes that it is an eligible use of NSP grant funds 
to acquire and redevelop FHA foreclosed properties. The Federal Housing 
Administration's (FHA) First Look sales method provides NSP grantees 
exclusive access to review and purchase newly conveyed FHA real estate-
owned (REO) properties that are located in their designated areas. 
Grantees will have the opportunity to make a purchase offer on a 
property prior to it being made available to other entities. NSP 
grantees can purchase these properties at up to a 10% discount from the 
appraised value. Further information about First Look was published in 
the Federal Register on July 15, 2010 (75 FR 41225), and is also 
available online at: http://edocket.access.gpo.gov/2010/pdf/ 2010-
17335.pdf.
    HUD will provide technical assistance on its Web site regarding how 
these programs can effectively interact. Grantees may also contact 
their local HUD FHA field office for further information.

Q. Purchase Discount

Background

    HERA Section 2301(d)(1) limits the purchase price of a foreclosed 
home or residential property, as follows:

    Any purchase of a foreclosed upon home or residential property 
under this section shall be at a discount from the current market 
appraised value of the home or property, taking into account its 
current condition, and such discount shall ensure that purchasers 
are paying below-market value for the home or property.

    To ensure that uncertainty over the meaning of this section does 
not delay program implementation, HUD is

[[Page 64338]]

defining ``current market appraised value'' in this notice. For 
mortgagee foreclosed properties, HUD is requiring that grantees seek to 
obtain the ``maximum reasonable discount'' from the mortgagee, taking 
into consideration likely ``carrying costs'' of the mortgagee if it 
were to not sell the property to the grantee or subrecipient. HUD has 
adopted an approach that requires a minimum discount of one percent for 
each foreclosed upon home or residential property purchased with NSP 
funds.

Requirements

    1. Individual purchase transaction. Each foreclosed-upon home or 
residential property shall be purchased at a discount of at least one 
percent from the current market-appraised value of the home or 
property.
    2. An NSP grantee may not provide NSP funds to another party to 
finance an acquisition of tax foreclosed (or any other) properties from 
itself, other than to pay necessary and reasonable costs related to the 
appraisal and transfer of title. If NSP funds are used to pay such 
costs when property owned by the grantee is conveyed to a subrecipient, 
homebuyer, developer, or other jurisdiction, the property is NSP-
assisted and subject to all program requirements, such as requirements 
for NSP-eligible use and benefit to income-qualified persons. This 
section does not preclude payment of tax liens on property that is not 
owned by the grantee or payment of current taxes while the property is 
being redeveloped or held in a land bank.
    3. The address, appraised value, purchase offer amount, and 
discount amount of each property purchase must be documented in the 
grantee's program records. The address of each acquired property must 
be recorded in DRGR.

R. Removal of Annual Requirements

Requirement

    Throughout 24 CFR parts 91 and 570, all references to ``annual'' 
requirements such as submission of plans and reports are waived to the 
extent necessary to allow the provisions of this notice to apply to NSP 
funds, with no recurring annual requirements other than those related 
to civil rights and fair housing certifications and requirements.

S. Affirmatively Furthering Fair Housing

    Nothing in this notice may be construed as affecting each grantee's 
responsibility to carry out its certification to affirmatively further 
fair housing. HUD encourages each grantee to review its analysis of 
impediments to fair housing choice to determine whether an update is 
necessary because of current market conditions or other factors. Non-
entitlement local government grantees must affirmatively further fair 
housing by adopting and following procedures and requirements to 
affirmatively market NSP3-assisted housing opportunities. This means 
that they will affirmatively market NSP3 assisted units and carry out 
NSP3 activities that further fair housing through innovative housing 
design or construction to increase access for persons with 
disabilities, language assistance services to persons with limited 
English proficiency (on the basis of national origin), or location of 
new or rehabilitated housing in a manner that provides greater housing 
choice or mobility for persons in classes protected by the Fair Housing 
Act, and maintain records reflecting the actions in this regard.

T. Certifications

Background

    HUD is substituting alternative certifications. The alternative 
certifications are tailored to NSP3 grants and remove certifications 
and references that are appropriate only to the annual CDBG formula 
program. NSP1 and NSP2 certifications have already been submitted to 
HUD in accordance with the requirements of the NSP1 Notice and the NSP2 
NOFA.

Requirements

    1. Certifications for states and for entitlement communities, 
alternative requirement. Although the NSP3 is being implemented as a 
substantial amendment to the current annual action plan, HUD is 
requiring submission of this alternative set of certifications as a 
conforming change, reflecting alternative requirements and waivers 
under this notice. Each jurisdiction will submit the following 
certifications:
    1. Affirmatively furthering fair housing. The jurisdiction 
certifies that it will affirmatively further fair housing, which means 
that it will conduct an analysis to identify impediments to fair 
housing choice within the jurisdiction, take appropriate actions to 
overcome the effects of any impediments identified through that 
analysis, and maintain records reflecting the analysis and actions in 
this regard.
    2. Anti-displacement and relocation plan. The applicant certifies 
that it has in effect and is following a residential anti-displacement 
and relocation assistance plan.
    3. Anti-lobbying. The jurisdiction must submit a certification with 
regard to compliance with restrictions on lobbying required by 24 CFR 
part 87, together with disclosure forms, if required by that part.
    4. Authority of jurisdiction. The jurisdiction certifies that the 
consolidated plan or abbreviated plan, as applicable, is authorized 
under state and local law (as applicable) and that the jurisdiction 
possesses the legal authority to carry out the programs for which it is 
seeking funding, in accordance with applicable HUD regulations and 
other program requirements.
    5. Consistency with plan. The jurisdiction certifies that the 
housing activities to be undertaken with NSP funds are consistent with 
its consolidated plan or abbreviated plan, as applicable.
    6. Acquisition and relocation. The jurisdiction certifies that it 
will comply with the acquisition and relocation requirements of the 
Uniform Relocation Assistance and Real Property Acquisition Policies 
Act of 1970, as amended (42 U.S.C. 4601), and implementing regulations 
at 49 CFR part 24, except as those provisions are modified by the 
notice for the NSP program published by HUD.
    7. Section 3. The jurisdiction certifies that it will comply with 
section 3 of the Housing and Urban Development Act of 1968 (12 U.S.C. 
1701u), and implementing regulations at 24 CFR part 135.
    8. Citizen participation. The jurisdiction certifies that it is in 
full compliance and following a detailed citizen participation plan 
that satisfies the requirements of Sections 24 CFR 91.105 or 91.115, as 
modified by NSP requirements.
    9. Following a plan. The jurisdiction certifies it is following a 
current consolidated plan (or Comprehensive Housing Affordability 
Strategy) that has been approved by HUD. [Only States and entitlement 
jurisdictions use this certification.]
    10. Use of funds. The jurisdiction certifies that it will comply 
with the Dodd-Frank Wall Street Reform and Consumer Protection Act and 
Title XII of Division A of the American Recovery and Reinvestment Act 
of 2009 by spending 50 percent of its grant funds within 2 years, and 
spending 100 percent within 3 years, of receipt of the grant.
    11. The jurisdiction certifies:
    a. That all of the NSP funds made available to it will be used with 
respect to individuals and families whose

[[Page 64339]]

incomes do not exceed 120 percent of area median income; and
    b. The jurisdiction will not attempt to recover any capital costs 
of public improvements assisted with CDBG funds, including Section 108 
loan guaranteed funds, by assessing any amount against properties owned 
and occupied by persons of low- and moderate-income, including any fee 
charged or assessment made as a condition of obtaining access to such 
public improvements. However, if NSP funds are used to pay the 
proportion of a fee or assessment attributable to the capital costs of 
public improvements (assisted in part with NSP funds) financed from 
other revenue sources, an assessment or charge may be made against the 
property with respect to the public improvements financed by a source 
other than CDBG funds. In addition, with respect to properties owned 
and occupied by moderate-income (but not low-income) families, an 
assessment or charge may be made against the property with respect to 
the public improvements financed by a source other than NSP funds if 
the jurisdiction certifies that it lacks NSP or CDBG funds to cover the 
assessment.
    12. Excessive force. The jurisdiction certifies that it has adopted 
and is enforcing:
    a. A policy prohibiting the use of excessive force by law 
enforcement agencies within its jurisdiction against any individuals 
engaged in nonviolent civil rights demonstrations; and
    b. A policy of enforcing applicable state and local laws against 
physically barring entrance to, or exit from, a facility or location 
that is the subject of such nonviolent civil rights demonstrations 
within its jurisdiction.
    13. Compliance with anti-discrimination laws. The jurisdiction 
certifies that the NSP grant will be conducted and administered in 
conformity with Title VI of the Civil Rights Act of 1964 (42 U.S.C. 
2000d), the Fair Housing Act (42 U.S.C. 3601-3619), and implementing 
regulations.
    14. Compliance with lead-based paint procedures. The jurisdiction 
certifies that its activities concerning lead-based paint will comply 
with the requirements of part 35, subparts A, B, J, K, and R of this 
title.
    15. Compliance with laws. The jurisdiction certifies that it will 
comply with applicable laws.
    2. Certifications for Non-Entitlement Local Governments, 
alternative requirement.
    For non-entitlement local government grantees that do not have 
annual action plans to amend, NSP3 is being implemented through the 
submission of an abbreviated plan under 25 CFR 91.235. HUD is requiring 
submission of this alternative set of certifications as a conforming 
change, reflecting alternative requirements and waivers under this 
notice. Each jurisdiction will submit the following certifications:
    1. Affirmatively furthering fair housing. The jurisdiction 
certifies that it will affirmatively further fair housing.
    2. Anti-displacement and relocation plan. The applicant certifies 
that it has in effect and is following a residential anti-displacement 
and relocation assistance plan.
    3. Anti-lobbying. The jurisdiction must submit a certification with 
regard to compliance with restrictions on lobbying required by 24 CFR 
part 87, together with disclosure forms, if required by that part.
    4. Authority of jurisdiction. The jurisdiction certifies that the 
consolidated plan or abbreviated plan, as applicable, is authorized 
under state and local law (as applicable) and that the jurisdiction 
possesses the legal authority to carry out the programs for which it is 
seeking funding, in accordance with applicable HUD regulations and 
other program requirements.
    5. Consistency with plan. The jurisdiction certifies that the 
housing activities to be undertaken with NSP funds are consistent with 
its consolidated plan or abbreviated plan, as applicable.
    6. Acquisition and relocation. The jurisdiction certifies that it 
will comply with the acquisition and relocation requirements of the 
Uniform Relocation Assistance and Real Property Acquisition Policies 
Act of 1970, as amended (42 U.S.C. 4601), and implementing regulations 
at 49 CFR part 24, except as those provisions are modified by the 
notice for the NSP program published by HUD.
    7. Section 3. The jurisdiction certifies that it will comply with 
section 3 of the Housing and Urban Development Act of 1968 (12 U.S.C. 
1701u), and implementing regulations at 24 CFR part 135.
    8. Citizen participation. The jurisdiction certifies that it is in 
full compliance and following a detailed citizen participation plan 
that satisfies the requirements of Sections 24 CFR 91.105 or 91.115, as 
modified by NSP requirements.
    9. Use of funds. The jurisdiction certifies that it will comply 
with the Dodd-Frank Wall Street Reform and Consumer Protection Act and 
Title XII of Division A of the American Recovery and Reinvestment Act 
of 2009 by spending 50 percent of its grant funds within 2 years, and 
spending 100 percent within 3 years, of receipt of the grant.
    10. The jurisdiction certifies:
    a. That all of the NSP funds made available to it will be used with 
respect to individuals and families whose incomes do not exceed 120 
percent of area median income; and
    b. The jurisdiction will not attempt to recover any capital costs 
of public improvements assisted with CDBG funds, including Section 108 
loan guaranteed funds, by assessing any amount against properties owned 
and occupied by persons of low- and moderate-income, including any fee 
charged or assessment made as a condition of obtaining access to such 
public improvements. However, if NSP funds are used to pay the 
proportion of a fee or assessment attributable to the capital costs of 
public improvements (assisted in part with NSP funds) financed from 
other revenue sources, an assessment or charge may be made against the 
property with respect to the public improvements financed by a source 
other than CDBG funds. In addition, with respect to properties owned 
and occupied by moderate-income (but not low-income) families, an 
assessment or charge may be made against the property with respect to 
the public improvements financed by a source other than NSP funds if 
the jurisdiction certifies that it lacks NSP or CDBG funds to cover the 
assessment.
    11. Excessive force. The jurisdiction certifies that it has adopted 
and is enforcing:
    a. A policy prohibiting the use of excessive force by law 
enforcement agencies within its jurisdiction against any individuals 
engaged in nonviolent civil rights demonstrations; and
    b. A policy of enforcing applicable state and local laws against 
physically barring entrance to, or exit from, a facility or location 
that is the subject of such nonviolent civil rights demonstrations 
within its jurisdiction.
    12. Compliance with anti-discrimination laws. The jurisdiction 
certifies that the NSP grant will be conducted and administered in 
conformity with Title VI of the Civil Rights Act of 1964 (42 U.S.C. 
2000d), the Fair Housing Act (42 U.S.C. 3601-3619), and implementing 
regulations.
    13. Compliance with lead-based paint procedures. The jurisdiction 
certifies that its activities concerning lead-based paint will comply 
with the requirements of part 35, subparts A, B, J, K, and R of this 
title.
    14. Compliance with laws. The jurisdiction certifies that it will 
comply with applicable laws.

[[Page 64340]]

U. Additional NSP3 Requirements--Preferences for Rental Housing and 
Local Hiring

    The NSP3 allocation included statutory language requiring grantees 
to ``establish procedures to create preferences for the development of 
affordable rental housing for properties assisted with NSP3 funds.'' 
HUD is requiring grantees to describe such procedures as part of their 
substantial amendments or abbreviated plans as described in Section 
II.B. above.
    Grantees also ``shall, to the maximum extent feasible, provide for 
the hiring of employees who reside in the vicinity, as such term is 
defined by the Secretary, of projects funded under this section or 
contract with small businesses that are owned and operated by persons 
residing in the vicinity of such projects.'' For the purposes of 
administering this requirement, HUD is adopting the Section 3 
applicability thresholds for community development assistance at 24 CFR 
135.3(a)(3)(ii). Note: The NSP3 local hiring requirement does not 
replace the responsibilities of grantees under Section 3 of the Housing 
and Urban Development Act of 1968 (12 U.S.C. 1701u), and implementing 
regulations at 24 CFR part 135, except to the extent the obligations 
may be in direct conflict.
    For the purposes of NSP3, HUD defines ``vicinity'' as each 
neighborhood identified by the NSP3 grantee as being the areas of 
greatest need. See section II.B.2. Small business means a business that 
meets the criteria set forth in section 3(a) of the Small Business Act. 
See 42 U.S.C. 5302(a)(23).

V. Note on Statutory Limitation on Distribution of Funds

    Section 2304 of HERA and 1479(a)(7)(A) of the Dodd-Frank Act states 
that none of the funds made available under this Title or title IV 
shall be distributed to an organization that has been convicted of a 
violation under Federal law relating to an election for Federal office; 
or an organization that employs applicable individuals. Section 
1479(a)(7)(B) defines applicable individuals.

W. Information Collection Approval Note

    HUD has approval from the Office of Management and Budget (OMB) for 
information collection requirements in accordance with the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501-3520). OMB approval is under OMB 
control number 2506-0165. In accordance with the Paperwork Reduction 
Act, HUD may not conduct or sponsor and a person is not required to 
respond to, a collection of information, unless the collection displays 
a valid control number.

X. Duration of Funding

    The appropriation accounting provisions in 31 U.S.C. 1551-1557, 
added by section 1405 of the National Defense Authorization Act for 
Fiscal Year 1991 (Pub. L. 101-510), limit the availability of certain 
appropriations for expenditure. Such a limitation may not be waived. 
The appropriations acts for NSP1 and NSP3 grants direct that these 
funds be available until expended.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers for grants made 
under NSP are as follows: 14.218; 14.225; and 14.228.

Finding of No Significant Impact

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

Establishment of Formula

    The funding formula set out in Attachment B to this notice was 
established by HUD on August 18, 2010.

    Dated: October 13, 2010.
Mercedes M. M[aacute]rquez,
Assistant Secretary for Community Planning and Development.

Attachments

A--Formula Allocation
B--NSP3 Formula and Allocation of Funds
C--Recommended Green and Sustainable Practices

Attachment A

HUD's Methodology for Allocating the Funds for Neighborhood 
Stabilization Program 1 (NSP1)

    HERA calls for allocating funds ``to States and units of general 
local government with the greatest need, as such need is determined 
in the discretion of the Secretary based on--
    (A) The number and percentage of home foreclosures in each State 
or unit of general local government;
    (B) the number and percentage of homes financed by a subprime 
mortgage related loan in each State or unit of general local 
government; and
    (C) the number and percentage of homes in default or delinquency 
in each State or unit of general local government.''
    It further directs that ``each State shall receive not less than 
0.5 percent of funds''. The allocation formula operates as follows. 
In this formula, the primary data on foreclosure rates, subprime 
loan rates, and rates of loans delinquent or in default come from 
the Mortgage Bankers Association National Delinquency Survey (MBA-
NDS). Because the MBA-NDS may have uneven coverage from state-to-
state in respect to the total number of mortgages reported, the 
total count of mortgages is calculated as the number of owner-
occupied mortgages from the 2006 American Community Survey increased 
with data from the Home Mortgage Disclosure Act to capture the 
proportion of total mortgages made within a state made to investors 
between 2004 and 2006. The first step of the allocation is to make a 
``statewide'' allocation using the following formula:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Statewide Allocation = $3.92
 billion *
{[0.70 * (State's number of          (Percent of all loans in state to
 foreclosure starts in last 6         enter foreclosure last 6 quarters)
 quarters) *.                         +
National number of foreclosure       Percent of all loans in nation to
 starts in last 6 quarters.           enter foreclosure last 6 quarters
0.15 * (State's number of subprime   (Percent of all loans in state
 loans) *.                            subprime) +
National number of subprime loans..  Percent of all loans in nation
                                      subprime
0.10 * (State's number of loans in   (Percent of all loans in state in
 default (90+ days delinquent).*      default) +
National number of loans in default  Percent of all loans in nation in
                                      default
0.05 * (State's number of loans 60   Percent of all loans in state 60 to
 to 89 days delinquent).*             89 days delinquent)] *
National number of loans 60 to 89    National percent of all loans 60 to
 days delinquent.                     89 days delinquent
------------------------------------------------------------------------
 (Pct of all addresses in state vacant in Census Tracts where more than
          40% of the 2004 to 2006 loans were high cost){time}
 Pct of all addresses in nation vacant in Census Tracts where more than
              40% of the 2004 to 2006 loans were high cost
------------------------------------------------------------------------


[[Page 64341]]

    This formula allocates 70 percent of the funds based on the 
number and percent of foreclosures, 15 percent for subprime loans, 
10 percent for loans in default (delinquent 90 days or longer), and 
5 percent for loans delinquent 60 to 90 days. The higher weight on 
foreclosures is based on the emphasis the statute places on 
targeting foreclosed homes. The percentage adjustments, the rate of 
a problem in a state relative to the national rate of a problem, are 
restricted such that a state's allocation based on its proportional 
share of a problem cannot be increased or decreased by more than 30 
percent.
    Because HERA specifically indicates that the funds are needed 
for the ``redevelopment of abandoned and foreclosed upon homes and 
residential properties,'' HUD has included a variable to proxy where 
abandonment of homes due to foreclosure is more likely, specifically 
each state's rate of vacant residential addresses in neighborhoods 
with a high proportion (more than 40 percent) of loans in 2004 to 
2006 that were high cost. Information on vacant addresses is based 
on United States Postal Service data as of June 30, 2008 aggregated 
by HUD to the Census Tract level. The residential vacancy adjustment 
factor reflects a state's vacancy rate relative to the national 
average and cannot increase or decrease a state's proportional share 
of the allocation based on foreclosures, subprime loans, and 
delinquencies and defaults by more than 10 percent.
    Finally, if a statewide allocation is less than $19.6 million, 
the statewide grant is increased to $19.6 million. Because this 
approach will result in a total allocation in excess of 
appropriation, all grant amounts above $19.6 million are reduced 
pro-rata to make the total allocation equal to the total 
appropriation.
    From each statewide allocation, a substate allocation is made as 
follows:
    <bullet> Each state government is allocated $19.6 million
    <bullet> If the statewide allocation is more than $19.6 million, 
the remaining funds are allocated to FY 2008 CDBG entitlement 
cities, urban counties, and non-entitlement balance of state 
proportional to relative need.
    <bullet> If a local government receives less than $2 million 
under this sub-allocation, their grant is rolled up into the state 
government grant.
    Note that HUD has determined that HERA's direction that a 
minimum of $19.6 million be allocated to the state means that a 
minimum grant must be provided to each state government of $19.6 
million. As a result, this approach provides state governments with 
proportionally more funding than their estimated need. As such, 
state governments should use their best judgment to serve both those 
areas not receiving a direct grant and those areas that do receive a 
direct grant, making sure that the total of all funds in the state 
are going proportionally more to those places (as prescribed by 
HERA):
    <bullet> ``With the greatest percentage of home foreclosures;
    <bullet> With the highest percentage of homes financed by a 
subprime mortgage related loan; and
    <bullet> Identified by the State or unit of general local 
government as likely to face a significant rise in the rate of home 
foreclosures.''
    For the amount of funds above each state's $19.6 million, the 
remaining funds are allocated among the entitlement communities and 
non-entitlement balances using the following formula:

----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                                    Local Allocation = (Statewide Allocation-
                                     $19,600,000) *
                                     [(Local estimated number of foreclosure
                                     starts in last 6 quarters) *
                                     State total number of foreclosure starts
                                     in last 6 quarters
                                     Local vacancy rate in Census Tracts with
                                     more than 40% of the loans High-cost)]
                                     State vacancy rate in Census Tracts with
                                     more than 40% of the loans High-cost
----------------------------------------------------------------------------------------------------------------

Where: The residential vacancy rate adjustment cannot increase or 
reduce a local jurisdiction's allocation by more than 30 percent and 
the estimated number of foreclosures is calculated based on a 
predicted foreclosure rate times the estimated number of mortgages 
in a community.
    HUD analysis shows that 75 percent of the variance between 
states on foreclosure rates can be explained by three variables 
available from public data:
    <bullet> Office of Federal Housing Enterprise Oversight (OFHEO) 
data on change in home values as of June 2008 compared to peak home 
value since 2000.
    <bullet> Percent of all loans made between 2004 and 2006 that 
are high cost as reported in the Home Mortgage Disclosure Act 
(HMDA).
    <bullet> Unemployment rate as of June 2008 (from Bureau of Labor 
Statistics).
    Because these three variables are publicly available for all 
CDBG eligible communities and they are good predictors of 
foreclosure risk, they are used in a model to calculate the 
estimated number of foreclosures in each jurisdiction within a 
state. The formula used is as follows:

Predicted Foreclosure Rate = -2.211 -(0.131 x Percent change in MSA 
OFHEO current price relative to the maximum in past 8 years)
+ (0.152*Percent of total loans made between 2004 and 2006 that are 
high cost)
+ (0.392*Percent unemployed in the place our county in June 2008).

    This predicted foreclosure rate is then multiplied times the 
estimated number of mortgages within a jurisdiction (number of HMDA 
loans made between 2004 and 2006 times the ratio of ACS 2006 data on 
total mortgages in state/HMDA loans in state). This ``estimated 
number of mortgages in the jurisdiction'' is further adjusted such 
that the estimated number of foreclosures from the model will equal 
the total foreclosure starts in the state from the Mortgage Bankers 
Association National Delinquency Survey.
    As noted above, for entitlement cities and urban counties that 
would receive an NSP allocation of less than $2 million, the funds 
are allocated to the state grantee. The District of Columbia and the 
four Insular Areas receive direct allocations and are not subject to 
the minimum grant threshold.
    Because this funding is one-time funding and the eligible 
activities under the program are different enough from the regular 
program, HUD believes that a grantee must receive a minimum amount 
of $2 million to have adequate staffing to properly administer the 
program effectively. In addition, fewer grants will allow HUD staff 
to more effectively monitor grantees to ensure proper implementation 
of the program and reduce the risk for fraud, waste, and abuse.

Attachment B

HUD's Methodology for Allocating the Funds for Neighborhood 
Stabilization Program 3 (NSP3)

 Neighborhood Stabilization Program (NSP3) Funding Under Dodd-Frank Wall
                Street Reform and Consumer Protection Act
------------------------------------------------------------------------
             State                       Grantee            NSP3 Grant
------------------------------------------------------------------------
Alaska.........................  State of Alaska........      $5,000,000
Alabama........................  State of Alabama.......       5,000,000
                                 Birmingham.............       2,576,151
                                                         ---------------
                                   Alabama Total........       7,576,151
Arkansas.......................  State of Arkansas......       5,000,000
Arizona........................  Avondale City..........       1,224,903
                                 State of Arizona.......       5,000,000

[[Page 64342]]

 
                                 Chandler...............       1,332,011
                                 Glendale...............       3,718,377
                                 Maricopa County........       4,257,346
                                 Mesa...................       4,019,457
                                 Mohave County..........       1,990,744
                                 Peoria City............       1,198,780
                                 Phoenix................      16,053,525
                                 Pinal County...........       3,168,315
                                 Surprise City..........       1,329,844
                                 Tucson.................       2,083,771
                                                         ---------------
                                   Arizona Total........      45,377,073
California.....................  Apple Valley...........       1,463,014
                                 Bakersfield............       3,320,927
                                 State of California....       7,777,019
                                 Compton................       1,436,300
                                 Contra Costa County....       1,871,294
                                 Corona.................       1,317,310
                                 Fontana................       2,695,735
                                 Fresno.................       3,547,219
                                 Fresno County..........       2,739,766
                                 Hemet..................       1,360,197
                                 Hesperia...............       1,785,047
                                 Imperial County........       1,708,780
                                 Indio City.............       1,092,071
                                 Kern County............       5,202,037
                                 Lancaster..............       2,364,566
                                 Long Beach.............       1,567,935
                                 Los Angeles............       9,875,577
                                 Los Angeles County.....       9,532,569
                                 Madera County..........       1,659,017
                                 Merced.................       1,196,182
                                 Merced County..........       2,705,877
                                 Modesto................       2,951,549
                                 Monterey County........       1,284,794
                                 Moreno Valley..........       3,687,789
                                 Oakland................       2,070,087
                                 Ontario................       1,872,853
                                 Orange County..........       1,004,948
                                 Palmdale...............       2,310,023
                                 Perris City............       1,342,449
                                 Pomona.................       1,235,629
                                 Rialto.................       1,936,370
                                 Richmond...............       1,153,172
                                 Riverside..............       3,202,152
                                 Riverside County.......      14,272,400
                                 Sacramento.............       3,762,329
                                 Sacramento County......       4,595,671
                                 San Bernardino.........       3,277,401
                                 San Bernardino County..      10,438,181
                                 San Joaquin County.....       4,398,543
                                 Santa Ana..............       1,464,113
                                 Solano County..........       1,622,757
                                 Stanislaus County......       4,175,947
                                 Stockton...............       4,280,994
                                 Tulare County..........       2,845,529
                                 Vallejo................       1,744,593
                                 Victorville............       2,159,937
                                                         ---------------
                                   California Total.....     149,308,651
Colorado.......................  Adams County...........       1,997,322
                                 Aurora.................       2,445,282
                                 State of Colorado......       5,098,309
                                 Colorado Springs.......       1,420,638
                                 Denver.................       2,700,279
                                 Greeley................       1,203,745
                                 Pueblo.................       1,460,506
                                 Weld County............       1,023,188
                                                         ---------------
                                   Colorado Total.......      17,349,270
Connecticut....................  Bridgeport.............       1,215,150

[[Page 64343]]

 
                                 State of Connecticut...       5,000,000
                                 Hartford...............       1,029,926
                                 New Haven..............       1,041,579
                                 Waterbury..............       1,036,101
                                                         ---------------
                                   Connecticut Total....       9,322,756
District of Columbia...........  Washington, DC.........       5,000,000
Delaware.......................  State of Delaware......       5,000,000
Florida........................  Boynton Beach..........       1,168,808
                                 Brevard County.........       3,032,850
                                 Broward County.........       5,457,553
                                 Cape Coral.............       3,048,214
                                 Charlotte County.......       2,022,962
                                 Citrus County..........       1,005,084
                                 Clearwater.............       1,385,801
                                 Collier County.........       3,884,165
                                 Coral Springs..........       1,657,845
                                 Davie..................       1,171,166
                                 Daytona Beach..........       1,127,616
                                 Deerfield Beach........       1,183,897
                                 Deltona................       1,964,066
                                 Escambia County........       1,210,487
                                 State of Florida.......       8,511,111
                                 Ft Lauderdale..........       2,145,921
                                 Ft Myers...............       1,539,941
                                 Hernando County........       1,953,975
                                 Hialeah................       2,198,194
                                 Hillsborough County....       8,083,062
                                 Hollywood..............       2,433,001
                                 Indian River County....       1,500,428
                                 Jacksonville-Duval            7,102,937
                                  County.
                                 Kissimmee..............       1,042,299
                                 Lake County............       3,199,585
                                 Lakeland...............       1,303,139
                                 Lauderhill.............       1,500,609
                                 Lee County.............       6,639,174
                                 Manatee County.........       3,321,893
                                 Margate................       1,148,877
                                 Marion County..........       4,589,714
                                 Martin County..........       1,563,770
                                 Melbourne..............       1,257,986
                                 Miami..................       4,558,939
                                 Miami Beach............       1,475,088
                                 Miami Gardens City.....       1,940,337
                                 Miami-Dade County......      20,036,303
                                 Miramar................       2,321,827
                                 North Miami............       1,173,374
                                 Orange County..........      11,551,158
                                 Orlando................       3,095,137
                                 Osceola County.........       3,239,646
                                 Palm Bay...............       1,764,032
                                 Palm Beach County......      11,264,172
                                 Palm Coast City........       1,375,071
                                 Pasco County...........       5,185,778
                                 Pembroke Pines.........       2,330,542
                                 Pinellas County........       4,697,519
                                 Plantation.............       1,216,427
                                 Polk County............       5,443,116
                                 Pompano Beach..........       1,500,572
                                 Port St Lucie..........       3,515,509
                                 Sanford................       1,037,697
                                 Sarasota...............       1,038,811
                                 Sarasota County........       3,949,541
                                 Seminole County........       3,995,178
                                 St Petersburg..........       3,709,133
                                 St. Lucie County.......       1,947,657
                                 Sunrise................       1,775,162
                                 Tamarac................       1,427,857
                                 Tampa..................       4,691,857
                                 Titusville.............       1,005,731
                                 Volusia County.........       3,670,516

[[Page 64344]]

 
                                 West Palm Beach........       2,147,327
                                                         ---------------
                                   Florida Total........     208,437,144
Georgia........................  Atlanta................       4,906,758
                                 Augusta-Richmond County       1,161,297
                                 Carroll County.........       1,190,390
                                 Clayton County.........       3,796,167
                                 Cobb County............       2,415,784
                                 Columbus-Muscogee             1,128,174
                                  County.
                                 Dekalb County..........       5,233,105
                                 Douglas County.........       1,628,471
                                 Fulton County..........       3,094,885
                                 State of Georgia.......      18,679,977
                                 Gwinnett County........       2,065,581
                                 Henry County...........       1,217,736
                                 Macon..................       1,503,897
                                 Paulding County........       1,372,214
                                 Savannah...............       1,027,553
                                                         ---------------
                                   Georgia Total........      50,421,988
Hawaii.........................  State of Hawaii........       5,000,000
Iowa...........................  State of Iowa..........       5,000,000
Idaho..........................  State of Idaho.........       5,000,000
Illinois.......................  Chicago................      15,996,360
                                 Cook County............       7,776,324
                                 State of Illinois......       5,000,000
                                 Lake County............       1,370,421
                                                         ---------------
                                   Illinois Total.......      30,143,105
Indiana........................  Anderson...............       1,219,200
                                 Elkhart................       1,022,717
                                 Elkhart County.........       1,193,194
                                 Fort Wayne.............       2,374,450
                                 Gary...................       2,717,859
                                 Hammond................       1,243,934
                                 State of Indiana.......       8,235,625
                                 Indianapolis...........       8,017,557
                                 Kokomo.................       1,014,327
                                 Lake County............       1,613,168
                                 Muncie.................       1,148,363
                                 South Bend.............       1,708,707
                                                         ---------------
                                   Indiana Total........      31,509,101
Kansas.........................  Kansas City............       1,137,796
                                 State of Kansas........       5,000,000
                                                         ---------------
                                   Kansas Total.........       6,137,796
Kentucky.......................  Commonwealth of               5,000,000
                                  Kentucky.
Louisiana......................  State of Louisiana.....       5,000,000
Massachusetts..................  Commonwealth of               5,000,000
                                  Massachusetts.
                                 Springfield............       1,197,000
                                 Worcester County.......       1,190,994
                                                         ---------------
                                   Massachusetts Total..       7,387,994
Maryland.......................  State of Maryland......       5,000,000
                                 Prince George's County.       1,802,242
                                                         ---------------
                                   Maryland Total.......       6,802,242
Maine..........................  State of Maine.........       5,000,000
Michigan.......................  Dearborn...............       1,027,354
                                 Detroit................      21,922,710
                                 Flint..................       3,076,522
                                 Genesee County.........       2,663,219
                                 Grand Rapids...........       1,378,788
                                 Jackson County.........       1,162,482
                                 Lansing................       1,162,508
                                 Macomb County..........       2,536,817
                                 State of Michigan......       5,000,000
                                 Muskegon County........       1,071,900
                                 Oakland County.........       2,080,700
                                 Pontiac................       1,410,621

[[Page 64345]]

 
                                 Saginaw................       1,242,318
                                 Southfield.............       1,084,254
                                 St. Clair County.......       1,129,355
                                 Warren.................       1,735,633
                                 Wayne County...........       7,839,293
                                                         ---------------
                                   Michigan Total.......      57,524,473
Minnesota......................  Anoka County...........       1,226,827
                                 Hennepin County........       1,469,133
                                 Minneapolis............       2,671,275
                                 State of Minnesota.....       5,000,000
                                 St Paul................       2,059,877
                                                         ---------------
                                   Minnesota Total......      12,427,113
Missouri.......................  Kansas City............       1,823,888
                                 State of Missouri......       5,000,000
                                 St Louis...............       3,472,954
                                 St. Louis County.......       2,813,762
                                                         ---------------
                                   Missouri Total.......      13,110,604
Mississippi....................  State of Mississippi...       5,000,000
Montana........................  State of Montana.......       5,000,000
North Carolina.................  State of North Carolina       5,000,000
North Dakota...................  State of North Dakota..       5,000,000
Nebraska.......................  State of Nebraska......       5,000,000
                                 Omaha..................       1,183,085
                                                         ---------------
                                   Nebraska Total.......       6,183,085
New Hampshire..................  State of New Hampshire.       5,000,000
New Jersey.....................  Essex County...........       1,851,984
                                 Newark.................       2,018,637
                                 State of New Jersey....       5,000,000
                                 Paterson...............       1,196,877
                                 Union County...........       1,574,051
                                                         ---------------
                                   New Jersey Total.....      11,641,549
New Mexico.....................  State of New Mexico....       5,000,000
Nevada.........................  Clark County...........      16,156,114
                                 North Las Vegas........       4,097,147
                                 Henderson..............       3,901,144
                                 Las Vegas..............      10,450,623
                                 State of Nevada........       5,000,000
                                 Reno...................       1,973,724
                                 Washoe County..........       1,735,918
                                                         ---------------
                                   Nevada Total.........      43,314,669
New York.......................  Islip Town.............       1,429,561
                                 Nassau County..........       2,116,070
                                 New York...............       9,787,803
                                 State of New York......       5,000,000
                                 Suffolk County.........       1,501,506
                                                         ---------------
                                   New York Total.......      19,834,940
Ohio...........................  Akron..................       2,674,298
                                 Butler County..........       1,327,123
                                 Canton.................       1,233,756
                                 Cincinnati.............       3,160,661
                                 Clark County...........       1,105,306
                                 Cleveland..............       6,793,290
                                 Columbus...............       4,843,460
                                 Cuyahoga County........       2,551,533
                                 Dayton.................       3,115,780
                                 East Cleveland.........       1,068,142
                                 Euclid.................       1,031,230
                                 Hamilton County........       1,469,242
                                 Lorain County..........       1,619,474
                                 Montgomery County......       1,145,712
                                 State of Ohio..........      11,795,818
                                 Richland County........       1,022,278
                                 Toledo.................       3,591,715
                                 Trumbull County........       1,143,889

[[Page 64346]]

 
                                 Youngstown.............       1,096,328
                                                         ---------------
                                   Ohio Total...........      51,789,035
Oklahoma.......................  State of Oklahoma......       5,000,000
Oregon.........................  State of Oregon........       5,000,000
Pennsylvania...................  Commonwealth of               5,000,000
                                  Pennsylvania.
Puerto Rico....................  Commonwealth of Puerto        5,000,000
                                  Rico.
Rhode Island...................  Providence.............       1,309,231
                                 State of Rhode Island..       5,000,000
                                                         ---------------
                                   Rhode Island Total...       6,309,231
South Carolina.................  State of South Carolina       5,615,020
                                                         ---------------
                                   South Carolina Total.       5,615,020
South Dakota...................  State of South Dakota..       5,000,000
Tennessee......................  Memphis................       5,195,848
                                 State of Tennessee.....       5,000,000
                                                         ---------------
                                   Tennessee Total......      10,195,848
Texas..........................  Dallas.................       2,356,962
                                 Dallas County..........       1,364,426
                                 Harris County..........       1,925,917
                                 Hidalgo County.........       1,716,924
                                 Houston................       3,389,035
                                 State of Texas.........       7,284,978
                                                         ---------------
                                   Texas Total..........      18,038,242
Utah...........................  State of Utah..........       5,000,000
Virginia.......................  Richmond...............       1,254,970
                                 Commonwealth of               5,000,000
                                  Virginia.
                                                         ---------------
                                   Virginia Total.......       6,254,970
Vermont........................  State of Vermont.......       5,000,000
Washington.....................  State of Washington....       5,000,000
Wisconsin......................  Milwaukee..............       2,687,949
                                 State of Wisconsin.....       5,000,000
                                                         ---------------
                                   Wisconsin Total......       7,687,949
West Virginia..................  State of West Virginia.       5,000,000
Wyoming........................  State of Wyoming.......       5,000,000
Insular Areas..................  .......................         300,000
                                                         ---------------
                                    Total...............     970,000,000
------------------------------------------------------------------------

Overview

    The Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010 provided an additional $1 billion for the Neighborhood 
Stabilization Program (NSP) that was originally established under 
the Housing and Economic Recovery Act of 2008.
    The statute calls for allocating funds to States and local 
governments with the greatest need, as determined by:
    (A) ``The number and percentage of home foreclosures in each 
State or unit of general local government;
    (B) ``The number and percentage of homes financed by a subprime 
mortgages in each State or unit of general local government; and
    (C) ``The number and percentage of homes in default or 
delinquency in each State or unit of general local government.''
    The statute also requires that a minimum of 0.5 percent of the 
appropriation, $5 million be provided to each state.
    The Department has determined that for NSP3, the states and 
local governments with the greatest need for neighborhood 
stabilization funding are those communities that have high numbers 
of foreclosed and/or vacant properties in the neighborhoods with the 
highest concentrations of foreclosures, delinquent loans, and 
subprime loans. The basic formula allocates funds based on the 
number of foreclosures and vacancies in the 20 percent of U.S. 
neighborhoods (Census Tracts) with the highest rates of homes 
financed by a subprime mortgage, are delinquent, or are in 
foreclosure. This basic allocation is adjusted to ensure that every 
state receives a minimum of $5 million. The net result is that these 
funds are highly targeted to communities with the most severe 
neighborhood problems associated with the foreclosure crisis.

Estimating Greatest Need

    To target the funds to States and local communities with the 
greatest need, HUD estimated the number of loans 90 days delinquent 
or in foreclosure for each Census Tract in America. This estimate 
was based on a model that was comprised of three factors that 
explain most foreclosures and delinquent loans (see note 1):
    <bullet> Rate of Subprime Loans. This is measured with HMDA data 
on high cost and high leverage loans made between 2004 and 2007. 
These data are available at the Census Tract (neighborhood) level.
    <bullet> Increase in Unemployment Rate between March 2005 and 
March 2010. These data are from the BLS Local Area Unemployment 
Statistics, at the city and county level.
    <bullet> Fall in Home Value from Peak to Trough. Home value data 
at the Metropolitan Area level is available quarterly through March 
2010 from the Federal Housing Finance Agency Home Price Index.
    In addition to wanting to capture loans that are currently 
delinquent or in the foreclosure process, HUD sought to capture the 
aggregate impact of the foreclosure crisis on individual 
neighborhoods between 2007 and 2010. To do this, HUD estimated for 
each neighborhood the number of foreclosure starts between January 
2007 and March 2010 as well as the number of foreclosure

[[Page 64347]]

completions between January 2007 and June 2010 (see note 2). Each 
neighborhood was assigned the larger of the two estimates.
    Finally, HUD has administrative data from the United States 
Postal Service on addresses not picking up mail for 90 days or 
longer. These data are very good current indicators of neighborhood 
stress from vacant housing. This number is adjusted using Census 
2000 tract level data to remove vacant vacation properties from the 
count.

The Formula

    Using the estimated rate of loans in foreclosure or delinquent, 
HUD identified the 20 percent of neighborhoods likely to be most 
distressed. This equates to an estimated serious delinquency rate 
(90 days delinquent or in foreclosure) of greater than 17.8 percent. 
Using the methodology described above, the national rate was 
estimated at 8.9 percent.\1\
---------------------------------------------------------------------------

    \1\ This less than the Mortgage Bankers Association National 
Delinquency Survey rate of 9.54 percent for March 2010 and slightly 
more than the McDash Analytics rate of 8.39 percent as of July 2010.
---------------------------------------------------------------------------

    For each place and balance of county in the United States we add 
up only from the 20 percent of neighborhoods with the greatest need 
the number of foreclosed homes between 2007 and 2010 and separately 
the number units 90 days or more vacant in March 2010.
    This ``jurisdiction level'' file is then used to run a formula 
to allocate the funds available, $969,700,000. Sixty percent of 
these funds are allocated based on each jurisdiction's share of 
foreclosures and 40 percent of the funds are allocated based on each 
jurisdiction's share of vacancies.

Minimum Grant Threshold

    If a place gets less than HUD's established minimum grant 
threshold of $1 million, its grant is rolled up into the county 
grant. If the county grant is less than the minimum grant threshold 
of $1 million, its grant is rolled up into the state grant.

State Minimum Grant of $5 million

    For any state government that would receive less than $5 
million, its grant is increased to $5 million with all grant amounts 
above the minimum grant threshold reduced on a pro-rata basis to 
only allocate the amounts available.
    Note 1: Identifying Census Tracts with High Rates of 
Foreclosures, Delinquencies, and Subprime Loans:
    To estimate which neighborhoods are likely to have high rates of 
foreclosures, delinquencies, and subprime loans, HUD used a July 
2010 extract of county level serious delinquency rates from McDash 
Analytics to develop a predictive model using public data that was 
available for every Census Tract in the United States. The 
predictive model, which was weighted on number of mortgages in each 
county, was able to predict most of the variance between counties in 
their serious delinquency rate (R-square of 0.821). The model used 
is as follows:

0.523 (intercept)
+0.476 Unemployment Change 3/2005 to 3/2010 (BLS LAUS)
-0.176 Rate of low cost high leverage loans 2004 to 2007 (HMDA)
+0.521 Rate of high cost high leverage loans 2004 to 2007 (HMDA)
+0.090 Rate of high cost low leverage loans 2004 to 2007 (HMDA)
-0.188 Fall in Home Value Since Peak (FHFA Metro and Non-Metro Area)

    The predictive rate of seriously delinquent mortgages was 
multiplied times the number of loans made between 2004 and 2007 in a 
Census Tract to estimate the number of seriously delinquent loans in 
a Census Tract.
    Note 2: Calculating Number of Foreclosures at the Neighborhood 
Level:
    To estimate the number of homes in a neighborhood that have 
completed, or are at risk of becoming Real Estate Owned in a Census 
Tract, was done by allocating the statewide total of the greater of 
the sum of all foreclosure completions between January 2007 and June 
2010 (from RealtyTrac) or the sum of all foreclosure starts between 
January 2007 and March 2010 (from the Mortgage Bankers Association) 
based on each Tracts share of a states estimated number of seriously 
delinquent loans. The estimated number of seriously delinquent loans 
was calculated by multiplying the estimated rate of seriously 
delinquent loans times the number of mortgages made between 2004 and 
2007 (from Home Mortgage Disclosure Act data).

Attachment C

NSP Recommended Energy Efficient and Environmentally-Friendly Green 
Elements

    HUD strongly recommends that your proposed NSP3 program 
incorporate the following energy efficient and environmentally-
friendly Green elements. No specific element is required. HUD 
encourages thoughtful, achievable consideration and implementation 
of energy efficient and environmentally friendly elements inside 
your NSP3 program.
    HUD is providing the guidance below because the Department has 
become aware during the implementation of NSP1 that many grantees 
are not aware that many of their common community development 
practices, such as trying to help police and teachers live in the 
neighborhood in which they work, are also considered sustainable and 
environmentally friendly. Similarly, most affordable housing units 
are also smaller and can easily be made more energy efficient than 
larger units. The increased energy efficiency then serves to 
increase the long-term affordability of the units.

Transit Accessibility

    Select NSP target areas that are transit accessible, for example 
those that are in a census tract with convenient bus service (local 
bus service every 20 minutes during rush hour or an express commuter 
bus); or bordering a census tract with a passenger rail stop or 
station (including, for example, commuter rail, subway, light rail, 
and streetcars).

Green Building Standards

    Comply with the required NSP rehabilitation standards and also 
fund new construction and gut rehabilitation activities that will 
exceed the Energy Star for New Homes standard. Ensure that moderate 
rehabilitation or energy retrofits will purchase only Energy Star 
products and appliances. You may go further and require NSP homes to 
achieve an established environmental or energy efficiency standard 
such as Green Communities or equivalent.

Re-Use Cleared Sites

    Re-use cleared sites in accordance with a comprehensive or 
neighborhood plan. Plan to re-use all demolition sites within the 
term of your NSP grant as replacement housing, for use as a 
community resource, or to provide an environmental function. 
Examples include community gardens, pocket parks, or floodplain 
impoundment areas.

Deconstruction

    Deconstruction means salvaging and re-using materials resulting 
from demolition activities. It recycles building materials, and 
provides employment.

Renewable Energy

    1. Passive Solar. Orient the building to make the greatest use 
of passive solar heating and cooling.
    2. Photovoltaic-ready. Site, design, engineer and wire the 
development to accommodate installation of photovoltaic panels in 
the future.

Sustainable Site Design

    1. Transportation Choices. Locate projects within a one-quarter 
mile of at least two, or one-half mile of at least four community 
and retail facilities.
    2. Connections to Surrounding Neighborhoods. Provide three 
separate connections from the development to sidewalks or pathways 
in surrounding neighborhoods.
    3. Protecting Environmental Resources. Do not locate the project 
within 100 feet of wetlands; 1,000 feet of a critical habitat; or on 
steep slopes, prime farmland or park land.
    4. Erosion and Sediment Control. Implement EPA's Best Management 
Practices for erosion and sedimentation control during construction.
    5. Sustainable Landscaping. Select native trees and plants that 
are appropriate to the site's soils and microclimate.
    6. Energy Efficient Landscaping. Locate trees and plants to 
provide shading in the summer and allow for heat gain in the winter.

Water Conservation

    1. Efficient Irrigation. Install low volume, non-spray 
irrigation system (such as drip irrigation, bubblers, or soaker 
hose).

Energy Efficient Materials

    1. Durable Materials. Use materials that last longer than 
conventional counterparts such as stone, brick or concrete.
    2. Resource Efficient Materials. Use layouts and advanced 
building techniques that reduce the amount of homebuilding material 
required.
    3. Heat Absorbing Materials. Use materials that retain solar 
heat in winter and remain cool in summer.
    4. Solar-Reflective Paving. Use light-colored/high-albedo 
materials and/or open-

[[Page 64348]]

grid pavement with a minimum Solar Reflective index of 0.6 over at 
least 30 percent of the site's hardscaped areas.
    5. Local Source Materials. Use materials from local sources that 
are close to the job site.
    6. Green Roofing. Use Energy Star-compliant and high-emissive 
roofing, and/or install a Green (vegetated) roof for at least 50 
percent of the roof area; or a combination of high-albedo and 
vegetated roof covering 75 percent of the roof area.

Healthy Homes

    1. Green Label Certified Floor Covering. Do not install carpets 
in basements, entryways, laundry rooms, bathrooms or kitchens; if 
using carpet, use the Carpet and Rug Institute's Green Label 
certified carpet and pad.
    2. Healthy Flooring Materials: Alternatives. Use non-vinyl, non-
carpet floor coverings in all rooms.
    3. Healthy Flooring Materials: Reducing Dust. Install a whole-
house vacuum system with high-efficiency particulate air filtration.
    4. Sealing Joints. Seal all wall, floor and joint penetrations 
to prevent pest entry; provide rodent and corrosion proof screens 
(e.g., copper or stainless steel mesh) for large openings.
    5. Termite-Resistant Materials. Use termite-resistant materials 
in areas known to be infested.
    6. Tub and Shower Enclosures: Moisture Prevention. Use one-piece 
fiberglass or similar enclosure or, if using any form of grouted 
material, use backing materials such as cement board, fiber cement 
board, fiber-glass reinforced board or cement plaster.
    7. Green Maintenance Guide. Provide a guide for homeowners and 
renters that explains the intent, benefits, use and maintenance of 
Green building features, and encourages additional Green activities 
such as recycling, gardening and use of healthy cleaning materials.
    8. Resident Orientation. Provide a walk-through and orientation 
to the homeowner or new tenants.

[FR Doc. 2010-26292 Filed 10-18-10; 8:45 am]
BILLING CODE 4210-67-P