I
105TH CONGRESS
1ST SESSION
H. R. 1508
To reform the multifamily rental assisted housing programs of the Federal
Government and maintain the affordability and availability of low-income
housing, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
MAY 1, 1997
Ms. PRYCE of Ohio (for herself and Mr. MORAN of Virginia) introduced the
following bill; which was referred to the Committee on Banking and Fi-
nancial Services, and in addition to the Committee on Ways and Means,
for a perod to be subsequently determined by the Speaker, in each case
for consideration of such provisions as fall within the jurisdiction of the
committee concerned
A BILL
To reform the multifamily rental assisted housing programs
of the Federal Government and maintain the afford-
ability and availability of low-income housing, and for
other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Multifamily Housing Restructuring and Affordability Act
of 1997’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title and table of contents.
Sec. 2. Findings and purposes.
Sec. 3. Definitions.
Sec. 4. Authority of participating administrative entities.
Sec. 5. Mortgage restructuring and rental assistance sufficiency plans.
Sec. 6. Exemptions from restructuring.
Sec. 7. Section 8 renewals and long-term affordability commitment by owner of
project.
Sec. 8. Prohibition on restructuring.
Sec. 9. Restructuring tools.
Sec. 10. Deferral of inclusion in income on debt restructuring or forgiveness.
Sec. 11. Management standards.
Sec. 12. Monitoring of compliance.
Sec. 13. Review.
Sec. 14. GAO audit and review.
Sec. 15. Regulations.
Sec. 16. Technical and conforming amendments.
Sec. 17. Treatment of FHA multifamily housing restructuring demonstration.
Sec. 18. Termination of authority.
SEC. 2. FINDINGS AND PURPOSES.
(a) FINDINGS.—The Congress finds that—
(1) there exists throughout the Nation a need
for decent, safe, and affordable housing;
(2) it is currently estimated that—
(A) the insured multifamily housing port-
folio of the Federal Housing Administration
consists of 14,000 rental properties, having an
aggregate unpaid principal mortgage balance of
$38,000,000,000; and
(B) approximately 10,000 of these prop-
erties contain housing units that are assisted
with project-based rental assistance under sec-
ment and ownership regulations and require-
ments; and
(C) transfer and share many of the loan
and contract administration functions and re-
sponsibilities of the Secretary with capable
State, local, and other entities.
(b) PURPOSES.—The purposes of this Act are—
(1) to preserve low-income rental housing af-
fordability and availability while reducing the long-
term costs of project-based rental assistance;
(2) to reform the design and operation of Fed-
eral rental housing assistance programs adminis-
tered by the Secretary to promote greater multifam-
ily housing project operating and cost efficiencies;
(3) to encourage owners of eligible multifamily
housing projects to restructure their FHA-insured
mortgages and project-based rental assistance con-
tracts in a manner which is consistent with this Act
before the year in which the contract expires;
(4) to streamline and improve federally insured
and assisted multifamily housing project oversight
and administration;
(5) to resolve the problems affecting financially
and physically troubled federally insured and as-
sisted multifamily housing projects through coopera-
tion with residents, owners, State and local govern-
ments, and other interested entities and individuals;
and
(6) to provide additional enforcement tools for
use against those who violate agreements and pro-
gram requirements, to ensure that the public inter-
est is safeguarded and that Federal multifamily
housing programs serve their intended purposes.
SEC. 3. DEFINITIONS.
For purposes of this Act, the following definitions
shall apply:
(1) 
COMPARABLE
PROPERTIES.—The 
term
‘‘comparable properties’’ means, with respect to an
eligible multifamily housing project, properties that
are—
(A) similar to the eligible multifamily
housing project in neighborhood (including risk
of crime), location, access, street appeal, age,
property size, apartment mix, physical configu-
ration, property amenities, in-apartment rental
amenities, and utilities;
(B) unregulated by contractual encum-
brances or local rent control laws; and
(C) occupied predominantly by renters who
receive no rent supplements or rental assist-
ance.
(2) 
ELIGIBLE
MULTIFAMILY
HOUSING
PROJECT.—The term ‘‘eligible multifamily housing
project’’ means a property consisting of more than
4 dwelling units, which—
(A) has rents that, on an average per unit
or per room basis, exceed the fair market rent
(as such term is defined in this section);
(B) is covered in whole or in part by a con-
tract for project-based assistance under—
(i) the new construction and substan-
tial rehabilitation program under section
8(b)(2) of the United States Housing Act
of 1937 (as in effect before October 1,
1983);
(ii) the property disposition program
under section 8(b) of the United States
Housing Act of 1937;
(iii) the moderate rehabilitation pro-
gram under section 8(e)(2) of the United
States Housing Act of 1937 (as in effect
before October 1, 1991);
(iv) the project-based certificate pro-
gram under section 8 of the United States
Housing Act of 1937;
(v) section 23 of the United States
Housing Act of 1937 (as in effect before
January 1, 1975);
(vi) the rent supplement program
under section 101 of the Housing and
Urban Development Act of 1965; or
(vii) the loan management set-aside
program under section 8 of the United
States Housing Act of 1937, including con-
version from assistance under section 101
of the Housing and Urban Development
Act of 1965 and under section 236(f)(2) of
the National Housing Act; and
(C) is subject to a mortgage insured under
the National Housing Act.
(3) EXPIRING CONTRACT.—The term ‘‘expiring
contract’’ means a contract for project-based assist-
ance that is attached to a multifamily housing
project and that, under the terms of the contract,
will terminate.
(4) EXPIRATION DATE.—The term ‘‘expiration
date’’ means the date on which an expiring contract
will terminate.
(5) FAIR MARKET RENT.—The term ‘‘fair mar-
ket rent’’ means the applicable fair market rental es-
tablished under section 8(c) of the United States
Housing Act of 1937. For eligible multifamily hous-
ing projects located in nonmetropolitan areas, the
fair market rent shall be the higher of the fair mar-
ket rent for (A) the county in which the project is
located, or (B) the nearest metropolitan area.
(6) KNOWING
OR
KNOWINGLY.—The term
‘‘knowing’’ or ‘‘knowingly’’ means having actual
knowledge of or acting with deliberate ignorance or
reckless disregard to.
(7) LOCAL
GOVERNMENT.—The term ‘‘local
government’’ has the meaning given the term ‘‘unit
of general local government’’ in section 104 of the
Cranston-Gonzalez National Affordable Housing
Act.
(8) LOW-INCOME FAMILIES.—The term ‘‘low-in-
come families’’ has the meaning given the term in
section 3(b)(2) of the United States Housing Act of
1937.
(9) 
MULTIFAMILY
HOUSING
MANAGEMENT
AGREEMENT.—The term ‘‘multifamily housing man-
agement agreement’’ means an agreement entered
by between the Secretary and a participating admin-
istrative entity pursuant to section 4.
(10) 
PARTICIPATING
ADMINISTRATIVE
EN-
TITY.—The term ‘‘participating administrative en-
tity’’ means a public agency, including a State hous-
ing finance agency or local housing agency, which
meets the requirements under section 4(b).
(11) PROJECT-BASED ASSISTANCE.—The term
‘‘project-based assistance’’ means rental assistance
under section 8 (excluding assistance under section
8(f)) of the United States Housing Act of 1937 that
is attached to a multifamily housing project.
(12) RENEWAL.—The term ‘‘renewal’’ means
the replacement of an expiring contract with a new
contract for rental assistance under section 8 of the
United States Housing Act of 1937, consistent with
the requirements of this Act.
(13) 
SECRETARY.—The 
term 
‘‘Secretary’’
means the Secretary of Housing and Urban Develop-
ment.
(14) STATE.—The term ‘‘State’’ has the mean-
ing given the term in section 104 of the Cranston-
Gonzalez National Affordable Housing Act.
(15) TENANT-BASED
ASSISTANCE.—The term
‘‘tenant-based assistance’’ has the meaning given the
term in section 8(f) of the United States Housing
Act of 1937.
(16) VERY
LOW-INCOME
FAMILY.—The term
‘‘very low-income family’’ has the meaning given the
term in section 3(b) of the United States Housing
Act of 1937.
SEC. 4. AUTHORITY OF PARTICIPATING ADMINISTRATIVE
ENTITIES.
(a) PARTICIPATING ADMINISTRATIVE ENTITIES.—
(1) IN
GENERAL.—The Secretary shall enter
into multifamily housing management agreements
with participating administrative entities for the im-
plementation of mortgage restructuring and rental
assistance sufficiency plans to restructure FHA-in-
sured multifamily housing mortgages, to—
(A) reduce the costs of current and expir-
ing contracts for assistance under section 8 of
the United States Housing Act of 1937;
(B) address financially and physically trou-
bled projects; and
(C) correct management and ownership de-
ficiencies.
(2) 
MULTIFAMILY
HOUSING
MANAGEMENT
AGREEMENT.—Each multifamily housing manage-
ment agreement entered into under this subsection
shall—
(A) be a cooperative agreement to establish
the obligations and requirements between the
Secretary and the participating administrative
entity;
(B) identify the eligible multifamily hous-
ing projects or groups of such projects for
which the participating administrative entity is
responsible for assisting in developing and im-
plementing approved mortgage restructuring
and rental assistance sufficiency plans under
section 5;
(C) require the participating administrative
entity to review and certify whether the com-
prehensive needs assessment submitted by the
owner of an eligible multifamily housing project,
in accordance with the requirements of section
403 of the Housing and Community Develop-
ment Act of 1992, and includes such other
data, information, and requirements as the Sec-
retary may require to be included as part of the
comprehensive needs assessment;
(D) identify the responsibilities of the par-
ticipating administrative entity and the Sec-
retary in implementing a mortgage restructur-
ing and rental assistance sufficiency plan, in-
cluding any actions proposed to be taken under
section 5 or 7;
(E) require each mortgage restructuring
and rental assistance sufficiency plan overseen
and approved by the participating administra-
tive entity to be prepared in accordance with
the requirements of section 5 for each eligible
multifamily housing project;
(F) indemnify the participating adminis-
trative entity against lawsuits and penalties for
actions taken pursuant to the agreement, in-
cluding actions involving gross negligence or
willful misconduct; and
(G) include compensation for all reasonable
expenses incurred by the participating adminis-
trative entity necessary to perform its duties
under this Act.
(b) SELECTION OF PARTICIPATING ADMINISTRATIVE
ENTITY.—
(1) SELECTION CRITERIA.—The Secretary shall
select participating administrative entities based on
the following criteria:
(A) Location in the State or local jurisdic-
tion in which an eligible multifamily housing
project or projects are located.
(B) Demonstrated expertise in the develop-
ment and management of low-income affordable
rental housing.
(C) A history of stable, financially sound,
and responsible administrative performance.
(D) Demonstrated financial strength in
terms of asset quality, capital adequacy, and li-
quidity.
(E) Determination by the Secretary that
the entity is otherwise qualified to carry out the
requirements of this Act.
(2) SELECTION OF MORTGAGE RISK SHARING
ENTITIES.—Any State housing finance agency or
local housing agency which is designated as a quali-
fied participating entity under section 542 of the
Housing and Community Development Act of 1992
shall be considered to qualify as a participating ad-
ministrative entity under this section.
(3) ALTERNATIVE ADMINISTRATORS.—With re-
spect to any eligible multifamily housing project that
is located in a State or local jurisdiction in which the
Secretary determines that a participating adminis-
trative entity is not located, is unavailable, or does
not qualify, the Secretary shall carry out the re-
quirements of this Act relating to a participating ad-
ministrative entity with respect to such project.
(4) PREFERENCE
FOR
STATE
HOUSING
FI-
NANCE
AGENCIES
AS
PARTICIPATING
ADMINISTRA-
TIVE ENTITIES.—For each State in which eligible
multifamily housing projects are located, the Sec-
retary shall give preference to the housing finance
agency of that State or, if a State housing finance
agency is unqualified or has declined to participate,
a local housing agency, to act as the participating
administrative entity for that State or for the juris-
diction in which the agency is located.
(5) STATE PORTFOLIO REQUIREMENTS.—
(A) IN GENERAL.—If the housing finance
agency of a State is selected as the participat-
ing administrative entity, that agency shall act
as such entity for all eligible multifamily hous-
ing projects in that State, except that a local
housing agency selected as a participating ad-
ministrative agency shall act as such entity for
all eligible multifamily housing projects in the
jurisdiction of the agency.
(B) DELEGATION.—A participating admin-
istrative entity may delegate or transfer respon-
sibilities and functions under this Act to one or
more interested and qualified public entities.
(C) WAIVER.—A State housing finance
agency or local housing agency may request a
waiver from the Secretary from the require-
ments of this paragraph for good cause.
SEC. 5. MORTGAGE RESTRUCTURING AND RENTAL ASSIST-
ANCE SUFFICIENCY PLANS.
(a) IN GENERAL.—
(1) DEVELOPMENT OF PROCEDURES AND RE-
QUIREMENTS.—The Secretary shall develop proce-
dures and requirements for the submission to a par-
ticipating administrative entity of a mortgage re-
structuring and rental assistance sufficiency plan for
each eligible multifamily housing project with an ex-
piring contract and for approval of such plans by
participating administrative entities.
(2) TERMS AND CONDITIONS.—Each mortgage
restructuring and rental assistance sufficiency plan
submitted under this subsection shall be developed
at the initiative of an owner of an eligible multifam-
ily housing project, in conjunction with the FHA-ap-
proved mortgagee currently servicing the loan (pro-
vided such mortgagee is willing), with oversight and
approval of such proposed mortgage restructuring
and rental assistance sufficiency plan to be made by
a participating administrative entity, under such
terms and conditions as the Secretary shall require.
(3) CONSOLIDATION.—Mortgage restructuring
and rental assistance sufficiency plans submitted
under this subsection may be consolidated as part of
an overall strategy for more than one property.
(b) NOTICE REQUIREMENT.—
(1) ESTABLISHMENT.—The Secretary shall es-
tablish notice procedures and hearing requirements
for tenants and owners concerning the expiration
dates for the expiring contracts for any eligible mul-
tifamily housing project.
(2) 12-MONTH NOTICE.—Under the hearing re-
quirements established under paragraph (1), the
participating administrative entity or owner for an
eligible multifamily housing project shall, not later
than 12 months before such expiration date, provide
notice in writing of the expiration date of the initial
expiring contract to tenants of the project.
(3) EXTENSION OF CONTRACT TERM.—Subject
to agreement by a project owner and the availability
of amounts provided in advance in appropriation
Acts, the Secretary shall extend the term of any ex-
piring contract under the current contract terms or
provide a section 8 contract with rent levels estab-
lished in accordance with subsection (f)(2), for a pe-
riod sufficient to facilitate the implementation of a
mortgage restructuring and rental assistance suffi-
ciency plan as determined by the Secretary.
(c) TENANT RENT PROTECTION.—If the owner of an
eligible multifamily housing project with an expiring con-
tract does not agree to extend the contract, the Secretary
shall make tenant-based assistance available to tenants re-
siding in units assisted under the expiring contract on the
expiration date. Any tenants receiving tenant-based assist-
ance under subsection may elect—
(1) to remain in the unit in the project and, if
at any time during their tenancy, if the rent exceeds
the fair market rent or payment standard, as appli-
cable, the rent shall be deemed to be the applicable
standard, but only if the agency administering the
tenant-based assistance finds that the rent is reason-
able in comparison with rents charged for com-
parable unassisted housing units in the market; or
(2) to move from the project and the rent of
their new dwelling unit shall be subject to the fair
market rent or the payment standard, as applicable,
under existing program rules and procedures.
(d) CONTENTS OF PLAN.—Each mortgage restruc-
turing and rental assistance sufficiency plan shall—
(1) except as otherwise provided, restructure
the project-based assistance rents for the eligible
multifamily housing property in a manner consistent
with subsection (f);
(2) require the owner or purchaser of an eligible
multifamily housing project with an expiring con-
tract to submit to the participating administrative
entity a comprehensive housing needs assessment, in
accordance with the information and data require-
ments of section 403 of the Housing and Commu-
nity Development Act of 1992, except that—
(A) any such needs assessment prepared
within the last 5 years shall satisfy the require-
ment under this paragraph; and
(B) no such needs assessment shall be re-
quired where the restructuring plan would, in
the judgment of the participating administra-
tive entity, make minimal changes to the FHA-
insured mortgage;
(3) require the owner or purchaser of the
project to provide, or contract for, competent man-
agement of the project;
(4) require the owner or purchaser of the
project to take such actions as may be necessary to
rehabilitate the project, maintain adequate reserves
for the project, and maintain the project in decent
and safe condition, based on housing quality stand-
ards established by the Secretary;
(5) require the owner or purchaser of the
project to maintain affordability and use restrictions
in accordance with section 7(d), which restrictions
shall be consistent with the long-term physical and
financial viability and character of the project as af-
fordable housing; and
(6) provide for any restructuring actions au-
thorized under section 9 that are proposed to be
taken with respect to the project.
(e) TENANT AND COMMUNITY PARTICIPATION AND
CAPACITY BUILDING.—
(1) PROCEDURES.—The Secretary shall estab-
lish procedures to provide an opportunity for tenants
of the eligible multifamily housing project and other
affected parties, including the local government, to
participate effectively in the restructuring process
for the project carried out under this Act.
(2) CONTENT.—Such procedures shall in-
clude—
(A) the rights to timely and adequate writ-
ten notice of the proposed decisions of the
owner or the Secretary or participating admin-
istrative entity;
(B) timely access to all relevant informa-
tion (except for information determined to be
proprietary under standards established by the
Secretary);
(C) an adequate period to analyze this in-
formation and provide comments to the Sec-
retary or participating administrative entity
(which comments shall be taken into consider-
ation by the participating administrative en-
tity); and
(D) if requested, a meeting with a rep-
resentative of the participating administrative
entity.
(3) EFFECTIVE
PARTICIPATION.—The proce-
dures established under this subsection shall permit
tenant, local government, and community participa-
tion in physical inspections, comprehensive needs as-
sessments, management reviews, and other matters,
as deemed necessary by the participating adminis-
trative entity, in connection with restructuring plans
submitted by owners and lenders and decisions made
by the Secretary and participating administrative
entities pursuant to this Act.
(4) FUNDING.—
(A) IN
GENERAL.—From any amounts
made available under appropriation Acts to
carry out this Act, the Secretary may provide
not more than $10,000,000 in each fiscal year
to tenant groups, nonprofit and for-profit orga-
nizations, and public entities for building the
capacity of tenant organizations, technical as-
sistance in furthering any of the purposes of
this Act (including transfer of projects to new
owners), and tenant services.
(B) ALLOCATION.—The Secretary may al-
locate any funds made available under subpara-
graph (A) through existing technical assistance
programs and procedures developed pursuant to
any other Federal law, including the Low-In-
come 
Housing 
Preservation 
and 
Resident
Homeownership Act of 1990 and the Multifam-
ily Housing Property Disposition Reform Act of
1994.
(C) PROHIBITION.—None of the funds
made available under subparagraph (A) may be
used directly or indirectly to pay for any per-
sonal service, advertisement, telegram, tele-
phone, printed or written letter, or other device,
intended or designed to influence in any man-
ner a Member of Congress, to favor or oppose,
by vote or otherwise, any legislation or appro-
priation by the Congress, whether before or
after the introduction of any bill or resolution
proposing such legislation or appropriation.
(f) RENT LEVELS.—
(1) IN GENERAL.—Except as provided in para-
graph (2), each mortgage restructuring and rental
assistance sufficiency plan, pursuant to the terms,
conditions, and requirements of this Act shall estab-
lish, for units assisted with project-based assistance
in eligible multifamily housing projects, adjusted
rent levels that—
(A) are equivalent to rents derived from
comparable properties, if—
(i) the participating administrative en-
tity makes the rent determination not later
quately addressed through implementation of
the rent limitation required to be established
through a mortgage restructuring and rental
assistance sufficiency plan under paragraph (1);
and
(B) follows the procedures under para-
graph (3).
(3) RENT LEVEL FOR EXCEPTION PROJECT.—
The rent levels for a project eligible under para-
graph (2) for an exception rent shall be calculated,
for purposes of this subsection, on the actual and
projected costs of operating the project, at a level
that provides income sufficient to support a budget-
based rent that consists of—
(A) the debt service of the project following
restructuring;
(B) the operating expenses of the project,
based on historical data and reasonable projec-
tions of the owner, including—
(i) contributions to adequate reserves
consistent with the comprehensive housing
needs assessment completed pursuant to
subsection (d)(2);
(ii) the costs of maintenance and nec-
essary rehabilitation; and
(iii) other eligible costs permitted
under section 8 of the United States Hous-
ing Act of 1937;
(C) an allowance for potential operating
losses due to vacancies and failure to collect
rents, equal to 7 percent of gross potential
rents or, for high vacancy areas, an adequate
allowance as determined by the participating
administrative entity;
(D) an allowance for a rate of return to
the owner or purchaser of the project in an
amount equal to 8 percent of 100 percent of the
fair market rent, to be adjusted annually, based
on adjustments to the fair market rent; and
(E) other expenses determined by the par-
ticipating administrative entity to be necessary
for the operation of the project.
SEC. 6. EXEMPTIONS FROM RESTRUCTURING.
Subject to section 7 and the availability of amounts
provided in advance in appropriation Acts, the Secretary
shall renew an expiring contract for a multifamily housing
project at existing rents (as adjusted pursuant to section
8(c)(2) of such Act) and without restructuring the mort-
gage, if—
(1) the project is an eligible multifamily hous-
ing project and the owner agrees to accept a renewal
of the expiring contract at rent levels that are equal
to those under the expiring contract on the date of
contract expiration, provided that such rent levels do
not exceed 120 percent of the fair market rent or,
where rent levels under the expiring contract exceed
120 percent of the fair market rent, the owner
agrees to renew the expiring contract equal to 120
percent of the fair market rent; except that if any
owner does not agree to accept a renewal at the rent
levels provided for in this paragraph, the owner may
submit a mortgage restructuring and rental assist-
ance sufficiency plan under section 5;
(2) the primary financing or mortgage insur-
ance for the project was provided by a public agency;
(3) the project was financed through obligations
such that the implementation of a mortgage restruc-
turing and rental assistance plan under this section
is inconsistent with applicable law or agreements
governing such financing;
(4) in the determination of the Secretary or the
participating administrative entity, the refinancing
would not result in significant savings to the Sec-
retary; or
(5) the project is subject to an expiring contract
but is not an eligible multifamily project for pur-
poses of this Act.
SEC. 7. SECTION 8 CONTRACT RENEWALS AND LONG-TERM
AFFORDABILITY COMMITMENT BY OWNER OF
PROJECT.
(a) SECTION
8 RENEWAL
OF
RESTRUCTURED
PROJECTS.—Subject to the availability of amounts pro-
vided in advance in appropriation Acts, the Secretary shall
enter into contracts with participating administrative enti-
ties pursuant to which—
(1) such entities shall offer to renew or extend
expiring section 8 contracts on eligible multifamily
housing projects; and
(2) the owner of the project shall accept the
offer, provided the initial renewal is in accordance
with the terms and conditions specified in the mort-
gage restructuring and rental sufficiency plan, ex-
cept for renewals pursuant to section 6.
(b) RENTS FOR SUBSEQUENT RENEWALS.—With re-
spect to any subsequent renewal of a section 8 contract
after the initial renewal pursuant to this Act, the rents
under each renewal contract shall be the same as those
determined pursuant to section 5(f), adjusted on an an-
nual basis to reflect, at the owner’s option—
(1) adjustments to the Consumer Price Index
prepared by the Bureau of Labor Statistics of the
Department of Labor; or
(2) reasonable and necessary expenses of the
project pursuant to the requirements of section
5(f)(2)(B).
(c) REQUIRED COMMITMENT.—After the initial re-
newal of a section 8 contract pursuant to this section, the
owner shall accept each offer made pursuant to subsection
(a) to renew the contract, for a period of 20 years from
the date of the initial renewal, if the offer to renew is on
terms and conditions specified in the mortgage restructur-
ing and rental assistance sufficiency plan.
(d) RENT AND USE RESTRICTIONS.—If an offer to
renew the contract is not made or is rejected by the owner
because it is not on terms and conditions specified in the
mortgage restructuring and rental assistance sufficiency
plan, the owner shall, for the remaining portion of the 20-
year period referred to in subsection (c), be required to
comply with the following rent and use restrictions:
(1) Such restrictions shall be consistent with
the long-term financial and physical viability of the
project and shall be consistent with the maximum
rent restriction in paragraph (2) and the tenant ad-
mission preference in paragraph (3).
(2) The maximum rent on such units shall be
limited, provided that such maximum rents shall ex-
ceed the restructured rents by at least 10 percent
(as adjusted annually), as determined by the partici-
pating administrative entity.
(3) To the extent practicable, the owner shall
rent—
(A) 40 percent of the units to residents
with incomes at or below 60 percent of median
income, as determined by the Secretary, with
adjustments for larger or smaller families; or
(B) 20 percent of the units to residents
with incomes at or below 50 percent of median
income, as determined by the Secretary, with
adjustments for larger or smaller families.
(e) EXCEPTION.—If an owner of a project subject to
rent and use restrictions demonstrates to the satisfaction
of the participating administrative entity that the project
cannot be adequately operated in compliance with the rent
and use restrictions under subsection (d), the participating
administrative entity shall modify those requirements to
the extent necessary to assure the long-term financial and
physical viability of the project.
SEC. 8. PROHIBITION ON RESTRUCTURING.
(a) IN GENERAL.—The Secretary shall not consider
any mortgage restructuring and rental assistance suffi-
ciency plan or request for contract renewal if the partici-
pating administrative entity determines that—
(1) the owner or purchaser of the project has
engaged in material adverse financial or managerial
actions or omissions with regard to this project, in-
cluding—
(A) knowingly and materially violating any
Federal, State, or local law or regulation with
regard to the project;
(B) knowingly and materially breaching a
contract for assistance under section 8 of the
United States Housing Act of 1937;
(C) knowingly and materially violating any
applicable regulatory or other agreement with
the Secretary or a participating administrative
entity;
(D) repeatedly failing to make mortgage
payments at times when project income was
sufficient to maintain and operate the property;
(E) materially failing to maintain the prop-
erty according to housing quality standards at
times when project income was sufficient to
maintain and operate the property and after re-
ceipt of notice and a reasonable opportunity to
cure; or
(F) committing any action or omission re-
sulting in suspension or debarment by the Sec-
retary at the time of submission or implementa-
tion of a mortgage restructuring and rental as-
sistance sufficiency plan;
(2) the owner or purchaser of the property ma-
terially failed to follow the procedures and require-
ments of this Act, after receipt of notice and an op-
portunity to cure; or
(3) the poor condition of the project cannot be
remedied in a cost effective manner, as determined
by the participating administrative entity.
(b) OPPORTUNITY TO DISPUTE FINDINGS.—
(1) IN
GENERAL.—During the 30-day period
beginning on the date on which the owner or pur-
chaser of an eligible multifamily housing project re-
ceives notice of a rejection under subsection (a) or
of a mortgage restructuring and rental assistance
sufficiency plan under section 5, the Secretary or
participating administrative entity shall provide the
owner or purchaser with an opportunity to dispute
the basis for the rejection and an opportunity to
cure. Any such notice of rejection shall identify the
reasons for rejection.
(2) AFFIRMATION, MODIFICATION, OR REVER-
SAL.—
(A) IN GENERAL.—After providing an op-
portunity to dispute under paragraph (1), the
Secretary or the participating administrative
entity may affirm, modify, or reverse any rejec-
tion under subsection (a) or rejection of a mort-
gage restructuring and rental assistance suffi-
ciency plan under section 5. The appeal decision
shall be made by a knowledgeable and impartial
person who was not involved in the decision to
reject. The owner may be represented by coun-
sel, may subpoena witnesses, and may require
the production of documents relevant to the
reasons for rejection. The appeal decision shall
be solely based on the reasons identified in the
notice of rejection.
(B) REASON
FOR
DECISION.—The Sec-
retary or the participating administrative en-
tity, as applicable, shall identify the reasons for
any final decision under this paragraph.
(C) REVIEW
PROCESS.—The Secretary
shall establish an administrative review process
to appeal any final decision under this para-
graph.
(c) FINAL DETERMINATION.—Any final determina-
tion under this section shall be subject to judicial review.
(d) DISPLACED TENANTS.—Subject to the availabil-
ity of amounts provided in advance in appropriation Acts,
for any low-income family that is a tenant in a project
or receiving assistance under section 8 of the United
States Housing Act of 1937 at the time of rejection under
this section, the Secretary shall provide that tenant with
tenant-based assistance and reasonable moving expenses,
as determined by the Secretary.
(e) TRANSFER OF PROPERTY.—For properties dis-
qualified from the consideration of a mortgage restructur-
ing and rental assistance sufficiency plan under this sec-
tion because of actions by an owner or purchaser described
in paragraph (1) or (2) of subsection (a), the Secretary
shall establish procedures to facilitate the voluntary sale
or transfer of property as part of a mortgage restructuring
and rental assistance sufficiency plan, with a preference
for sale or transfer to a tenant organization and tenant-
endorsed community-based nonprofit, for-profit, and pub-
lic agency purchaser meeting such reasonable qualifica-
tions as may be established by the Secretary.
SEC. 9. RESTRUCTURING TOOLS.
(a) IN GENERAL.—For purposes of this Act, an ap-
proved mortgage restructuring and rental assistance suffi-
ciency plan may include one or more of the following ac-
tions:
(1) FULL OR PARTIAL PAYMENT OF CLAIM.—
Making a full payment of claim or partial payment
of claim under section 541(b) of the National Hous-
ing Act; except that, at the request of the owner, the
Secretary shall use all or a portion of the funds that
would otherwise be used to make such full or partial
payment of claim as a debt service reserve, investing
same in debentures or other prudent investments
and using the principal and interest of said reserve
to pay a portion of the project’s debt service.
(2) REFINANCING OF DEBT.—Refinancing of all
or part of the debt on a project, if the refinancing
would result in significant subsidy savings under
section 8 of the United States Housing Act of 1937,
including through the provision of a direct loan from
the Secretary financed by the General Insurance
Fund or Special Risk Insurance Fund.
(3) MORTGAGE
INSURANCE.—Providing FHA
multifamily mortgage insurance, reinsurance, or
other credit enhancement alternatives, including
under the multifamily risk-sharing mortgage pro-
grams under section 542 of the Housing and Com-
munity Development Act of 1992. Any limitations on
the number of units available for mortgage insur-
ance under section 542 shall not apply to eligible
multifamily housing projects. Any credit subsidy
costs of providing mortgage insurance shall be paid
from the General Insurance Fund and the Special
Risk Insurance Fund.
(4) 
CREDIT
ENHANCEMENT.—Establishing
State or local mortgage credit enhancements and
risk-sharing arrangements with State or local hous-
ing finance agencies, the Federal Housing Finance
Board, the Federal National Mortgage Association,
and the Federal Home Loan Mortgage Corporation.
(5) COMPENSATION OF THIRD PARTIES.—En-
tering into agreements, incurring costs, or making
payments, as may be reasonably necessary, to com-
pensate participating administrative entities and
other parties in undertaking actions authorized by
this Act. Upon request, participating administrative
entities shall be considered to be contract adminis-
trators under section 8 of the United States Hous-
ing Act of 1937 for purposes of any housing assist-
ance payments contracts entered into as part of an
approved mortgage restructuring and rental assist-
ance sufficiency plan.
(6) RESIDUAL
RECEIPTS.—Applying any ac-
quired residual receipts to maintain the long-term
affordability and physical conditions of the property
or of other eligible multifamily housing. The partici-
pating administrative entity shall expedite the acqui-
sition of residual receipts by entering into agree-
ments with owners of housing covered by an expiring
contract to provide an owner with a share of the re-
ceipts, not to exceed 10 percent.
(7) REHABILITATION
NEEDS.—Rehabilitating
the project using amounts from grants provided
from residual receipts and the General and Special
Needs Insurance Funds under the National Housing
Act, as approved by the Secretary; to the extent pro-
vided in appropriation Acts, using budget authority
provided for increases in the budget authority for as-
sistance contracts under section 8 of the United
States Housing Act of 1937; through interest reduc-
tion payments that are not longer needed to cover
restructured mortgages that are or were insured
under section 236 of the National Housing Act; or
through the debt restructuring transaction.
(8) MORTGAGE RESTRUCTURING.—Restructur-
ing mortgages to provide—
(A) a restructured first mortgage that is
fully amortizing within the remaining term of
the existing FHA-insured first mortgage and
that has a principal amount consistent with—
(i) rents at levels that are established
in section 5(f); and
(ii) reasonable costs of operation as
set forth in section 5(f)(3)(B) through
5(f)(3)(E); and
(B) to the extent that the debt is restruc-
tured through a partial payment of claim, a sec-
ond mortgage equal to the difference between
the restructured first mortgage and the mort-
gage balance of the eligible multifamily housing
project at the time of restructuring, subject to
the following requirements:
(i) the second mortgage shall bear in-
terest at a rate not to exceed the applicable
Federal rate for a term not to exceed 50
years;
(ii) during the period in which the
first mortgage remains outstanding, no
payments of interest or principal shall be
required or paid on the second mortgage;
(iii) 50 percent of the net distribut-
able proceeds of any sale or refinancing of
the project shall be payable, first toward
accrued interest, and, to the extent there
are any proceeds remaining, to principal
due under the second mortgage;
(iv) the second mortgage shall be as-
sumable by any subsequent purchaser of
any multifamily housing project, pursuant
to guidelines established by the Secretary;
(v) the principal and accrued interest
due under the second mortgage shall be
fully payable upon disposition of the prop-
erty, unless the mortgage is assumed
under the preceding sentence;
(vi) upon full payment of the first
mortgage, the owner shall begin repayment
of the second mortgage in monthly install-
ments equal to the monthly payments for-
merly made under the first mortgage;
(vii) the principal and interest of the
second mortgage shall be immediately due
and payable upon a finding by the Sec-
retary, subject to judicial review, that an
owner has failed to materially comply with
this Act or any requirements of the United
States Housing Act of 1937, as those re-
quirements apply to the applicable project,
after receipt of notice of such failure and
a reasonable opportunity to cure such fail-
ure and which failure is sufficiently serious
that the project is no longer suitable as af-
fordable housing; and
(viii) any credit subsidy costs of pro-
viding a second mortgage shall be paid
from the General Insurance Fund and the
Special Risk Insurance Fund;
(C) to the extent that the project cannot
support any debt service payments, a restruc-
tured first mortgage with terms and conditions
conforming to those set forth in subparagraph
(B), under which payments of principal or in-
terest shall not be required or made until such
time as the rental and use restrictions on the
property are terminated; and
(D) that any interest accruing on mort-
gages restructured pursuant to subparagraphs
(B) and (C) or any portion of the debt on the
project that exceeds the amount of the restruc-
tured first mortgage provided pursuant to sub-
paragraph (A) may be forgiven by the Secretary
or the designated administrative entity for good
cause and at the request of the owner.
(b) ROLE OF FNMA AND FHLMC.—Section 1335
of the Federal Housing Enterprises Financial Safety and
Soundness Act of 1992 (12 U.S.C. 4565) is amended—
(1) in paragraph (3), by striking ‘‘and’’ at the
end;
(2) in paragraph (4), by striking the period at
the end and inserting ‘‘; and’’;
(3) in the matter preceding paragraph (1), by
striking ‘‘To’’ and inserting the following: ‘‘(a) IN
GENERAL.—To’’; and
(4) by adding at the end of the following:
‘‘(5) assist in maintaining the affordability of
assisted units in eligible multifamily housing projects
with expiring contracts, as defined under the Multi-
family Housing Restructuring and Affordability Act
of 1997.
‘‘(b) AFFORDABLE HOUSING GOALS.—The Secretary
shall give credit, as determined by the Secretary, toward
achievement of the affordable housing goals under sections
1332, 1333, and 1334 (for purposes of section 1336) to
activities taken under subsection (a)(5) by each enter-
prise.’’.
(c) PROHIBITION ON EQUITY SHARING BY THE SEC-
RETARY.—The Secretary may not participate in any eq-
uity agreement or profit sharing agreement in connection
with any eligible multifamily housing project.
SEC. 10. DEFERRAL OF INCLUSION IN INCOME ON DEBT RE-
STRUCTURING OR FORGIVENESS.
Subsection (e) of section 108 of the Internal Revenue
Code of 1986 (relating to income from discharge of indebt-
edness) is amended by adding at the end the following new
paragraph:
‘‘(11) INCOME FROM DISCHARGES UNDER MUL-
TIFAMILY HOUSING RESTRUCTURING AND AFFORD-
ABILITY
ACT
OF
1997.—Any amount includible in
gross income by reason of any discharge of indebted-
ness under the Multifamily Housing Restructuring
and Affordability Act of 1997 shall be so includible
as if such discharge occurred immediately before the
earliest date the taxpayer disposes of any portion of
its interest in the property to which such indebted-
ness relates.’’
SEC. 11. MANAGEMENT STANDARDS.
Pursuant to guidelines established by the Secretary,
each participating administrative entity shall implement
loans insured by the Secretary for multifamily housing
that is not assisted under section 8 of the United States
Housing Act of 1937.
SEC. 17. TREATMENT OF FHA MULTIFAMILY HOUSING RE-
STRUCTURING DEMONSTRATION.
(a) TERMINATION.—Section 212 of the Departments
of Veterans Affairs and Housing and Urban Development,
and Independent Agencies Appropriations Act, 1997 (42
U.S.C. 1437f note) is amended by striking subsection (k)
and inserting the following new subsection:
‘‘(k) TERMINATION.—The demonstration program
under this section shall terminate upon a determination
by the Secretary that the program under the Multifamily
Housing Restructuring and Affordability Act of 1997 has
been implemented.’’.
(b) CONTINUATION OF FUNDING.—Section 212 of
the Departments of Veterans Affairs and Housing and
Urban Development, and Independent Agencies Appro-
priations Act, 1997 (42 U.S.C. 1437f note) is amended—
(1) 
in 
subsection 
(a)(1)(B), 
by 
striking
‘‘through the end of fiscal year 1997’’ and inserting
‘‘until the termination of the demonstration program
under this section pursuant to subsection (k)’’; and
(2) in subsection (l)—