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Skip Navigation HomeHelpResourcesContact Us Advanced Search Start of Main Content FR–5563–P–01 Home Investment Partnerships Program: Improving Performance and Accountability; and Updating Property Standards This Proposed Rule document was issued by the Department of Housing and Urban Development (HUD)For related information, Open Docket Folder Show agency attachment(s) DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-5563-P-01]
AgencyOffice of the Assistant Secretary for Community Planning and Development, HUD.
SummaryHUD's HOME Investment Partnerships Program (HOME program or HOME) provides formula grants to states and units of local government to fund a wide range of activities directed to producing or maintaining affordable housing, both homes and rental housing. This proposed rule would amend the HOME regulations to address many of the operational challenges facing participating jurisdictions, particularly challenges related to recent housing market conditions and the alignment of federal housing programs. The proposed rule would also clarify certain existing regulatory requirements and establish new requirements designed to enhance accountability by States and units of local government in the use of HOME funds, strengthen performance standards and require more timely housing production. The proposed rule would also update property standards applicable to housing assisted by HOME funds.
Dates Comment Due Date: February 14, 2012
AddressesInterested persons are invited to submit comments regarding this proposed rule to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410-0500. Communications must refer to the above docket number and title. There are two methods for submitting public comments. All submissions must refer to the above docket number and title.
Public Inspection of Public Comments. All properly submitted comments and communications submitted to HUD will be available for public inspection and copying between 8 a.m. and 5 p.m. weekdays at the above address. Due to security measures at the HUD Headquarters building, an appointment to review the public comments must be scheduled in advance by calling the Regulations Division at (202) 708-3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Relay Service at (800) 877-8339. Copies of all comments submitted are available for inspection and downloading at www.regulations.gov. For Further Information ContactVirginia Sardone, Deputy Director, Office of Affordable Housing Programs, Office of Community Planning and Development, Department of Housing and Urban Development, 451 7th Street SW., Room 7164, Washington, DC 20410; telephone number (202) 708-2684 (this is not a toll-free number). Persons with hearing or speech impairments may access this number through TTY by calling the toll-free Federal Relay Service at (800) 877-8339.
Supplementary InformationI. Background—The HOME ProgramThe HOME program was authorized by Title II of the Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 12721 et seq.), known as NAHA, and has been in operation for 20 years. The HOME program provides grants to states and local jurisdictions (collectively, participating jurisdictions) used, often in partnership with local nonprofit groups, to fund a wide range of activities that build, buy, and/or rehabilitate affordable housing for rent or homeownership or to fund direct rental assistance to low-income people. HOME program funds are awarded annually as formula grants to participating jurisdictions. HUD establishes a HOME Investment Trust Fund for each grantee, providing a line of credit that the jurisdiction may draw upon as needed. The participating jurisdictions are allowed to use their HOME funds as grants, direct loans, loan guarantees, or other forms of credit enhancement, or as rental assistance or security deposits.
The HOME program is the largest federal block grant to States and local governments that is designed exclusively to create affordable housing for low-income households. Each year, the program allocates approximately $1 to $2 billion among the states and hundreds of localities nationwide. The program was designed to reinforce several important values and principles of community development. First, the HOME program's flexibility empowers people and communities to design and implement strategies tailored to their own needs and priorities. Second, the HOME program's emphasis on consolidated planning expands and strengthens partnerships among all levels of government and the relationship with the private sector in the development of affordable housing. Third, the HOME program's technical assistance activities and set-aside for qualified community-based nonprofit housing groups helps to build the capacity of these partners. Fourth, the HOME program's requirement that participating jurisdictions match 25 cents of every dollar in program funds helps to mobilize community resources in support of affordable housing.
The regulations for the HOME program are codified in 24 CFR part 92 and were last substantively revised by final rule issued on September 16, 1996 (61 FR 48750). In the 15 years since the promulgation of the 1996 final rule, many HOME participating jurisdictions have adopted more complex program designs. They have encountered new challenges in administering their programs and in managing their growing portfolios of older HOME projects. These challenges include reduced availability of states or local funding sources, reduced private lending, changes in housing property standards, and energy codes and reductions in states and local government workforces throughout the Nation. These challenges have been magnified by current housing and credit market conditions. Since establishment of the HOME program, HUD has monitored participatingjurisdictions' use of HOME funds and measured participating jurisdictions' performance. Through such monitoring and audits by HUD's Office of Inspector General (OIG), HUD has identified and corrected compliance problems and has gained a fuller understanding of regulatory provisions that need to be strengthened or clarified to help avoid noncompliance and maximize effectiveness.
HUD has invested significant time and resources in helping participating jurisdictions correct financial and physical problems that threaten the viability of some HOME-assisted rental projects in their portfolios. HUD has determined that participating jurisdictions need additional tools and flexibility to effectively address troubled projects. Over the last several years, HUD has developed numerous publicly available reports that measure the performance and effectiveness of each participating jurisdiction. HUD's review of these reports has identified performance and reporting problems among participating jurisdictions that cannot be addressed effectively under the current regulations.
Accordingly, through this rule, HUD proposes regulatory changes to address many of the operational challenges facing participating jurisdictions, improve understanding of HOME program requirements, update property standards to which housing funded by HOME funds must adhere, and strengthen participating jurisdictions' accountability for both compliance with program requirements and performance.II. This Proposed RuleA. Changes to HUD's Consolidated Plan RegulationsAction Plan Amendments (§§ 91.220, 91.320)This proposed rule would make several changes to the action plan sections of HUD's Consolidated Plan regulations in 24 CFR part 91, as well as those in HUD's HOME program regulations in 24 CFR part 92.
Sections 91.220(l)(i) and (ii) of the Consolidated Plan regulations and §§ 92.205(b) and 92.254(a)(5) of the HOME program regulations would be revised to clarify that HUD's approval (or failure to disapprove) a consolidated plan does not automatically approve forms of investment of HOME funds other than those described in § 92.205(b), or of resale or recapture guidelines submitted by the participating jurisdiction. Because the HOME regulations at § 92.205(b)(1) require that HUD determine that other forms of investment proposed by a participating jurisdiction be consistent with the purposes of 24 CFR part 92, the other forms of investment must be approved in writing by HUD separate from the consolidated plan approval letter. The consistency of other forms of investment with HOME program purposes is not indirectly established simply by HUD's approval of a consolidated plan that proposes such other forms of investment.
This proposed rule also amends § 91.220 to provide participating jurisdictions with some flexibility in determining the maximum purchase price for single family housing assisted with HOME funds for homebuyer assistance or rehabilitation of owner-occupied single family housing. Section 215(b) of NAHA requires that the value of homeownership units assisted with HOME funds not exceed 95 percent of the area median purchase price for single family housing, as determined by HUD. HUD's current regulations at § 92.254(a)(2)(iii) permits participating jurisdictions to use the single family mortgage limits of the Federal Housing Administration (FHA) that are established under section 203(b) of the National Housing Act (12 U.S.C. 1709(b)) to determine the area median purchase price. The proposed rule would provide that a participating jurisdiction that opts not to use the HUD-issued 95 percent of median purchase price for the purpose of determining “modest housing” for homebuyer assistance or rehabilitation of owner-occupied single family properties may instead calculate a limit based upon recent sales within the jurisdiction. The current regulations at 24 CFR 92.254(a)(2)(ii) require these participating jurisdictions to submit the limit and supporting sales price documentation to HUD. However, the regulations do not specify that this information be submitted as part of the consolidated plan annual action plan, making it possible for the participating jurisdiction to submit new limits at any point in its program year. HUD has concluded that it is most appropriate for this calculation to be just prior to the start of, and for the resulting value limit to be made applicable to, a participating jurisdiction's program year. Consequently, HUD proposes to amend §§ 91.220(l)(2)(iv) and 91.320(k)(2)(iv) to require such a participating jurisdiction to include in its action plan its calculation of 95 percent of the median area purchase, in accordance with the criteria and formula provided in § 92.254(a)(2)(iii).
The proposed rule would require participating jurisdictions to include more information about the expenditure of HOME program funds in their action plans. The inclusion of more information about the participating jurisdiction's planned expenditure of HOME funds not only assists HUD in its monitoring of the jurisdiction's expenditure of taxpayers' funds, but allows the citizens of the jurisdiction to weigh in with their views on the proposed expenditures as part of citizens' participation in the development and review of the consolidated plan. For example, the participating jurisdiction would be required under §§ 91.220(l)(2)(v) and 91.320(k)(2)(v) to describe the applicants that are eligible to apply for the HOME program, as well as the jurisdiction's process for soliciting and funding applications or proposals. Sections 91.220(l)(2)(vi) and 91.320(k)(2)(vi) of the proposed rule would also permit the participating jurisdiction to limit the beneficiaries or give preferences in its programs to a particular segment of the low-income population.
Participating jurisdictions have asked if they could limit rental projects to artists or nurses, or if they could limit a homebuyer program to persons in a specific occupation (e.g., artists, police officers, or teachers). Under HUD's authority to determine appropriate categories of persons to be targeted for housing assistance under the HOME program, the proposed rule would expressly permit these limitations. However, a participating jurisdiction would not be permitted to limit participation in a HOME-funded program or occupancy in a HOME-assisted project solely to its own employees of the jurisdiction because doing so would create at least the appearance of a conflict of interest and would require that the participating jurisdiction seek an exception to the conflict-of-interest provisions pursuant to 24 CFR 92.356(d) for every potential beneficiary. A rental project could be limited to a particular subpopulation only if the jurisdiction described the limitation or preference in its action plan, and specifically authorized the project owner to limit tenant selection in its written agreement with the owner, in accordance with the proposed revisions at § 92.253(d). A limitation or preference must not violate such nondiscrimination laws as the Fair Housing Act (42 U.S.C. 3601-19), title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d—2000d-4) (Nondiscrimination in Federally Assisted Programs), the Age Discrimination Act (42 U.S.C. 6101-6107), section 504 of the RehabilitationAct of 1973 (29 U.S.C. 794), and the Americans with Disabilities Act (42 U.S.C. 12101 et seq.), and the implementing regulations of these statutes.B. Changes to the HOME Program Regulations1. Definitions (§ 92.2)For the convenience in use of the HOME program regulations, HUD proposes to add cross-references for the definitions of “public housing,” “Community Development Block Grant (CDBG) program,” and “Consolidated Plan” in § 92.2. These terms are used in the HOME regulations, and HUD determined that it would be helpful to readers to include cross-references to where these terms are defined in HUD regulations.
Commitment. HUD proposes to make several changes to the definition of “commitment” in § 92.2. This term is currently defined to mean, generally, that a participating jurisdiction has executed a legally binding agreement with a state recipient, a subrecipient, or a contractor to use a specific amount of HOME funds for a specified use or for a specified local project.
First, a revision is proposed to include an agreement with a state recipient, a subrecipient, or a contractor to use a specific amount of HOME funds to provide downpayment assistance. Participating jurisdictions commonly fund such entities to produce affordable housing, provide downpayment assistance, or administer a tenant-based rental assistance program, but the regulation did not expressly include them in the definition of “commitment.”
Second, the definition of commitment is being revised to remove references to reserving funds to community housing development organizations (CHDOs), so that such reservations, which are not project-specific, would no longer be considered a commitment under the HOME regulation. This change is discussed further below with other proposed changes affecting funding for CHDOs under subpart G of the HOME program regulations.
HUD has encountered situations in which participating jurisdictions have produced agreements without dated signatures as evidence of a commitment before the 24-month deadline. The HOME statute and regulations require HOME funds to be committed within 24 months after the last day of the month in which HUD notifies the participating jurisdiction of HUD's execution of the HOME Investment Partnership Agreement. The lack of a dated signature calls into question when the commitment was made, therefore making it difficult to determine whether the funds have been committed within the 24-month deadline. Accordingly, the definition of “commitment” is proposed to be amended to require that the signature of each party to the agreement must be dated. The definition is also proposed to be amended to include a cross-reference to the requirements for written agreements in § 92.504(c), which will help ensure that the agreements evidencing commitment meet the standards for written agreements as provided in § 92.504(c).
HUD further proposes to revise the definition of “commitment” to expressly exclude: (1) An agreement between a participating jurisdiction and a subrecipient that the participating jurisdiction controls, e.g., an agency whose officials or employees are officials or employees of the participating jurisdiction, and (2) an agreement between the jurisdiction that is the lead member of the consortium and local government that is a member of the consortium. The existing definition provides that a commitment is a legally binding agreement between the participating jurisdiction and another entity to provide funds to undertake specified HOME activities. In both of these instances, the participating jurisdiction is essentially entering into an agreement not with a separate entity, but with an entity that is part of the participating jurisdiction, such that a legally binding agreement with another entity is not created.
Community housing development organization. The definition of “community housing development organization” (CHDO) in § 92.2 would be amended to add a reference to the Internal Revenue Service (IRS) regulations that implement section 501(c)(4) of the Internal Revenue Code, which was inadvertently omitted from the regulation.
The CHDO definition is also proposed to be revised to clarify the relationship between the CHDO and the organization that may create the CHDO. New paragraph (3)(iv) of the definition would clarify that if a for-profit entity creates or sponsors a nonprofit entity that seeks designation as a CHDO, the officers and employees of the for-profit entity would be prohibited from serving as officers or employees of the CHDO, and the nonprofit entity would be prohibited from using the office space of the for-profit entity. This requirement would add to the existing regulatory provisions that are intended to prevent the nonprofit entity from being influenced by the profit motive of the for-profit entity.
The proposed rule would also revise paragraph (5) of the definition to clarify that the CHDO must be separate from and not under the control of a governmental entity, in keeping with the statutory requirement that a CHDO maintain accountability to the low-income community it serves through its governing board make-up and otherwise. A governmental entity would still be permitted to create a CHDO, but it would not be permitted to control the CHDO by providing its employees to the CHDO as staff or officers.
Paragraph (9) of the existing definition of CHDO at § 92.2 permits a nonprofit organization to meet the demonstrated capacity requirement for CHDO designation if the organization has engaged a consultant who will carry out activities while also training key CHDO staff. This provision was intended to facilitate capacity building of community-based nonprofit organizations transitioning into the role of housing developer. HUD is concerned that some CHDOs have continued to rely on the use of expert consultants for core development experience and have not developed the internal capacity to function effectively in the developer role. This proposed rule would revise paragraph (9) of the definition to strengthen the requirement that CHDOs must have paid employee staff with housing development experience in order to be designated as a CHDO. Nonprofit organizations would no longer be able to meet the demonstrated capacity requirement through the use of consultants and through a plan for staff to be trained by the consultants.
The proposed rule would also provide that the demonstrated capacity requirement cannot be met through the use of volunteers. The continued use of consultants or volunteers to fill occasional skill gaps or undertake activities that are required only on a periodic basis (e.g., project underwriting) continues to be appropriate, but cannot be the basis of a determination that a CHDO has demonstrated capacity to develop affordable housing.
Homeownership. The proposed rule would rearrange existing provisions in the definition of “homeownership” in § 92.2 for improved organization of the definition. In addition, the revised definition would provide that a right to possession under a contract for deed, installment contract, or land sales contract (pursuant to which the deed is not given until the final payment is made) is not homeownership. These mechanisms, which are common incertain areas of the country, are financing arrangements through which interested homebuyers enter into a payment arrangement directly with the seller. In most cases, there is no language in the contract protecting the homebuyer in the event of a late or missed payment. Whereas mortgage principal payments increase the homeowner's equity in the property over time, and the title is transferred to the homebuyer at the closing, payments made under a land sales contract arrangement typically do not constitute equity, and the title is not required to be transferred to the homebuyer until the very last payment has been made. Even in states that have statutes recognizing the equitable interest of the homebuyer, the protections given to homebuyers under these financing mechanisms are not equal to those given to homebuyers who receive title to the housing and finance the purchase through a mortgage. For these reasons, land sales contracts are not considered to be an eligible form of homeownership under the HOME program. HUD encourages the use of HOME funds to assist low-income households who have entered into a contract for deed to obtain equitable title to the property.
The definition of “homeownership” would also be revised to make explicit that mutual or cooperative housing that receives assistance through a Low-Income Housing Tax Credit (LIHTC) program is not considered homeownership housing under the HOME program because a project receiving LIHTC is a rental project.
Housing. HUD proposes to amend the definition of “housing” in § 92.2 to exclude all student housing. The current regulations exclude only student dormitories. However, the use of HOME funds for student housing in any configuration, is inconsistent with the statutory purposes of the program. The focus of the HOME program is affordable housing for low-income households, and student housing, regardless of the configuration, does not constitute affordable housing for low-income households as contemplated by the HOME statute. In addition, the proposed rule would amend the definition to clarify that dormitories, including those for farmworkers, do not constitute housing.
With respect to what constitutes housing under the HOME program, HUD has encountered cases where participating jurisdictions have proposed to use HOME funds for buildings considered to be housing by the participating jurisdiction, but that do not constitute housing under the HOME program. Examples of such uses are hospice buildings, nursing homes, foster homes, halfway houses, and residential treatment facilities. HUD emphasizes that the mere fact that a building physically resembles housing or that a person lives in a building for some period of time does not qualify that building as housing for HOME program purposes. The use of HOME funds is statutorily limited to permanent and transitional housing. No HOME funds may be used for any activity that does not qualify as permanent or transitional housing. One indication that the building is a facility, not housing, is the lack of a lease for the residents. All HOME-assisted rental housing units must have leases for the tenants that provide the HOME tenant protections outlined in § 92.253(a).
Low-income families and very low-income families. HUD proposes to revise the definition of “low-income families” and “very low-income families” in § 92.2 to exclude students from qualifying as a low-income or very low-income family. Specifically, the regulation would be revised to be consistent with recent statutory changes to the Housing Choice Voucher program, which prohibit voucher assistance to individuals who are enrolled in an institution of higher learning from qualifying as a low-income family if the individual is under 24 years of age, is not a military veteran, is unmarried, does not have a dependent child, and is not otherwise individually low-income or does not have parents who are low-income. (1)
This statutory change was made to the Housing Choice Voucher program in response to incidents of college students who were obtaining federal housing assistance but did not meet the low-income eligibility requirements, and were therefore depriving eligible families from receiving voucher assistance. Adoption, in the HOME program, of the exclusion of assistance to students would achieve the same goals as those for which the prohibition was put in place in the Housing Choice Voucher program. Accordingly, in the HOME program, students would be prohibited from renting HOME-assisted rental units, receiving HOME tenant-based rental assistance, or otherwise participating in the HOME program independent of their families.
Project completion. HUD proposes to amend the definition of “project completion” in § 92.2 to clarify the conditions that must be met for projects to be considered completed. This change is made in response to questions from participating jurisdictions regarding the point at which they can complete a project in the Integrated Disbursement and Information System (IDIS), the HOME data system. For example, the rule will make clear that a rental project may be designated as completed in IDIS once construction or rehabilitation is completed, but before all units are occupied.
Program income. HUD proposes to amend the definition of “program income” in § 92.2 to clarify that program income does not include gross income from the use, rental, or sale of real property received by the project owner, developer, or sponsor, unless the funds are paid by the project owner, developer, or sponsor to the participating jurisdiction, subrecipient, or state recipient. The existing regulations provide that program includes “gross income from the use or rental of real property, owned by the participating jurisdiction, state recipient, or a subrecipient, that was acquired, rehabilitated, or constructed, with HOME funds or matching contributions, less costs incidental to generation of the income. However, gross income does not constitute program income in the case of the use, rental, or sale of real property when the gross income is that received by the project owner, developer, or sponsor. Owners, developers, and sponsors of housing are not the participating jurisdiction, a state recipient, or a subrecipient administering all or a portion of the participating jurisdiction's HOME program. Consequently, gro