The Department of Housing & Urban Development (HUD) has released a Final Rule implementing the Housing Opportunity Through Modernization Act of 2016 (HOTMA). This final rule was published in the Federal Register on February 14, 2023. With the exception of changes relating to Non-Public Housing Over Income families (which take effect on March 16, 2023), this final rule takes effect on January 1, 2024.
The Housing Opportunity Through Modernization Act (HOTMA) was signed into law on July 29, 2016, amending many aspects of Multifamily Housing programs (as well as programs administered through the Offices of Public and Indian Housing and Community Planning and Development). HOTMA was intended to streamline processes and reduce burdens on housing providers. On September 17, 2019, HUD issued a proposed rule to update its regulations according to HOTMA’s statutory mandate. The final rule, published on January 9, 2023, considers public comment received on the proposed rule and provides additional guidance for implementing Sections 102, 103, and 104 of HOTMA.
Which Programs will be Affected by the Final Rule?
The Section 8 PBRA (including RAD), Section 202/811 PRAC, 202/8, 202/162 PAC, Senior Preservation Rental Assistance Contract (SPRAC), and Section 811 Project Rental Assistance (811 PRA) programs will see changes due to HOTMA.
This is the sixth in a series of articles I am writing on the sweeping changes that will be made to HUD affordable housing programs. This article will focus on the revised rules regarding the HOME Program.
In the final rule, HUD clarifies that for the HOME Program, the definition of Live-in Aide, foster adult, foster child, full-time student, and net family assets will be the same as the meaning of these terms for the HUD multifamily housing programs.
Use of Annual Income in the HOME Program
Participating Jurisdictions (PJs) use the annual income of families to determine eligibility for: (1) occupancy of HOME-assisted rental units; (2) purchase of a homeownership unit; (3) receiving homebuyer downpayment assistance; and (4) obtaining rental assistance when there is tenant-based rental assistance (TBRA).
The HOME regulations permit a PJ to use one of two definitions for annual income for each rental project or program assisted with HOME funds: (1) adjusted gross income in IRS Form 1040; or (2) annual income as defined in the HUD multifamily housing programs. In this final rule, HUD is requiring that PJs use the HUD multifamily definition of income whenever HOME funds are layered with funds of a program that is required to use the multifamily definition.
Also, if a project has a State project-based rental subsidy, the PJ must use the subsidy provider’s income determination under the rules of the State program.
This final rule allows a PJ to accept a Federal TBRA provider’s income determinations if the family is applying for or living in a HOME-assisted rental unit and the family is being assisted by a Federal TBRA program (e.g., Housing Choice Vouchers). Notice that the use of the PHA income determination is not required in this case -- it is permitted. However, a PJ must ensure that these units comply with HOME rent limitations.
While PJs must enter into regulatory agreements with owners, developers, or sponsors of HOME-assisted rental housing, HUD is recommending that PJs also enter into agreements with PHAs, owners, or rental subsidy providers for Federal TBRA when income will be calculated in accordance with HOME rules and not the rules of the TBRA program. This may be necessary to ensure the project is able to meet the HOME rental occupancy requirements relating to fixed/floating and High/Low HOME units.
If PHAs administering HCV and owners of projects with PBRA accept annual income determinations made by administrators of other Federally assisted programs (e.g., TANF or SNAP), the PJ must also accept those income determinations.
Also, although the HOME program has no asset limitations, families that are participating in a program with asset limitations noted in the final rule may be denied assistance under that program. However, if such families are eligible based on the regulations of the HOME program, they may not be excluded from a HOME unit - even if they are denied Federal rental assistance. If the family has assistance terminated by the operator of the rental assistance program, the PJ must determine the family’s income in accordance with HOME requirements.
The final rule permits PJs to accept self-certification of assets for families with assets that do not exceed $50,000 without taking further steps to verify the accuracy of the declaration.
Hardship Exemptions When Using Adjusted Income
When PJs are required to calculate a family’s adjusted income, the PJ may grant the financial hardship exemptions allowed by the final rule for public housing and multifamily housing programs. These are the hardship exemptions that relate to the threshold to receive health and medical care expenses as well as families that apply for a continued childcare expense deduction. To use this authority, the PJ must develop policies and procedures for qualifying and granting hardship exemptions.
Source Documents No Longer Required in Year Six of the Affordability Period
Current HOME rules require that family income be fully documented at move-in and then every sixth year of the project’s affordability period. The final rule eliminates the requirement to review source documentation every sixth year of the affordability period.
Bottom Line: While not extensive, the changes made to the HOME program by the final rule are substantive and both PJs and operators of HOME-assisted rental projects should familiarize themselves with these new rules -- keeping in mind that they do not go into effect until 2024.
HUD Delays NSPIRE Implementation for Certain Programs
The U.S. Department of Housing and Urban Development (HUD) has announced an extension of the compliance date for the National Standards for the Physical Inspection of Real Estate (NSPIRE) for select programs to October 1, 2024. This extension is applicable to the HOME Investment Partnerships Program (HOME), Housing Trust Fund (HTF), Housing Opportunities for Persons with AIDS (HOPWA), Emergency Solution Grants (ESG), and Continuum of Care (COC) programs. The purpose of this extension is to provide jurisdictions with additional time to implement these standards, which will govern inspections and evaluations of HUD-assisted housing. NSPIRE plays a crucial role in helping HUD streamline and consolidate its inspection standards and procedures. Additionally, it incorporates provisions of the Economic Growth and Recovery, Regulatory Relief, and Consumer Protection Act into all of HUD's programs. Programs other than those noted above that are subject to NSPIRE must still adopt the new standard by October 1, 2023.
A. J. Johnson Partners with Mid-Atlantic AHMA for October Affordable Housing Training
During the month of October 2023, A. J. Johnson will be partnering with the Mid-Atlantic Affordable Housing Management Association for a Low-Income Housing Tax Credit (LIHTC) training intended for real estate professionals, particularly those in the affordable multifamily housing field. The session will be presented via live webinar. The following session will be presented: October 18: Intermediate LIHTC Compliance - Designed for more experienced managers, supervisory personnel, investment asset managers, and compliance specialists, this program expands on the information covered in the Basics of Tax Credit Site Management. A more in-depth discussion of income verification issues is included as well as a discussion of minimum set-aside issues (including the Average Income Minimum Set-Aside), optional fees, and use of common areas. The Available Unit Rule is covered in great detail, as are the requirements for units occupied by students. Attendees will also learn the requirements relating to setting rents at a tax-credit property. This course contains some practice problems but is more discussion-oriented than the Basic course. A calculator is required for this course. This session is part of the year-long collaboration between A. J. Johnson and MidAtlantic AHMA that is designed to provide affordable housing professionals with the knowledge needed to effectively manage the complex requirements of the various agencies overseeing these programs. Persons interested in this training session may register by visiting either www.ajjcs.net or https://www.mid-atlanticahma.org.
Medical Marijuana - Is It a Fair Housing Issue?
Medically prescribed marijuana use is permitted in 37 states and the District of Columbia, specifically for medical purposes. In addition, 18 states (Alaska, Arizona, California, Colorado, Connecticut, District of Columbia, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New Mexico, Oregon, Vermont, Virginia, and Washington) have also legalized recreational marijuana. Property managers often inquire about whether individuals can be denied housing based on their marijuana use, considering the drug s legal status in the state where the property is located. The answer is both "yes and "no. Recreational marijuana users may be denied occupancy, but individuals with a physician s prescription for medical marijuana should not automatically face denial. While the Fair Housing Act (FHA) does not explicitly address drug use in housing, the legislative history used by HU, courts, and tribunals to interpret the law clearly indicates that the exclusion of current illegal drug users does not apply to individuals using controlled substances that are legally prescribed by a physician. According to an office House of Representatives report, "the exclusion does not eliminate protection for individuals who take drugs defined in the Controlled Substances Act for a medical condition under the care of or by prescription from, a physician. The report also asserts that "the use of a medically prescribed drug clearly does not constitute illegal use of a controlled substance. However, there are limitations to this protection for medical marijuana use: The marijuana must be legally prescribed by a physician for a specific medical condition authorized by state law. The person must use the marijuana solely for the prescribed condition. Usage should be confined to the person s own apartment and not common areas. The individual must not possess or cultivate more than the maximum amount permitted by law. Selling or distributing marijuana to others is not allowed. In contrast, recreational marijuana users do not enjoy the same legal protections as medical marijuana users, and they may face housing denial. However, this legal landscape can be complex. For this reason, managers should thoroughly explore state and local laws in places where recreational marijuana is legal. Property managers also need to consider one important factor when renting to individuals using medical marijuana. If the property is designated as non-smoking, permitting the smoking of medically prescribed marijuana on the premises would not constitute a "reasonable accommodation as it fundamentally alters the property s operations. Medically prescribed marijuana can be consumed in various forms, including food, pills, powder, topicals, and tinctures. Bottom Line: While medical (and even recreational) marijuana is permitted in many states, only users of medical marijuana are protected by the Fair Housing Act. And even users of medical marijuana must follow specific rules when using the marijuana at properties. Owners and managers of multifamily properties should develop written policies governing the use of medical marijuana at their properties, and those policies should be carefully reviewed by attorneys familiar with state and local laws relating to the issue of medical marijuana.
GAO Study is Critical of HUD Oversight of the Housing Trust Fund Program
The U.S. Government Accountability Office (GAO) was asked by members of Congress to examine the use and oversight of funds from the Housing Trust Fund (HTF) Program. In August 2023, the GAO published its findings in a report titled, "Affordable Housing - Improvements Needed in HUD s Oversight of the Housing Trust Fund Program. The report examines (1) the number and production rate of HTF units; (2) how selected grantees have used HTF and other funding sources; and (3) HUD s HTF oversight and reporting. What GAO Found As of March 1, 2022, HTF grantees had developed 2,186 rental units (in 263 projects) for households with extremely low incomes (not exceeding 30% of the area median). For the 12 selected grantees GAO reviewed, HTF accounted for about 10 percent of the total funds for 70 completed projects. Equity from investors in Low-Income Housing Tax Credits (LIHTC) was the largest funding source. 43 of the projects were new construction (with an average per unit development cost of $262,732), 26 of the projects were rehabilitation (with an average per unit development cost of $188,758), and one project was acquisition only ($34,590 per unit). Average costs vary widely from state to state, with California being the highest ($359,593 per unit) to Mississippi being the lowest ($144,614 per unit). Interestingly, the average per-unit development cost for projects with nonprofit developers was about $40,000 higher than costs for projects with for-profit developers. The reason for this appears to be that nonprofit organizations focus more on populations that are more costly to serve, such as special needs tenants who may require additional or enhanced facilities. The selected grantees were the state agencies responsible for administering the HTF program in Arizona, California, Georgia, Maine, Massachusetts, Minnesota, Mississippi, New York, North Dakota, Tennessee, and Utah. HUD monitors compliance with HTF funding commitment and expenditure deadlines, but weaknesses exist in its oversight and reporting. Specifically, HUD has not - Monitored grantee compliance with requirements for reporting project completion dates or data on total project units in HUD s information system; Effectively communicated requirements for grantees to obtain cost certifications for completed HTF projects; Conducted or scheduled a comprehensive assessment of fraud risks; and Disclosed limitations in its external HTF reports that could lead to misinterpretation of project cost and funding data. HUD officials are drafting procedures for better monitoring of HTF grantees. Implementation of these procedures will begin in 2024. HUD annually allocates HTF grant funds to states using a formula to determine grant amounts. The formula considers the shortage of rental homes affordable and available to very low-income and extremely low-income (ELI) renter households and the extent to which such households are living in substandard housing or spending more than 50% of their income on rent. The program has a minimum annual grant of $3 million for each of the 50 states and the District of Columbia. In 2022, 21 states and DC received less than $5 million and 23 states received between $5 million and $25 million. Allocations for the remaining seven states ranged from $26 million (Pennsylvania) to $132 million (California). By statute, all HTF funds must benefit very low- or extremely low-income households. HUD has indicated that at least 80% of the funds must be used for the production, rehabilitation, preservation, or operation of rental housing. 75% of the funds for rental housing must benefit ELI families or families with incomes at or below the poverty line. HTF rental units must adhere to income and rent restrictions for an affordability period of 30 years. The largest source of federal assistance for developing affordable rental housing is the LIHTC program, which provides federal income tax credits to encourage private equity investments in the construction or rehabilitation of affordable rental housing. LIHTC equity represents about 40% of total funding. A high percentage of HTF projects also utilize HOME funds, which is the largest HUD-administered program that funds housing development. About 57% of HTF units completed have been efficiency or one-bedroom units, about 26% are two-bedroom units, and about 17% have three or more bedrooms. Almost all HTF activity has been rental since low-income and ELI households may have difficulty obtaining mortgages for homeownership. Most completed HTF units (about 80%) are in projects located in metropolitan areas. Grantees generally use HTF funds to target special populations and build permanent supportive housing. Nine of the 12 selected grantees awarded HTF funds to projects that targeted special populations. Special populations include individuals experiencing homelessness, formerly incarcerated individuals, older adults, and veterans. Weaknesses Identified in the Study HUD identified two weaknesses in HUD s oversight of project completion requirements: Project Completion Deadline: HUD does not have procedures for reviewing whether HTF grantees are entering completion information into the HUD database within the 120-day regulatory deadline and has not conducted reviews. It does appear that grantee confusion regarding completion requirements may be contributing to noncompliance in this area. One specific area of confusion is the difference between HTF and LIHTC definitions of project completion. Since HUD is not reviewing project completion times, it is unaware of grantee noncompliance in this area. Data on total units in completed projects: HUD s data on the total number of units (HTF plus non- HTF units) in completed projects is inaccurate, and HUD does not have a centralized process for identifying likely errors. Other program weaknesses include - Failure of the grantees to comply with cost certification requirements; HUD has not comprehensively assessed HTF fraud risks; and HUD s reporting on HTF costs and funding could be misinterpreted. Conclusions Because HUD does not review grantees final drawdown and completion dates, it has been unaware of grantee noncompliance with and confusion about the requirement to enter project completion information within 120 days of the final drawdown of funds. Conducting such reviews and providing grantees additional instruction on the requirement could help ensure the timely completion of HTF-assisted projects and enhance the accuracy of HUD s data on HTF unit production. HUD has not effectively communicated requirements for grantees to obtain cost certifications for completed HTF projects, as evidenced by the absence of cost certifications for many projects. Because HUD has not scheduled or conducted a comprehensive assessment of fraud risks in the HTF program, it is not well-positioned to identify and mitigate risks that could reduce the program s efficiency and effectiveness. Recommendations of the GAO HUD should develop and implement a centralized process to monitor HTF grantee compliance with data entry requirements; HUD should develop and implement a system to monitor the total number of units in completed projects; HUD should use formal notices and training to enhance communication of the cost certification requirements; HUD should schedule and conduct a comprehensive assessment of HTF fraud risks; and HUD should revise its public reports on the HTF program to disclose that the amount of non-HTF funds may be underreported and that HTF units are only a portion of the total units in HTF-assisted projects. HUD has agreed to all five recommendations and will implement policies to adopt these recommendations in 2024. BOTTOM LINE This report responds to a Congressional request to assess the utilization and supervision of funds from the Housing Trust Fund (HTF) program. The report covered the number of HTF units developed, funding sources, and oversight by the Department of Housing & Urban Development (HUD). By March 2022, 2,186 rental units for ELI households were developed via the HTF. In a study of 12 grantees, HTF contributed around 10% of total funds for 70 completed projects, with LIHTC being a major source. Costs varied across states, with nonprofits incurring higher costs due to serving more costly populations. HUD s oversight was found to have weaknesses, including noncompliance with project completion reporting, lack of cost certifications, incomplete assessment of fraud risks, and misleading external reporting. The GAO recommends improving monitoring, communication, risk assessment, and public reporting. HUD agreed to implement these recommendations in 2024. All HTF grantees are encouraged to review the GAO report and be proactive in implementing changes that are likely to occur in 2024.