A. J. Johnson Consulting Services, Inc.

On September 4, 2024, the Rural Housing Service (RHS) Office of Multifamily Housing (MFH) published an Unnumbered Letter (UL) notifying MFH staff of the anticipated timeline for implementing the requirements of the Housing Opportunity Through Modernization Act (HOTMA). The HOTMA changes that impact the determination of income affect the RHS Multifamily Housing portfolio.

On March 4, 2024, the Rural Housing Service (RHS) issued a UL notifying multifamily housing staff and stakeholders of RD’s exceptions for HOTMA implementation. The purpose of the September 4 UL is to provide additional guidance and timeframes on implementing changes related to HOTMA. These changes will be in effect for RD projects on January 1, 2025. However, RD will take certain actions before January 1, 2025, as follows.

September 2024: RD will provide updated Management Interactive Network Connection (MINC)/Industry Interface specifications for software providers. These new specs will be posted to the MINC home page.
October 2024: RD will publish updated Form RD 3560-8 Tenant Certification. The revised form will allow for changes to asset calculations, adjusted income (deductions), and additional options for gender and will include an updated Form Manual Insert (Instructions). The revised form must be used for all tenant certifications with an effective date of January 1, 2025, or later. The current Form 3560-8 will be used for certifications until January 1, 2025.
- RD will also publish Handbook, HB-2-3560 updates to reflect HOTMA changes in October.
January 2025: Multifamily Information Systems (MFS) and MINC systems will be updated to account for the asset and deduction changes correctly.
- All tenant certifications effective January 1, 2025, and later must implement:
  - New income from asset calculations.
  - The dependent deduction will follow HUD’s annually published deduction. For calendar year 2025, this amount remains $480 per dependent.
  - The elderly deduction will follow HUD’s annually published deduction. For calendar year 2025, this will increase from $400 to $525 per household.
  - For new move-ins, medical expenses exceeding 10 percent of the household’s annual income can be deducted from annual income. Before HOTMA, the threshold was three percent of the family’s annual income.
  - For existing residents completing their annual recertification:
    - Phased-in Relief: Households that qualified for the three percent deduction threshold based on their most recent income certification before January 1, 2025, will begin receiving the 24-month phased-in relief at their next annual recertification, which occurs on or after January 1, 2025.
      - Households who received phased-in relief will have eligible expenses deducted that exceed 5 percent of annual income for 12 months.
      - Twelve months after the five percent phase-in began, households will have eligible expenses deducted that exceed 7.5 percent of annual income for the immediately following 12 months.
      - After the household has completed the 24-month phase-in at the lower thresholds described above, the family will remain at the ten percent threshold unless the family qualifies for relief under the general hardship relief provision.
    - If a family moves from one RD property to another RD property, the phased-in relief may continue. Owners must establish their own policy if they choose to continue the phased-in hardship relief for households who were eligible for relief as of January 1, 2025, and who are treated as new admissions at their property.
  - A current checking account statement will be sufficient to verify a checking account balance. HOTMA eliminated the requirement to use a six-month average balance for checking accounts.
  - The actual amount of child support/alimony received by a household will be included in income. The court ordered amount will no longer be considered.
  - Annual income exclusions have been updated, which include, but are not limited to, changes related to student financial aid, non-recurring income, payments from trusts, and non-cash contributions.
  - HOTMA updates the definition of net family assets, including:
    - Changes to what is excluded when considering net family assets and
    - Differentiates between necessary personal property and non-necessary personal property.
  - HOTMA changes the calculation of income from assets:
    - The threshold for calculating imputed income from assets increases from $5,000 to $50,000.
    - When assets exceed $50,000, imputed income must be calculated but only on assets where no actual income can be computed. If the actual income can be computed for some assets but not all assets, determine the actual income for those asset, then calculate the imputed income for all remaining assets where the actual income cannot be determined, and combine both amounts for total income from assets.
      - HOTMA allows several thresholds to be adjusted annually for inflation. For calendar year 2025, the threshold for calculating imputed income for net family assets is increasing to $51,600, and the imputed rate is rising to 0.45%.

RD will not penalize owners for HOTMA-related tenant file deficiencies during supervisory reviews before January 1, 2025. Examples where owners will not be penalized include:

Passbook Savings Rate Change: RD implemented the 0.4% imputed rate on January 1, 2024. HUD and other agencies have allowed owners to delay this change until January 1, 2025. For tenants with assets over $5,000, this has most likely caused a difference in annual income calculations. This will not be cited until January 1, 2025.

The UL also provides clarifying information on some other HOTMA-related issues. Among the most critical clarifications are:

While only some parts of HOTMA will be implemented by RD, all HOTMA required changes regarding income inclusion and exclusion, and the methodology for determining adjusted income will be followed. These include earned income, foster adult, foster child, health and medical care expenses, net family assets, and unearned income.
RD will not implement the following HOTMA provisions:
1. Streamlined determination of income.
1. Use of "Safe-Harbor" income verification. This is income verification from other federal means-tested programs to verify gross annual income.
1. HUD’s de minimis error provisions. Any error in income determination on an RD property must be corrected.
1. RD will not implement the $100,000 asset limitation for tenant or rental assistance eligibility.
1. RD will not implement the HUD interim reexamination regulations. RD projects still require that tenant households be recertified whenever a change in household income of $100 or more per month occurs. Recertifications must also be performed for changes of $50 per month if a tenant requests.
1. RD will not accept self-certification of assets by households. All assets must be verified.

RD has adopted the HUD HOTMA rule regarding the definition of necessary and non-necessary personal property. As with HUD, if the total value of all non-necessary personal property does not exceed $50,000, such property will be excluded from net family assets.

RD is permitting the Childcare Hardship Exemption. A household whose eligibility for the childcare expense deduction is ending may request/receive a hardship exemption to continue receiving a childcare expense deduction in certain circumstances when the household no longer has a member working, looking for work, or seeking to further their education. The deduction is necessary because the household is unable to pay their rent. The hardship exemption and the resulting alternative adjusted income calculation must remain in place for up to 90 days.

Unborn children are not eligible for the dependent deduction. While HUD permits unborn children to be counted for income eligibility purposes, RD does not. However, unborn children may be counted to determine the appropriate unit size.

RD is not implementing the HUD Hierarchy of Verification of Income but does plan to provide guidance in the Handbook on acceptable forms of verification. There are some forms of tenant-provided information that may be acceptable and preferred over third-party verification forms, such as Social Security award letters, pay stubs, bank statements, etc.

RD does not require an update to Tenant Selection Plans, but such plans should be updated if the current policy contains verbiage contradictory to any HOTMA updates.

All owners and Managers of RD properties should review the UL and be prepared to implement all the RD-mandated changes on January 1, 2025.

Rural Development Provides Comprehensive Information Regarding HOTMA Implementation

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