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HUD Publishes Final Rule Updating HOME Regulations

HUD's HOME Investment Partnerships Program (also known as the HOME program or HOME) provides formula grants to states and local government units to support various activities to produce and maintain affordable rental and homeownership housing. The program also offers tenant-based rental assistance for low-income and very low-income households. This final rule updates the current HOME regulations to enhance, simplify, and streamline requirements, better align the program with other federal housing programs, and implement recent amendments to the HOME statute. Additionally, this final rule includes minor revisions to the regulations for the Community Development Block Grant and Section 8 Housing Choice Voucher Programs, consistent with the changes to the HOME program. This final rule follows the publication of a proposed rule on May 29, 2024, and incorporates the feedback received regarding that proposed rule. This final rule will be effective on February 5, 2025. The rule changes for the HOME program have been made in the following general areas: Tenant Protections and Lease Requirements: Enhanced tenant protections, including requirements for lease contents, notice provisions, tenant rights, prohibitions on unreasonable interference or retaliation by owners, and ensuring tenants' rights to organize and access common areas. Property Standards and Inspections: Updated property standards for new construction, rehabilitation, and ongoing property conditions, including requirements for carbon monoxide and smoke detection, disaster mitigation, green building standards, and revised inspection procedures and frequency requirements. Affordability and Income Determinations: Adjusted periods of affordability based on the amount of HOME funds invested, updated income determination methods, streamlined income determination processes, and provisions for accepting income determinations from other Federal or State programs. Tenant-Based Rental Assistance (TBRA): Revised requirements for rental assistance contracts, including terms, amendments, renewals, and income determinations, with enhanced tenant protections and lease addendum requirements. Community Housing Development Organizations (CHDOs): Revised CHDO qualification requirements, roles in owning, developing, and sponsoring housing, and provisions for capacity building and operating expenses. Homeownership Assistance: Updated homeownership value limits, resale and recapture provisions, requirements for lease-purchase programs, and adjusted periods of affordability for homeownership assistance. Environmental, Health, and Safety Hazards: Requirements for notifying tenants and participating jurisdictions of environmental, health, or safety hazards affecting projects or units. Program Administration and Compliance: Changes to the closeout process, recordkeeping requirements, corrective and remedial actions, and adjustments to the applicability of uniform administrative requirements and provisions for reallocations by formula. Security Deposits and Fees: Prohibitions on using surety bonds or security deposit insurance in lieu of security deposits, and requirements for refundable security deposits and allowable fees. Green Building and Resiliency: Incentives for projects meeting green building standards, allowing jurisdictions to exceed maximum per-unit subsidy limits for such projects. Utility Allowances and Rent Limits: Flexibility in determining utility allowances using HUD-approved methods and aligning rent limits with other Federal and State rental assistance programs. Financial Oversight: Annual examination of the financial condition of projects with 10 or more HOME-assisted units to ensure continued economic viability. Tenant Selection and Marketing: Requirements for written tenant selection policies, affirmative marketing, and nondiscrimination compliance. Project Costs and Eligible Activities: This section clarifies eligible project costs, including pre-development costs, environmental assessments, and using HOME funds for acquisition through ground leases. Administrative and Planning Costs: Provisions reimbursing administrative and planning costs, including project inspections and monitoring costs. While the changes are essential and must be fully understood by Participating Jurisdictions, since my practice focuses on affordable rental housing, I will also focus on that in the articles I post about them. Due to the complexity of the final rule, which is more than 500 pages, I will provide articles on the changes affecting multifamily housing complexes using HOME funds. Over the next few weeks, I will post articles on the following areas of the final rule. (1) Tenant Protections & Lease Requirements, (2) Property Standards & Inspections, (3) Affordability and Income Determinations, (4) Security Deposits & Fees, (5) Utility Allowances & Rent Limits, and (6) Tenant Selection & Marketing. These articles will assist owners and managers of rental properties with HOME funds to understand the new rules that will impact projects that obtain HOME funding beginning on February 5, 2025. If you know of an industry professional who may benefit from these articles, please encourage them to log into our website and sign up to receive automatic notification of future articles. They can subscribe to our articles by visiting our website (ajjcs.net), clicking "news," and then "subscribe" in the lower right corner.

USDA Updates Audit Requirements for Rural Housing and Community Facilities Programs

On December 6, 2024, the U.S. Department of Agriculture's Rural Housing Service (RHS) issued a final rule updating audit and financial statement requirements for its Multi-Family Housing and Community Facilities programs. These changes align the agency's regulations with recent revisions from the Office of Management and Budget (OMB) regarding federal financial assistance guidance. Key Changes in Audit Thresholds The final rule implements several significant modifications to audit requirements: Community Facilities: The audit threshold for Community Facilities program participants has increased from $750,000 to $1,000,000 in federal financial assistance per fiscal year. Multi-Family Housing: Non-profit borrowers receiving $1,000,000 or more in combined federal financial assistance must now adhere to OMB audit requirements, which have been raised from the previous $750,000 threshold. For-profit borrowers and smaller non-profits: Organizations receiving less than these thresholds may submit alternative financial reports, with specific requirements based on funding levels. Financial Reporting Requirements For organizations below the audit thresholds, the rule maintains flexibility in financial reporting: Non-profit borrowers receiving less than $1 million and for-profit borrowers receiving less than $500,000 in federal assistance can submit annual owner-certified prescribed forms using the accrual method of accounting. These reports must comply with the Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants (AICPA). Organizations may engage a CPA to prepare compilation reports of the prescribed forms. Administrative Updates The rule also includes technical modifications to align with current federal guidance: - Removes specific CFR issue dates to allow flexibility for future updates. - Updates terminology to replace "applicant" with "recipient" or "subrecipient" where applicable. - Streamlines references to OMB guidance throughout the affected regulations. Impact and Implementation These changes are expected to lessen the administrative burden for smaller organizations while ensuring appropriate oversight of federal funds. The updated thresholds account for inflation adjustments and modern federal grant management practices. The final rule impacts multiple USDA Rural Development programs, including: - Farm Labor Housing (Section 514) - Rural Rental Housing (Section 515) - Community Facilities Programs - Rural Business-Cooperative Service initiatives Organizations receiving USDA Rural Development funding should review these new requirements to ensure compliance with the appropriate audit and financial reporting standards based on their federal assistance levels. For more information, affected organizations can contact Julie Felhofer, chief of the Policy & Budget Branch, at 715-295-4069, Julie.felhofer@USDA.gov, or Nathan Chitwood, Director of Community Facilities at USDA Rural Development, at 573-876-0965, Nathan.chitwood@USDA.gov. This rule is part of the USDA's ongoing efforts to modernize its regulations, align them with government-wide standards for federal financial assistance programs, and ensure effective oversight of federal funds.

HUD Issues Final Rule Updating HOME Investment Partnerships Program

The U.S. Department of Housing and Urban Development (HUD) has announced a significant update to the HOME Investment Partnerships (HOME) program regulations. This final rule, which will be published in the Federal Register on January 6, 2025, aims to modernize and streamline program requirements and ensure better alignment with other federal housing initiatives. Here is a detailed overview of the changes and their implications for stakeholders. Key Highlights of the Final Rule Simplification and Streamlining: The updated regulations are designed to reduce administrative burden and complexity, making it easier for participants to navigate the program requirements. Changes include clarified guidelines and updated processes to improve efficiency and accessibility. Alignment with Other Federal Housing Programs: The revisions harmonize HOME program regulations with other federal housing initiatives, such as the Community Development Block Grant (CDBG) and Section 8 Housing Choice Voucher programs. This alignment facilitates cohesive and complementary use of federal housing resources. Implementation of Recent Statutory Amendments: The final rule incorporates recent amendments to the HOME statute, ensuring compliance with current legislative mandates. Applicability: The revised regulations apply to developments for which HOME funds are committed on or after 30 days following the publication date effectively starting February 5, 2025. Background on the Final Rule The final rule follows the publication of a proposed rule on May 29, 2024. HUD received and reviewed extensive feedback from stakeholders during the comment period, resulting in adjustments to ensure the regulations address both practical challenges and statutory requirements. Minor revisions were also made to CDBG and Section 8 program regulations to align with the updated HOME program rules. Implications for Affordable Housing Stakeholders For Developers: Developers planning to utilize HOME funds for projects must familiarize themselves with the updated requirements to ensure compliance. Streamlined processes may expedite project approvals and reduce administrative delays. For Public Housing Agencies (PHAs) and Local Governments: Agencies administering HOME funds will benefit from more precise regulations and enhanced alignment with other federal housing programs. Training and resources may be required to adapt to the new requirements. For Tenants and Communities: The updates aim to enhance the efficiency and effectiveness of HOME-funded projects, resulting in improved housing opportunities for low-income families. Next Steps HUD encourages all stakeholders to review the final rule in detail and assess its impact on their operations and strategies. Additional guidance and training materials are expected to be released to assist in the transition to the updated regulations. Conclusion The final rule represents a significant step forward in modernizing the HOME program and optimizing its role in addressing the nation s affordable housing needs. Stakeholders must promptly align with the updated requirements and capitalize on the improved processes. Shortly, I will post an article on the A. J. Johnson Consulting Services website outlining the most significant HOME rules changes, especially those that will impact management operations at projects utilizing HOME funds.

HUD Extends HOTMA Compliance Deadline for Community Planning and Development Programs to 2026

The U.S. Department of Housing and Urban Development (HUD) has announced an extension of the compliance deadline for implementing specific provisions of the Housing Opportunity Through Modernization Act (HOTMA) final rule for Community Planning and Development (CPD) programs. This extension will be official when published in the Federal Register on December 31, 2024. Key Points: The extension applies to multiple programs including HOME Investment Partnerships, HOME-American Rescue Plan, Housing Trust Fund (HTF), Housing Opportunities for Persons With AIDS (HOPWA), Community Development Block Grant (CDBG), Emergency Solution Grants (ESG), and Continuum of Care (CoC) programs. CPD grantees must comply with the HOTMA final rule by January 1, 2026, but they may choose to implement the changes earlier, starting from January 1, 2024. HUD cited delays in updating its systems and the need to provide grantees additional time to incorporate new income and asset requirements into their programs as reasons for the extension. Safe Harbor Provisions: The notice also allows certain CPD grantees to implement income safe harbor provisions before the extended compliance date: HOPWA, ESG, and CoC program grantees may use the safe harbor provision at 24 CFR 5.609(c)(3). HOME and HTF grantees can implement specific safe harbor provisions under their regulations. Grantees must update their program guidelines and establish appropriate policies before using these provisions. Background: This extension follows earlier announcements affecting other HUD programs: In September 2024, the Office of Public and Indian Housing (PIH) announced that Public Housing Agencies would not need to implement certain HOTMA provisions by January 2025. The Office of Housing issued a similar notification extending the deadline to July 1, 2025 for multifamily owners. Until their new compliance dates, CPD grantees must continue following existing regulations as they were before January 1, 2024, while having the option to implement the new safe harbor provisions described in the notice. The extension aims to ensure a smoother transition to the new requirements while reducing the administrative burden on grantees who may otherwise need to maintain two different income requirements for the same units.

Rural Development Updates Form 3560-8, Tenant Income Certification

On December 10, 2024, the Rural Housing Service (RHS) Office of Multifamily Housing (MFH) announced an updated Form RD 3560-8 Tenant Certification for the July 1, 2025, implementation of the changes to income and asset calculations due to the Housing Opportunity Through Modernization Act (HOTMA).  On October 3, 2024, RHS Multifamily Housing extended the implementation of applicable HOTMA regulations to July 1, 2025.  Effective on or after July 1, 2025, all MFH tenant certifications must comply with HOTMA requirements. Rural Development has updated Form RD 3560-8 Tenant Certification to accommodate HOTMA changes. The revised Form was published on December 06, 2024, and is available on the United States Department of Agriculture s (USDA) eForms website. Since tenant certifications can be submitted to the Agency up to 90 days before their effective date, please note the following: The updated Form RD 3560-8 is for tenant certifications with an effective date of July 1, 2025, or after. The previous Form RD 3560-8 has been renamed Form RD 3560-8A and will be used for tenant certifications effective before July 1, 2025. Both forms can be found on the eForms website. For previously published Rural Development guidance related to HOTMA, please refer to the following: Unnumbered Letter published March 4, 2024 Unnumbered Letter published August 19, 2024 MFH Stakeholder Announcement HOTMA Implementation update October 3, 2024 Unnumbered Letter published November 14, 2024 (Passbook Savings Rate update)

Trump Nominates Scott Turner as HUD Secretary

In a significant move relating to affordable housing, former President Donald Trump has nominated Scott Turner as Secretary of the U.S. Department of Housing and Urban Development (HUD). Known for his leadership and commitment to community development, Turner brings a dynamic blend of experiences to the role. Scott Turner is an American politician and former professional football player who has served in various public service roles. He played as a defensive back in the NFL from 1995 to 2003 with the Washington Redskins, San Diego Chargers, and Denver Broncos. After his NFL career, Turner entered politics in Texas. From 2013 to 2019, he served as a Republican in the Texas House of Representatives for District 33. During his time in the state legislature, he focused on economic development and education initiatives. In 2019, Turner was appointed Executive Director of the White House Opportunity and Revitalization Council under President Trump. There, he implemented and oversaw Opportunity Zones across the country, a program designed to spur economic development and job creation in economically distressed communities. Turner has been known for focusing on economic development, particularly in underserved communities, and has frequently spoken about the importance of creating pathways to prosperity through public-private partnerships. As HUD Secretary, Turner s priorities are expected to align with his previous initiatives. These include expanding affordable housing options, strengthening public-private partnerships to revitalize urban areas, and addressing systemic challenges such as homelessness and housing insecurity. His nomination comes at a critical time as the nation grapples with escalating housing costs, supply shortages, and the lingering effects of the COVID-19 pandemic on vulnerable populations. Supporters of Turner s nomination laud his hands-on approach and ability to engage with local leaders, community organizations, and private investors to drive meaningful progress. However, critics have raised concerns about the long-term impacts of Opportunity Zones, particularly regarding potential displacement and gentrification in some areas. Turner s ability to address these concerns while fostering equitable development will likely be a focal point during his confirmation hearings. Senate confirmation of Turner is expected, and no significant objections to the appointment have yet been raised.

Treasury Posts Support of HFA Disincentives for Qualified Contracts

In a December 12, 2024 post, the U.S. Department of Treasury expressed strong support for Housing Finance Agency (HFA) attempts to prevent or limit qualified contract requests for LIHTC projects. According to recent Harvard Joint Center for Housing Studies data, the United States is facing an unprecedented housing affordability crisis. Record numbers of renters spend over 30% of their income on housing and utilities. As housing costs continue to climb in the wake of the pandemic, preserving existing affordable housing stock has become increasingly critical. The Low-Income Housing Tax Credit (LIHTC) program is the federal government's primary tool for expanding the affordable housing supply. Between 2000 and 2019, it supported approximately 25% of new apartment construction. However, a provision known as the Qualified Contract option threatens to prematurely remove thousands of units each year from the affordable housing inventory. Understanding the Qualified Contract Challenge The Qualified Contract provision, introduced in 1989, was designed to encourage private investment in affordable housing by offering property owners an early exit option. After 14 years, owners can request their state housing agency find a buyer willing to pay a statutorily defined price. If no qualified buyer emerges within a year, the property can convert to market-rate housing despite the original 30-year affordability commitment. This mechanism has led to significant losses in affordable housing stock. Current estimates indicate that 6,000-10,000 low-income units are lost annually through Qualified Contracts, with cumulative losses reaching approximately 115,000. The problem has intensified recently as the statutory pricing formula often exceeds market value, making it difficult for agencies to secure buyers willing to maintain affordability restrictions. State-Level Solutions State housing agencies have implemented various strategies to address this challenge: Mandatory Waivers Many states now require LIHTC applicants to waive their Qualified Contract rights as a prerequisite for receiving tax credits. North Dakota and Nevada exemplify this approach, making such waivers mandatory for new applications. The Treasury Department strongly endorses these policies and encourages their application across 4% and 9% LIHTC programs. Incentive-Based Approaches Some states have adopted point-based systems to encourage longer affordability commitments. Georgia's program, for instance, awards developers incremental points based on the duration of their Qualified Contract waiver: one point for a 5-year waiver, two points for 10 years, and three points for a complete waiver. Deterrence Measures States have also implemented policies discouraging Qualified Contract requests from existing LIHTC property owners. These measures include: Disqualifying applicants with a history of Qualified Contract requests (Maine, North Carolina) Assigning negative points to applicants who have previously pursued Qualified Contract exits (Indiana, Kansas, New Hampshire) Awarding bonus points to applicants who have never requested a Qualified Contract (South Carolina) Federal Support and Coordination Federal agencies are aligning their policies to reinforce these state-level efforts: HUD has proposed restricting FHA Multifamily and Risk Share insurance access to owners who waive Qualified Contract rights. The Federal Housing Finance Agency now prohibits Fannie Mae and Freddie Mac from investing in properties that retain Qualified Contract options. The USDA's Rural Housing Service is developing complementary measures. Looking Forward The Treasury Department strongly supports state and federal initiatives to limit the use of Qualified Contracts and preserve affordable housing. These coordinated efforts are a crucial component of the administration's comprehensive strategy to address the housing affordability and supply challenges facing American families. As housing costs strain household budgets nationwide, preserving existing affordable units through Qualified Contract restrictions becomes increasingly vital. State agencies' innovative approaches to this challenge demonstrate the potential for policy solutions that balance private sector participation with long-term affordability goals. This article reflects the Treasury's position on best practices in LIHTC administration as of December 2024. Please consult your state housing agency for the most current guidance and requirements.

HOTMA Implementation Guide- Key Updates for Multifamily Housing Owners

The U.S. Department of Housing and Urban Development (HUD) has released updated guidance on implementing the Housing Opportunity Through Modernization Act of 2016 (HOTMA). This comprehensive overview highlights essential deadlines and requirements for Multifamily Housing (MFH) owners, as outlined in the updated HOTMA FAQ. Key Implementation Dates July 1, 2025: Mandatory compliance date for HOTMA provisions. May 31, 2024: Deadline for updating Tenant Selection Plan (TSP) and EIV Policies. Early 2025: Expected release of TRACS 203A system. January 1, 2024: Phased-in medical hardship relief application date. The HOTMA final rule requires the phased-in medical hardship relief to be applied only to families who received the medical deduction based on their most recent income review before January 1, 2024. However, MFH Owners may, at their discretion, utilize the general hardship provision as outlined on pages 43-45 of Notice H 2023-10 to assist affected families, including those who receive a medical deduction but are ineligible for phased-in relief and will otherwise see their deduction drop significantly. HUD reserves the right to permit medical hardship relief waivers on a case-by-case basis. Interim Implementation Options MFH owners can begin implementing HOTMA provisions before the mandatory compliance date. During this transition period: Owners may calculate family incomes and tenant rents manually. The current TRACS 202D system can be used with the rent override function. Both pre-HOTMA and HOTMA-compliant TSPs will be reviewed during Management and Occupancy Reviews (MORs). Management and Occupancy Reviews Contract Administrators will handle HOTMA-related issues during MORs as follows: Before July 1, 2025: HOTMA-related tenant file errors will result in observations rather than penalties. TSP compliance with Notice H 2024-04 was mandatory by May 31, 2024; non-compliance will result in findings. Minor HOTMA-related errors unrelated to Notice H 2024-04 will only receive observations until the TRACS 203A release. Model Leases and Forms New HUD-approved model leases will be released before the mandatory compliance date. When implementing new leases: Families must receive copies 60 days before the lease term ends. A clear explanation letter must be provided. Families have 30 days to accept or refuse modifications. Non-response within 30 days may lead to tenancy termination procedures. Financial Considerations Inflationary Adjustments Properties implementing HOTMA must use adjusted values for the calendar year 2025. Pre-HOTMA amounts remain valid until July 1, 2025, for non-implementing properties. Passbook Savings Rate The rate of 0.06% (effective February 1, 2015) may be used by owners who still need to implement HOTMA. Owners making manual adjustments will not be penalized for using the current imputed rate of 0.40%. HOTMA 2025 rate: 0.45% Medical Hardship Provisions Phased-in medical hardship relief applies only to families with medical deductions reviewed before January 1, 2024. General hardship provisions may be utilized for affected families. HUD may permit case-by-case medical hardship relief waivers. Looking Ahead MFH owners should: Subscribe to the MFH mailing list for updates. Monitor for TRACS 203A release. Prepare for full compliance by July 1, 2025. Review and implement necessary policy updates. Stay informed about new form releases and system changes. This guidance represents a significant transition in multifamily housing administration. Property owners and managers should carefully review all requirements and prepare for full implementation while taking advantage of available flexibility during the transition period.