HUD Final Rule on HOME Program

On July 24, 2013, HUD published a final rule on the HOME program. Most provisions of the rule are effective for properties that receive HOME funds on or after August 23, 2013. Properties already operating under the HOME program, or that receive HOME funds prior to August 23, 2013 will continue to operate under the prior HOME rules.

 

The final regulation has four primary goals:

1. Accelerate the timely production and occupancy of assisted housing;
2. Strengthen the performance of PJs and their partners in producing and preserving affordable housing units;
3. Provide PJs with greater flexibility in the design and implementation of their programs; and
4. Increase administrative transparency and accountability.

 

Timely Production & Occupancy of Assisted Housing

 

A rental project is considered complete when construction is complete and units are ready for occupancy. HOME projects must be completed within four units of funding commitment.

v If not, the PJ will have to repay the HOME funds that have been drawn.

 

HOME-assisted rental units must be occupied within 18 months of project completion. If they are not, the PJ will have to repay the HOME funds for the non-occupied units.

v If units are vacant six months following completion, the PJ will have to report to HUD on the marketing efforts being undertaken and may be required to develop an enhanced marketing plan.

 

A homebuyer unit must have a ratified sales contract within nine months of construction completion. If it does not, it must either be converted to a rental unit or the funds paid back.

 

Funds set-aside for Community Housing Development Organizations (CHDOs) must be committed to specific projects within 24 months of the PJ receiving its HOME allocation. (Note: this becomes effective October 22, 2013 and will be implemented by HUD for deadlines after January 1, 2015.)

v PJs can no longer “reserve” CHDO funds for projects to be identified at a later date.

v CHDO set-aside funds must be fully expended within five years of when the PJ receives its HOME allocation.

 

Strengthen Performance in Producing and Preserving Affordable Housing

 

Main issues in this area relate to underwriting, property standards, construction oversight, CHDO qualifications and capacity, and long-term project viability.

 

• Underwriting and Program Design
  • PJs must underwrite all HOME projects to ensure financial feasibility over the affordability period, and must review
    • Cost;
    • Market demand;
    • Developer capacity; and
    • Other funding sources
• Effective January 24, 2014, PJs must adopt program policies for homebuyer programs:
  • Determine necessary assistance;
  • Assess the ability of the buyer for long-term success; and
  • Have anti-predatory lending and subordination policies.
• Homebuyers must receive housing counseling before receiving HOME assistance.

 

Property Standards & Construction Oversight (this section is effective for projects funded on or after January 24, 2015)

 

• Property standards must use current national codes Standards are organized by project type:
  • New Construction;
  • Rehab;
  • Acquisition without rehab; and
  • Manufactured Housing
  • PJs must identify a plan for major system repairs
  • Rental rehab of 26 or more units must have a capital needs assessment.
  • PJs must develop ongoing inspection policies and procedures, effective July 24, 2014.
    • Must use state or local codes, or, in the absence of such codes, UPCS (replaces HQS). – HUD will issue additional guidance on this issue.

 

CHDO Qualification & Capacity Requirements

 

To qualify as a CHDO, a non-profit must have paid staff with the necessary experience to undertake CHDO set-aside activities.

• This requirement may not be met by a consultant.

 

Each time the PJ commits HOME funds to a CHDO, it must recertify the qualifications of the non-profit.

 

Long-Term Viability or Rental Projects

 

During the affordability period, PJs must examine the financial condition of projects with ten or more HOME units at least annually (this provision is effective July 24, 2014).

 

Provide Flexibility in Program Design and Administration

 

PJs may utilize a risk-based monitoring system and adjust the schedule of ongoing rental unit inspections.

• Inspections must occur no less than every three years.
  • The first inspection must be within 12-months of project completion.

 

PJs may charge fees for their services:

• Reasonable application fees;
• Homebuyer counseling fees; and
• Ongoing rental monitoring fees

 

Increase Administrative Transparency and Accountability

 

PJs must develop risk-based monitoring systems for all HOME-funded activities.

 

Other Elements of Importance to Multifamily Developers & Managers

 

• Housing: The definition of housing has been specifically changed to exclude halfway housing, dormitories (including farmworker dormitories), and all types of student housing (note that the eligible student definition has been changed to match the Section 8 definition of an eligible student).
  • HOME housing must be permanent or transitional.
  • Income Determinations:
    • Source Documentation – must have a minimum of at least two months of source documentation (e.g., wage statements, interest statements, etc.) when determining income for HOME beneficiaries.
    • Census Long Form may no longer be used as a definition of annual income.
      • May use Section 8 definition or IRS income, but a single definition must be used for each project.
• This section of the rule clarifies that income of all household members counts – whether or not they are related.
• Manager Unit: Projects with 100% HOME units may convert one HOME-assisted unit to a manager unit.
• Costs Incurred before the Commitment of HOME funds
  • HOME funds may be used to pay professional service fees that were incurred prior to the commitment of HOME funds.
    • They must have been incurred no more than 24-months prior to fund commitment.
    • Troubled HOME-assisted rental projects that are at-risk of foreclosure may be given additional HOME funds with HUD approval.
      • The number of HOME-assisted units may also be reduced with HUD approval, but not below the minimum number of required HOME units.
      • Fees Charged by Project Owners
        • Project owners may not charge fees to tenants that are not reasonable or customary. Reasonable application fees, parking fees (when customary in the neighborhood), and the cost of non-mandatory services are allowable. (Note: when HOME funds are combined with LIHTC, rules of the tax credit program relative to permitted fees must also be followed).
        • Qualification as Affordable Housing – Rental Housing; A number of new requirements as been added in this area:
          • Initial Occupancy of Vacant Units:
            • Within six months after project completion, the PJ must provide information to HUD on the marketing efforts of any units that have not yet been rented, and if necessary, must submit an enhanced marketing plan;
            • If the unit still has not been rented 18 months after completion, HUD funds invested in the unit must be repaid by the PJ to HUD.
• Utility Allowances:
  • PJ is required to develop a utility allowance and update it annually.
    • Significant Change: a separate allowance must be developed for each HOME project. They may use the HUD Model Allowance or specific project utilities. The PJ may no longer rely on the PHA allowance for the Voucher program.
• Rent Review & Approval:
  • The former rule required that the PJ approve initial rents, and then provide maximum rents on an annual basis;
  • New Rule: PJ must examine and approve rents each year to ensure compliance with maximum HOME rents and that there is not an undue increase from a prior year.
• Tenant Protections & Selection:
  • Leases are required – all HOME units must have a lease, which must be at least one year (unless a shorter period is agreed to by both the tenant and landlord).
  • A lease may not require a tenant to accept supportive services (except for residents of transitional housing).
  • Leases may only be non-renewed or terminated for good cause.
    • Repeated lease violations;
    • Violations of federal, state, or local law; or
    • Completion of tenancy for transitional housing.
      • If a tenant fails to participate in required supportive services for transitional housing, the lease may be terminated.
      • An increase in a tenant’s income does not constitute good cause for termination or non-renewal.
  • Renting to special needs populations:
    • Owners may limit eligibility of HOME-assisted housing or give preference to a particular group only if the PJ permits it in the written agreement.
    • This does not apply if the project also receives assistance from a federal program that limits eligibility to a particular population segment, such as
      • HOPWA, HUD’s homeless programs, Section 202 program, and Section 811 Program.
  • Other Tenant Selection Requirements:
    • Owners must comply with HUDs Affirmative Fair Housing Marketing Plan requirements and adopt and follow tenant selection policies and criteria;
      • Tenant selection criteria must limit occupancy in HOME-assisted rental housing to income eligible families; and
      • Tenant selection criteria must be related to an applicant’s ability to pay rent, maintain the unit in reasonable condition, and not interfere with the rights of other tenants.

 

Affirmative Marketing: Minority Outreach Program

 

Affirmative marketing procedures now apply to all HOME-funded programs. Previously, the AFHMP requirements applied only to projects with five or more HOME units.

 

When a project has tenant preferences, the PJ must have affirmative marketing procedures that apply to the universe of the preference. For example, a project with a homeless preference could not rely solely on referrals from a specific homeless provider if there are other homeless providers with potential applicants in the market area.

 

This synopsis has outlined requirements that are of greatest concern to private developers. The final rule has many other components and requirements relating to CHDOs, Homebuyer Assistance Programs, Faith Based Organizations, Environmental reviews, and other requirements of the Participating Jurisdiction. It is strongly recommended that anyone with a comprehensive interest in the HOME program review the entire rule for applicability with his or her situation.