HUD issued a proposed rule on January 14, 2015 titled “Streamlining Management & Occupancy Reviews for Section 8 Housing Assistance Programs and Amending Vacancy Payments for Section 8 and Section 162 Housing Assistance Programs.”
This proposed regulation would amend existing Section 8 Project-based regulations relating to MORs and vacancy payments for a number of HUD programs, including Section 8 HAP New Construction, State Housing Agencies and RD Section 515 with Section 8.
HUD is proposing this change in order to reduce the frequency of MORs, which would minimize interruptions in property operations created by onsite reviews. The proposed rule will also reduce vacancy payments made to owners for vacant assisted units.
Comments on the proposed rule are due by March 16, 2015.
Management & Occupancy Reviews (MORs)
Under existing regulations, the frequency of MORs across all the Section 8 programs is inconsistent. Section 8 New Construction, Substantial Rehab and State Agency programs are required to perform annual MORs. Other programs, including Section 515/8, require reviews “as necessary” to ensure compliance. Section 202/8 provide no timeframe for reviews.
HUD is proposing to revise the regulations that govern MORs for Section 8 projects and allow HUD the flexibility to set a schedule that is more in-line with the needs of the programs. HUD published a separate notice in the January 14, 2015 Federal Register outlining the proposed schedule of reviews. Current regulation requires that MORs be conducted annually for virtually all HUD assisted projects. The Notice proposes the following schedule of MOR reviews:
*Projects with a Below Average or Unsatisfactory score on the last MOR and a risk classification of Troubled, Potentially Troubled, or Not Troubled, must have an MOR within 12 months of the last MOR conducted at the project;
*Projects with a Satisfactory score on the last MOR and a risk classification of Troubled or Potentially Troubled, must have an MOR within 24 months of the last MOR conducted at the project;
*Projects with an Above Average or Superior score on the last MOR and a risk classification of Troubled, must have an MOR within 24 months of the last MOR conducted at the project;
*Projects with a Satisfactory score on the last MOR and a risk classification of Not Troubled, must have an MOR within 36 months of the last MOR;
*Projects with an Above Average or Superior score on the last MOR and a risk classification of Potentially Troubled or Not Troubled, must have an MOR within 36 months of the last MOR.
Vacancy Payments
Under current regulations, an owner is entitled to vacancy payments in the amount of 80% of the contract rent for a period of 60-days after initial rent up or after an eligible family vacates a unit. If the vacancy persists past the 60-days, an owner may receive additional vacancy payments equal to the principal and interest payments required to amortize the debt service for the vacant unit for up to 12 additional months. HUD believes the 60-day period for vacancy payments is too long.
HUD wants to incentivize owners, when appropriate, to rent vacant units more quickly. In order to do this, the proposed rule would restrict vacancy payments to 80% of the contract rent for the first 30 days of a vacancy instead of the current 60 days. The new rule would not preempt existing Section 8 contracts, but would apply to renewal contracts. Owners would still be eligible for 12 months of debt-service vacancy payments.
Owners active in HUD assisted programs should obtain a copy of the HUD Federal Register Proposed Regulation and Notice. The information should be carefully reviewed and any concerns should be relayed to HUD no later than March 16, 2015 in accordance with the instructions in the published proposed regulation.