Potential Impact on LIHTC Projects from The Housing Opportunity Through Modernization Act of 2016
Congress recently passed the Housing Opportunity Through Modernization Act of 2016. While many of the changes brought about by the Act apply only to Public Housing & Vouchers, a number apply to the HUD Multifamily Programs – the Section 8 Project-Based program in particular. Regulatory guidance for this program is found in HUD Handbook 4350.3.
Only those changes that apply under 4350.3 and that are related to the methodology used to determine tenant income may be applicable to the Low-Income Housing Tax Credit (LIHTC) program, since the LIHTC program is required to follow HUD guidance specific to the Section 8 program.
While the primary HUD regulations that apply to the LIHTC program relate to the determination of household income, some of the Act’s other provisions may apply tangentially to the tax credit program. This article outlines the elements of the Act that may apply to LIHTC properties.
Possible Changes not Related to Income Determination
Many LIHTC projects house voucher residents. Under prior law, any Housing Quality Standards (HQS) violation at lease renewal could slow approval and delay payment to owners. Under the new regulations, only life-threatening issues will delay payment.
- If corrected within 30-days, payments can begin again and missed payments may be paid retroactively.
- However, any HQS violation not corrected within 60-days will result in termination of the HAP and the resident will have to move.
Annual Income Reviews
- The Section 8 program will no longer require annual verification of fixed income sources (e.g., SS).
- Since this is a recertification issue, additional guidance from the IRS will be required. It is also possible that the IRS will not address the issue at all, in which case owners will have to rely on guidance from their Housing Finance Agencies (HFA). Since this requirement is related to the method in which income is determined for Section 8 purposes, it does seem reasonable that it would also apply to LIHTC projects, and would be within the purview of HFAs to permit it.
Calculation of Income
- Owners may use income determinations from other agencies (e.g., TANF, Medicaid, SNAP). This means that HFAs will be able to permit owners to use income verifications from other agencies in lieu of obtaining their own verifications.
- Income will not be imputed to assets unless the total cash value of the assets exceeds $50,000. This is a major change to the income calculation requirements and HUD will adjust this amount annually.
- For HUD purposes, residents with total assets of $50,000 or less will be able to provide affidavits stating the value of their assets. This will eliminate the requirement to verify all assets. Since this is directly related to the income verification requirements, it should apply to LIHTC properties as well.
- A new excluded income will be income from the Aid and Attendance program for veterans.
- Another possible change is that all retirement accounts will be fully excluded as assets. Current regulation only permits such exclusion if a resident or applicant is retired and taking regular payments from the retirement account.
This new Act will make some meaningful changes to a number of HUD programs, and for that reason, the LIHTC program will also be affected. However, the Act states that the changes will not be effective until HUD publishes final regulations implementing the new law. So, until HUD publishes an update 4350.3 (change 5?), owners and managers of LIHTC properties should continue to operate as they have been.