HUD published a proposed rule implementing The Housing Opportunity Through Modernization Act of 2016 (HOTMA) in the federal register on September 17, 2019. HOTMA was enacted on July 29, 2016. This rule would make sweeping changes to current HUD programs, including public housing and project-based Section 8, especially with regard to income calculation and reviews. Other major changes include the continued occupancy of public housing residents with increases in income. The rule is also intended to create consistency between various HUD programs, so there would be changes to the HOME, Housing Trust Fund, and Housing Opportunities for Persons with Aids programs.
Comments on the proposed rule are due no later than November 18, 2019.
Following is an overview of the major changes that would occur if the final rule is adopted.
- Reviews of family income shall be made upon the request of a family at any time the income or deductions of the family change by an amount that is estimated to result in a decrease of 10 percent or more in annual adjusted income, or of such lower amount as HUD may establish or permit the PHA or owner to establish. Interim recertifications will not be required if the decrease in adjusted income is less than 10 percent, but PHAs or owners will be able to establish policies to conduct interims when income decreases by less than 10 percent.
- PHAs and owners must conduct an interim reexamination of income at any time the family’s adjusted income is estimated to have increased by 10 percent or more. However, PHAs and owners will not be required to conduct an interim for increases in income during the last three months of a certification period. In a major change, increases due to employment income will not be considered when determining whether a household’s income has increased, unless the increase in earned income corresponds to previous decreases resulting from the family’s request for an interim reexamination.
Calculation of Family Income
- For purposes of move-in (initial occupancy), the initial provision of housing assistance, or for an interim reexamination of family income, the income for the upcoming year must be estimated (this is in line with current rules). In determining annual income for annual recertifications, the proposed rule requires that the PHA or owner use the income of the family as determined by the PHA or owner for the preceding year, taking into account any changes in income as reflected on interim certifications during the year. In cases where an interim recertification was not done because the change in income was less than 10 percent, the income will be adjusted to reflect the change in income.
De Minimis Error
- A PHA or owner will not be out of compliance with the income determination requirements due to de minimis (minor) errors in the determination of income. HUD is proposing to define “de minimis” as any error where the calculation of income varies from the correct income by no more than 5 percent. However, the PHA or owner will still be required to take corrective action to repay a family if the error resulted in the family being overcharged for their rent.
Definition of Annual Income
The proposed regulation provides a new definition of income. This proposed rule would specify that annual income also includes the imputed return on assets over $50,000, based on the current passbook savings rate if the actual income from assets cannot be computed. It appears that this may change the requirement as it now exists to count the higher of the actual or imputed income to assets. The language in the proposed rule would require that if actual income from assets can be determined, it must be used – even if less than imputed income. The $50,000 figure will be adjusted for inflation.
Income sources that were previously included in annual income are generally unchanged.
The proposed rule removes current exclusions for inheritances, capital gains, gifts, and other sporadic income. HUD seems to be taking the position that these amounts should be included in annual income. Based on this change, realized capital gains obtained from the sale of property in a given year would be included as income. The value of unrealized capital gains – meaning the value of any increase in an asset from one year to the next – would be included under the definition of Net Family Assets.
Earnings in excess of $480 for full time student dependents age 18 or older and for adoption assistance in excess of $480 per child will still be excluded, but the $480 will be adjusted annually based on the inflation rate.
Currently, the earned income of foster adults is counted, but under the proposed regulation, such income will be excluded.
Under the proposed rule, educational assistance relating to books and room and board will also be excluded, which is not currently the case.
Under current law, only the medical portion of the Aid and Attendance program for veterans is excluded. The proposed rule excludes the full amount of Aid and Attendance.
The $480 dependent deduction would remain in place but would be adjusted annually for inflation, adjusted to the next lowest multiple of $25.
The one-time elderly deduction would increase from $400 to $525, adjusted annually for inflation.
All other deductions currently permitted would remain. However, the deduction for medical expenses, which is now permitted when such expenses exceed 3% of gross income, would not be permitted until the expenses exceed 10% of gross income. This means that families who receive a health and medical expense deduction may see a significant increase in their adjusted income and rent. If the family can demonstrate a hardship resulting in an inability to pay the rent as a result in the change in the medical deduction, the PHA or owner will be required to recalculate the family’s adjusted income. In such case, the deduction would be the amount in excess of 6.5% of the family’s annual income instead of 10%. This hardship exemption would expire at the family’s next regular income reexamination or at such time as the owner determines that the family can afford the rent based on the regular 10% adjustment, whichever comes first.
The childcare deduction remains in place, but the proposed rule allows a hardship exemption for this deduction. Under this rule, a hardship exemption would be provided to allow the deduction for reasonable childcare costs to continue in certain circumstances for a family that no longer has a member that is employed or seeking to further his or her education. The family would be required to demonstrate that their inability to pay the increased rent is due to the loss of the childcare deduction. The family would also have to demonstrate why the childcare expense remains necessary even though no family member is employed, actively seeking employment or furthering his or her education. For example, the family member may have had to temporarily suspend their educational pursuits as the result of injury or illness and due to the injury or illness, they are unable to be the primary full-time caregiver for the child. This exemption would be temporary and would end no later than the family’s next regular reexamination.
Income Limitation for Existing Public Housing Residents
While already in place through prior HUD guidance, the proposed rule would create a new 24 CFR 960-507, which would place an income limitation on a public housing tenancy for families at 120 percent of AMI.
This limit would not apply to PHAs operating fewer than 250 public housing units that have rented to over-income households because there are no income eligible families on the waiting list or applying for public housing assistance.
If a family’s income has exceeded the 120% limit for two consecutive years, a PHA must terminate the family’s tenancy within six months after the expiration of the two year period or charge a monthly rent equal to the greater of (1) the applicable Fair Market Rent (FMR); or (2) the amount of monthly subsidy for the unit including amounts from the operating and capital fund.
Limitation on Assets
The regulation would limit the amount and type of assets that a family assisted under public housing or Section 8 can possess.
- Families would be ineligible for public housing or Section 8 assistance if their net family assets exceed $100,000, adjusted annually for inflation.
- Families could not receive assistance if they have a present ownership interest in, legal right to reside in, and the effective legal authority to sell real property in the jurisdiction in which the property is located that is suitable for occupancy by the family as a residence. This provision excludes any property that is jointly owned by a member of the family and another individual or individuals who would not reside with the family. It would also not apply if the family is receiving HUD assistance while living in the home, is a victim of domestic violence, or is offering the home for sale, as demonstrated by a listing agreement.
- The proposed rule excludes the value of any accounts approved by the IRS as retirement accounts, including IRAs, employer retirement plans, and retirement plans for self-employed individuals.
- Any income distributed from any trust will be considered income, except in the case of distributions from non-revocable trusts, made to cover the medical expenses for a minor.
- The proposed rule would revise the existing exclusion in HUD’s regulations for the value of necessary items of personal property, to provide that the exclusion will apply to items of personal property with a total value under $50,000, other than necessary items. Necessary items may include items such as a car used for personal transportation.
Authorization for Financial Disclosures
Under current regulation, Consent to Release forms are valid for 15-months after they are signed. The proposed regulation will make the forms valid until the earliest of: (1) the rendering of a final adverse decision for an applicant; (2) the cessation of a participant’s eligibility for assistance from HUD and the PHA; or (3) the express revocation by the applicant of the authorization, in a written notification to HUD.
The proposed regulation will also incorporate the new requirements into the HOPWA, HOME, and HTF.
As noted earlier, comments on this proposed regulation are due by November 18, 2019. The changes outlined in this regulation are extensive and all PHAs and owners of affected properties should carefully review and comment on the proposed regulation. After the comment period, HUD will review the comments and publish a final rule with appropriate changes from the proposed rule. No final rule should be expected prior to early to mid-2020.