HUD Proposed Changes to HOME Program are Comprehensive

On May 15, 2024, HUD published a preview of a Notice of Proposed Rulemaking proposing significant changes to the HOME Program. The proposed rule is expected to be published in the Federal Register before June, and public comments are due no later than 60 days after that publication.

The proposed rule would make changes in many areas:

1. Community Housing Development Organization (CHDO) Requirements: Major revisions to CHDO requirements are proposed to streamline processes and improve efficiency.
2. HOME Rents Approach: A new methodology for setting HOME rents is being introduced to better align with current housing market conditions.
3. Small-Scale Rental Projects: Requirements for small-scale rental projects will be simplified, making it easier for developers to comply.
4. HOME Tenant-Based Rental Assistance (TBRA) Programs: The proposed changes will provide greater flexibility in TBRA programs, allowing for more effective tenant support.
5. Community Land Trusts (CLTs): New flexibilities and simplified provisions are being proposed to encourage their use and effectiveness.
6. Tenant Protections: The rule would significantly strengthen tenant protections by mandating a HOME tenancy addendum with a uniform set of protections to be included in leases of all HOME-assisted rental housing units. For tenants receiving TBRA, a streamlined set of protections will be required.
7. Advanced Property Standards: HUD proposes incentives for meeting higher property standards incorporating green building practices, enhanced energy efficiency, and innovative construction techniques for new construction, reconstruction, and rehabilitation projects.
8. Homeownership Housing Resale Requirements: Clarifications to resale requirements for homeownership housing are included to ensure transparency and consistency.
9. Technical Amendments and Simplifications: The proposed rule will make technical amendments and simplifications to align with the changes introduced in the 2013 HOME Final Rule.

These proposed changes are part of a broader effort to modernize and improve the HOME program, incorporating updates from the Housing Opportunity Through Modernization Act of 2016 (HOTMA), the Economic Growth Regulatory Relief and Consumer Protection Act, and the National Standards for the Physical Inspection of Real Estate (NSPIRE) Final Rule.

Additionally, the rule updates citations to align with recent changes to the Office of Management and Budget (OMB) regulations at 2 CFR part 200. HUD plans to publish further rulemaking to ensure consistency across all regulations. The proposed changes are detailed in the Proposed Regulation, with further revisions anticipated following the implementation of the HOTMA and NSPIRE Final Rules.

While all the proposed changes are important, what follows is a discussion of the proposed changes in four specific areas: (1) Small-scale housing, (2) HOME rents, (3) Tenant Protections, and (4) Advanced Property Standards.

Small-scale housing. HUD proposes to add the definition of “small-scale housing,” which would be defined as a rental housing project containing no more than four units or a homeownership project with no more than three rental units on the same site. HUD proposes this definition to permit these projects to follow streamlined procedures for income determinations, ongoing physical inspections, and written tenant waiting lists. The definition and the streamlined provisions would facilitate the participation of owners of small rental properties (e.g., accessory dwelling units, duplexes, triplexes, or other small rental projects) in the HOME program.

For small-scale projects, HUD would provide an exception from requiring a PJ to adopt a more frequent inspection schedule for properties with health and safety deficiencies. If all health and safety deficiencies are corrected, the proposed rule permits but does not require more frequent inspection schedules. HUD plans to develop a specific list of deficiencies for small-scale rental housing that a PJ would inspect.

The proposed rule would reduce burdens on landlords of small-scale housing by allowing for the reexamination of tenant income every three years rather than annually.

Tenant-Based Rental Assistance: Eligible Costs and Requirements (24 CFR 92.209). The proposed rule would revise § 92.209(c)(1) to eliminate the requirement that adjusted income be determined annually for families receiving TBRA. Because TBRA contracts are limited by statute to two years and must be executed every time a tenant enters into a new lease, the proposed rule would permit a PJ to provide TBRA to a family and not redetermine adjusted income during the contract’s period of assistance. Tenants will be able to request interims when income goes down, but PJs will not have to conduct interims for increases in income during the contract term.

Change in HOME Rent Rules: Unlike the current HOME rule, which permits HOME rents to be exceeded only for low-HOME units when there is project-based rental assistance, the proposed rule will permit HOME rents to be exceeded anytime there is project-based rental assistance. This change would apply to both Low and High-HOME units.

Tenant Protections: The Department proposes significant revisions to the tenant protections and selection provisions in § 92.253, consistent with the priorities in the Administration’s Renters’ Bill of Rights. These tenant protections are based on the Department’s review of existing HUD programs (e.g., the Section 8 PBV and public housing programs). To implement the tenant protections, HUD proposes requiring all tenants in HOME-assisted rental housing units or receiving  TBRA to have a new HOME tenancy addendum appended to their lease. Among the proposed tenant protections:

• Leases will contain more than one convenient method to communicate directly with the owner or the property management staff, including in-person, by telephone, email, or through a web portal.
• The proposed rule will outline new tenant protections regarding the physical condition of units, including a requirement that owners provide tenants with expected timeframes for maintaining and repairing units as soon as practicable.
• When a life-threatening deficiency in the physical condition of the unit impacts the tenant, owners are required to relocate the tenant into safe housing, which may be either on or off-site.
• Families can reside with a foster child, foster adult, or live-in aide in the unit.

• The revised HOME Lease Addendum will include a section outlining when owners may enter a tenant’s unit. Reasons include routine inspections and maintenance, repairs, and showing units to prospective tenants. At least two days’ notice will be required, including the purpose for entering the unit. An exception to the notice requirement will be made for emergencies. The proposed rule would require that an owner who enters a unit when the tenant and all adult household members are absent from the unit must provide a written statement to the tenant explaining the date, time, and purpose of their entry into the unit.
• Properties with HOME funds will not be able to have separate amenities such as gyms, pools, spas, elevators, rooftop gardens, storage areas, and playrooms that only non-assisted tenants can use or access.
• Tenants can organize, create tenant associations, convene meetings, distribute literature, and post information at a project.
• The proposed rule would include new security deposit requirements. The security deposit amount could not exceed two months’ rent, and surety bonds or security deposit insurance would be prohibited.
• Owners cannot terminate the tenancy of HOME tenants without good cause, and the rule outlines many examples of “good cause.”

Advanced Property Standards: All projects built or rehabilitated with HOME funds must comply with all state and local building codes. PJs will be required to perform physical inspections on an annual basis. Property standards and inspections will generally be done per NSPIRE standards. Carbon Monoxide detectors will be required in all HOME-assisted units.

Although reconstruction is considered rehabilitation for the HOME program, the property standards for new construction will be applied to all HOME-assisted reconstruction projects.

When entering a rental assistance contract, PJs must annually provide physical inspections of all HOME-assisted units. This requirement applies to tenant-based rental assistance only.

The proposed rule would require the initial inspection of HOME-assisted rental housing within 12 months of project completion and once every three years thereafter. If deficiencies are observed in any of the inspectable areas, a follow-up onsite inspection to verify that deficiencies are corrected must occur within 12 months.

The PJ may establish a list of non-hazardous deficiencies for which correction can be verified by third-party documentation (e.g., paid invoice for work order) rather than re-inspection.

Bottom Line

These changes aim to modernize and improve the HOME program, incorporating updates from recent legislative acts and ensuring consistency across all regulations. Owners should review these proposed changes thoroughly to understand their implications and provide feedback during the public comment period.