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    Locke Lord QuickStudy: HUD Issues Proposed Rules to Revise HOME Program Regulations

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    HUD Issues Proposed Rules to Revise HOME Program Regulations

    Affordable housing developers and other parties interested in the U.S. Department of Housing and Urban Development’s (“HUD”) recently proposed revisions to HOME program regulations have until February 14 to submit comments. The proposed changes would clarify existing regulations, strengthen performance standards, increase accountability for use of HOME funds, and provide for a more seamless integration between federal housing programs. The proposed rules would also implement changes in operational requirements in recognition of the challenges in today’s housing market.

    We encourage you to submit comments to HUD as noted below by the February 14 comment period deadline. Following are highlights of some of the proposed changes:

    Commitment of Funds (24 C.F.R. §92.2) – A reservation of funds to a community housing development organization (“CHDO”) would no longer constitute a HOME commitment. Instead, a commitment would require an executed, legally binding agreement between the participating jurisdiction (“PJ”) and a State recipient, subrecipient, or a contractor or a commitment to a specific local project.

    Community Housing Development Organization Qualifications and Set-Aside (24 C.F.R. §§ 92.2 and 92.300) – Officers or employees of a for-profit or government entity that creates or sponsors a CHDO cannot also be officers or employees of the CHDO, and the CHDO cannot use the office space of the for-profit or government entity. Additionally, a CHDO must have paid employees with housing development experience in order to satisfy the requirement for demonstrated capacity. CHDOs would no longer be able to meet the capacity requirement through consultants or volunteers. The CHDO set-aside regulations would also be revised to specify and/or clarify minimum standards for projects that are either “owned,” “developed,” or sponsored” by a CHDO.

    Program Income (24 C.F.R. §§ 92.2 ) – “Program income” would specifically exclude gross income from the use, rental or sale of real property received by a project owner, developer or sponsor, unless the funds are paid by the project owner, developer or sponsor to the PJ, subrecipient or State recipient.

    New Construction and Rehabilitation (24 C.F.R. §§ 92.2 and 92.251) – Housing that is rebuilt after destruction of prior housing on that same site (if HOME funds are committed for the rebuilding within six months after the date of destruction) would be categorized as “reconstruction,” rather than new construction. The proposed rule also creates separate housing property standards for new construction and rehabilitation. New construction would follow either the International Residential Code or the International Building Code, whichever is applicable to the type of housing involved. Each PJ would be required to establish a set of standards for rehabilitation projects, which, at a minimum, must ensure that the completed project would pass under the public housing inspection procedures prescribed by HUD in the Uniform Physical Condition Standards (UPCS).

    Deadlines for Completion and Occupancy (24 C.F.R. §§ 92.205 and 92.252) – If projects are not completed within four years after the commitment of HOME funds, the HOME funds would have to be repaid. However, a request can be submitted to HUD for a one-year extension. In addition, rental housing assisted with HOME funds would have to be occupied by qualifying tenants within a specific time period after completion. HUD is soliciting comments to assist it in determining what this timeframe should be. If a unit is not rented to a qualifying tenant within 18 months after completion, the HOME funds attributable to that unit must be repaid.

    On-Site Manager’s Unit (24 C.F.R. § 92.205) – A housing unit can be converted to an on-site manager’s unit if the PJ determines that such a conversion would contribute to the stability of the project and would not result in excess costs being charged to the HOME program or a violation of the per-unit HOME subsidy limit.

    Home Funds and Public Housing (24 C.F.R. § 92.213) - HOME funds can be used in conjunction with HOPE VI funding, so long as no Capital Fund assistance is used for the development of that same unit. Units that that receive both HOME and HOPE VI funds could also receive operating assistance and/or Capital Funds for rehabilitation or modernization.

    Inspections; Financial Oversight; and Troubled Properties (24 C.F.R. §§ 92.210 and 92.504) - PJs would be required to perform an annual inspection of all HOME-assisted projects within 12 months after completion and at least once every three years thereafter during the period of affordability. PJs would also be required to examine (no less than annually) the financial viability of HOME-assisted rental housing during the HOME period of affordability and take action to address problems, to the extent possible. HUD is soliciting comment on the minimum project size that would trigger this requirement for annual financial reviews and whether a requirement for review of smaller projects on a less frequent basis should be established as well. PJs would have options to address troubled properties through the investment of additional HOME funds or a reduction in the number of HOME-assisted units, as approved by HUD.

    Comments on the proposed rules can be submitted to HUD by mail or electronically as follows:

    Mail:
    Regulations Division, Office of General Counsel
    Department of Housing and Urban Development
    451 7th Street SW, Room 10276
    Washington, D.C. 20410-0500
    Electronic:
    http://www.regulations.gov 
    Reference the following Docket Number and Title in all comments:
    Docket No.: FR-5563-P-01
    Title: HOME Investment Partnerships Program: Improving Performance and Accountability; and Updating Property Standards

    For more information on the matters discussed in Locke Lord QuickStudy, please contact the author: 

    Christine Richardson | T: 512-305-4754 | crichardson@lockelord.com

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