# Section 8 Homeownership Program

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URL: https://www.frixlaw.com/law-library/documents/fr%3A00-22829

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** September 12, 2000
- **Citation:** 65 FR 55134

## Text

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 5, 903 and 982
[Docket No. FR-4427-F-02]
RIN 2577-AB90
Section 8 Homeownership Program

AGENCY:

Office of the Assistant Secretary for Public and Indian Housing, HUD.

ACTION:

Final rule.

SUMMARY:

This final rule implements the “homeownership option” authorized by section 8(y) of the United States Housing Act of 1937, as amended by section 555 of the Quality Housing and Work Responsibility Act of 1998. Under the section 8(y) homeownership option, a public housing agency may provide tenant-based assistance to an eligible family that purchases a dwelling unit that will be occupied by the family. This final rule follows publication of an April 30, 1999 proposed rule, and takes into consideration the public comments received on the proposed rule.

DATES:

Effective Date:
October 12, 2000.

FOR FURTHER INFORMATION CONTACT:

Gerald J. Benoit, Office of Public and Indian Housing, Department of Housing and Urban Development, Room 4210, 451 Seventh Street, SW., Washington, DC 20410; telephone (202) 708-0477. (This is not a toll-free number.) Hearing or speech-impaired individuals may access this number via TTY by calling the toll-free Federal Information Relay Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

I. Introduction

On April 30, 1999 (64 FR 23488), HUD published a proposed rule for public comment to implement the “homeownership option” under section 8(y) of the United States Housing Act of 1937 (42 U.S.C. 1437
et seq.
) (referred to as the “1937 Act”), as amended by section 555 of the Quality Housing and Work Responsibility Act of 1998 (Title V of the FY 1999 HUD Appropriations Act; Public Law 105-276, approved October 21, 1998; 112 Stat. 2461, 2518) (referred to as the “Public Housing Reform Act”). Section 8(y) authorizes Section 8 tenant-based assistance for an eligible family that occupies a home purchased and owned by members of the family.

The April 30, 1999 rule proposed to implement the section 8(y) homeownership option by adding a new “special housing type” under subpart M of HUD's regulations at 24 CFR part 982. The part 982 regulations, which were amended by a final rule published on October 21, 1999 (64 FR 56894), implement the statutory merger of the Section 8 tenant-based certificate and voucher programs into a new Housing Choice Voucher program. Subpart M of 24 CFR part 982 describes program requirements for alternatives to the basic Housing Choice Voucher program.

Homeownership assistance offers a new option for families that receive Section 8 tenant-based assistance. As with the other special housing types, HUD does not provide any additional or separate funding for homeownership assistance under section 8(y). In general, a public housing agency (PHA) that administers section 8 tenant-based assistance has the choice whether to offer homeownership assistance as an option for qualified applicants and participants in the PHA's Housing Choice Voucher program. The PHA may choose to make homeownership assistance available for any qualified applicant or participant, or to restrict homeownership assistance to families or purposes defined by the PHA.

As required by law, the homeownership option is not available for units receiving section 8 project-based assistance. By law, homeownership under section 8(y) may only be provided for families receiving “tenant-based assistance” (42 U.S.C. 1437f(y)(1)). Integral to the tenant-based nature of the housing choice voucher program is the freedom-of-choice afforded to the participant family, regardless of whether the voucher is used for rental or homeownership assistance. A PHA may not reduce a family's choice by limiting the use of homeownership assistance to particular units, neighborhoods, developers, or lenders. For example, while HUD encourages PHAs to develop partnerships with lenders in order to assist the family in obtaining financing, the PHA may not require the family to use a certain lender or financing approach.

II. Overview of the Section 8 Homeownership Program

An overview of how the Section 8 homeownership program works follows. The details regarding the operation of the Section 8 homeownership option are provided elsewhere in the preamble and the regulatory text.

A. General

PHA administration of the Section 8 homeownership program differs from the tenant-based rental program in many ways. A PHA may use the certificate and voucher program funding already under Annual Contributions Contract (ACC) or new tenant-based Section 8 funding for rental or homeownership purposes. The PHA may opt to limit the number of Section 8 homeownership vouchers or not implement the homeownership option. There is no separate or additional funding for the homeownership program.

Generally, a PHA that administers Section 8 tenant-based assistance has the choice whether to offer the homeownership option. However, a PHA that elects to provide homeownership assistance must have the capacity to operate a successful Section 8 homeownership program. The PHA has the required capacity if it:

• Establishes a minimum homeowner downpayment requirement of at least 3 percent of the purchase price for participation in its Section 8 homeownership program, and requires that at least one percent of the purchase price come from the family's personal resources;

• Requires that financing for purchase of a home under its Section 8 homeownership program be provided, insured, or guaranteed by the state or Federal government, comply with secondary mortgage market underwriting requirements, or comply with generally accepted private sector underwriting standards; or

• Otherwise demonstrates in its Annual Plan that it has the capacity, or will acquire the capacity, to successfully operate a Section 8 homeownership program.

At the briefing of families selected to participate in the tenant-based Section 8 program, the PHA must discuss any homeownership option. Family participation in the homeownership program is voluntary. Although the homeownership program is open to both Section 8 applicants and participants, not every Section 8 tenant-based family may receive homeownership assistance. The PHA may limit the number of homeownership families and there are statutory family eligibility requirements such as a minimum level of income and a history of full-time employment. (The employment history requirement is not applicable to elderly and disabled families, and there is a modified income requirement for elderly and disabled families.) The program is generally limited to first-time homeowners. The PHA may add other local eligibility requirements such as participation in the Family Self-Sufficiency (FSS) program.

Once a family has been determined by the PHA to be eligible for Section 8 homeownership assistance, the family must attend homeownership counseling sessions. The counseling may be done

by PHA staff or another entity such as a HUD-approved housing counseling agency.

The PHA must advise the family of any deadlines on locating a home, securing financing, and purchasing the home. In establishing such time limits, the PHA should ensure that a family who has executed a sales contract is provided reasonable time to close on the purchase of the home. The PHA does not issue a voucher to the family. If the family is unable to locate a home to purchase within the PHA established deadlines, the PHA may issue the family a rental voucher.

A home may be purchased under the homeownership option if, at the time the PHA determines that the family is eligible to purchase the home with homeownership assistance, the home is either under construction or already existing. The home chosen by the family must pass an initial PHA Housing Quality Standards (HQS) inspection. (The HQS used for the Section 8 rental program is applicable to the homeownership program.) In addition, the family must hire an independent, professional home inspector to inspect the home selected by the family to identify physical defects and the condition of the major building systems and components. A copy of the independent inspection report must be given to the PHA. The family and the PHA must determine if any prepurchase repairs are necessary.

The family will enter into a contract of sale with the seller. The family must secure its own financing for the home purchase. There is no prohibition against using local or State Community Development Block Grant (CDBG) or other subsidized financing in conjunction with the Section 8 homeownership program. The PHA may prohibit certain forms of financing, require a minimum cash downpayment, or determine that the family cannot afford the proposed financing. (There are no Section 8 funds for home purchase financing. Instead, the Section 8 housing assistance will be provided monthly to help the family meet homeownership expenses.)

It is anticipated that mortgage lenders will consider the Section 8 assistance when underwriting the loan. If purchase of the home is financed with FHA-insured mortgage financing, such financing is subject to FHA mortgage insurance credit underwriting requirements. Otherwise, the underwriting standards of the individual lender and/or financing program will apply in cases where financing for purchase of the home is not FHA-insured.

Homeownership housing assistance payments may be made directly to the family or to lender on behalf of the family. (Two-party checks to the family and lender are not authorized because such a practice is incompatible with typical lending documents and practices.) Before the housing assistance begins, the family and the PHA must execute a “statement of homeowner obligations.” The Section 8 tenant-based housing assistance payments (HAP) contract, request for lease approval and lease addendum are not applicable to the Section 8 homeownership program.

The homeownership housing assistance payment will equal the lower of (1) the payment standard minus the total tenant payment or (2) the monthly homeownership expenses minus the total tenant payment. The family is responsible for the monthly homeownership expenses not reimbursed by the housing assistance payment. (Total tenant payment is higher of the minimum rent, 10 percent of monthly income, 30 percent of monthly adjusted income, or the welfare rent.) The PHA must use the utility allowance schedule and payment standard schedules applicable to the Section 8 voucher rental program.

After the homeownership housing assistance payments begin, the PHA will annually reexamine family income and composition and make appropriate adjustments to the amount of the monthly housing assistance payment. There is no requirement for the PHA to conduct an annual HQS inspection.

Except for elderly and disabled families, Section 8 homeownership assistance may only be paid for a maximum period of 15 years if the initial mortgage incurred to finance purchase of the home has a term that is 20 years or longer. In all other cases, the maximum term of homeownership assistance is 10 years. The PHA may not establish shorter or longer maximum terms. The maximum term for homeownership assistance applies to any member of the household who has an ownership interest in the unit during any time that homeownership payments are made, or is the spouse of any member of the household who has an ownership interest in the unit at the time homeownership payments are made.

The maximum term for homeownership assistance does not apply to an elderly family or a disabled family. In the case of an elderly family, this exception is only applied if the family qualifies as an elderly family at the commencement of homeownership assistance. In the case of a disabled family, this exception applies if at any time during receipt of homeownership assistance the family qualifies as a disabled family. If, during the course of homeownership assistance, the family ceases to qualify as a disabled or elderly family, the maximum term becomes applicable from the date homeownership assistance commenced. However, such a family must be provided at least 6 months of homeownership assistance after the maximum term becomes applicable (provided the family is otherwise eligible to receive Section 8 homeownership assistance).

PHAs shall recapture a percentage of homeownership assistance defined in the regulations upon the sale or refinancing of the home. Sales proceeds that are used by the family to purchase a new home with Section 8 homeownership assistance are not subject to recapture. Further, a family may refinance to take advantage of lower interest rates, or better mortgage terms, without any recapture penalty. Only those proceeds realized upon refinancing that are retained by the family (for example during a “cash-out” of the refinanced debt) are subject to the program recapture provision.

A PHA opting to administer the Section 8 homeownership program must establish local homeownership policies. The following policies must be described in the PHA administrative plan: any additional PHA requirements for participation in its Section 8 homeownership program (§ 982.626(b)); PHA maximum times to locate and purchase a home (§ 982.629(a)); PHA policy about issuing the family a rental voucher if the family does not find a suitable house to buy (§§ 982.629(c)); any minimum cash downpayment or equity requirements (§ 982.632); any requirements for financing purchase of a home, including requirements concerning qualification of lenders (for example, prohibition of seller financing or case-by-case approval of seller financing), terms of financing (for example, a prohibition of balloon payment mortgages and establishment of a minimum homeowner equity requirement), and financing affordability (§ 982.632); any PHA requirements for continuation of homeownership assistance (§ 982.633(b)(8)); PHA policy for determining the amount of allowable homeownership expenses (§ 982.635(c)); PHA policy for payment of the HAP to the family or lender (§ 982.635(d)); and any PHA policies that prohibit more than one move by the family during any one year period (§ 982.637(a)(3)).

B. Who Is Assisted

1. General

The homeownership option is used to assist families in two types of housing:

• A unit owned by the family—One or more family members hold title to the home.

• A cooperative unit—One or more family members hold membership shares in the cooperative.

2. Assistance for Homeowner

Before enactment of Section 8(y), Section 8 assistance could be paid on behalf of a renter or cooperative member, but not for a family that owns fee title to its home. Section 8 rental assistance terminates when the family takes title to the home. By contrast, Section 8(y) is specifically designed to authorize assistance for a “homeowner”—a family that owns title to the home.

The law provides that the public housing agency may provide assistance for:

• A “first-time homeowner”; and

• A family that owns or is acquiring shares in a cooperative.

By law and this rule, the homeownership option is designed to promote and support homeownership by a “first-time” homeowner—a family that moves for the first time from rental housing to a family-owned home. Section 8 payments supplement the family's own income to facilitate the transition from rental to homeownership. The initial availability of these assistance payments helps the family pay the costs of homeownership, and may provide additional assurance for a lender, so that the family can finance purchase of the home.

Section 8 homeownership assistance for cooperative homeowners is specifically authorized for both a family that is a first time cooperative homeowner and a family that owned its cooperative unit prior to receiving Section 8 assistance. Cooperative homeowners were eligible for tenant-based assistance prior to passage of the Public Housing Reform Act.

To qualify as a “first-time homeowner,” the assisted family may not include any person who owned a “present ownership interest” in a residence of any family member during the three years before the commencement of homeownership assistance for the family (regulatory definition at § 982.4; statutory definition at 42 U.S.C. 1437f(y)(7)(A)). Such interest includes ownership of title or of cooperative membership shares. This rule defines the term “first-time homeowner” to include a single parent or displaced homemaker who, while married, owned a home with his or her spouse, or resided in a home owned by his or her spouse.

The restriction to “first-time” homeowners is intended to direct homeownership assistance to “new” homeowners who may be unable to purchase a home without this assistance, but to discourage use of Section 8 subsidy on behalf of families who have achieved homeownership independently, without benefit of the Federal Section 8 subsidy. In addition, the PHA may not commence homeownership assistance for a family if any family member has previously received assistance under the homeownership option, and has defaulted on a mortgage securing debt incurred to purchase the home (see § 982.627(e) of this final rule).

3. Assistance for Cooperative Member

Section 8(y) authorizes homeownership assistance for a family that “owns or is acquiring shares in a cooperative.” Thus, the law allows assistance for a family that already owns cooperative shares before commencement of Section 8 homeownership assistance, not just for a family that acquires cooperative shares for the first time with the support of such assistance. In this respect, the law treats ownership of cooperative membership different from ownership of title to the home. In the latter case, the law authorizes assistance for a first time homeowner. The rule specifies that cooperative membership shares may be purchased at or before commencement of homeownership assistance (see the definition of “membership shares” at § 982.4).

Before this rule, HUD has provided essentially the same Section 8 rental assistance for a cooperative member as for a family that chooses to rent a unit in conventional rental housing. Since the origin of the Section 8 program, the law has provided that with respect to members of a cooperative, “rent” means the charges under the occupancy agreements between the members and the cooperative (42 U.S.C. 1437f(f)(5)). Thus Section 8 assistance is paid to cover the difference between the cooperative occupancy charges and the income-based tenant rent.

Under this final rule, the PHA may provide assistance for a cooperative member either under the new homeownership option or under the special procedures for cooperative housing within the Section 8 tenant-based rental program (§ 982.619). Each form of assistance is designated as a separate special housing type under the Section 8 voucher program. The PHA may elect to offer either or both of these forms of cooperative assistance in its voucher program, and to define the appropriate role of each available form of cooperative assistance in the local Section 8 program.

In the new homeownership option, Section 8 assistance is paid on behalf of a cooperative member, but there is no requirement that the cooperative enter into any agreement or any direct relationship with the PHA that provides Section 8 assistance for the cooperative member. The cooperative is not asked to modify any ordinary requirement for cooperative membership or occupancy, nor asked to modify any requirement concerning assessment or collection of the cooperative carrying charge, maintenance of the unit or sanctions for violation of cooperative requirements.

For clarity, in describing requirements for homeownership assistance to a cooperative member, the new rule supplements existing definitions. The term “cooperative” refers to housing owned by a corporation or association, and where a member of the corporation or association has the right to reside in a particular unit, and to participate in management of the housing (§ 982.4). The rule also adds the following two new definitions:

• Cooperative member. A family of which one or more members owns membership shares in a cooperative.

• Membership shares. Shares in a cooperative. By owning such cooperative shares, the share-owner has the right to reside in a particular unit in the cooperative, and the right to participate in management of the housing.

Prior to the enactment of the Public Housing Reform Act, a family could only receive assistance in a cooperative that had adopted requirements to maintain continued affordability for lower income families after transfer of a member's interest. There is now no such statutory affordability requirement for Section 8 tenant-based assistance to cooperative residents—whether such assistance is provided under the rental assistance program or under the new Section 8(y) homeownership option—and there is no such requirement under this rule.

HUD believes that such a continuing affordability requirement would restrict housing choice of Section 8 families among available cooperative units. Such a requirement would also diminish a major advantage of homeownership—the incentive for an assisted family to maintain and improve the housing and to benefit from appreciation upon a future sale of the home. This rule

removes the federal mandate for existing continuing affordability requirements for rental assistance in cooperative housing.

In addition, this rule modifies the allocation of maintenance responsibility between the cooperative and the family. In the regular rental assistance program, the owner is responsible for most maintenance of a unit. Under the old rule, this principle also applies to rental assistance for Section 8 cooperative housing. However, in a conventional cooperative, the member is generally responsible for maintenance of the individual apartment, and the cooperative entity is only responsible for maintenance of common areas and systems. The cooperative agreement defines the division of maintenance obligations between the member and the cooperative.

The existing regulation is amended by this rule to reflect the normal division of maintenance responsibility in cooperative housing for which rental (not homeownership) assistance is being provided (§ 982.619(d)(3)). The revised rule provides that the family is responsible for a breach of the HQS caused by failure to perform maintenance in accordance with the cooperative occupancy agreement between the family and the cooperative. The PHA must take prompt and vigorous action to enforce the family maintenance obligation, and may terminate assistance for failure to perform maintenance in accordance with the cooperative occupancy agreement (§ 982.619(d)(4)).

During the term of the HAP contract between the PHA and the cooperative, the unit and premises must be maintained in accordance with the Section 8 HQS. If the contract unit and premises are not properly maintained, the PHA may exercise all available remedies, regardless of whether the family or the owner is responsible for such breach of the HQS. PHA remedies for breach of the HQS include recovery of overpayments, suspension of housing assistance payments, abatement or other reduction of housing assistance payments, termination of housing assistance payments and termination of the HAP contract (§ 982.619(d)(1)).

In the new homeownership cooperative option under Section 8(y), there is no HAP contract (between the PHA and the cooperative as unit “owner”) and no lease (between the cooperative and the family). The unit is only inspected before the commencement of assistance. There is no requirement that the family or cooperative assure that the unit continues to satisfy HQS during the continuation of assisted occupancy. Consequently, there is no need to specify any allocation of maintenance responsibility between the cooperative and the family.

4. Lease-Purchase Agreements

The law and rule explicitly permit Section 8 homeownership assistance for a family that purchases a home that the family previously occupied under a “lease-purchase agreement”—generally a lease with option to purchase. Section 8(y) provides that the PHA may provide Section 8 homeownership assistance for an eligible family that purchases “a unit under a lease-purchase agreement” (42 U.S.C. 1437f(y)(1)).

Prior to enactment of the Public Housing Reform Act, a family that received Section 8 rental subsidy could exercise an option to purchase the unit under a lease-purchase agreement. However, there were problems in applying the rent reasonableness requirements and, as noted above, Section 8 rental subsidy terminated when the family took title to the home. Thus the prospective loss of subsidy discouraged the family from taking title, and moving from rental to homeownership. However, Section 8(y) now provides a vehicle for continuation of Section 8 assistance after the family takes title to the home.

To qualify as a first-time homeowner (as noted above) the family may not have owned title to a principal residence in the last three years. The rule specifies, however, that the right to purchase title under a lease-purchase agreement does not constitute a prohibited “present ownership interest.” A family that holds an option to purchase may exercise the option and receive assistance under the new homeownership option.

A new § 982.317 is added to describe the requirements for lease-purchase agreements. The housing assistance payment for a lease-purchase unit may not exceed the amount that would be paid on behalf of the family if the rental unit was not subject to a lease-purchase agreement. Any “homeownership premium” included in the rent to the owner that would result in a higher subsidy amount than would otherwise be paid by the PHA must be absorbed by the family. “Homeownership premium” is defined as an increment of value attributable to the value of the lease-purchase right or agreement such as an extra monthly payment to accumulate a downpayment or reduce the purchase price. Families are permitted to pay an extra amount out-of-pocket to the owner for purchase related expenses.

Section 982.317 also provides that in determining whether the rent to owner for a unit subject to a lease-purchase agreement is a reasonable amount, any “homeownership premium” paid by the family to the owner must be excluded when the PHA determines rent reasonableness.

Lease-purchase agreements are considered rental, and all the normal tenant-based Section 8 rental rules are applicable. The family will be subject to the homeownership regulatory requirements at the time the family is ready to exercise the homeownership option under the lease-purchase agreement. At that point in time, the PHA will determine whether the family is eligible for Section 8 homeownership assistance (e.g., whether the family meets the income and employment thresholds and any other criteria established by the PHA). If determined eligible for a homeownership voucher, the family will then arrange for an independent home inspection, attend counseling sessions, and obtain financing. Homeownership assistance will begin when the family purchases the home and after all of the requirements of the homeownership option are met.

C. How to Qualify for Homeownership Assistance

1. General

To qualify for assistance under the homeownership option, a family must meet the general requirements for admission to the PHA's Section 8 tenant-based voucher program, and additional special requirements for homeownership assistance (§ 982.627). The PHA may not provide homeownership assistance for a family unless the PHA determines that the family satisfies all of the following initial requirements at commencement of homeownership assistance for the family:

• The family satisfies the minimum income requirements described in § 982.627(c) of the final rule;

• The family satisfies the employment requirements described in § 982.627(d) of the final rule;

• The family has not defaulted on a mortgage securing debt to purchase a home under the homeownership option (see § 982.627(e) of the final rule);

• Except for cooperative members who have acquired cooperative membership shares prior to the commencement of homeownership assistance, no family member has a present ownership interest in a residence at the commencement of

homeownership assistance for the purchase of any home;

• Except for cooperative members who have acquired cooperative membership shares prior to the commencement of homeownership assistance, the family has entered into a contract of sale in accordance with § 982.631(c);

• The family satisfies any other initial requirements established by the PHA.

2. Minimum Income Requirement

To enter the Section 8 voucher program, a family must be income-eligible (i.e., below the maximum income cutoff). However, to qualify for the homeownership option in the voucher program, the family must demonstrate sufficient income to meet a minimum income standard, which is intended to assure that a family will have sufficient income to pay homeownership and other family expenses not covered by the Section 8 subsidy.

Section 8(y) provides that a family may not receive homeownership assistance unless the family demonstrates that gross monthly income is at least two times the voucher “payment standard” or an “other amount” established by the Secretary (Section 8(y)(1)(B), 42 U.S.C. 1437f(y)(1)(B)).

At the request of several public commenters, the final rule establishes a national minimum income requirement that is equal to 2,000 hours of annual full-time work at the Federal minimum wage. In response to public comment, the final rule also provides that the adult family members who will own the home at the commencement of the homeownership assistance (as opposed to only the head of household or spouse) must have annual income (gross income) that is not less than the minimum income requirement.

The law does not specify whether the minimum income requirement is only applied at initial qualification for commencement of homeownership assistance, or is also a continuing requirement that must be maintained so long as the family is receiving assistance under the homeownership option. (By contrast, the law explicitly provides that the statutory employment requirement only applies at the time the family initially receives homeownership assistance.) HUD has decided that any minimum income requirement will only be applied to determine initial qualification to purchase a particular home, not as a continuing requirement. This policy gives assurance to the family, and possibly to a potential mortgage lender, that the stream of homeownership assistance payments will not be disrupted because of a drop in family income. Any minimum income requirement will only apply again if the family purchases a subsequent home with Section 8 homeownership assistance.

The law provides that the income counted in meeting any minimum income requirement under the homeownership option must come from sources other than welfare assistance. Thus, PHAs may limit homeownership assistance to families with substantial non-welfare income available to pay housing and non-housing costs. However, the law provides that HUD may count welfare assistance in determining availability of voucher homeownership assistance for an elderly or disabled family (in which the household head or spouse is an elderly or disabled person). (The term “welfare assistance” is defined in HUD's regulations at § 5.603, thereby identifying the types of income that may not be included in determining whether a family meets the homeownership minimum income standard.)

The rule also clarifies that the requirement to disregard welfare assistance income only applies in determining whether a family has the minimum income to qualify for homeownership assistance. However, welfare assistance income is counted for other program purposes: in determining income-eligibility for admission to the voucher program, in calculating the amount of the family's total tenant payment (gross family contribution); and in calculating the amount of the monthly homeownership assistance payment for a family assisted under the homeownership option.

Under the law, HUD may permit PHAs to count welfare assistance income of an “elderly family” or a “disabled family”—a family whose head or spouse is elderly or disabled (definitions of these terms are found in section 3(b)(3)(B) of the 1937 Act; 42 U.S.C. 1437a(b)(3)(B))—in determining whether a family has the minimum income to qualify for homeownership assistance. On consideration of this issue, and recognizing the special needs of such families, the rule requires that the PHA count welfare assistance of an elderly or disabled family in determining whether the family meets the minimum income requirement for homeownership assistance. This requirement to count welfare assistance in determining whether a family has the minimum income to qualify for homeownership assistance only applies, however, to families which satisfy the statutory definition of an elderly or disabled family. In particular, as required by the law, the requirement to count welfare assistance income does not apply in the case of a family that includes a disabled person other than the household head or spouse (and where the household head or spouse are not elderly or disabled).

3. Family Employment

Section 8(y) provides that, except as provided by HUD, the family must be able to demonstrate, at the time that the family initially receives homeownership assistance, that one or more adult members of the family have achieved employment for the time period established by HUD (42 U.S.C. 1437f(y)(1)(B)).

The final rule requires that the family must demonstrate that one or more adult members of the family who will own the home at commencement of homeownership assistance:

• Is currently employed on a full-time basis (the term “full-time employment” is defined to mean not less than an average of 30 hours per week); and

• Has been continuously so employed during the year before commencement of homeownership assistance for the family.

The final rule provides that the PHA has the discretion to determine whether (and to what extent) an employment interruption is considered permissible in satisfying the employment requirement. The final rule also clarifies that the PHA may consider successive employment during the one-year period and self-employment in a business.

The employment requirement does not apply to an elderly family or a disabled family. Furthermore, if a family, other than an elderly family or a disabled family, includes a person with disabilities, the PHA must grant an exemption from the employment requirement if the PHA determines that an exemption is needed as a reasonable accommodation so that the program is readily accessible to and usable by persons with disabilities.

4. Discussion of Other Requirements

a.
Homeownership counseling.
Section 8(y) provides that a family that receives assistance under the homeownership option must participate in a homeownership and housing counseling program provided by the PHA (42 U.S.C. 1437f(y)(1)(D)). The rule provides that, before commencement of homeownership assistance for a family, the family must attend and satisfactorily complete the pre-assistance homeownership and housing counseling program required by the PHA (pre-assistance counseling) (§ 982.630).

Suggested topics for the PHA-required pre-assistance counseling program include:

• Home maintenance (including care of the grounds);

• Budgeting and money management;

• Credit counseling;

• How to negotiate the purchase price of a home;

• How to obtain homeownership financing and loan preapprovals, including a description of types of financing that may be available, and the pros and cons of different types of financing;

• How to find a home, including information about homeownership opportunities, schools, and transportation in the PHA jurisdiction;

• Advantages of purchasing a home in an area that does not have a high concentration of low-income families and how to locate homes in such areas;

• Information on fair housing, including fair housing lending and local fair housing enforcement agencies; and

• Information about the Real Estate Settlement Procedures Act (12 U.S.C. 2601
et seq.
) (RESPA), state and Federal truth-in-lending laws, and how to identify and avoid loans with oppressive terms and conditions.

The PHA may adapt subjects covered in pre-assistance counseling to local circumstances and the needs of individual families. The PHA may also offer additional counseling after commencement of homeownership assistance (ongoing counseling). If the PHA offers a program of ongoing counseling for participants in the homeownership option, the PHA has the discretion to determine whether the family is required to participate in the ongoing counseling.

The counseling may be provided by the PHA, another entity such as a HUD-approved housing counseling agency, or by both the PHA and another entity. HUD-approved housing counseling agencies provide free counseling. The HUD field office will provide the PHA with a list of the HUD-approved counseling agencies. If the PHA is not using a HUD-approved housing counseling agency to provide the counseling for families participating in the homeownership option, the PHA should ensure that its counseling program is consistent with the homeownership counseling provided under HUD's Housing Counseling program.

Experience with low-income homeownership programs has demonstrated that quality counseling is imperative for successful homeownership and prevention of mortgage defaults. In addition, counseling will assist families in making informed decisions when selecting the home they wish to purchase.

b.
Financing purchase of home.
Families selected to participate in the Section 8 homeownership program must secure their own financing. If the family applies for a mortgage or loan (including an FHA mortgage), all regular lender underwriting and property inspection requirements apply.

The rule provides that a PHA may establish requirements for financing purchase of a home to be assisted under the homeownership option (§ 982.632). All PHA financing or affordability requirements must be described in the PHA administrative plan. The PHA may also set requirements concerning qualifications of lenders and terms of financing. For example, a PHA may determine that mortgages with balloon payments and certain kinds of variable interest rate loans are not in the best interest of the family because it is unlikely the family could afford the payments when the balloon comes due or interest rates rise. In addition, the PHA could opt to prohibit seller financing, or to only allow seller financing in cases when the seller is a nonprofit or the purchase price can be clearly supported by an independent appraisal.

Another purpose of the PHA financing review would be to determine whether the monthly mortgage or loan payment is affordable after considering other family expenses. The PHA may disapprove proposed financing, refinancing or other debt if the PHA determines that the debt is unaffordable. PHAs may wish to establish minimum initial downpayment requirements to ensure that the family has a personal financial stake in the home, thus helping to minimize mortgage loan defaults (for example, the PHA may require that the family use its own resources to make the entire initial downpayment, or a percentage of the initial downpayment).

c.
Home inspections.
Two kinds of physical inspections are required in the homeownership option (in addition to, and separate from, any lender required inspections): an HQS inspection by the PHA and an independent professional home inspection by an inspector that is used in the private market by homebuyers. (§ 982.631).

The PHA inspection is the normal initial HQS inspection conducted by the PHA for the tenant-based rental assistance program. This inspection will indicate the current physical condition of the unit and any repairs necessary to ensure that the unit is safe and otherwise habitable. The PHA HQS inspection does not include an assessment of the adequacy and life span of the major building components, building systems, appliances and other structural components.

The only difference between the HQS inspection requirements for the tenant-based rental and homeownership programs is that the PHA is not required by the regulation to conduct annual inspections. The exemption from annual HQS homeownership inspections is authorized by the statute. The initial (prior to the commencement of housing assistance) HQS inspection is the only PHA inspection required for homeownership units during the entire time the family is receiving Section 8 homeownership assistance.

The other inspection required by this final rule is a statutory requirement that is consistent with private real estate practice. The independent professional home inspection is conducted by a private market home inspector (not PHA staff) that is experienced and qualified to conduct prepurchase inspections for homebuyers. The purpose of the home inspection is the identification of home defects and an assessment of the adequacy and life span of the major building components, building systems, appliances and other structural components. The requirement for an inspection arranged by the buyer and satisfactory to the buyer is a typical contingency clause in contracts of sale. The Section 8 family selects the home inspector and pays the home inspector's fees. (The source of funds for family payment of the home inspection may be a gift, family savings or an inheritance, or sources other than family savings.) A copy of the inspection report is provided to the family and the PHA.

Although the PHA may not require the family to use a particular inspector, the PHA may establish standards for qualification of the home inspector selected by the family. For example, the PHA may require the use of a home inspector certified by the American Society of Home Inspectors, or a similar national organization.

The PHA must review the home inspector's report to determine whether repairs are necessary prior to purchase, and to generally assess whether the purchase transaction makes sense in light of the overall condition of the home and the likely costs of repairs and capital expenditures. For example, the home inspector's report might reveal foundation instability, and a defective roof and heating system that needs immediate replacement at great cost. Confronted with these facts the PHA would discuss the inspection results

with the family and decide whether to disapprove the unit for assistance under the homeownership option because of the major physical problems and substantial correction costs, or whether it is feasible to have the necessary repairs accomplished prior to sale.

d.
Switching from Section 8 homeownership voucher assistance to rental voucher assistance, and vice-versa, after a mortgage default and at other times.
There are a number of circumstances under which a family may switch between rental and homeownership assistance under the voucher program. Various scenarios are described below.

• A Section 8 participant receiving voucher assistance may request a PHA operating a homeownership program to determine whether the family is eligible for Section 8 homeownership assistance. If the family is determined eligible for homeownership assistance, the PHA may authorize the family to search for a home to purchase. The family would continue to receive rental assistance until the family vacates the rental unit (consistent with the lease).

• A Section 8 applicant selected from the PHA waiting list goes to the briefing and learns of the homeownership option. The PHA determines the family is eligible for homeownership and the family is given two months to find a home to purchase. At the end of the two months the PHA extends the search period for an additional month because the family has found a unit. However, the purchase never occurs due to problems qualifying for a loan. The family opts to rent an apartment and try homeownership at a later time after they have increased their savings. The PHA issues the family a rental voucher.

• The family purchases a home under the Section 8 homeownership option. After several years the family decides that they prefer to live in a rental apartment. If there is no mortgage loan default and the family has met all obligations under the Section 8 program, the PHA may issue the family a rental voucher. The family must sell the home before the PHA may provide rental assistance. If there is a default on a mortgage (whether FHA-insured or non-FHA), the PHA may exercise the PHA option to issue the family a rental voucher only if the family vacates the home and conveys the title in accordance with § 982.638(d) (assuming the family has met all the family obligations under the Section 8 program other than not causing a mortgage default).

e.
Portability.
Generally, a family determined eligible for homeownership assistance by the initial PHA may purchase a unit outside of the initial PHA's jurisdiction, if the receiving PHA is administering a voucher homeownership program and is accepting new homeownership families. In general, the portability procedures for the Housing Choice Voucher program (described in §§ 982.353 and 982.355) apply to the homeownership option and the administrative responsibilities of the initial and receiving PHA are not altered except that some administrative functions (e.g, issuance of a voucher or execution of a tenancy addendum) do not apply to the homeownership option.

The receiving PHA may absorb the homeownership family or bill the initial PHA for the homeownership housing assistance using the normal portability billing process. Communications between the initial and receiving PHA are necessary. As is the case for Section 8 rental portable families, all of the receiving PHA's administrative policies are applicable to the homeownership family. The family will be required to attend the briefing and counseling sessions required by the receiving PHA. The receiving PHA, not the initial PHA, will determine whether the financing for and the physical condition of the unit are acceptable.

f.
Buying another home with Section 8 assistance.
A homeownership family may purchase another home with Section 8 assistance provided there is no mortgage loan default. The family must sell its current home in order to purchase another with homeownership assistance.

As noted above, PHAs shall recapture a percentage of homeownership assistance defined in the regulations upon the sale or refinancing of the home. Proceeds invested in the purchase of another home are exempt from recapture. Most of the homeownership requirements applicable to the first home purchase remain applicable to a subsequent purchase. For example, the family must once again meet the employment threshold. The necessity of any counseling will be determined by the PHA. An independent home inspection will be conducted and the PHA will determine the acceptability of the financing. The maximum term of homeownership assistance applies to the cumulative time the family receives homeownership assistance. The only exception to eligibility requirements applicable to initial receipt of homeownership assistance is that the family need not meet the first-time homebuyer requirement (See § 982.637(b)).

g.
Applicability of the Section 8 tenant-based voucher requirements to the homeownership option.
Section 982.641 details the portions of the voucher regulations that apply to the homeownership special housing type. PHAs should carefully review this section of the regulations.

It is noted that all civil rights laws applicable to the Section 8 voucher program are applicable to the homeownership program. PHAs must comply with all equal opportunity and nondiscrimination requirements imposed by contract or Federal law. In addition, PHAs are reminded that “finders-keepers” applies to homeownership assistance; PHAs may not steer families to particular units or neighborhoods. Further, as in the tenant-based rental voucher program, PHAs must provide assistance to expand housing opportunities. The PHA briefing for both rental and homeownership families must explain:

• Where the family may lease or purchase a unit;

• How portability works (if the family qualifies to lease or purchase a unit outside the PHA jurisdiction under portability procedures); and

• The advantages of moving to an area that does not have a high concentration of poor families (if the family is currently living in a high poverty census tract within the jurisdiction of the PHA).

Further, if the family includes any person with disabilities, the PHA must take appropriate steps to ensure effective communication during the briefing in accordance with 24 CFR 8.6.

h.
Link between Section 8 homeownership and the Family Self-Sufficiency (FSS) Program.
PHAs may wish to link Section 8 homeownership with the FSS program. For example, participation in the FSS program could be a PHA eligibility requirement. The PHA may also opt to incorporate the homeownership goal into the family's FSS contract of participation so any FSS escrow could be advanced for purchase of a home or home maintenance/improvement purposes. It is noted that FSS families must meet the homeownership income and employment thresholds.

i.
PHA determination of “homeownership expense”.
Section 982.635(c) details the expenses that the PHA will include when determining the family's homeownership expenses. The principal and interest amount is the debt service amount for the initial (original) mortgage debt, any refinancing of such debt, and any mortgage insurance premium. The utility allowance is the same utility allowance schedule as used in the rental voucher program. The PHA allowance for

maintenance expenses is the amount the PHA thinks is appropriate for routine maintenance for a home.

The PHA allowance for major repairs and replacements is the amount the PHA thinks is appropriate for a replacement “reserve” for a home. If a member of the family is a person with disabilities, such debt may include debt incurred by the family to finance costs needed to make the home accessible for such person, if the PHA determines that allowance of such costs as homeownership expenses is needed as a reasonable accommodation so that the homeownership option is readily accessible to and usable by such person, in accordance with 24 CFR part 8.

These allowances for maintenance expenses and major repairs and replacements should not be based on the condition of the home, similar to how utility allowances work. It is recommended that a PHA contact counseling agencies, local realtors and relevant national organizations for advice on the appropriate level for these local allowances. (Families are not required to put the amount set aside for these two maintenance allowances in the bank or in escrow. Further, it is not expected that the monthly amounts for these allowances will cover all maintenance and capital expenditures.)

III. Summary of Changes Made by this Final Rule to the April 30, 1999 Proposed Rule

The following discussion summarizes the most significant differences between the April 30, 1999 proposed rule and this final rule. The changes made in response to public comment are discussed in greater detail in sections IV., V., and VI. of this preamble.

1.
Revised definition of “net family assets” (§ 5.603(d)).
In response to public comment, this final rule revises the definition of “net family assets” located in 24 CFR 5.603(d) to exclude the value of a home currently being purchased with Section 8 homeownership assistance. This exclusion is limited to the first 10 years after the purchase date of the home.

2.
Use of the term “welfare assistance” rather than the term “public assistance” (§ 982.4(a)).
The final rule replaces the proposed definition of the term “public assistance” with a cross-reference to the term “welfare assistance”, which is defined at 24 CFR 5.603. The proposed definition of “public assistance” was redundant of HUD's existing definition of “welfare assistance.” Further, the use of the term “welfare assistance” in this final rule will help to ensure the consistent use of defined terms throughout HUD's regulations.

3.
Revised definition of the term “cooperative” (§ 982.4(b)).
In response to public comment, the definition of the term “cooperative” in the final rule is no longer limited to housing owned by a nonprofit entity.

4.
Revised definition of the term “first-time homeowner” (§ 982.4(b)).
The definition of “first-time homeowner” has been revised to clarify that any family who has owned any residential property during the preceding three years (regardless of whether its is the family's principal residence) does not meet the definition of a “first-time” homeowner. The final rule also clarifies that a single parent or displaced homemaker who, while married, owned a home with a spouse (or resided in a home owned by a spouse) is considered a “first-time homeowner” for purposes of the Section 8 homeownership option.

5.
Separate definition of the term “Present ownership interest” (§ 982.4(b)).
For purposes of clarity, this final rule provides a separate definition of the term “present ownership interest.” The proposed rule had defined this term within the definition of the term “first-time homeowner.”

6.
Overview of special housing types (§ 982.601).
This final rule reorganizes and makes several clarifying changes to § 982.601, which provides an overview of the special housing types. For example, the changes clarify that the provisions of subpart M of 24 CFR part 982 apply solely to the specific special housing type noted in the heading of each regulatory section. Further, the revisions clarify that the PHA may not set aside program funds or program slots for special housing types or for a specific special housing type. These technical changes do not establish or modify existing program requirements, but are designed solely to make § 982.601 easier to understand.

7.
PHA capacity to operate successful Section 8 homeownership program (§ 982.625(d)).
This final rule adds a new § 982.625(d), which requires that a PHA wishing to provide Section 8 homeownership assistance must have the capacity to operate a successful homeownership program. The PHA has the required capacity if it either:

• Establishes a minimum homeowner downpayment requirement of at least 3 percent of the purchase price for participation in its Section 8 homeownership program, and requires that at least one percent of the purchase price come from the family's personal resources;

• Requires that financing for purchase of a home under its Section 8 homeownership program be provided, insured, or guaranteed by the state or Federal government, comply with secondary mortgage market underwriting requirements, or comply with generally accepted private sector underwriting standards; or

• Otherwise demonstrates in its Annual Plan that its has the capacity, or will acquire the capacity, to successfully operate a Section 8 homeownership program. A PHA may acquire this capacity by either partnering with an entity experienced in reviewing homeownership financing or by hiring staff with such experience.

The final rule also makes a conforming change to HUD's PHA Plan regulations at 24 CFR part 903. The revision is necessary so that the capacity requirement can be applied fully to high-performing PHAs wishing to provide Section 8 homeownership assistance. The final rule amends § 903.11 to provide that the information required by § 903.7(k) pertaining to homeownership programs must be included in the PHA's streamlined Annual Plan submission only to the extent that the PHA participates in homeownership programs under section 8(y) of the 1937 Act.

8.
Reorganization of Eligibility requirements (§§ 982.626, 982.627, and 982.628).
For purposes of clarity, this final rule reorganizes the eligibility requirements for participation in the homeownership option located in §§ 982.626 and 982.627 of the proposed rule). Section 982.626 of the final rule describes the initial requirements that must be satisfied before the commencement of homeownership assistance. Section 982.627 of the final rule sets forth the eligibility requirements (such as the minimum income and employment requirements) for families wishing to participate in the homeownership option. Section 982.628 of the final rule describes the eligibility requirements for homes purchased with homeownership assistance. With the exception of those changes described elsewhere in this preamble, this reorganization is not substantive, but is intended to clarify these regulatory requirements. The substance of proposed § 982.628 and subsequent regulatory sections have been redesignated to conform to the establishment of new § 982.628 (for example, proposed § 982.628 has become § 982.629 of this final rule, proposed § 982.630 has become § 982.631, etc.).

9.
Homeownership assistance as a reasonable accommodation (§ 982.627(b)(3)).
This final rule revises § 982.627 to clarify that a family

containing a family member with disabilities who requires homeownership assistance as a reasonable accommodation is eligible for the homeownership option, regardless of whether the family is a cooperative member or a first-time homeowner (as those terms are defined at § 982.4).

10.
Prohibition on the provision of homeownership assistance to family with present ownership interest (§ 982.627(a)(6)).
This final rule clarifies that, except for cooperative members who have acquired cooperative membership shares prior to the commencement of homeownership assistance, no family member may have a present ownership interest in a residence at the commencement of homeownership assistance for the purchase of any home.

11.
Establishment of national minimum income requirement (§ 982.627(c)).
At the request of several public commenters, the final rule establishes a national minimum income requirement that is equal to 2,000 hours of annual full-time work at the Federal minimum wage. A PHA may not establish a minimum income requirement in addition to the minimum income standard established by this rule.

12.
Fulfilling the minimum income requirement (§ 982.627(c)(1)).
In response to public comment, the final rule provides that the adult family members who will own the home at the commencement of the homeownership assistance (as opposed to only the head of household or spouse) must have annual income (gross income) that is not less than the minimum income requirement.

13.
Establishment of national employment requirement (§ 982.627(d)).
At the request of several public commenters, this final rule establishes a uniform national employment requirement. For purposes of uniformity, the final rule defines “full-time employment” to mean not less than an average of 30 hours per week. Further, the final rule adds a new § 982.627(d)(4), which provides that a PHA may not establish an employment requirement in addition to the employment standard established by the final rule.

14.
Fulfilling the employment requirement (§ 982.627(d)(1)).
The final rule provides that one or more adult members of the family who will own the home at commencement of homeownership assistance (not just the head of household or spouse) must fulfill the employment requirement.

15.
Interruptions in employment (§ 982.627(d)(2)).
The final rule provides that the PHA has the discretion to determine whether (and to what extent) an employment interruption is considered permissible in satisfying the employment requirement. The final rule also clarifies that the PHA may consider successive employment during the one-year period and self-employment in a business.

16.
Eligible homes for purchase under the homeownership option (§ 982.628(a)(2)).
The final rule provides that a home is eligible for purchase under the homeownership option if, at the time the PHA determines that the family is eligible to purchase the home with homeownership assistance, the home is either under construction or already existing.

17.
Provision of homeownership counseling (§ 982.630).
The final rule clarifies that, although the PHA must require pre-assistance homeownership counseling, the PHA is not itself obligated to provide the required counseling.

18.
Housing counseling topics (§ 982.630(b)).
The final rule clarifies that the PHA-required counseling program should “generally” cover the topics listed in § 982.629(b).

19.
Fair housing as a suggested counseling topic (§ 982.630(b)(8)).
The final rule expands the list of suggested housing counseling topics to include information on fair housing, fair housing lending practices, and local fair housing enforcement agencies.

20.
RESPA and predatory lending as suggested counseling topics (§ 982.630(b)(9)).
The final rule expands the list of suggested housing counseling topics to include information about the Real Estate Settlement Procedures Act (12 U.S.C. 2601
et seq.
) (RESPA), state and Federal truth-in-lending laws, and how to identify and avoid loans with oppressive terms and conditions.

21.
Revision of housing counseling topics (§ 982.630(c)).
The final rule provides that a PHA may revise the subjects covered in the pre-assistance counseling to address local circumstances and the needs of individual families.

22.
Housing counseling standards (§ 982.630(e)).
The final rule provides that, if the PHA is not using a HUD-approved housing counseling agency to provide the counseling for families participating in the homeownership option, the PHA should ensure that its counseling program is consistent with the homeownership counseling provided under HUD's Housing Counseling program.

23.
Seller certification in contract of sale that the seller is not debarred, suspended, or subject to a limited denial of participation (§ 982.631(c)(2)(v)).
In response to public comment, the final rule provides that the contract of sale must contain a seller certification that the seller is not debarred, suspended, or subject to a limited denial of participation under 24 CFR part 24.

24.
Applicability of Federal Housing Administration (FHA) underwriting standards for non-FHA insured loans (§ 982.632).
The final rule removes the requirement that purchases of homes financed without FHA mortgage insurance must, nonetheless, comply with the basic underwriting requirements for FHA-insured single family homes. However, the final rule continues to provide that if the purchase of the home is financed with FHA mortgage insurance, such financing is subject to FHA mortgage insurance requirements.

25.
PHA approval of refinancing agreements or securing of additional financing on the home (§ 982.632(c)).
The final rule provides that the PHA may establish requirements or other restrictions concerning debt secured by the home.

26.
PHA disapproval of lender qualifications and loan terms (§ 982.632(d)).
This final rule clarifies that the PHA may review lender qualifications and the loan terms before authorizing homeownership assistance. The PHA may disapprove proposed financing, refinancing or other debt if the PHA determines that the debt is unaffordable, or if the PHA determines that the lender or the loan terms do not meet PHA qualifications.

27.
Prohibition on ownership interest in second residence (§ 982.633(b)(7)).
This final rule clarifies that no family member may have a present ownership interest in a second residence while receiving homeownership assistance.

28.
Additional requirements for continuation of homeownership assistance (§ 982.633(b)(8)).
The final rule provides that the additional requirements for continuation of homeownership assistance established by the PHA may include a requirement for post-purchase homeownership counseling or for periodic unit inspections while the family is receiving homeownership assistance. With regards to post-purchase counseling, PHAs are encouraged to at least provide the family written briefing materials covering the topics in the PHA-required housing counseling program at the time of any refinancing of the initial debt, or the financing for improvement or repair of the home.

29.
Maximum term of homeownership assistance (§ 982.634).
The final rule provides for a mandatory term limit on homeownership assistance of 15 years if the initial mortgage incurred to finance purchase of the home has a term that is 20 years or longer. In all other cases, the maximum term of homeownership assistance is 10 years. The PHA may not establish shorter or longer maximum terms.

30.
Applicability of maximum term for homeownership assistance (§ 982.634).
The final rule clarifies that the maximum term for homeownership assistance applies to any member of the household who has an ownership interest in the unit during any time that homeownership payments are made, or is the spouse of any member of the household who has an ownership interest in the unit at the time homeownership payments are made.

As in the proposed rule, the final rule provides that the maximum term for homeownership assistance does not apply to an elderly family or a disabled family. The final rule clarifies that, in the case of an elderly family, this exception is only applied if the family qualifies as an elderly family at the commencement of homeownership assistance. In the case of a disabled family, this exception applies if at any time during receipt of homeownership assistance the family qualifies as a disabled family.

If, during the course of homeownership assistance, the family ceases to qualify as a disabled or elderly family, the maximum term becomes applicable from the date homeownership assistance commenced. However, such a family must be provided at least 6 months of homeownership assistance after the maximum term becomes applicable (provided the family is otherwise eligible to receive homeownership assistance in accordance with this part).

31.
Inclusion of accessibility modifications as homeownership expenses (§ 982.635(c)(2)(vii) and § 982.635(c)(3)(vii)).
The final rule clarifies that, if a member of the family is a person with disabilities, eligible homeownership expenses may include debt incurred to finance costs needed to make the home accessible for the family member, if the PHA determines that the allowance is needed as a reasonable accommodation.

32.
Inclusion of condominium or cooperative operating charges or maintenance fees as homeownership expenses (§ 982.635(c)(4)).
The final rule provides that, if the home is a cooperative or condominium unit, homeownership expenses may include cooperative or condominium operating charges or maintenance fees assessed by the condominium or cooperative homeowner association.

33.
Homeownership assistance payments to lender or family (§ 982.635(d)(2)).
The final rule clarifies that, if the PHA decides to make the homeownership assistance payments directly to the lender, and the assistance payment exceeds the amount due to the lender, the PHA must pay the excess amount directly to the family.

34.
Automatic termination of homeownership assistance (§ 982.635(e)).
The final rule clarifies that homeownership assistance for a family terminates automatically 180 calendar days after the last housing assistance payment on behalf of the family. However, a PHA has the discretion to grant relief from this requirement in those cases where automatic termination would result in extreme hardship for the family.

35.
Clarification of portability procedures (§ 982.636).
This final rule clarifies the portability procedures for Section 8 homeownership assistance. Generally, a family determined eligible for homeownership assistance by the initial PHA may purchase a unit outside of the initial PHA's jurisdiction, if the receiving PHA is administering a voucher homeownership program and is accepting new homeownership families. In general, the portability procedures for the Housing Choice Voucher program (described in §§ 982.353 and 982.355) apply to the homeownership option and the administrative responsibilities of the initial and receiving PHA are not altered except that some administrative functions (
e.g,
issuance of a voucher or execution of a tenancy addendum) do not apply to the homeownership option.

36.
Prohibition on provision of continued assistance to family with interest in prior home (§ 982.637(a)(2)).
The final rule provides that a PHA may not commence continued tenant-based assistance for occupancy of the new unit so long as any family member owns any title or other interest in the prior home.

37.
Denial or termination of homeownership assistance (§ 982.638).
For purposes of clarity, the final rule consolidates the provisions regarding the denial and termination of homeownership assistance in a new § 982.638.

38.
Continued assistance after mortgage defaults (§ 982.638(d)).
This final rule clarifies the regulatory provisions regarding continued assistance to a family that has defaulted on a mortgage obtained through the homeownership option. The final rule provides that the PHA must terminate voucher homeownership assistance for any member of a family that is dispossessed from the home pursuant to a judgement or order of foreclosure on any mortgage (whether FHA-insured or non-FHA) securing debt incurred to purchase the home, or any refinancing of such debt. However, the family may be eligible to receive continued voucher rental assistance. The PHA may consider mitigating circumstances in determining whether to provide a family with rental assistance after a mortgage default.

39.
Recapture of homeownership assistance (§ 982.640).
In response to public comment, the final rule provides for the recapture of a percentage of homeownership assistance provided to the family upon the sale or refinancing of the home. Sales proceeds that are used by the family to purchase a new home with Section 8 homeownership assistance are not subject to recapture. Further, a family may refinance to take advantage of lower interest rates, or better mortgage terms, without any recapture penalty. Only those proceeds realized upon refinancing that are retained by the family (for example during a “cash-out” of the refinanced debt) are subject to the new recapture provision.

The final rule requires that, upon purchase of the home, a family receiving homeownership assistance shall execute documentation as required by HUD, and consistent with State and local law, that secures the PHA's right to recapture the homeownership assistance. The lien securing the recapture of homeownership subsidy may be subordinated to a refinanced mortgage. The amount of homeownership assistance subject to recapture shall automatically be reduced over a 10 year period, beginning one year from the purchase date, in annual increments of 10 percent. At the end of the 10 year period, the amount of the homeownership assistance subject to recapture will be zero.

IV. Public Comments Received on the April 30, 1999 Proposed Rule

The public comment period on the April 30, 1999 proposed rule closed on June 29, 1999. HUD received 93 public comments. Comments were submitted by PHAs, including regional and State housing agencies; national organizations representing PHAs; legal services organizations; mortgage bankers; Fannie Mae and Freddie Mac; advocates for persons with disabilities; low-income housing advocates; and various other organizations and individuals. The following sections of this preamble present a summary of the significant

issues raised by the public commenters on the April 30, 1999 proposed rule, and HUD's responses to these comments.

Section V. of the preamble discusses general comments that did not address a specific regulatory section. Section VI. of the preamble discusses those comments that concerned a specific regulatory provision of the proposed rule.

V. Discussion of General Comments Not Regarding a Specific Regulatory Section

A. Support for Proposed Rule

Comment: Support for proposed rule.
Several commenters expressed support for the proposed rule and the concept of the Section 8 homeownership option. One commenter wrote: “In general, [our PHA] commends the job that HUD has done in this component of the immense regulatory undertaking required by the [Public Housing Reform Act].” Another commenter wrote that its board “unanimously endorsed the concept of the Section 8 homeownership program, and applauds HUD for taking this initiative.” Still another commenter wrote: “[We] applaud the proposed Section 8 Homeownership Program.”

HUD Response.
HUD is appreciative of the comments in support of HUD's efforts in developing the proposed rule. HUD believes that the Section 8 homeownership option will provide local PHAs with greater flexibility in addressing the housing needs of their communities while creating homeownership opportunities for the low-income families the Section 8 tenant-based program is designed to serve.

B. General Concerns About the Proposed Rule

Comment: HUD should prohibit or limit the use of Section 8 rental assistance funds for homeownership.
Several commenters were opposed to the concept of Section 8 homeownership. These commenters wrote that limited Section 8 resources should be used solely to assist families in renting decent, safe, and sanitary units. One of the commenters wrote that many communities currently offer other programs with Community Development Block Grant (CDBG), HOME, or state or local funding to assist prospective first-time homebuyers. Several of the commenters suggested that HUD should establish reasonable upper limits on the number or percentage of households that can use the homeownership option, in order to protect the availability of rental assistance for extremely low-income families. According to these commenters, the homeownership option is geared toward families with relatively higher incomes than the typical Section 8 rental program participant.

HUD response.
Section 8(y) provides that a PHA, in its discretion, may make Section 8 homeownership assistance available to eligible families. HUD anticipates that PHAs will consider local circumstances (such as the availability of other local resources) when deciding whether or not to implement a homeownership program.

HUD does not believe it is necessary to establish upper limits on the number of families a PHA may allow to participate in the homeownership option in order to protect the interests of extremely low-income families. Since the same income targeting requirements apply to the rental and homeownership components of the Section 8 Housing Choice Voucher program, implementation of the homeownership option should not have a significant effect on the availability of Section 8 voucher assistance to extremely low-income applicants.

Comment: The lack of uniformity in program rules for PHAs will discourage lender participation and impede family choice and economic mobility.
Several commenters wrote that the proposed rule grants too much discretion to PHAs to establish certain critical elements of the homeownership program. These areas include minimum income requirements, program eligibility requirements, financing requirements, and the duration of homeownership assistance. The commenters wrote that, as a result of the lack of uniform rules, there will be considerable disparity from one jurisdiction to another unless HUD imposes uniform rules. The commenters wrote that such disparities would discourage lender participation and prevent regional efforts to expand homeownership opportunities. Without broad lender participation, families would be deprived of the protections offered by a competitive marketplace and would be vulnerable to fraudulent real estate and financing practices.

HUD response.
The final rule continues to provide PHAs with broad administrative flexibility over the homeownership option. Where HUD has determined that uniformity is appropriate (such as in the areas of minimum income, employment, and maximum term of assistance), this final rule establishes uniform Federal standards. However, HUD continues to believe that administrative flexibility is essential for the program to address local needs, adapt to local markets, and permit localized financing strategies in order to achieve success in individual communities. The approach of the final rule is consistent with two of the purposes of the Public Housing Reform Act: to deregulate PHAs, and to provide more flexible use of Federal assistance to PHAs (see section 505(b) of the Public Housing Reform Act).

While standardized requirements may facilitate participation by certain regional and national financing entities, and increase opportunities for sales of mortgages in the secondary market, HUD believes that PHA flexibility over certain features of the program will not preclude that result. For instance, a regional lending institution could establish its own requirements to participate in the section 8(y) program. PHAs could then choose to structure their programs accordingly in order to comply with and complement the lender's requirements for participation.

C.
Comments Regarding Persons with Disabilities

Comment: Support for rule provisions regarding the elderly and persons with disabilities.
A number of commenters commended HUD for the sensitivity shown in the proposed rule to persons with disabilities' real life situations, especially in the areas of income and employment. These commenters wrote that the proposed rule demonstrated that HUD is attuned to disability issues and that a conscious effort was made to recognize those barriers faced in accessible housing.

HUD response.
HUD appreciates the comments supporting the proposed rule provisions concerning the elderly and persons with disabilities.

Comment: The rule should require the PHA or a local supportive service provider to annually review difficulties faced by persons with disabilities in maintaining their mortgage payments or homes.
The commenter submitting this suggestion wrote that an annual review is necessary to ensure that: (1) homeowners with disabilities continue to be able to access the supportive services they choose; and (2) supportive service agencies and the PHA are aware of any problems the family may be having.

HUD Response:
The final rule provides that PHAs may offer post-purchase counseling, and HUD encourages the use of such counseling to further lessen the risk of defaults. However, it would be inappropriate to limit post-purchase counseling to persons with disabilities, and HUD believes it would be inappropriate to presume that persons with disabilities require additional scrutiny because they

are more likely to default on their mortgages. Accordingly, HUD has not adopted the suggestion made by the commenter.

Comment: The rule should define what constitutes a “reasonable accommodation” for a person with disabilities.
Several commenters wrote that the proposed rule would require a PHA to offer Section 8 homeownership assistance “if needed as a reasonable accommodation for a family member who is a person with disabilities” (64 FR 23488). These commenters suggested that the final rule should establish guidelines to determine when homeownership assistance is a “reasonable accommodation.” The commenters wrote that, without such guidance in the final rule, PHAs that choose not to provide a homeownership option may fail to provide the required “reasonable accommodation” to persons with disabilities.

Other commenters, however, wrote that PHAs should not be required to offer homeownership assistance as a reasonable accommodation. The commenters wrote that this obligation could be costly to a PHA that has not elected to offer the homeownership option and has not assembled the counseling and other resources needed to operate it.

HUD response.
The provision of homeownership assistance as a reasonable accommodation is determined on a case-by-case basis by the PHA. The PHA will determine what is reasonable based on the specific circumstances and individual needs of the person with a disability. It is the sole responsibility of the PHA to determine whether it is reasonable to implement a homeownership program as a reasonable accommodation. For example, depending on the individual circumstances, the PHA may determine that it is a reasonable accommodation to provide homeownership assistance when the PHA has implemented a limited homeownership program and is currently assisting the maximum number of homeowners in the PHA program. On the other hand, the PHA may determine that it is not reasonable to provide homeownership assistance as a reasonable accommodation in cases where the PHA has otherwise opted not to implement a homeownership program.

Comment: All homeownership briefing materials should be accessible to persons with disabilities.
Several commenters suggested that HUD should ensure that all homeownership programs and briefing materials are accessible to person with all types of disabilities.

HUD response.
The Section 8 homeownership program is a “special housing type” under subpart M of the tenant-based Section 8 program regulations. Except when specifically modified by subpart M, requirements in the other subparts of the tenant-based regulations apply to the special housing types (including the homeownership program). Accordingly, as specified in § 982.301, the PHA, in briefing a family that includes any person with disabilities, must take appropriate steps to ensure effective communication in accordance with 24 CFR 8.6.

D. Comments Regarding the Role of Nonprofits

Comment: The final rule should encourage PHAs to contract with nonprofit organizations to administer the homeownership assistance.
A number of commenters wrote that PHAs have had little experience in operating homeownership programs, whereas nonprofits have a solid-track record in this area. These commenters wrote that PHA partnerships with nonprofits may prove particularly helpful in preventing fraud and other abusive practices. In addition, the commenters wrote that nonprofits' knowledge of the market can help ensure that families are exposed to housing choices in a range of neighborhoods. The commenters wrote that there is much to be gained by requiring, or at least strongly encouraging, PHAs to partner with nonprofits in the design and operation of Section 8 homeownership programs.

HUD response.
While the final rule does not require the PHA to partner with a nonprofit, the PHA may wish to consider subcontracting with nonprofits for administration of one or more of the responsibilities under the homeownership program, just as it may contract out other PHA functions in administering the Section 8 Housing Choice Voucher program. Alternatively, the PHA may wish to consult with nonprofit organizations with homeownership experience in designing the PHA's homeownership program. HUD encourages PHAs lacking in homeownership program experience to explore the possibility of working with experienced nonprofits through partnerships or contractual arrangements to design and administer a successful section 8(y) program. Regardless of the PHA approach to the delivery of PHA responsibilities, the PHA is always responsible for overall compliance with program requirements.

Comment: Where there is no PHA willing to implement the homeownership option in a particular area, HUD should permit other public agencies or private nonprofits to administer a Section 8 homeownership program.
Several commenters wrote that this approach would expand homeownership opportunities for persons with disabilities, even in those cases where a PHA chooses not to provide the homeownership option or where there is no tenant-based program at all (perhaps an area where there is little or no rental housing, but an abundance of low-cost single-family homes).

HUD response.
Section 8(o)(15) of the 1937 Act specifically provides that a PHA providing tenant-based assistance “may at the option of the agency, provide assistance for homeownership” and that a PHA “may contract with a nonprofit organization to administer a homeownership program.” The decision to offer homeownership assistance rests with the PHA and there is no additional or separate funding provided for homeownership assistance. A PHA that does not want to use existing staff to implement a homeownership program may consider subcontracting with a nonprofit organization to administer the homeownership program on behalf of the PHA, but is not required to do so.

E. Comments Regarding Income Targeting

Comment: The final rule should clarify whether Section 8 homeownership subsidies are subject to the same income targeting requirements as the Section 8 rental assistance program.
A few commenters wrote that if the new income targeting requirements of the Public Housing Reform Act apply, the requirements will reduce the pool of families eligible for Section 8 homeownership assistance.

HUD response.
The Section 8 homeownership program is a “special housing type” under subpart M of the tenant-based Section 8 program regulations. Except when specifically modified by subpart M, requirements in the other subparts of the tenant-based regulations apply to the special housing types (including the homeownership program). The income targeting requirements apply to the PHA's entire tenant-based Section 8 program, including the rental and any homeownership portion of the program.

HUD anticipates that most participants in the Section 8 homeownership program will be current program participants, not applicants. Since families continuing to receive assistance under the 1937 Act are not considered as new admissions, their income levels are not examined for compliance with income targeting requirements.

F. Comments Regarding the Relationship Between the Homeownership Option and the Family Self-Sufficiency (FSS) Program

Comment: Linking the FSS Program to Homeownership Option.
One commenter expressed the opinion that it is very important to retain PHA discretion regarding whether to link the Section 8 homeownership program to FSS. Several commenters wrote that families should not be required to participate in the FSS program as a condition of receiving homeownership assistance.

HUD response.
There is no federal requirement that families must participate in the FSS program as a condition of receiving homeownership assistance. There is, however, PHA administrative flexibility to link the FSS and homeownership programs. For example, the PHA may adopt local homeownership eligibility requirements such as participation in the FSS program. The PHA may opt to incorporate the homeownership goal in the family's FSS contract of participation so any FSS escrow could be advanced for purchase of a home or home maintenance/improvement purposes. HUD believes that PHA discretion over this issue is appropriate and in keeping with the intention to ensure there is sufficient PHA flexibility to address the local community's needs and objectives in the administrative policies of the program.

G. Considering Section 8 Assistance as Income for Purposes of Financing Purchase of Home

Comment: Section 8 assistance should not be considered income for purposes of financing the purchase of the home.
Several commenters wrote that the proposed rule did not adequately consider the high cost of housing in certain metropolitan areas. The commenters wrote that the preamble to the proposed rule states that “it is anticipated that mortgage lenders will consider the Section 8 assistance as a source of income when underwriting the loan” (64 FR 23488, 23489). Instead, the commenters suggested that the final rule should require that the voucher housing assistance payment be deducted from the monthly housing expense. The commenters wrote that, due to the high cost of housing in certain metropolitan areas, the housing assistance payment will not raise income sufficiently to permit the family to qualify for a loan in an amount necessary to purchase a good quality home.

One of the commenters wrote that lenders should not consider Section 8 assistance as a source of income because payments are not earned income or entitlement income, are not guaranteed for more than 12 months, and may decrease with an increase in total family income or violation of Section 8 program requirements.

Another commenter recommended that the final rule prohibit discrimination based on source of income because lending institutions do not view government benefits as a reliable or stable source of income. Accordingly, these lenders will be unlikely to approve home loan applications from Section 8 recipients.

HUD response.
Section 8(y) does not regulate the lending industry. Consequently, the final rule does not impose any requirement on lenders to treat the subsidy in a certain manner, nor does the rule prohibit discrimination by lenders based on source of income. Lenders will apply their underwriting criteria for financing of homes to be purchased under the Section 8 homeownership program. HUD notes that, to the extent applicable, lenders must comply with the Equal Credit Opportunity Act (15 U.S.C. 1601
et seq.
) (referred to as “ECOA”) and the implementing regulations issued by the Federal Reserve Board at 12 CFR part 202. ECOA prohibits lending discrimination, including discrimination based on receipt of public assistance.

H. Comments Regarding Mortgage Defaults

Comment: HUD should require that each PHA with a homeownership program develop a strategy to reduce foreclosure risk.
Two commenters wrote that such a requirement would help minimize foreclosures among participating families.

HUD response.
Although HUD has not adopted the suggestion, the final rule does provide that a family must attend and satisfactorily complete pre-assistance homeownership counseling before homeownership assistance may commence. In addition, HUD encourages PHAs to provide post-purchase counseling and otherwise develop local strategies to reduce mortgage foreclosures by families participating in the homeownership program.

I. Other General Comments

Comment: The final rule should explicitly permit PHAs to limit homeownership assistance to local needs.
The preamble to the April 30, 1999 proposed rule provided that: The PHA may choose to make homeownership assistance freely available for any qualified applicant or participant, or to restrict homeownership assistance to families or purposes defined by the agency. (64 FR 23488)

One commenter wrote that the proposed regulatory text does not contain comparable language. The commenter wrote that a PHA should have the discretion to limit application of its Section 8 homeownership program, in whole or in part, to achieve local housing goals or priorities. Accordingly, the commenter suggested that the final rule contain regulatory text equivalent to the quoted preamble language.

HUD response.
The final rule explicitly provides at § 982.626(b) that the PHA may limit homeownership assistance to families or purposes defined by the PHA.

Comment: HUD should explicitly authorize and encourage PHAs to join together to administer the homeownership option.
Several commenters wrote that lenders are much more likely to participate in a regional program than in a program whose rules vary from PHA to PHA. The commenters wrote that a regional program would facilitate mobility and minimize portability concerns.

HUD response.
PHAs currently have necessary flexibility to join in the regional administration of the homeownership option. Explicit authorization is not necessary for PHAs to jointly administer (or otherwise cooperate in the administration) of the Section 8 homeownership program.

Comment: PHAs should be required to provide homeownership option.
A few commenters suggested that PHAs should be required to offer Section 8 homeownership assistance. The commenters wrote that HUD should exempt a PHA from offering homeownership assistance only if the PHA can document that implementing the homeownership option in its jurisdiction would not be feasible.

HUD response.
The recommendation made by the commenters is inconsistent with the 1937 Act. Section 8(o)(15) of the 1937 Act specifically provides that a PHA providing tenant-based Section 8 assistance “may at the option of the agency, provide assistance for homeownership.” Accordingly, HUD has not adopted the suggestion made by the commenters.

Comment: HUD should isolate Section 8 homeownership loans from other FHA loans.
One commenter wrote that loans under the Section 8 homeownership program will likely

have higher default ratios than other loans, and that lenders originating these loans would be penalized when their default numbers are higher than those of their peers who have not participated in the program. Specifically, the commenter wrote that lenders participating in the Section 8 homeownership program might unfairly lose their FHA approved lender status. Therefore, the commenter suggested that HUD's tracking systems should isolate loans issued under the Section 8 homeownership program from other FHA loans.

HUD response.
Lenders will use normal FHA underwriting criteria for FHA-insured loans. As a result, HUD does not anticipate a higher than average default rate and HUD does not intend to track these loans separately.

J. General Questions About the Proposed Rule

Comment: Is a PHA an eligible seller under the homeownership program?

HUD response.
There is no prohibition against a family purchasing a PHA-owned home under the Section 8 homeownership program. However, the PHA cannot steer families (or otherwise limit or restrict purchase options) to PHA-owned or controlled units.

Comment: Is a manufactured home eligible for purchase under the homeownership program?

HUD response.
A manufactured home and the real property upon which the manufactured home sits are eligible for purchase under the homeownership program.

Comment: At annual reexaminations of family income subsequent to home purchase, will the owned home be counted as an asset?
One commenter wrote that this could become a serious problem if there is rapid appreciation of the value of the home.

HUD response.
In response to this comment, HUD has revised the definition of “net family assets” found in 24 CFR 5.603(d). The revised definition excludes the value of a home currently being purchased with Section 8 homeownership assistance. This exclusion is limited to the first 10 years after the purchase date of the home.

Comment: Is the initial 40 percent maximum rent burden requirement under the Housing Choice Voucher program applicable to the homeownership option?
The commenter wrote that this provision, if applied to the homeownership program, would severely limit housing choice.

HUD response.
The 40 percent initial rent burden cap does not apply to families who will participate in the Section 8 homeownership program since homeownership families do not pay rent.

Comment: If the lender is relying on the Section 8 assistance to secure the mortgage, is the family, the PHA, or HUD is responsible for payment of the note?

HUD response.
Neither the PHA nor HUD is guarantor of mortgage note for a home being purchased under the Section 8 program. The terms of the loan note will determine who is responsible for payment (usually the family) of the loan.

VI. Discussion of Comments Regarding a Specific Regulatory Section

For the convenience of readers, the discussion that follows is organized by the regulatory section of the proposed rule it pertains to (e.g., § 982.625, § 982.633, etc.). As noted, HUD has made several organizational changes at the final rule stage. Accordingly, the proposed regulatory section headings do not always correspond to those of this final rule.

A. Definitions (proposed § 982.4)

C
omment: Definition of “Public Assistance” is too broad.
Several commenters wrote that the proposed definition of “public assistance” is overly broad and subject to misinterpretation. The commenters suggested that the definition should be narrowed to specifically identify only those welfare programs that may not be counted in determining minimum income. Other commenters wrote that the definition should exclude food stamps, unemployment insurance and permanent disability payments.

HUD response.
The final rule addresses the concerns raised by the commenters regarding the clarity of the definition of “public assistance.” Specifically, HUD has removed the definition of the term “public assistance” and adopted, in its place, the definition of the term “welfare assistance” located in 24 CFR 5.603. The definition of “welfare assistance” is well-established and understood by PHAs. Further, the use of the term “welfare assistance” in this final rule will help to ensure the consistent use of defined terms throughout HUD's regulations.

Comment: The definition of “cooperative” should not be limited to “housing owned by a nonprofit corporation or association.”
One commenter wrote that many housing cooperatives are incorporated under their home state's business corporation act. The commenter suggested that by dropping the word “nonprofit,” the definition would better reflect the reality of diverse legal practices among states. Another commenter wrote that the proposed definition is unnecessarily intrusive, imposes unnecessary administrative functions, and unduly hinders the use of cooperative housing.

HUD response.
Consistent with the recommendation, the regulatory definition of “cooperative” in the final rule is no longer limited to housing owned by a nonprofit entity.

B. Lease-purchase arrangements (proposed §§ 982.305 and 982.317)

Comment: HUD should develop a model lease-purchase agreement to prevent fraud by seller.
The commenter wrote that a standard lease-purchase agreement would prevent seller fraud.

HUD response.
HUD does not intend to provide or require the use of a standard HUD-prescribed lease-purchase agreement for the Housing Choice Voucher program. HUD believes broad flexibility is needed in this area to reflect the wide range of acceptable real estate market practices that differ among localities.

Comment: Applicability of homeownership requirements upon entering lease-purchase agreement.
Two commenters suggested that a lease-purchase family should be required to comply with all homeownership requirements before purchase of the home. Another commenter wrote that PHAs should be provided with the option of requiring compliance with the homeownership requirements at the start of the lease-purchase arrangement.

One commenter wrote that Section 8 families opting for homeownership through a lease-purchase arrangement should be required to satisfy at least half the continuous employment and half the required counseling requirements at the time they enter the lease-purchase program. The commenter wrote that, since lease-purchase families typically have credit-history problems to clear up over time, it would be onerous to impose all of the homeownership requirements on the family at the time of their entrance into the program.

Other commenters wrote that a lease-purchase family should be subject to the independent professional home inspection requirements of the homeownership program before entering into a lease-purchase arrangement. These commenters wrote that it would be devastating to a lease-purchase family to reach the purchase option stage only to discover that the purchase is jeopardized due to a property defect.

Several commenters suggested that the counseling requirement should be

applicable before entering into the lease-purchase arrangement. These commenters wrote that families should have an idea of what the responsibilities of homeownership are before entering into a lease-purchase arrangement.

One commenter wrote that HUD should continue to allow a family to enter into a lease-purchase arrangement without being subject to the homeownership program requirements.

HUD response.
HUD has not changed the requirements specified in the proposed rule for lease-purchase arrangements. The final rule does not require families with lease-purchase arrangements under the Section 8 tenant-based rental program to comply with any of the Section 8 homeownership program requirements. However, HUD believes it is in the best interest of these families for the PHA to brief the family on the homeownership requirements if they expect to receive Section 8 homeownership assistance to complete the purchase transaction. The PHA may refer families participating in lease-purchase arrangements to HUD homeownership counseling agencies. There is generally little or no cost to the participant for this HUD funded counseling.

C. Cooperative Housing (proposed § 982.619).

Comment: Final rule should clarify that the occupancy agreement controls not only the allocation of maintenance responsibility between the cooperative member and the cooperative, but also the rules to which the Section 8 assisted members are subject.
Several commenters wrote that consideration and adoption of the rules governing co-ownership is the focus of much democratic process in virtually every housing cooperative. The commenters wrote that few cooperatives would be willing to accept the existence of a differently-privileged class of Section 8-assisted members in their midst.

HUD response.
HUD disagrees that the suggested clarification is necessary. The rule does not change the legal relationship between the cooperative and cooperative member.

Comment: Final rule should clarify that, where rental assistance is used in a cooperative setting, Section 8 assistance may be used for the acquisition costs of cooperative memberships or shares.
The commenter wrote that this is especially critical in limited-equity cooperatives, which is the type of cooperative in which most Section 8 rental assistance is used. In limited-equity cooperatives, the share or membership prices are strictly limited to provide ongoing affordability of acquisition to low-income families. Section 8 rental assistance is currently used in these settings to pay for the membership acquisition over time.

HUD response.
This comment, which appears to relate only to Section 8 rental assistance, is outside the scope of this rulemaking, which implements the “homeownership option” authorized by section 8(y) of the 1937 Act. HUD notes, however, that the final rule provides that the costs of purchasing a cooperative unit may be included as a “homeownership expense” for purposes of determining the amount of monthly homeownership assistance payment (see § 982.635(c) of this final rule).

D. Homeownership Option: General (proposed § 982.625)

Comment: Newly constructed homes or units under construction should be eligible for purchase under the homeownership option.
Several commenters wrote that in some areas the only affordable housing is new housing being constructed by nonprofits, and that new construction provides greater assurances to low-income families that major repairs will not be necessary. The commenters wrote that the prohibition against new construction would make it more difficult for persons with disabilities to find accessible homes. Other commenters wrote that new construction normally occurs in areas of job growth. The prohibition would therefore prevent families from moving to such an area in search of employment opportunities.

HUD response.
In response to these comments, HUD has revised proposed § 982.625, which described the “existing home” requirement. Section 982.628(a)(2) of this final rule provides that a home may be purchased under the homeownership option if, at the time the PHA determines that the family is eligible for Section 8 homeownership assistance, the home is either under construction or already existing. However, before commencing homeownership assistance for the family, the PHA must determine that the home satisfies all of the applicable requirements described in § 982.628 of this final rule (for example, the home must have been inspected by a PHA inspector and by an independent inspector designated by the family; and the home must meet the HUD Housing Quality Standards (HQS)).

Comment: The homeownership option should be available only to current recipients of Section 8 rental assistance who have successfully complied with all rental program requirements for at least one year.
One commenter suggested that homeownership assistance should not be made available at initial admission. According to the commenter, this will facilitate proper counseling and a considered housing search without imposing artificial deadlines.

HUD response.
HUD has not adopted this suggestion. HUD notes, however, that PHAs may choose to impose this condition as an additional requirement for eligibility.

Comment:
Possible exceptions to the first-time homebuyer requirement. Several commenters made suggestions on possible exceptions to the first-time homebuyer requirement. Other commenters, however, wrote that HUD should retain the first-time homeownership requirements as set forth in the proposed rule, since the definition conforms to the industry standard. Among the suggested exceptions, were exceptions for:

• A divorced spouse who does not retain homeownership interest;

• Persons with disabilities who lost a previous home as a result of becoming disabled;

• Any otherwise eligible person with a disability;

• Victims of domestic violence;

• Current manufactured homeowners;

• Owners of substandard housing; and

• Single parents.

Another commenter suggested that the first-time homebuyer requirement should only apply to the mortgagor, not to the entire family. The commenter wrote that, otherwise, other family members would be unfairly prevented from subsequently enjoying Section 8 homeownership benefits.

Two commenters wrote that homeownership assistance should not be restricted to first-time homebuyers. Several commenters wrote that PHAs should be provided with the option of establishing additional exceptions to the first-time homebuyer requirement.

HUD response.
HUD has carefully considered all of the suggested exemptions to the first-time homebuyer requirement and is sympathetic to the circumstances of families in many of the suggested categories. However, HUD has decided not to attempt to specify, by regulation, the many possible situations that may merit an exception to the first-time homebuyer requirement.

However, HUD has revised the definition of “first-time homeowner” at § 982.4 to clarify the eligibility of single parents and displaced homemakers, as those terms are defined in section 956 of the Cranston-Gonzalez National Affordable Housing Act (codified at 42 U.S.C. 12713). Section 956 provides that no displaced homemaker or single

parent “may be denied eligibility under any Federal program to assist first time homebuyers” because of previous ownership of a home by or with a spouse. Accordingly, this final rule provides that such individuals are “first-time homeowners” for purposes of the homeownership option and are, therefore, eligible to receive Section 8 homeownership assistance.

In addition, HUD has further revised this definition to clarify that any family who has owned any residential property during the preceding three years (regardless of whether it is the family's principal dwelling unit or not) does not qualify as a first-time homeowner.

Comment: The PHA should not be able to “pass over” a family on its waiting list in order to provide another family homeownership assistance.
One commenter suggested that such a practice would be unfair to families on the waiting list. Another commenter suggested that HUD should explicitly forbid separate waiting lists for rental and homeownership assistance.

HUD response
. HUD's regulations at 24 CFR part 982, subpart M, provide that a PHA may not set aside program funding for special housing types or for a specific special housing type. The PHA may not require an applicant to use the Housing Choice Voucher program assistance for a particular special housing type. Consequently, a PHA may not maintain separate waiting lists for special housing types or provide a selection preference based on a family's willingness to use the housing choice voucher for a particular special housing type.

Instead, if the PHA opts to offer Section 8 homeownership assistance, the PHA may offer families (both current participants and applicants who have been issued housing choice vouchers) that meet the initial eligibility criteria (including any additional requirements established by the PHA) the opportunity to use their Section 8 assistance to purchase a home. If the PHA has established limits on the number of vouchers that may be used for homeownership, the PHA simply suspends offering Section 8 homeownership assistance at such time that the number of families receiving homeownership assistance, in combination with the number currently in the pre-assistance phase of the program, reaches the PHA limit.

E. Initial requirements (Proposed § 982.626)

Comment: The rule should allow for homeownership assistance to be used by a family to purchase a two- and three-family home.
The commenter wrote that, in certain areas, much of the affordable housing stock consists of two-and three-family homes, and the rental income would help the family meet its share of the homeownership expenses.

HUD response.
Homeownership assistance is provided to assist a family with the monthly homeownership expenses of its residence. Homeownership assistance may not be used to assist the family with the monthly expenses for investment or rental property. The family may not use Section 8 homeownership assistance to purchase two- or three-family homes. Accordingly, § 982.628 of this final rule clarifies that a home purchased with homeownership assistance must either be a one unit property or a single dwelling unit in a cooperative or condominium.

Comment: PHAs should not be allowed to establish local eligibility requirements for the homeownership option that are more restrictive than those for Section 8 rental assistance.
Several commenters wrote that stricter requirements have the potential to discriminate or discourage users with disabilities from using the homeownership option.

HUD response.
HUD has not adopted this suggestion. Section 8(y) specifically requires homeownership eligibility criteria that are not applicable to the Section 8 rental assistance program. In addition, HUD believes it is appropriate for PHAs to have broad administrative authority to target homeownership assistance for specific purposes. Since the PHA has the option whether or not to offer Section 8 homeownership assistance, HUD believes retaining PHA administrative flexibility over this area is important to encourage wider implementation of the homeownership option.

Comment: The prohibition against providing homeownership assistance if the seller is debarred, suspended, or subject to a limited denial of participation imposes a hardship on the purchaser.
The commenter wrote that after the purchase agreement is signed, the purchaser is contractually obligated to buy the home according to the terms the parties agreed to. Failure to complete the sale will result in loss of downpayment and could result in the purchaser being sued for failure to perform. An alternative would be to have the PHA conduct a review of the seller before execution of the purchase agreement.

HUD response
. PHAs are encouraged to regularly review the list of individuals and entities that are debarred, suspended or subject to a limited denial of participation in HUD programs. In response to this comment, the final rule provides at § 982.631 that the contract of sale must contain a seller certification that the seller is not debarred, suspended, or subject to a limited denial of participation under 24 CFR part 24.

F. How to Qualify for Homeownership Assistance (Proposed § 982.627)

Comment: The relaxed regulatory requirements for the elderly and persons with disabilities will limit homeownership assistance to these individuals
. One commenter wrote that lenders will be wary of the relaxed employment/income requirements established by the proposed rule for the elderly and persons with disabilities. The commenter wrote that lenders, concerned for their risk in underwriting a loan without the usual level of work history, will be less likely to approve home loans for elderly and disabled families.

HUD response.

HUD has not revised the rule in response to this comment. The relaxed eligibility requirements for elderly and disabled families are used by the PHA to determine if the family is eligible for homeownership assistance. The rule does not impose relaxed or exception standards for any family with respect to their ability to obtain financing from a lender.

Lenders will determine the creditworthiness of each borrower on a case-by-case basis using their own requirements and standards.

G. Minimum Income Requirements (proposed § 982.627(b)).

Comment: The minimum income requirements should be eliminated.
Several commenters wrote that, since lenders will evaluate a family's resources as part of their mortgage application review, HUD should rely on them to screen out families who do not have sufficient resources to make payments on a mortgage loan, rather than permitting PHAs to establish a minimum income threshold.

HUD response
. HUD has not adopted this suggestion. Section 8(y) explicitly establishes a minimum income requirement for participation in the Section 8 homeownership program.

Comment: HUD should establish uniform minimum income requirements.

Several commenters wrote that a national standard creates certainty, making it possible for national, regional, or statewide entities (lenders, advocates, intermediaries, nonprofits, etc.) to develop and administer activities in support of the program.

Other commenters wrote that the final rule should restrict the PHA from establishing minimum income requirements that will prevent persons on fixed incomes from receiving homeownership assistance, since elderly and persons with disabilities are often on low, fixed incomes. The commenters recommended that any minimum income requirements established by the PHA should not be so high that they exclude these individuals from homeownership assistance.

HUD response
. HUD agrees that the regulation should establish a national standard for the minimum income requirements. As suggested by several of the commenters, HUD has decided to establish a national minimum income requirement that is equal to 2,000 hours of annual full-time work under the Federal minimum wage. A PHA may not establish a minimum income requirement in addition to the minimum income standard established by this final rule. HUD believes that this standard is administratively straight-forward, and addresses the statutory income requirement without arbitrarily eliminating working families that are making no more than the minimum wage.

Comment: PHAs should be permitted to make reasonable exceptions to the minimum income requirement if they determine that the applicant household has a high probability of being a successful owner.
One commenter wrote that the minimum income requirements do not address one of the factors in mortgagor credit review—a household's total monthly fixed payment obligation. The commenter wrote that a household below the minimum requirement may have an exemplary credit history and no additional debt obligations. According to the commenter, such a household would be a better candidate for homeownership than a household with income above the minimum.

HUD response.
HUD has not adopted this suggestion. The minimum income requirement represents the bare minimum income threshold the family must meet to be eligible for homeownership assistance, and does not automatically indicate the family would be a successful candidate for homeownership. Instead of making exceptions to the minimum income requirement for families that otherwise appear to have a high probability of being a successful homeowner, the PHA could work with the family on increasing family income through the FSS program or other self-sufficiency efforts.

Comment: Requiring the “head of household or spouse” to meet minimum income requirement fails to acknowledge the varied structure of some families, and has a disparate impact on single-headed households, domestic partners, and households that have related but unmarried adult members
. Several commenters wrote that the minimum income requirements fail to account for the wide variety of families receiving Section 8 assistance. For example, it is possible for the head of household to have no earned income but have a domestic partner, adult child, or other adult family member that works.

HUD response
. The purpose of the minimum income requirement is to ensure that the family has adequate resources to meet the additional costs associated with homeownership. The proposed rule tied the minimum income to the head of household and spouse in order to ensure that those family members who actually owned the home met the income requirement, as opposed to other family members that might shortly leave the household following the purchase (thereby increasing the risk of defaults). However, HUD agrees that this type of restriction does not sufficiently take the variety of family structures into account. Therefore, the final rule provides that the adult family members
who will own the home at commencement of homeownership assistance
must have annual income (gross income) that is not less than the minimum income requirement, as opposed to only the head and spouse.

Comment: Disabled and elderly families should be exempt from minimum income requirements.
One commenter wrote that although the rule permits public assistance payments to be considered in determining whether an elderly or disabled family meets the minimum income requirements, disabled or elderly families would still have difficulty in meeting the minimum income threshold. The commenter suggested that elderly and disabled families should be exempt from the minimum income requirements, because the goal of rewarding work does not apply to these households.

HUD response
. Section 8(y) does not provide for an exemption from the minimum income requirement for elderly or disabled families, other than the source of income used to determine if the family meets the requirement. The purpose of the minimum income requirement is to ensure that the family has sufficient income available to absorb the additional expenses associated with homeownership, not to ensure that the family meets the employment requirement.

H. Family Employment (proposed § 982.627(c))

Comment: The employment requirement should be eliminated.
Several commenters recommended elimination of this requirement. The commenter wrote that HUD should rely on lenders to determine what is an acceptable employment history, rather than establishing minimum employment requirements or permitting PHAs to establish such requirements. Other commenters wrote that, since a minimum income requirement already exists, the employment requirement is redundant. The commenters suggested that, in the place of an employment requirement, HUD require a family to show proof that it earned the minimum income amount during the past year.

HUD response.
The employment requirement is statutory and the requirement is essential to the purpose of rewarding work and assisting families in making the transition to economic self-sufficiency. However, the final rule, in accordance with the law, provides excep

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A00-22829. Public record. Not legal advice.