Availability of Mid-Course Correction for Low-Income Housing Preservation and Resident Homeownership (LIHPRHA) and Emergency Low- Income Housing Preservation Act (ELIHPA) Programs

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing

Commissioner

[Docket No. N-94-3802; FR-3741-N-01]

Availability of Mid-Course Correction for Low-Income Housing

Preservation and Resident Homeownership (LIHPRHA) and Emergency Low-

Income Housing Preservation Act (ELIHPA) Programs

AGENCY: Office of the Assistant Secretary for Housing-Federal Housing

Commissioner, HUD.

ACTION: Notice of amended processing instructions.

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SUMMARY: This notice provides a summary of HUD Notice 94-42, which

provides amended processing instructions for the Low-Income Housing

Preservation and Resident Homeownership (LIHPRHA) and Emergency Low-

Income Housing Preservation Act (ELIHPA) Programs (jointly referred to

as the ``Preservation Program''). These processing instructions result

from interim changes to the Preservation Program. Additional background

information for the changes is provided in this summary.

DATES: The notice was signed by the FHA Commissioner on June 6, 1994.

ADDRESSES: To obtain copies of Notice H94-42, please call HUD's On

Demand Printing Center at 1-800-767-7468, or the Multifamily

Preservation Division in HUD Headquarters at (202) 708-2300 or (202)

708-0035. Hearing- or speech-impaired persons may use the

Telecommunications Device for the Deaf (TDD) by calling (202) 708-4594

(other than the ``800'' number, telephone numbers are not toll-free).

FOR FURTHER INFORMATION CONTACT:

Frank Malone, Director, Office of Preservation and Property

Disposition, Department of Housing and Urban Development, Room 6284,

451 Seventh Street, SW, Washington, DC 20410; telephone (202) 708-3555.

To provide service for persons who are hearing- or speech-impaired,

this number may be reached via TDD by dialing the Federal Information

Relay Service on 1-800-877-TDDY (1-800-877-8339) or 202-708-9300.

(Except for the TDD number, telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION: Accordingly, the following summarizes Notice

H94-42):

Regional Directors of Housing

Field Office Directors of Housing Development, Field Office Directors

of Housing Management

Chief Loan Management Officers

Chief Property Officers

NOTICE H94-42 (HUD)

ISS'D 6/6/94

EXP. 6/30/95

Cross References: 4360.6, 4465.1, 4350.1, H 91-29, H 92-11, H 92-54,

4185.1, H 93-21, H 93-94

Subject: Mid-Course Correction II (MCCII)--For Low Income Housing

Preservation and Resident Homeownership (LIHPRHA) and Emergency Low

Income Housing Preservation Act (ELIHPA) Programs

This Notice sets forth amended processing instructions for Title II

and Title VI.

Title II has over 4 years of operating experience and Title VI has

over a year and a half of operating experience. During this time, we

have received numerous suggestions and comments from the Field as well

as the industry regarding program changes. After reviewing these

suggestions and comments, we have determined that a number of policies

and instructions set forth in the current Notices and HUD Handbook

4350.6 should be revised to speed the delivery of the programs and

better serve our clientele.

In preparing these instructions, we were aware of the problems some

Offices were experiencing coordinating the different review functions,

which has in some cases made the program more difficult to administer.

We have assembled a combined Housing Management-Housing Development

preservation unit to work exclusively on this program. This unit has

proven beneficial in understanding and providing solutions to the

different review functions. This Notice contains instructions for both

the Production and Asset Management Branches. It is hoped that

combining these instructions will eliminate some of the coordination

problems, provide additional processing tools and the administrative

flexibility needed to better administer the program.

Applicability

The following language replaces that published in this part of

MCCII, because some public commenters claim that the language was

ambiguous:

These instructions apply to all Title II and Title VI processing

stages not already completed by June 6, 1994, the issuance date of this

notice.

If an owner or purchaser made a submission prior to June 6, 1994,

or the HUD Field Office did an analysis or issued a decision prior to

June 6, 1994, the submission, analysis, or decision need not be

revised. The owner or purchaser may, at its option, request that it be

allowed to make a new submission or that HUD staff do a new analysis or

make a new decision based on MCCII. If an owner requests further

processing by HUD staff, it should include with the request

authorization to extend the processing period sufficiently, if

applicable. All reasonable requests should be honored by the HUD Field

Office staff. In no case will HUD staff require a new submission; nor

will it unilaterally reanalyze or make a new decision where such action

has already been completed.

(Note: In no case will the department grant a waiver to sue pre-

MCCII guidance if the owner submitted the Initial Notice of Intent

after June 6, 1994.)

Summary of Notice

This Notice describes interim changes to the Preservation Program:

Title II and Title VI, Development and Management issues. These changes

will eventually be integrated into permanent formats such as Handbooks

and Guidelines. For purposes of brevity, this Notice is being referred

to on ``Mid-Course Correction Notice II'' (MCCII). A synopsis of the

changes follow.

I. Preservation Manager will be Appointed in Each Office Processing

Preservation Cases

II. Title II Processing will More Closely Approximate Title VI

Processing

--Greater stress is being placed on tenant notification and input.

--PCNAs will be conducted after submission of Notice of Intent on

projects that have submitted a 9608B.

--Owner may choose to appraise the project and have the appraisal

reviewed prior to submission of POA.

III. Changes to Both Title II and Title VI Processing

Tenant Notification

--CFS/TRACS must be accessed for information upon receipt of NOI.

--Increased emphasis is being placed on tenant notification and input.

--Revised and additional letters to tenants are being provided.

PCNAs, Repairs, and Reserve for Replacement Accounts

--PCNAs will be done in a prescribed format and will include a summary

of the PCNA analysis.

--Required Repair requirements are amended:

(i) Operational and functional items may be repaired, but not

replaced.

(ii) Inconsistent items must be corrected.

(iii) Definitions of terms used in the PCNA notice are provided.

--There is a revised method for computing the initial deposit to the

reserve for replacement account.

(i) The initial deposit will provide for items whose anticipated

useful life will expire within 5 years and for major items in years 6

through 10.

(ii) A 100 percent replacement cost estimate is made for items

whose useful life is anticipated to expire within 5 years.

--There is a revised method for determining the adequacy of the

existing replacement reserve account.

(i) The determination will be made by Asset Management staff and

the Director of Multifamily Housing.

(ii) Owners are required to do on-going assessments of the reserve

for replacement account.

--An Owner may begin making repairs once HUD's PCNA is received. Prior

to making repairs, the Owner must:

(i) Inform HUD of its intent to start.

(ii) Request a pre-construction conference.

(iii) Provide a written plan for completing repairs.

--When repairs are completed before submission of the POA application:

(i) No inspection and modifications will be made to the PCNA until

the POA application is received by HUD.

(ii) The provisions of Davis-Bacon may or may not be applicable to

the completed repairs depending on compliance with the written plan.

--Existing project replacement reserve funds may be used to replace

items scheduled to be replaced or repaired in the PCNA work write-up.

They must be completed before submission of the POA application.

--Inspection fee requirements have been revised.

Section 241(f) Loan Processing

--An owner may propose improvements to the property that exceed the

scope of repairs in the PCNA work write-up.

(i) Types of items that may or may not be included are listed.

(ii) Valuation technical staff will develop a list of acceptable

amenities for each market area.

(iii) HUD technical staff will evaluate proposed improvements and

estimated costs.

--Contingency Reserve.

(i) A 10 percent contingency will be established for all repairs

and improvements in nonprofit transfer projects.

(ii) A contingency reserve will be established for substantial

rehabilitation projects.

--Owners are required to submit an Estimate of Progress Schedule.

IV. Changes Made to Title VI Processing Only

--Clarification of negotiation option before third appraisal.

--The definition of multifamily rental housing under extension

preservation value has been expanded to include some types of elderly

housing.

--The concept of Project Specific Rents (PSR) is introduced and is

distinguished from Prevailing Market Rents (PMR).

(i) PMR reflects prevailing market amenities.

(ii) PSR reflects the subject project characteristics and is the

rent non-subsidized tenants would be willing to pay.

(iii) PSR is the cap on Total Tenant Payment that the owner

requests to use at the project if it is lower than FMR.

(iv) PSR must be updated each year if it is to be used.

(v) PSR is the maximum Section 8 Contract rents to be used at POA

approval in Title II projects.

--Federal Cost Limit is being frozen at the amount determined on Form

HUD-9607 at the appraisal stage.

--Field Offices will submit all Form HUD-9607s to Preservation

Division.

--Newspapers and newsletters without significant circulation will not

be used to advertise sale of Preservation projects.

--Credit approval for nonprofit purchasers is moved to the receipt of a

bona fide offer.

--Consultant fees will be approved simultaneously with nonprofit

purchaser credit approval.

--A combined checklist is provided for TPA/241(f)/POA applications.

V. Preservation Technical Assistance Grants.

--Expedited processing is encouraged.

--Nonprofit purchasers may request Section 241(f) application fees in

their PTAG applications.

--Revision of Exhibits 3, 6, and 7 to be substituted in the application

package.

VI. Section 241(f) Loan Processing.

--The requirement for a Section 241(f) equity loan escrow is not

changed.

--A construction escrow to be funded by the owner is required for all

Section 241(f) loans. However, a nonprofit mortgagor may use the 10

percent contingency reserve to meet this requirement.

--Transaction expenses eligible for a Section 241(f) loan are

described.

--Debt Service Coverage requirements.

(i) 90 percent for equity portion of loan in Title II and VI.

(ii) 95 percent for rehabilitation portion of any loan and for

Title VI acquisition loans.

(iii) Amortization period for Section 241(f) equity loans ranges

from 20 to 40 years.

(iv) Amortization period for Section 241(f) acquisition loan

remains 40 years.

VII. POA Implementation Changes

--Requirements are provided for the summary of the POA to be given to

tenants.

--Allowable oversight costs for nonprofit organizations are provided.

--Basic costs are described.

--Owner options for tenant rent phase-in are described.

--Tenants may change designations on the tenant profile if income

changes.

VIII. Office Program Monitoring

--An individual must be designated in each Office to enter and access

MPPS to retrieve project information.

--Any information HUD provides to an owner is available through the

Freedom of Information Act.

--A log must be maintained of disseminated information.

--Liaisons should be set up with State and local governments for

assistance in disseminating information.

Authority: 42 U.S.C. 4101 et seq.; 42 U.S.C. 3535(d).

Dated: August 3, 1994.

Nicolas P. Retsinas,

Assistant Secretary for Housing-Federal Housing Commissioner.

[FR Doc. 94-19514 Filed 8-9-94; 8:45 am]

BILLING CODE 4210-27-M