Homeownership Demonstration Program in Omaha, NE

SUMMARY: This final rule implements section 132 of the Housing and

Community Development Act of 1992. Section 132 establishes a

demonstration program to facilitate self-sufficiency and permits the

homeownership sale of single family homes administered by the Housing

Authority of the City of Omaha in the State of Nebraska. The purpose of

the demonstration is to exhibit the effectiveness of promoting

homeownership and providing support services.

EFFECTIVE DATE: January 20, 1995.

FOR FURTHER INFORMATION CONTACT: Gary Van Buskirk, Homeownership

Division, Office of Public and Indian Housing, Department of Housing

and Urban Development, 451 Seventh Street, SW., Room 4112, Washington,

DC 20410. Telephone number, voice (202) 708-4233, TDD (202) 708-0850.

(These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Background

On January 24, 1994 (59 FR 3626), HUD published an interim rule

implementing section 132 of the Housing and Community Development Act

of 1992 (Pub. L. 102-550, approved Oct. 28, 1992) (section 132).

Section 132 establishes a demonstration program to facilitate self-

sufficiency and to permit the homeownership sale of single family homes

administered by the Housing Authority of the City of Omaha in the State

of Nebraska. The purpose of the demonstration is to exhibit the

effectiveness of promoting homeownership and providing support

services.

The interim rule was closely modeled on the interim rule for the

Section 5(h) Homeownership Program, codified in 24 CFR part 906. The

Housing Authority for the City of Omaha (Housing Authority), which is

administering this demonstration program, is already administering a

homeownership program approved pursuant to section 5(h) of the United

States Housing Act of 1937, and it has indicated to HUD that it wishes

to operate the two programs in a similar fashion. While this

demonstration program and the Section 5(h) program are similar, the

preamble to the interim rule described several differences (59 FR

3626).

HUD is publishing this final rule for effect immediately upon

publication. Generally, in accordance with section 7(o) of the

Department of Housing and Urban Development Act, HUD does not publish a

rule or regulation for effect until after the expiration of the 30-day

calendar period beginning on the day after the rule or regulation is

published. However, because section 132(g) of the Housing and Community

Development Act of 1992 provides that the final rule implementing the

Homeownership Demonstration Program in Omaha, Nebraska ``shall take

effect upon issuance,'' the section 7(o) provision does not apply to

this final rule.

II. Comments on the January 24, 1994 Interim Rule

HUD solicited public comments on the interim rule implementing the

Homeownership Demonstration Program in Omaha, Nebraska. By the

expiration of the public comment period on March 25, 1994, HUD had

received two comments, one from the Housing Authority of the City of

Omaha (Housing Authority), and one from the Public Housing Agency of

Saint Paul, Minnesota (Saint Paul Housing Agency). The final rule

contains four changes to the interim rule, as further described below,

in response to public comments: (1) HUD has deleted Sec. 907.5(b); (2)

HUD has deleted the requirement in Sec. 907.6(b) for fire and safety

inspections; (3) HUD has added applicants for public housing as

eligible homebuyers in Sec. 907.8(c); and (4) HUD has revised

Sec. 907.8(d) to acknowledge that the Housing Authority may submit for

HUD's approval an order of preference for participants. The following

discussion summarizes the comments and provides HUD's responses to

those comments.

1. The Housing Authority objected to certain sections of the

interim rule that were modeled on the Section 5(h) interim regulations

(codified at 24 CFR part 906), asserting that the borrowed language in

those sections is inapplicable to this demonstration program. One of

these sections is Sec. 907.5(b), regarding negotiations with residents

wishing to initiate a homeownership plan. The Housing Authority stated

that section 132 would not exist if the Housing Authority did not

already desire to implement a homeownership program.

The other section is Sec. 907.8(d), in the last sentence regarding

the order of preference for participants, which ends ``in accordance

with HUD approved preferences.'' The Housing Authority stated that this

sentence may be confusing, asserting that section 132 gives the Housing

Authority the right to make its own order of preference, and suggesting

that the sentence would more clearly read: ``* * * in accordance with

preferences as established by the Housing Authority and approved by

HUD.''

HUD Response: HUD agrees with the Housing Authority that the first

sentence of Sec. 907.5(b) is inapposite, given that the Housing

Authority has initiated the homeownership program. The remaining two

sentences of Sec. 907.5(b) encourage the Housing Authority to maximize

resident participation in planning and implementing the homeownership

program. While HUD continues to encourage maximum resident

participation, it agrees that it does not need to include such advice

in the rule and therefore has deleted Sec. 907.5(b).

With regard to Sec. 907.8(d), HUD does not object to a process in

which the Housing Authority develops and submits to HUD an order of

preference for participants, and has changed the section of the rule

accordingly.

2. The Housing Authority objected to several other provisions of

the interim rule, asserting that they are otherwise inappropriate for

this demonstration program. The first such provision is Sec. 907.5(a),

in the third sentence regarding consultation about vacant units with

resident organizations or resident management corporations. The Housing

Authority remarked that such consultation every time there is a vacancy

would be repetitive, since the Housing Authority would already have

consulted both residents and their organizations in developing the

plan. The Housing Authority further noted that this provision is

unnecessary, since the Housing Authority does not intend to sell vacant

units.

HUD Response: Section 907.5(a) does not require repetitive resident

consultation whenever there is a vacancy. It requires that resident

consultation take place during the process of developing the

homeownership plan even if the plan encompasses vacant units. Once the

plan is developed and approved by HUD, the rule does not require

further consultation when a unit included in the homeownership program

becomes vacant.

The Housing Authority also objected to the first sentence in

Sec. 907.8(c), [[Page 4345]] regarding homebuyer eligibility, as

inappropriate for this demonstration program. The Housing Authority

asserted that applicants for public housing, as well as residents,

could be eligible to become homebuyers, and therefore that the sentence

should be amended to allow such applicants to be eligible.

HUD Response: HUD agrees that applicants for public housing can

also be eligible homebuyers and has modified Sec. 907.8(c) accordingly.

Another provision that the Housing Authority regarded as

inappropriate to this demonstration program is Sec. 907.11, regarding

maintenance reserves. The Housing Authority remarked that this

requirement is unusual for the single family homes affected by this

program, and that these reserves would not be necessary if the

qualifying resident was required to have sufficient income.

HUD Response: HUD's previous experiences in overseeing low-income

homeownership has demonstrated that those administering such programs

must provide adequately for foreseeable future maintenance needs.

Failure to take such expenses into account can lead to defaults and

foreclosures because homeowners could not withstand the financial

impact of such expenses. The provision in the rule gives the Housing

Authority two options for handling foreseeable maintenance costs. The

Housing Authority can either establish maintenance reserves or it can

demonstrate that homebuyer income will be sufficient over the long term

to manage the expense.

The Housing Authority also commented that several sections of the

interim rule contain inappropriate references to cooperatives,

condominiums, or entities as purchasers. These sections include

Secs. 907.7(a), 907.7(b), 907.8(c)(2), and 907.20(h). The Housing

Authority stated that section 132 confines this program to single

family homes, such that families, not entities, will be the purchasers.

HUD Response: The rule gives the Housing Authority flexibility to

structure the terms of purchase in a number of different ways,

including by means of a cooperative or a condominium. HUD understands

that at this time the Housing Authority does not believe that it needs

the flexibility. However, it is important to allow maximum flexibility

in the future to accommodate possible changes in circumstances without

resorting to a waiver or change in the regulation.

The final aspect of the interim rule that the Housing Authority

found inappropriate to this demonstration program is the reference in

several sections to affirmative fair housing marketing strategies.

These sections include Secs. 907.7(b), 907.8(d), and 907.20(n). The

Housing Authority stated that it intends to sell only to residents, and

that marketing strategies should therefore only be required if it ever

intends to sell units to other than its residents.

HUD Response: Implementing this demonstration program in accordance

with fair housing objectives is of the utmost importance. The final

rule has retained almost verbatim the civil rights related program

requirements contained in the interim rule. Additionally, in response

to the Housing Authority's comment above, the final rule includes as

eligible homebuyers both current residents and applicants for public

housing. Since HUD has changed the rule in this manner, the Housing

Authority must comply with Secs. 907.7(b), 907.8(d), and 907.20(n) of

the rule. The affirmative fair housing marketing strategy is thus an

integral part of this program, especially in view of the fact that the

potential market for this program is 602 units or 20 percent of the

total units administered by the Housing Authority.

3. The Housing Authority also objected to two sections of the

interim rule containing language that it asserted is unnecessary to the

rule. First, it objected to the parenthetical sentence in Sec. 907.2,

regarding the 20 percent ceiling. It asserted that this parenthetical

is unnecessary and may lead to confusion, especially with regard to

additional units developed by the Housing Authority. The Housing

Authority explained that the manner in which it may have acquired any

particular single family home and when it acquired that home is

irrelevant. Second, it objected to the parenthetical example in the

second sentence of Sec. 907.8(c), describing sources of funds that a

cooperative homeownership plan may include, claiming it is unnecessary.

HUD Response: The parenthetical language must remain to describe

properly the statutory requirement that the demonstration program may

be applied to not more that 20 percent of the total number of public

housing units administered by the Housing Authority. The total number

of public housing units administered by the Housing Authority can be

expected to change over time as units are sold and as other units are

added to the Housing Authority's inventory. If the 20 percent

requirement were permitted to be reapplied to whatever the current

number of units is at a given time, the Housing Authority would

conceivably be able to continue selling units until it reached a level

at which 20 percent would no longer equal a whole unit. For example, if

it began with 100 units and sold 20 percent (20 units), 80 units would

remain. It could then reapply the 20 percent standard and sell 20

percent of 80 units (16 units), and then have 64 units remaining. The

process would then go on until only 4 units were left and applying 20

percent would leave less than a whole unit. Clearly this was not the

way that Congress contemplated the 20 percent provision to be applied.

Therefore, the 20 percent should be applied once (as of the enactment

date of the law, October 28, 1992) to establish a base figure. HUD

calculated that 20 percent of the total units at the time of enactment

was 602 units. The Housing Authority should also be able to add 20

percent of any newly acquired units that are not replacement units to

the base figure as well. Newly acquired units that are replacement for

units that left the Housing Authority's inventory should not be

counted, since the units they are replacing were already taken into

consideration in establishing the base figure of 602 units.

4. The Housing Authority objected to two provisions of the interim

rule as burdensome or wasteful. First, the Housing Authority suggested

that the requirement in the third sentence of Sec. 907.6(b) for fire

and safety inspections by local officials would be duplicative, since

the Housing Authority will have already inspected the property several

times. This requirement would be difficult, if not impossible, to

fulfill, remarked the Housing Authority, since the City of Omaha does

not normally conduct such inspections of existing single family homes.

HUD Response: HUD did not intend to create a burden in terms of

inspections beyond that customarily imposed by the locality. HUD has

therefore deleted this requirement.

Second, the Housing Authority commented that the environmental

review required in Sec. 907.18(d) would be an unwarranted expense to

the taxpayer, since HUD will have already reviewed all the single

family homes in the program.

HUD Response: The regulations in 24 CFR part 50 establish HUD's

responsibilities in complying with several environmental requirements,

including the National Environmental Policy Act (NEPA). In approving

the homeownership plan, HUD must consult these regulations to determine

which if any of these requirements apply. While HUD intends to perform

its obligations in a rational and cost-effective manner, it cannot

categorically [[Page 4346]] dispense with its environmental

responsibilities.

5. The Public Housing Agency of Saint Paul, Minnesota (Saint Paul

Housing Agency) suggested that instead of approving a separate

homeownership demonstration program, HUD should develop various

alternative programs to be approved and administered under the Section

5(h) regulations. According to the Saint Paul Housing Agency, one such

alternative could be this Omaha Demonstration Program, with its mandate

to affirmatively further fair housing objectives. A second such

alternative could be the program that the Saint Paul Housing Agency has

developed, which provides for homeownership through a lease/purchase

contract with financial assistance. A third such alternative could be a

program geared toward a metropolitan area and its special needs for

affordable housing solutions. The Saint Paul Housing Authority remarked

that by providing different variations of homeownership programs, HUD

would allow housing agencies discretion to implement a program to meet

local needs while staying within the Section 5(h) guidelines.

HUD Response: HUD agrees that the Section 5(h) program should

accommodate many different models and has striven to preserve such

flexibility in the recently published final Section 5(h) rule. HUD did

not initiate the Omaha demonstration program. The primary innovation

permitted by the Omaha demonstration that could not be accommodated by

the existing Section 5(h) program is the wide discretion granted to the

Omaha Housing Authority to select who is eligible to participate in the

program. In most other respects, the Omaha Demonstration Program

closely parallels the Section 5(h) program.

III. Other Matters

National Environmental Policy Act

At the time of the development of the interim rule, a Finding of No

Significant Impact with respect to the environment was made in

accordance with HUD regulations at 24 CFR part 50, implementing section

102(2)(C) of the National Environmental Policy Act of 1969, 42 U.S.C.

4332. That Finding remains applicable to this final rule, and is

available for public inspection and copying between 7:30 a.m. and 5:30

p.m. weekdays at the Office of Rules Docket Clerk, 451 Seventh Street

SW., Room 10276, Washington, DC 20410-0500.

Regulatory Flexibility Act

The Secretary, in accordance with the Regulatory Flexibility Act (5

U.S.C. 605(b)), has reviewed this rule before publication, and by

approving it certified that this rule does not have a significant

economic impact on a substantial number of small entities. This rule is

limited in scope to Omaha, Nebraska.

Executive Order 12606, The Family

The General Counsel, as the Designated Official under Executive

Order 12606, The Family, has determined that this rule does not have

potential for significant impact on family formation, maintenance, or

general well-being, except to the extent that the program authorized by

the rule increases homeownership opportunities for low-income families

in Omaha, Nebraska. Any such impact is beneficial and merits no further

review under the Order.

Executive Order 12611, Federalism

The General Counsel, as the Designated Official under section 6(a)

of Executive Order 12611, Federalism, has determined that the policies

contained in this rule will not have substantial direct effects on

States or their political subdivisions, or the relationship between the

Federal Government and the States, or on the distribution of power and

responsibilities among the various levels of government. As a result,

this rule is not subject to review under the order.

Semi-Annual Agenda of Regulations

This rule was listed as sequence number 1895 in HUD's Semiannual

Agenda of Regulations published on November 14, 1994 (59 FR 57632,

57673) under Executive Order 12886 and the Regulatory Flexibility Act.

List of Subjects in 24 CFR Part 907

Low and moderate income housing, Public housing, Reporting and

recordkeeping requirements.

Accordingly, the interim rule, which amended title 24 of the Code

of Federal Regulations by adding a new part 907 to chapter IX, and

which was published in the Federal Register on January 24, 1994 (59 FR

3626), is adopted as a final rule with the following changes:

PART 907--HOMEOWNERSHIP DEMONSTRATION PROGRAM

1. The authority citation for part 907 continues to read as

follows:

Authority: 42 U.S.C. 3535(d); sec. 132, Pub. L. 102-550, 106

Stat. 3712-3713.

Sec. 907.1 [Amended]

2. Section 907.1 is amended by removing the paragraph designation

and the paragraph heading for paragraph (a), and by removing paragraph

(b).

Sec. 907.5 [Amended]

3. Section 907.5 is amended by removing the paragraph designation

and the paragraph heading for paragraph (a), and by removing paragraph

(b).

Sec. 907.6 [Amended]

4. In Sec. 907.6, paragraph (b) is amended by removing from the

middle of sentence three that begins with ``The Housing Authority prior

* * *'', the phrase ``and that the property has passed recent fire and

other applicable safety inspections conducted by appropriate local

officials''.

5. Section 907.8 is amended by revising the first sentence in the

introductory text of paragraph (c), and by revising paragraph (d), to

read as follows:

Sec. 907.8 Purchaser eligibility and selection.

* * * * *

(c) Homebuyer eligibility. Eligibility shall be limited to

residents and applicants for public housing, who are capable of

assuming the financial obligations of homeownership under minimum

income standards for affordability, taking into account the

unavailability of public housing operating subsidies and modernization

funds after conveyance of the property by the Housing Authority. * * *

* * * * *

(d) Procedures/Affirmative Fair Housing Marketing Strategy. The

Housing Authority must establish written equitable procedures for

identifying and selecting eligible families to participate in the

homeownership program. The Housing Authority must have an affirmative

fair housing marketing strategy that applies whenever homeownership

opportunities are made available to other than current residents of the

property. Selections made from the Housing Authority's waiting list for

the homeownership program must be in a nondiscriminatory manner in

accordance with preferences as submitted by the Housing Authority and

approved by HUD.

* * * * *

Dated: January 12, 1995.

Henry G. Cisneros,

Secretary.

[FR Doc. 95-1414 Filed 1-19-95; 8:45 am]

BILLING CODE 4210-32-P