HOME Investment Partnerships Program

SUMMARY: This interim rule amends the existing interim rule for the

HOME Investment Partnerships Program by making a number of clarifying

and conforming changes that include: extending the interim rule

expiration date; permitting loan guarantees as an eligible form of HOME

assistance; allowing fees waived by private entities to qualify for

match credit; increasing the flexibility of HOME rents when HOME funds

and project-based rental assistance are used to assist the same units;

clarifying the match status of CHDO project-specific, pre-development

loans for which repayment is waived; allowing the use of tenant-based

rental assistance (TBRA) for special needs populations; and replacing

references to OMB Circular A-110 with references to the HUD rule at 24

CFR part 84 that adopted the revised OMB Circular.

DATES: Effective Date: August 11, 1995. Comments due date: September

11, 1995.

ADDRESSES: Interested persons are invited to submit comments regarding

this interim rule to the Rules Docket Clerk, Office of General Counsel,

Room 10276, Department of Housing and Urban Development, 451 Seventh

Street, S.W., Washington, D.C. 20410. Communications should refer to

the above docket number and title. A copy of each communication

submitted will be available for public inspection and copying between

7:30 a.m. and 5:30 p.m. weekdays at the above address. FAXED comments

will not be accepted.

FOR FURTHER INFORMATION CONTACT: Mary Kolesar, Director, Program Policy

Division, Office of Affordable Housing Programs, 451 Seventh Street,

S.W., Washington, D.C. 20410, telephone (202) 708-2470, TDD (202) 708-

2565. (These are not toll-free numbers.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

The information collection requirements for the HOME Investment

Partnerships Program have been approved by the Office of Management and

Budget, under section 3504(h) of the Paperwork Reduction Act of 1980

(44 U.S.C. 3501-3520), and assigned OMB control number 2501-0013. This

interim rule does not contain additional information collection

requirements.

II. Background

The HOME Investment Partnerships Program (HOME) was enacted under

Title II (42 U.S.C. 12701-12839) of the Cranston-Gonzalez National

Affordable Housing Act (NAHA) (Pub. L. 101-625, approved November 28,

1990). Implementing regulations for the HOME Program are at 24 CFR part

92.

The original statute has been amended three times since enactment.

The Housing and Community Development Act of 1992 (HCDA 1992) (Pub. L.

102-550, approved October 28, 1992) included a substantial number of

amendments to the HOME Program. These amendments were implemented in

rules published on December 22, 1992 (57 FR 60960), June 23, 1993 (58

FR 34130), and April 19, 1994 (59 FR 18626). The HUD Demonstration Act

(Pub. L. 103-120, approved October 27, 1993) provided additional

authorization for HOME Program technical assistance. The Multifamily

Housing Property Disposition Reform Act of 1994 (MHPDRA) (Pub. L. 103-

233, approved April 11, 1994) included an additional number of

amendments to the HOME Program. These amendments were implemented in a

rule published on August 26, 1994 (59 FR 44258).

The purpose of this publication is twofold: (1) an interim rule

which implements clarifying and conforming changes in several areas of

the rule, including loan guarantees as an eligible activity, increased

flexibility with regard to HOME rents when HOME funds and project-based

rental assistance are used to assist the same units, replacing

references to OMB Circular A-110 with references to the HUD rule at 24

CFR part 84 that adopted the revised OMB Circular, and the amount of

HOME subsidy subject to recapture in the sale of a homebuyer unit when

net proceeds are insufficient to repay the full subsidy amount; and (2)

a preamble which solicits comments on various policy issues in

anticipation of preparing a final rule. The preamble will discuss the

interim rule changes first before soliciting comments on a wide variety

of issues by section of the rule. While comments are being solicited on

specific sections of the rule, the Department welcomes comments on any

part.

Interim Rule Changes

A change at Sec. 92.2, Definitions, would revise the definition of

single room occupancy (SRO) to clarify neither food preparation nor

sanitary facilities are required in the unit for an existing

residential structure or hotel. This change clarifies that the

Department does not consider a hotel a conversion of nonresidential

space, which requires one or both facilities in the unit.

Section 92.5 was added to implement a Department-wide policy for

the expiration of interim rules within a set period of time if they are

not issued in final form before the end of the period. The rule

provides that the expiration period may be extended by notice published

in the Federal Register. Because the expiration date for the HOME

interim rule is currently June 30, 1995, and a final rule is not

expected before that date, such a notice has been published extending

the expiration date for an additional year. This rule makes the

conforming change to Sec. 92.5.

The Department, based on a number of comments it has already

received in revising Sec. 92.205, Eligible activities: general, has

added a new paragraph (b)(2) to specify that loan guarantees are

included within the phrase ``other forms of assistance'' in

Sec. 92.205(b) (the existing paragraph (b) is now designated (b)(1)).

The addition of a loan guarantee feature was prompted by both HUD and

participating jurisdictions' interest in effectively leveraging

additional private funds to finance HOME projects. By expanding

eligible activities to permit loan guarantees, it is the participating

jurisdiction's choice and responsibility to properly underwrite and

manage loans made under the guarantee. There is no implied Federal

guarantee when a jurisdiction chooses to undertake this activity. The

Department has considered how a loan guarantee could be structured and

how to relate the expense involved to a specific HOME project. This

will be done as follows: A PJ or its subrecipient would estimate the

number of loans it potentially wants to guarantee and then establish

the loan guarantee as a project in the HOME Cash and Management

Information System (C/MIS). The amount of funding from HOME or other

resources required for the loan guarantee would be based on the PJ's

current default experience with its portfolio or, in the absence of

empirical data, a reasonable estimate of the default rate. In general,

the Department expects that the specific terms of the loan guarantee

fund would be established by the PJ or subrecipient based on

negotiations with local lenders and/or secondary market entities. The

[[Page 36021]]

rule provides that the amount of HOME funds in the loan guarantee

account may not exceed 20 percent of the total outstanding principal

amount guaranteed, except that a minimum account balance may be

maintained. A minimum balance is permitted to initiate the loan

guarantee program and to meet varying local and secondary market

requirements for loan guarantees. When a PJ has determined (1) the

percentage of outstanding loan principal to be set aside in the loan

guarantee account from HOME or other resources (referred to as the

``fixed percentage''), and (2) a minimum balance needed to initiate the

guarantee and ensure private sector financing (referred to as the

``minimum balance''), PJ would draw down funds equal to the amounts

guaranteed, at the time each loan is guaranteed, until the minimum

balance is reached in the loan guarantee account, and additional funds

would be drawn down when necessary to maintain the account at the fixed

percentage of the outstanding amount guaranteed.

For example, in establishing a loan guarantee amount for a pool

totaling 200 loans (estimated principal value of $4.0 million), a PJ

may determine that local and/or secondary market lenders require the

project account to be maintained at a level of 10 percent of the

outstanding balance of loans guaranteed, with a minimum balance amount

of $100,000. The PJ would draw down funds into its loan guarantee

account at the time the loan is guaranteed equal to the amount of each

guaranteed loan until the minimum balance amount of $100,000 is

deposited in the account (e.g., if five $20,000 loans are guaranteed,

the loan guarantee account would be funded to the minimum balance

amount of $100,000). Additional amounts of HOME funds could be added

when the amount deposited is less than 10 percent of the loans

outstanding. The number of loans initially planned for a loan guarantee

project may not be increased. Housing projects financed with HOME

guaranteed loans must meet HOME requirements. Once the planned number

of loan guarantees is made, or if the loan guarantee activity ends

before that number is reached, information must be reported in the C/

MIS on the units financed under the loan guarantee project. If a

participating jurisdiction wishes to continue with loan guarantee

activity, it would set up another loan guarantee project.

Based on numerous requests to use tenant-based rental assistance

for the special needs populations, the Department in this rule is

making substantial alterations to Sec. 92.211, Tenant-based rental

assistance, outlining under what circumstances that might be done.

Conforming changes are made to Sec. 92.210, Tenant-based rental

assistance: security deposits.

With regard to match requirements, the Department is clarifying in

this rule, at Sec. 92.218(f), that CHDO project specific pre-

development loans for which repayment is waived are not required to be

matched.

Another change amends paragraph (a)(2) in Sec. 92.220, Forms of

match, to recognize as a matching contribution fees and charges,

normally and customarily associated with real estate transactions or

development, that are charged by private institutions or businesses but

are being waived or reduced. Some examples of such fees or charges

include lender origination or servicing fees; title examination,

insurance or recordation fees; or private mortgage insurance fees.

To permit Federal and State project-based assistance programs to

work more effectively with the HOME Program, Sec. 92.252, Qualification

as affordable housing and income targeting: Rental housing, now

explicitly states that when HOME funds are combined with Federal or

State project-based assistance, the rents may be set at the maximum

rent allowable under the Federal or State programs. The Department is

allowing this flexibility for those units occupied by families below 50

percent of median income and paying not more than 30 percent of their

adjusted income as a contribution toward rent, which are the provisions

reflected in the ``low HOME rent'' provision of the rule at

Sec. 92.252(a)(2). The Department is aware of State or local programs

which provide ongoing ``shelter allowances'' or other rental subsidies

to meet the needs of special populations. The Department invites

commenters to describe these situations, whether HOME rents are an

obstacle to overall project feasibility and possible solutions.

A rule change at Sec. 92.254, Qualification as affordable housing:

homeownership, offers participating jurisdictions additional

flexibility to structure recapture provisions to meet local program

design and market conditions. With this change, the Department is

publishing three examples of recapture guidelines that it would find

acceptable.

The first example would authorize a PJ to forgive a portion of the

HOME investment prorated over the time the homeowner has owned and

occupied the unit measured against the required affordability period.

For example: A homebuyer provides a $3,000 downpayment, and a

participating jurisdiction provides a $10,000 second mortgage loan to

defray the cost of acquisition and rehabilitation of the homebuyer

unit, which triggers a five-year period of affordability when the

property is subject to the resale or recapture provisions. Currently,

the HOME regulation would require that the full $10,000 be subject to

recapture and only if the net proceeds do not allow full recapture of

the HOME subsidy plus the homeowner's investment, may the amount to be

recaptured ($10,000) be reduced based on the period of occupancy by the

homebuyer. With this change in the regulation, the PJ could allow the

amount subject to recapture to be reduced during the period of

occupancy. If the homebuyer had to sell after living in the property

for two-years of the five-year affordability period, two fifths of the

HOME subsidy ($4,000) could be written off. The amount subject to

recapture would be $6,000 even when the net proceeds are sufficient to

both recapture the full HOME investment and enable the homeowner to

recover his/her investment. Examples two and three assume that net

proceeds (sales price minus loan repayment and closing costs) are

insufficient to both recapture the HOME investment and enable the

homeowner to recover his/her investment. Example two shows how the PJ

can share the proceeds with the homeowner based on their relative

investment in the property. Example three authorizes the PJ to permit

homebuyers to recapture all of their investment including downpayment

and capital improvements first before any return to the jurisdiction.

Alternatively, when net proceeds are insufficient, the

participating jurisdiction could also permit homebuyers to recapture

all their investment including downpayment and capital improvements

first before any return to the jurisdiction.

In this same section of the rule, a clarifying change is being made

at Sec. 92.254(a)(4)(ii)(C) which describes the amounts of HOME funds

provided per unit which trigger the periods that the property is

subject to the recapture provision. The change being made would clarify

that the amount in question is the per unit amount of HOME funds

provided to the homebuyer. Many participating jurisdictions were

counting both the direct subsidy to the homebuyer as well as the

development subsidy when determining the affordability period. It

should be noted that when resale provisions are used, the period of

affordability is based on the total investment of HOME funds.

[[Page 36022]]

Finally, on September 13, 1994 (59 FR 47010), the Department

published a final rule that adopted OMB's revised Circular A-110 at 24

CFR part 84. This rule makes conforming changes to replace references

to Circular A-110 with references to 24 CFR part 84 at Secs. 92.2 (in

the definition of Community housing development organization), 92.356

(a)(1) and (a)(2), and 92.505(b).

Solicitation of Comments for the Final Rule

The Department is also taking this opportunity to solicit comments

on the current interim rule in anticipation of preparing a final rule

for the HOME Program. The current interim rule consists of all six

interim rules which have been published for the program since its

inception. The Department has received valuable public input on all

those rules and has made many changes based on public comment. As the

Department prepares the final HOME rule, it requests that commenters

distinguish between issues that can be changed by regulation and those

that would require legislative action.

To facilitate public review, the Department has made available the

HOME statute and consolidated interim rule through the American

Communities Information Center at 1-800-998-9999. Commenters may obtain

copies of both the statute and rule by calling the information center.

The Department also presents a discussion of particular sections of

the rule and raises specific questions which it requests that comments

address, below:

Section 92.2 Definitions

Community housing development organization (CHDO)--The Department

has received numerous comments on the definition of CHDO, with regard

to purpose, composition, experience, and history. The Department

invites further comment from State and local officials based on the

experience of qualifying CHDOs and from nonprofits who have

participated in the qualification process and have competed for CHDO

setaside funds.

Homeownership--While ownership or membership in a cooperative has

been included in the definition of homeownership, the Department is

considering allowing participating jurisdictions to classify limited

equity cooperative and/or mutual housing either as homeownership or

rental housing based on State law. Comment is requested.

Project--The Department is considering changes to include in the

definition of project: (1) new construction subdivisions that cover

more than a four block area, and (2) loan guarantee programs funded by

the participating jurisdiction which by their nature cover loans to a

number of units at diverse sites.

Sections 92.60-92.66 Insular Areas

The Department invites comments from insular area participants, who

now have three years of program experience, as to whether changes are

needed in the provisions that guide insular applications and

operations.

Section 92.202 Site and Neighborhood Standards

The Department invites comment on the application of site and

neighborhood standards and their effect on the siting of new

construction projects.

Section 92.203 Income Determinations

Because continued affordability and eligibility were contemplated

in HOME-assisted rental housing, the Department adopted the Section 8

definitions of income in 24 CFR part 813 for use in the HOME program.

Recently, in an August 10, 1994 proposed rule in the Federal Register,

the Department invited comment on income definitions in the Community

Development Block Grant Program. The Department will consider those

comments for the final HOME rule, but also invites additional comments

on this subject.

Section 92.205 Eligible Activities: General

The Department has permitted the refinancing of single family

properties under certain conditions but has not allowed refinancing of

multifamily properties. Refinancing of multifamily projects has not

generally been viewed as a net increase in the number of affordable

housing units, a primary goal of the program. The Department would

welcome comments regarding when and under what conditions multifamily

refinancing might be permitted.

Sections 92.218-92.222 Match Requirements

The Department in this interim rule recognizes the waiver of fees

or charges by private or public institutions as a source of match. The

Department is open to additional public comment about other possible

sources of match which meet the statutory tests of not being derived

from Federal funds and being a true contribution to affordable housing.

Should the Department count State and local contributions to social

services provided in HOME-assisted or HOME-eligible housing as a source

of match? Another issue on which the Department requests comment is

whether donated professional services should be valued at a higher rate

than other volunteer labor currently valued at $10 per hour. Comment on

these and other possible sources of match are invited.

Section 92.251 Property Standards

The Department in implementing the HOME Program took note of the

program's purpose to expand the supply of decent, safe, and sanitary

housing, and adopted the Section 8 Housing Quality Standards as a

minimum standard. The Department is open to suggestions as to whether a

different standard might be more suitable, particularly as it relates

to new construction. Should the Department adopt the Minimum Property

Standards? Allow the PJ to adopt a written `decent, safe and sanitary'

standard? Keep the Section 8 HQS for tenant based rental assistance

units only? Continue to require the Cost Effective Energy Standards for

units with over $25,000 in rehabilitation? Authorize emergency repairs

to structures that may not meet housing quality standards? Comment is

invited on the housing standards issue.

Section 92.254 Qualification as Affordable Housing: Homeownership

The Department in this interim rule takes further steps to make the

recapture provisions of the rule more flexible. In recognizing an

owner's investment in the property, the rule permits a greater return

from net proceeds to the homeowner.

The Department also invites comment on the appraisal requirement to

determine eligibility i.e. the property has an initial purchase price

that does not exceed 95 percent of the median purchase price for the

area. Alternative approaches to assure that HOME funds are invested

only in modest housing are requested.

The Department also wishes comment on the permanent foundation

requirement for manufactured housing when the owner owns both the unit

and the land on which it is situated.

Section 92.257 Religious Organizations

In the August 26, 1994 interim rule, the Department modified this

section to be more permissive with regard to control of a secular

entity established by a religious organization. The Department invites

further comment on this section of the rule.

[[Page 36023]]

Section 92.258 Limitation on the Use of HOME Funds With FHA Mortgage

Insurance

When HOME funds are used in combination with FHA insurance, the

period of affordability is extended to the term of the mortgage. The

Department invites comments on this policy.

Subpart G, Sections 92.300-92.303 Community Housing Development

Organizations

The Department has tried to implement the CHDO setaside with a view

of these funds as an entitlement for CHDOs who ``own, sponsor or

develop'' HOME projects. The Department invites comments on the ``own,

sponsor or develop'' provisions set out in the rule and discussed in

CPD Notice 94-01.

Subpart H, Other Federal Requirements

Over time the rule has been amended to reflect statutory changes

with regard to environmental reviews and revised to reflect

clarifications on other requirements. The Department invites comments

on additional changes which might provide clarification or

simplification of the requirements for PJs.

Subpart K, Program Administration

In preparing a final rule, the Department will be reviewing this

subpart paying special attention to the sections on the cash and

management information system, written agreements and monitoring.

Comments on these and other sections are welcome.

III. Findings and Certifications

Justification for Interim Rulemaking

The Department has determined that this interim rule should be

adopted without the delay occasioned by requiring prior notice and

comment. This interim rule only makes a number of clarifying changes to

existing provisions. As such, prior notice and comment are unnecessary

under 24 CFR part 10. This rule is being published as an interim rule

and not as a final rule because the HOME program regulation at 24 CFR

part 92 has not yet been issued as a final rule.

Environmental Review

A Finding of No Significant Impact with respect to the environment

has been made in accordance with HUD regulations at 24 CFR part 50,

which implement section 102(2)(C) of the National Environmental Policy

Act of 1969. The Finding of No Significant Impact is available for

public inspection between 7:30 a.m. and 5:30 p.m. weekdays in the

Office of the Rules Docket Clerk.

Regulatory Planning and Review

This interim rule has been reviewed in accordance with Executive

Order 12866, issued by the President on September 30, 1993 (58 FR

51735, October 4, 1993). Any changes to the interim rule resulting from

this review are available for public inspection between 7:30 a.m. and

5:30 p.m. weekdays in the Office of the Rules Docket Clerk.

Impact on Small Entities

In accordance with the Regulatory Flexibility Act (5 U.S.C.

605(b)), the undersigned hereby certifies that this interim rule does

not have a significant economic impact on a substantial number of small

entities, because jurisdictions that are statutorily eligible to

receive formula allocations are relatively larger cities, counties or

States.

Regulatory Agenda

This interim rule was not listed in the Department's Semiannual

Agenda of Regulations published on May 8, 1995 (60 FR 23368, 23379)

under Executive Order 12866 and the Regulatory Flexibility Act.

Federalism Impact

The General Counsel has determined, as the Designated Official for

HUD under section 6(a) of Executive Order 12612, Federalism, that this

interim rule does not have federalism implications concerning the

division of local, State, and federal responsibilities. While the HOME

Program interim rule amended by this interim rule was determined to be

a rule with federalism implications and the Department submitted a

Federalism Assessment concerning the interim rule to OMB, this amending

rule only makes limited adjustments to the interim rule and does not

significantly affect any of the factors considered in the Federalism

Assessment for the interim rule.

Impact on the Family

The General Counsel, as the designated official under Executive

Order 12606, The Family, has determined that this interim rule would

not have significant impact on family formation, maintenance, and

general well-being. Assistance provided under this interim rule can be

expected to support family values, by helping families achieve security

and independence; by enabling them to live in decent, safe, and

sanitary housing; and by giving them the means to live independently in

mainstream American society. This interim rule would not, however,

affect the institution of the family, which is requisite to coverage by

the Order.

The Catalog of Federal Domestic Assistance Number for the HOME

Program is 14.239.

List of Subjects in 24 CFR Part 92

Administrative practice and procedure, Grant programs--housing and

community development, Grant programs--Indians, Indians, Low and

moderate income housing, Manufactured homes, Rent subsidies, Reporting

and recordkeeping requirements.

Accordingly, part 92 of title 24 of the Code of Federal

Regulations, is amended as follows:

PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM

1. The authority citation for part 92 continues to read as follows:

Authority: 42 U.S.C. 3535(d) and 12701-12839.

2. Section 92.2 is amended by revising paragraph (6) of the

definition of ``Community housing development organization'', and by

revising the definition of ``Single room occupancy (SRO) housing'', to

read as follows:

Sec. 92.2 Definitions.

* * * * *

Community housing development organization * * *

(6) Has standards of financial accountability that conform to 24

CFR 84.21, ``Standards for Financial Management Systems.''

* * * * *

Single room occupancy (SRO) housing means housing (consisting of

single room dwelling units) that is the primary residence of its

occupant or occupants. The unit must contain either food preparation or

sanitary facilities (and may contain both) if the project consists of

new construction, conversion of non-residential space, or

reconstruction. For acquisition or rehabilitation of an existing

residential structure or hotel, neither food preparation nor sanitary

facilities are required to be in the unit. If the units do not contain

sanitary facilities, the building must contain sanitary facilities that

are shared by tenants. SRO does not include facilities for students.

* * * * *

3. Section 92.5 is revised to read as follows:

[[Page 36024]]

Sec. 92.5 Expiration of interim rule.

This part shall expire and shall not be in effect after June 30,

1996, unless it is published as a final rule or the Department

publishes a notice in the Federal Register to extend the effective

date.

4. In Sec. 92.205, paragraph (b) is revised to read as follows:

Sec. 92.205 Eligible activities: general.

* * * * *

(b) Forms of assistance. (1) A participating jurisdiction may

invest HOME funds as equity investments, interest-bearing loans or

advances, noninterest-bearing loans or advances, interest subsidies

consistent with the purposes of this part, deferred payment loans,

grants, or other forms of assistance that HUD determines to be

consistent with the purposes of this part. Each participating

jurisdiction has the right to establish the terms of assistance,

subject to the requirements of this part.

(2) A participating jurisdiction may invest HOME funds to guarantee

loans made by lenders and, if required, the participating jurisdiction

may establish a loan guarantee account with HOME funds. The amount of

the loan guarantee account must be based on a reasonable estimate of

the default rate on the guaranteed loans, but under no circumstances

may the amount on deposit exceed 20 percent of the total outstanding

principal amount guaranteed; except that the account may include a

reasonable minimum balance. While loan funds guaranteed with HOME funds

are subject to all HOME requirements, funds which are used to repay the

guaranteed loans are not.

* * * * *

5. In Sec. 92.210, paragraph (f) is revised to read as follows:

Sec. 92.210 Tenant-based rental assistance: security deposits

* * * * *

(f) The provisions at Sec. 92.211 (a), (b), (c), (d), (f), (g) and

(i), applicable to tenant-based rental assistance, are applicable to

HOME security deposit assistance.

6. Section 92.211 is revised to read as follows:

Sec. 92.211 Tenant-based rental assistance.

(a) General. A participating jurisdiction may use HOME funds for

tenant-based rental assistance only if the participating jurisdiction

makes the certification about inclusion of this type of assistance in

its consolidated plan in accordance with Secs. 91.225(d)(1),

91.325(d)(1), or 91.425(a)(2)(i) of this title, and specifies local

market conditions that lead to the choice of this option.

(b) Tenant selection. A participating jurisdiction may use HOME

funds for tenant-based rental assistance in the following manner:

(1) Federal preferences. The participating jurisdiction selects

families in accordance with written tenant selection policies and

criteria that are consistent with the purposes of providing housing to

very low- and low-income families and are reasonably related to

preference rules established under section 6(c)(4)(A) of the Housing

Act of 1937 (42 U.S.C. 1437 et seq.). Selection policies and criteria

meet the ``reasonably related'' requirement if at least 50 percent of

the families assisted qualify, or would qualify in the near future

without tenant-based rental assistance, for one of the three Federal

preferences under section 6(c)(4)(A) of the Housing Act of 1937. These

are families that occupy substandard housing (including families that

are homeless or living in a shelter for homeless families); families

that are paying more than 50 percent of (gross) family income for rent;

or families that are involuntarily displaced. [For FY 1995 only, a

Federal preference is also given to families that include one or more

adult members who are employed.]

(2) Local Preferences for Individuals with Special Needs. (i) The

participating jurisdiction may establish a preference for individuals

with special needs. The participating jurisdiction may offer, in

conjunction with a tenant-based rental assistance program, particular

types of services that may be most appropriate for persons with a

particular disability. Generally, tenant-based rental assistance and

the related services should be made available to all persons with

disabilities who can benefit from such services.

(ii) The participating jurisdiction may also provide a preference

for a specific category of individuals with disabilities (e.g., persons

with HIV/AIDS or chronic mental illness) if the specific category is

identified in the participating jurisdiction's housing strategy or

consolidated plan as having unmet need and the preference is needed to

narrow the gap in benefits and services received by such persons.

(iii) Preferences cannot be administered in a manner that limits

the opportunities of persons in a protected class. For example, a

participating jurisdiction may not determine that persons given a

preference under the program are therefore prohibited from applying for

or participating in other programs or forms of assistance.

(iv) To the extent that a participating jurisdiction is operating a

tenant-based rental assistance program targeted exclusively to

individuals with disabilities or to a specific category of individuals

with disabilities, at least 50% of the individuals must qualify or

would qualify in the near future for one of the three Federal

preferences as described in paragraph (b)(1) of this section.

(3) Existing tenants in the HOME-assisted projects. A participating

jurisdiction may select low-income families currently residing in the

units that are designated for rehabilitation or acquisition under the

participating jurisdiction's HOME program without requiring that the

family meet the written tenant selection policies and criteria.

Families so selected may use the tenant-based assistance in the

rehabilitated or acquired unit or in other qualified housing.

(c) Portability of assistance. A participating jurisdiction may

require the family to use the tenant-based assistance within the

participating jurisdiction's boundaries or may permit the family to use

the assistance outside its boundaries.

(d) Program operation. A tenant-based rental assistance program

must be operated consistently with the requirements of this section and

Sec. 92.210, if applicable. The participating jurisdiction may operate

the program itself, or may contract with a PHA or other entity with the

capacity to operate a rental assistance program. The tenant-based

rental assistance may be provided through an assistance contract to an

owner that leases a unit to an assisted family or directly to the

family.

(e) Term of rental assistance contract. The term of the rental

assistance contract providing assistance with HOME funds may not exceed

24 months, but may be renewed, subject to the availability of HOME

funds. The term of the rental assistance contract must begin on the

first day of the term of the lease. For a rental assistance contract

between a participating jurisdiction and an owner, the term of the

contract must terminate on termination of the lease. For a rental

assistance contract between a participating jurisdiction and a family,

the term of the contract need not end on termination of the lease, but

no payments may be made after termination of the lease until a family

enters into a new lease.

(f) Rent reasonableness. The participating jurisdiction must

disapprove a lease if the rent is not reasonable, based on rents that

are

[[Page 36025]]

charged for comparable unassisted rental units.

(g) Lease requirements. The lease must comply with the requirements

in Sec. 92.253 (a) and (b).

(h) Maximum subsidy. (1) The amount of the monthly assistance that

a participating jurisdiction may pay to, or on behalf of, a family may

not exceed the difference between a rent standard for the unit size

established by the participating jurisdiction and 30 percent of the

family's monthly adjusted income.

(2) The participating jurisdiction must establish a minimum tenant

contribution to rent.

(3) The participating jurisdiction's rent standard for a unit size

must be based on:

(i) Local market conditions; or

(ii) May not be less, for each unit size, than 80 percent of the

published Section 8 Existing Housing fair market rent (in effect when

the payment standard amount is adopted) nor more than the fair market

rent or HUD-approved community-wide exception rent (in effect when the

participating jurisdiction adopts its rent standard amount).

(Community-wide exception rents are maximum gross rents approved by HUD

for the Rental Certificate Program under Sec. 882.106(a)(3) of this

title for a designated municipality, county, or similar locality, which

apply to the whole PHA jurisdiction.) A participating jurisdiction may

approve on a unit-by-unit basis a subsidy based on a rent standard that

exceeds the applicable fair market rent by up to 10 percent for 20

percent of units assisted.

(i) Housing quality standards. Housing occupied by a family

receiving tenant-based assistance under this section must meet the

performance requirements set forth in Sec. 882.109 of this title. In

addition, the housing must meet the acceptability criteria set forth in

Sec. 882.109 of this title, except for such variations as are proposed

by the participating jurisdiction and approved by HUD. Local climatic

or geological conditions or local codes are examples which may justify

such variations.

(j) Use of Section 8 assistance. In any case where assistance under

section 8 of the United States Housing Act of 1937 becomes available to

a participating jurisdiction, recipients of tenant-based rental

assistance under this part will qualify for tenant selection

preferences to the same extent as when they received the tenant-based

rental assistance under this part.

7. In Sec. 92.218, a new paragraph (f) is added to read as follows:

Sec. 92.218 Amount of matching contribution.

* * * * *

(f) HOME funds made available as project-specific assistance to

community housing development organizations pursuant to Sec. 92.301 are

subject to matching requirements. HOME funds used for such assistance

for which repayment is waived under the provisions of Sec. 92.301(a)(3)

or Sec. 92.301(b)(3) are not required to be matched.

8. In Sec. 92.220, paragraphs (a)(1)(ii)(A), (a)(2), and (a)(5)

introductory text, are revised to read as follows:

Sec. 92.220 Form of matching contribution.

(a) * * *

(1) * * *

(ii) * * *

(A) If the loan is made from funds borrowed by a jurisdiction or

public agency or corporation (including proceeds from general

obligation debt), the contribution is the present discounted cash value

of the difference between the payments to be made on the borrowed funds

and payments to be received from the loan to the project based on a

discount rate equal to the interest rate on the borrowed funds.

* * * * *

(2) Forbearance of fees. (i) State and local taxes, charges or

fees. The value, based on customary and reasonable means for

establishing value, of State or local taxes, fees, or other charges

that are normally and customarily imposed or charged by a State or

local government on all transactions or projects in the conduct of

State or local government operations but are waived, foregone, or

deferred (including State low-income housing tax credits) in a manner

that achieves affordability of housing assisted with HOME funds. Fees

or charges that are associated with the HOME Program only (rather than

normally and customarily imposed or charged on all transactions or

projects) are not eligible forms of matching contributions. The amount

of any real estate taxes may be based on post-improvement property

value, using customary and reasonable means of establishing value. For

taxes, fees, or charges that are given for future years, the value is

the present discounted cash value, based on a rate equal to the rate

for the Treasury security with a maturity closest to the number of

years for which the taxes, fees, or charges are waived, foregone, or

deferred.

(ii) Other charges or fees. Amount of fees or charges normally and

customarily imposed or charged by public or private institutions

associated with the transfer or development of real estate but are

waived or foregone, in whole or in part, in a manner that achieves

affordability of housing assisted with HOME funds. Fees or charges that

are associated with the HOME Program only (rather than normally and

customarily imposed or charged on all transactions or projects) are not

eligible forms of matching contributions.

* * * * *

(5) Proceeds from multi-family and single family affordable housing

project bond financing validly issued by a State or local government,

or an agency, instrumentality, or political subdivision of a State and

repayable with revenues from the affordable housing project financed,

as follows:

* * * * *

9. In Sec. 92.252, paragraph (a)(2) is revised to read as follows:

Sec. 92.252 Qualification as affordable housing and income targeting:

Rental housing.

(a) * * *

(2) * * *

(i)(A) Occupied by very low-income families whose rent does not

exceed 30 percent of the family's monthly adjusted income as determined

by HUD. To obtain the maximum monthly rent that may be charged for a

unit (in a project that does not receive Federal or State project-based

rental subsidy) that is subject to this limitation, the owner or

participating jurisdiction multiplies the annual adjusted income of the

tenant family by 30 percent and divides by 12 and, if applicable,

subtracts a monthly allowance for any utilities and services (excluding

telephone) to be paid by the tenant; or

(B) Occupied by very low-income families who pay as a contribution

toward rent not more than 30 percent of the family's monthly adjusted

income as determined by HUD if the units receive Federal or State

project-based rental subsidy. The maximum rent (i.e., tenant

contribution plus project-based rental subsidy) is the rent allowable

under the Federal or State project-based rental subsidy program; or

(ii) Occupied by very low-income families and bearing rents not

greater than 30 percent of the gross income of a family whose income

equals 50 percent of the median income for the area, as determined by

HUD, with adjustment for smaller and larger families, except that HUD

may establish income ceilings higher or lower than 50 percent of the

median for the area on the basis of HUD's findings that such variations

are necessary because of prevailing levels of construction costs or

fair market rents, or unusually high or low family incomes. In

determining the

[[Page 36026]]

maximum monthly rent that may be charged for a unit that is subject to

this limitation, the owner or participating jurisdiction must subtract

a monthly allowance for any utilities and services (excluding

telephone) to be paid by the tenant. HUD will provide average occupancy

per unit assumptions to be used in calculating the maximum rent allowed

under paragraph (a)(2)(ii) of this section;

(iii) If the rent determined under this paragraph (a)(2) is higher

than the applicable rent under paragraph (a)(1) of this section, then

the applicable maximum rent for units under this paragraph would be

that calculated under paragraph (a)(1) of this section except for units

that receive Federal or state project-based rental assistance.

* * * * *

10. In Sec. 92.254, paragraph (a)(4)(ii) is revised to read as

follows:

Sec. 92.254 Qualification as affordable housing: homeownership.

(a) * * *

(4) * * *

(ii) A participating jurisdiction may structure the recapture

provisions, subject to HUD approval, based on its program design and

market conditions.

(A) The following methods of recapture would be acceptable to the

Department:

(1) Recapture the entire amount of the HOME investment, except that

the HOME investment amount may be reduced prorata based on the time the

homeowner has owned and occupied the unit measured against the required

affordability period.

(2) If the net proceeds (i.e., the sales price minus loan

repayment, other than HOME funds, and closing costs) are not sufficient

to recapture the full (or a reduced amount as provided for in paragraph

(a)(4)(ii)(A)(1) of this section) HOME investment plus enable the

homeowner to recover the amount of the homeowner's downpayment and any

capital improvement investment, the participating jurisdiction's

recapture provisions may share the net proceeds. The net proceeds may

be divided proportionally as set forth in the following mathematical

formulas:

[GRAPHIC][TIFF OMITTED]TR12JY95.003

(3) Alternatively, the PJ may also allow the homebuyer to recover

all the homebuyer's investment (downpayment and capital improvements)

first before recapturing the HOME investment.

(B) The HOME investment that is subject to recapture is based on

the amount of HOME assistance that enabled the homebuyer to buy the

dwelling unit. This is also the amount upon which the affordability

period is based. This includes any HOME assistance that reduced the

purchase price from fair market value to an affordable price, but

excludes the amount between the cost of producing the unit and the

market value of the property (i.e., the development subsidy). The

recaptured funds must be used to carry out HOME-eligible activities. If

no HOME funds will be subject to recapture, the provisions at

Sec. 92.254(a)(4)(i) apply.

(C) Upon recapture of the HOME funds used in a single-family,

homebuyer project with two to four units, the affordability period on

the rental units may be terminated at the discretion of the

participating jurisdiction.

* * * * *

11. In Sec. 92.356, paragraphs (a)(1) and (a)(2) are revised to

read as follows:

Sec. 92.356 Conflict of interest.

(a) * * *

(1) In the procurement of property and services by participating

jurisdictions, state recipients, and subrecipients, the conflict of

interest provisions in 24 CFR 85.36 and 24 CFR 84.42, respectively,

apply.

(2) In all cases not governed by 24 CFR 85.36 and 24 CFR 84.42, the

provisions of this section apply. These cases include the acquisition

and disposition of real property and the provision of assistance by the

participating jurisdiction, by the state recipient, by subrecipients,

or to individuals, housing developers, and other private entities under

eligible activities which authorize such assistance (e.g.,

rehabilitation of housing).\4\

\4\ See Sec. 92.505 concerning the availability of OMB

Circulars.

---------------------------------------------------------------------------

* * * * *

12. Section 92.505, is revised to read as follows:

Sec. 92.505 Applicability of uniform administrative requirements.

(a) Governmental entities. The requirements of OMB Circular No. A-

87 and the following requirements of 24 CFR part 85 apply to the

participating jurisdiction, state recipients, and any governmental

subrecipient receiving HOME funds: Secs. 85.6, 85.12, 85.20, 85.22,

85.26, 85.32-85.34, 85.36, 85.44, 85.51, and 85.52, of this title.

(b) Non-profit organizations. The requirements of OMB Circular No.

A-122 and the following requirements of 24 CFR part 84 apply to

subrecipients receiving HOME funds that are private nonprofit

organizations: Secs. 84.2, 84.5, 84.13-84.16, 84.21, 84.22, 84.26-

84.28, 84.30, 84.31, 84.34-84.37, 84.40-84.48, 84.51, 84.60-84.62,

84.72, and 84.73, of this title.

Dated: May 16, 1995.

Henry G. Cisneros,

Secretary.

[FR Doc. 95-17014 Filed 7-11-95; 8:45 am]

BILLING CODE 4210-32-P