Fair Housing Initiatives Program

SUMMARY: This final rule amends the Fair Housing Initiatives Program

(FHIP) regulation at 24 CFR part 125 to provide for the implementation

of statutory amendments pertaining to private enforcement initiatives;

the funding of fair housing organizations; and the implementation of

national (including national fair housing month), regional and local,

and community-based education and outreach programs. In addition, it

corrects a cross-reference contained in part 103.

DATES: Effective date: December 27, 1995.

FOR FURTHER INFORMATION CONTACT: Maxine Cunningham, Director, Office of

Fair Housing Initiatives and Voluntary Programs, Room 5234, 451 Seventh

Street, SW., Washington, DC 20410-2000. Telephone number (202) 708-

0800. A telecommunications device (TDD) for hearing and speech impaired

persons is available at (202) 708-9300. (These are not toll-free

numbers.)

SUPPLEMENTARY INFORMATION:

I. Paperwork Reduction Act Statement

The information collection requirements contained in Sec. 125.105

of this rule have been approved by the Office of Management and Budget

in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-

3520), and assigned OMB control number 2529-0033. An agency may not

conduct or sponsor, and a person is not required to respond to, a

collection of information unless the collection displays a valid

control number.

II. Background

A. Program Authority and Description

The Fair Housing Act--Title VIII of the Civil Rights Act of 1968,

as amended, 42 U.S.C. 3601-19--charges the Secretary of Housing and

Urban Development with responsibility to accept and investigate

complaints alleging discrimination based on race, color, religion, sex,

handicap, familial status or national origin in the sale, rental, or

financing of most housing, and in other real estate-related

transactions. In addition, the Fair Housing Act directs the Secretary

to coordinate with State and local agencies administering fair housing

laws, and to cooperate with and render technical assistance to public

or private entities carrying out programs to prevent and eliminate

discriminatory housing practices.

Section 561 of the Housing and Community Development Act of 1987

(1987 Act), 42 U.S.C. 3616 note, established the Fair Housing

Initiatives Program (FHIP) to strengthen the Department's enforcement

of the Fair Housing Act and to further fair housing. This program

assists projects and activities designed to enhance compliance with the

Fair Housing Act and substantially equivalent State and local fair

housing laws. Implementing regulations are found at 24 CFR part 125.

Section 905 of the Housing and Community Development Act of 1992

(HCDA 1992) (Pub. L. 102-550, approved October 28, 1992), substantially

amends section 561 of the Housing and Community Development Act of

1987. On April 1, 1993, the Department published an Advance Notice of

Proposed Rulemaking (ANPR) (58 FR 17172) requesting comment on HUD's

implementation of section 905 of the Housing and Community Development

Act of 1992. The Department received three comments in response to the

ANPR.

On August 29, 1994, HUD published a proposed rule to amend the Fair

Housing Initiatives Program (59 FR 44596). HUD invited public comments

for consideration in drafting a final rule. During the comment period,

which ended October 28, 1994, HUD received 15 public comments, 7 from

individuals (6 of these being identical form comments submitted in

support of comments submitted by an individual broker), 5 from fair

housing enforcement organizations, 1 from an organization representing

realtors, 1 from an organization representing lenders, and 1 from a

lending firm. These comments are discussed in the following section.

B. Public Comments on the Proposed Rule

The public commenters focused on the following issues, listed with

their proposed rule section numbers:

1. Definition of Expert Witness: Sec. 125.103.

2. Definition of Meritorious Claims: Sec. 125.103.

3. Waivers: Sec. 125.106.

3. Eligible Activities: Sec. 125.303.

4. Funding for Regionally Produced and Locally Produced Media

Programs: Secs. 125.303(b)(1) & 125.303(c).

5. Additional Points for Cooperating with Real Estate Industry

Organizations: Sec. 125.303(b)(2)(i).

6. Community-based programs: Sec. 125.303(d).

7. Coordination of Activities: Sec. 125.303(f).

8. Multi-year Grants Subject to Annual Performance Evaluation:

Sec. 125.401.

9. Guidelines for Private Enforcement Testing: Sec. 125.405.

10. Continued Development of Existing Organizations: Sec. 125.502.

11. Operating Budget Limitations: Sec. 125.502(c).

12. Establishing New Organizations: Sec. 125.503.

13. Awarding Funding to Most Resource-Poor Applicant.

14. Distribution of FHIP Funds According to an Allocation Formula.

15. Impact on Small Entities--Regulatory Flexibility Act.

16. Other Miscellaneous Comments.

Definitions of Expert Witness and (Qualified) Fair Housing

Organization: Proposed Section 125.103

One commenter supported the definition of expert witness that would

permit reimbursement for expert witness fees in cases that settle

before the experts testify, and the requirement in the definitions of

fair housing enforcement organization and qualified fair housing

enforcement organization that eligible organizations must have

conducted complaint investigation, testing and enforcement activities

for prescribed periods of time.

Department's response: No response is necessary, since this comment

agrees with the proposed rule.

Definition of Meritorious Claims: Proposed Section 125.103

In Sec. 125.103 of the proposed rule, the Department defines

meritorious claims to mean ``enforcement activities that resulted in

lawsuits, consent decrees, legal settlements, HUD conciliations and

agency initiated settlements with the outcome of monetary awards for

compensatory and/or punitive damages to plaintiffs or complaining

parties, or affirmative relief and monitoring.''

Two commenters with six concurring commenters objected to the

proposed rule replacing ``bona fide allegation'' with the ``meritorious

claim'' standard. These commenters asserted that the proposed rule

change will allow fair housing organizations to engage in harassing

behavior, and that the

[[Page 58447]]

meritorious claim standard will make any business that has made an

economic decision to settle out of court an instant target of fair

housing groups.

One commenter also felt that the definition in the proposed rule is

too broad since almost every claim falls into the proposed definition.

This comment recommended that the Department change the definition of

meritorious claim to read: ``enforcement activities that resulted in a

monetary award for compensatory or punitive damages, or a settlement

for an amount significantly in excess of the normal costs of defense.''

In contrast, two commenters supported the Department's decision to

define meritorious claims, but suggested that ``affirmative relief and

monitoring'' require more than an agreement with a real estate company,

lender or insurance company to ``promote'' Fair Housing. These

commenters recommended that HUD define affirmative relief to mean

developing an explicit marketing program to gain customers, building or

renovating a branch office, providing below market rate loans to

targeted neighborhoods, hiring minority employees, and changing the

compensation basis for commissioned loan officers.

Department's response: Some of these comments have misinterpreted

the role of ``meritorious claims'' in the FHIP regulation. This

definition is used for the purpose of defining the terms fair housing

enforcement organization and qualified fair housing enforcement

organization. To qualify as one of these organizations, it is

necessary, under the statute, to be ``engaged in complaint intake,

complaint investigation, testing for fair housing violations and

enforcement of meritorious claims'' (emphasis added).

As for the commenters that suggested additional definition of the

phrase ``affirmative relief and monitoring'' as used in meritorious

claims, the Department believes that, taken as a whole, the proposed

rule's definitions of fair housing enforcement organization and

qualified fair housing enforcement organization are sufficiently

stringent to ensure that only experienced organizations qualify.

Meritorious claims'' is only one element in these definitions, which

also include the elements of complaint intake, complaint investigation,

and testing for fair housing violations.

This definition is clarified in the final rule to include

conciliationsith substantially equivalent agencies (under 24 CFR

115.6).

Waivers: Proposed Section 125.106

Two commenters objected to the waiver provision of Sec. 125.106.

One commenter recognized the need for flexibility, but suggested that

any waiver to the rule should be subject to public comment.

Department's response: The very purpose of the waiver provision is

to provide needed flexibility that would be lost by subjecting each

waiver to public comment. Such a waiver provision is a common feature

of many HUD rulemakings (see the notice, ``Waiver of Regulations and

Directives Issued by HUD; Supersession of Redelegations of Authority,''

at 56 FR 16337, April 22, 1991). The waiver provision at Sec. 125.106

is modified by adding the phrase ``Upon determination of good cause,''

and provides that the waiver be issued by the Assistant Secretary.

As part of its overall process of reinventing regulations, the

Department is developing a separate waiver provision rule that would

apply to every HUD regulation. When this cross-cutting regulation

becomes effective, this program-specific waiver provision will be

eliminated.

Eligible Activities: Proposed Section 125.203

One commenter suggested adding the following activities to

Sec. 125.203: (1) Linking fair housing organizations regionally in

enforcement activities designed to combat broader housing market

discriminatory practices; (2) discovering and providing remedies for

discrimination in the public and private real estate markets and real

estate related transactions, including, but not limited to, making or

purchasing of loans or the provision of other financial assistance

sales and rentals of housing and housing advertising; and (3) carrying

out special projects, including the development of prototypes to

respond to new or sophisticated forms of discrimination against persons

protected under the Fair Housing Act.

Department's response: Applications for the activities listed would

not be excluded from consideration, even without being specifically

listed. The preface to the list of eligible activities at Sec. 125.203

stated that eligible activities ``may include (but are not limited to)

the following:''. By only suggesting activities that would be

acceptable without attempting to provide an exhaustive or exclusive

list, this approach may have caused some confusion by seeming to confer

exclusive status on the listed activities. To prevent such problems,

and as a part of the Department's efforts to streamline its rules and

eliminate unnecessary regulatory verbiage, such advisory, non-exclusive

lists are being eliminated from the final rule. The final rule provides

at Sec. 125.104(d) that eligible activities will be announced in

Notices of Funding Availability published in the Federal Register.

Funding for Regionally Produced and Locally Produced Media Programs:

Proposed Sections 125.303(b)(1) & 125.303(c)

Two commenters objected to permitting regional and local education

and outreach funds to be used to develop radio, television and print

public service announcements. One of these argued that it is not an

efficient expenditure of limited funds, since money will be wasted

duplicating what should be developed and produced on a national level.

This commenter suggested that funds should be used to develop a high

quality national media campaign, and HUD should provide remaining

resources to other groups to disseminate the campaign.

Department's response: A complete ban on the development of

regional and local media materials is not appropriate. The Department

seeks to encourage innovation while avoiding duplication in its award

of FHIP funds.

Additional Points for Cooperating with Real Estate Industry

Organizations: Proposed Section 125.303(b)(2)(i)

One commenter supported the proposed rule's giving an applicant

preference points if the applicant demonstrates cooperation with real

estate industry organizations.

In contrast, two commenters objected to HUD encouraging cooperation

with the real estate industry by awarding ``preference points'' to

applicants which cooperate with the real estate industry. One of these

commenters argued that industry would not cooperate or otherwise

support an effort that would encourage people to file complaints

against members of the industry.

Department's response: Although HCDA 1992 section 905, the

statutory amendment and expansion of FHIP, acknowledges (in subsection

905(a), Findings) the evidence of continuing and pervasive

discrimination in housing markets, it also recognizes that ``continuing

educational efforts by the real estate industry are a useful way to

increase understanding by the public of their fair housing rights and

responsibilities''. Later, in subsection 905(d)(1), the statute

provides that, ``The Secretary shall encourage cooperation with real

estate industry organizations in the national education

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and outreach program.'' The Department wishes to encourage every effort

to reach the goal of compliance with the letter and the spirit of the

Fair Housing Act, and believes, along with the Congress, that the real

estate industry can make valuable contributions to achieving this goal.

The two comments disagreeing with the preference for cooperation with

the industry assume, justifiably, that persons aware of their rights

would more likely act to enforce those rights when they are violated.

However, this assumption does not lead to the conclusion that the

industry charged with observing those rights would be uncooperative in

informing the public and its individual members of the industry's

responsibilities. To the contrary, the industry would benefit through

reduced compliance costs from active engagement in informing the public

of their rights and the resulting greater awareness of its own

responsibilities. Further, it would be fair to assume that the national

goals of the Fair Housing Act can be more quickly and efficiently

achieved with the active, positive participation of industry than

without it.

Community-Based Programs: Proposed Section 125.303(d)

One commenter objected to HUD's interpretation of the term

``community based activities'' in the authorizing statute to allow HUD

to set aside a special funding for community based neighborhood groups.

This commenter argued that Congress intended the term ``community based

activities'' to mean that education and outreach activities could be

developed for local communities by fair housing organizations or other

eligible applicants.

Department's response: Although this comment is not relevant to the

rule itself, which does not address special funding for community based

groups, the Department agrees that education and outreach activities

could be developed for local communities by fair housing organizations

or other eligible applicants. However, this comment provides yet

another opportunity for the Department to stress that in order to be

flexible and responsive to diverse needs, the FHIP will be administered

so as to permit the targeting of funds in NOFAs to specific types of

activities, locations, and recipients.

The description of activities that are ``community-based'' in scope

is also modified in the final rule to use the more familiar term

``neighborhood'' rather than ``geographic area.''

Coordination of Activities: Proposed Section 125.303(f)

One commenter suggested expanding Sec. 125.303(f) to require that a

private FHO provide evidence with the application that it has consulted

with State and/or local public enforcement agencies to coordinate

activities to be funded under the Private Enforcement Initiative with

existing and/or planned public enforcement efforts.

Department's response: The Department disagrees with this comment.

Consultation and coordination of public and private efforts could have

a negative impact on an applicant's ability to maintain the

confidentiality of proposed testing targets and strategies.

Multi-Year Grants Subject to Annual Performance Evaluation: Proposed

Section 125.401

Five commenters supported making funding of PEI multi-year grants

subject to a performance review of the previous year's activities. One

of these commenters suggested that HUD solicit comments from interested

parties, including those involved as defendants to FHIP funded testing

complaints, when conducting the performance review. Two of these

commenters also suggested that HUD continue funding if HUD fails to

complete the review in a timely fashion since a recipient may not have

the cash reserves to maintain staff until a review is completed. These

two commenters also suggested that HUD consider four year funding

cycles since many enforcement actions require up to four years or more

to complete litigation, or monitor requirements of consent decrees or

HUD conciliations.

Department's response: Each of these comments may be implemented by

the Department in a NOFA or through its own internal procedures. HUD

has already initiated multi-year funding in its FHIP NOFAs and intends

to continue to do so. HUD will not discontinue funding if it is at

fault for not completing a performance review in a timely fashion, but

if the Department is unable to complete its review due to recipient

deficiencies (such as inadequate accounting for funds and activities),

funds may be discontinued. Interested parties may contact the

Department at any time with information relevant to its evaluation of

FHIP-funded recipients. With respect to comments from those involved as

defendants as a result of FHIP-funded testing, while these persons are

free to comment, their status as defendants in a pending action would

normally preclude the Department from acting on their comments while

the action is pending.

Eligible Applicants Under the Private Enforcement Initiative: Proposed

Section 125.402

One commenter objected to awarding PEI funds to non-testing groups.

Only groups with at least one year of experience in complaint intake,

investigation, testing, and enforcement should get PEI awards.

Department's response: The Department agrees with this and related

comments. Please refer to the discussion under the heading, ``Continued

Development of Existing Organizations: Proposed 125.502'', below.

Guidelines for Private Enforcement Testing: Proposed Section 125.405

Section 125.405 is currently entitled, ``Guidelines for private

enforcement testing.'' The proposed rule would remove the testing

guidelines in Sec. 125.405, but a new Sec. 125.107 would prohibit

testers from having prior felony convictions or convictions of crimes

involving fraud or perjury, and would require that testers receive

training or be experienced in testing procedures and techniques.

Three commenters with six concurring commenters objected to the

absence of a consistent standard for conducting testing under the

proposed rule. In general, these commenters criticized the Department

for removing most of Sec. 125.405, and stressed the need for regulatory

controls to ensure that testers are objective and credible. These

commenters also stressed the need for the Department to ensure that

grantees do not have any conflicts of interest which might interfere

with testing.

One of these commenters with six concurring commenters asserted

that HUD erroneously assumes that an established fair housing

organization knows how to conduct valid testing and/or has the

integrity to conduct valid testing. These commenters also alleged that

not all reports are accurate and true, and recommended that HUD more

closely scrutinize information submitted by fair housing organizations

in grant applications and quarterly reports. They agreed the final rule

should prohibit a fair housing organization receiving FHIP funding from

owning a for-profit subsidiary which directly competes with licensed

real estate brokers, and that at a minimum, a for-profit subsidiary of

a fair housing organization should not have any access to the ``set-

aside'' apartments that are included in a settlement agreement with a

fair housing organization.

[[Page 58449]]

Three commenters made suggestions as to specific criteria which

should be contained in the final rule. One commenter suggested that the

final rule require the following: (1) Grantees of FHIP testing and

enforcement funds must demonstrate that testers have the training or

experience to properly conduct tests; (2) Testers must objectively

report their findings; (3) Grantees may not compromise the integrity of

tests and tester reports; (4) Grantees must ensure that potential

conflicts of interest do not interfere with the design, conduct or

evaluation of tests; and (5) Grantees will file complaints/lawsuits as

a result of testing only if there is a reasonable cause to believe that

a violation of the Fair Housing Act occurred.

This commenter further objected to general testing where no bona

fide allegation of discrimination exists, stating that general testing

poses a hardship on the industry by taking valuable time for the

testing to determine whether discrimination exists and takes resources

away from testing those situations where there is an allegation of

discrimination. This commenter opined that the purposes of the FHIP

program support requiring a bona fide allegation prior to commencement

of testing.

One commenter with six concurring commenters recommended that HUD

require the following before initiating any action: (1) Fair housing

organizations submit for HUD review and approval detailed documentation

concerning any ``bona fide'' allegation of fair housing violations; (2)

HUD give written approval to a fair housing organization before

commencement of testing; and (3) once the fair housing organization

begins testing, the fair housing organization submits to HUD detailed

activity logs and written test conclusions.

Similarly, yet another commenter suggested that HUD maintain the

following in the final rule: (1) Recipients of HUD FHIP funding may not

have an economic interest in the outcome of the test for

discrimination, have a specific bias toward the business tested, be a

licensed competitor of the respondent, be related to one of the parties

in the case, or have any other specific bias or conflict of interest

which would prevent or limit his or her objectivity; (2) Testers may

not communicate their test results with one another; and (3) Testers

must report all relevant information.

In contrast, three commenters supported the removal of testing

guidelines. One of these commenters reasoned that federal courts and

HUD ALJs are in the best position to determine the validity of testing

procedures. This commenter also stated that testing is continually

evolving to accommodate changing discriminatory practices identified in

the market place, and suggested that the rule should be flexible enough

to accommodate changing practices. However, the commenter suggested

that the final rule provide that HUD will scrutinize applicants that

have little or no legal administrative results for enforcement

activities.

Department's response: HUD agrees with the commenters who recommend

conflict of interest provisions be maintained in the rule, and most of

the conflict provisions at Sec. 125.405(c)(3) of the current rule are

included with the tester provisions at Sec. 125.107 of this final rule.

HUD also agrees with the commenter who stated that testing is

continually evolving to accommodate changing discriminatory practices

identified in the market place, and that the rule should be flexible

enough to accommodate changing practices. For these reasons, the

Department is not including additional specific requirements for

testing in this final rule, including the requirement for a bona fide

allegation prior to testing.

Continued Development of Existing Organizations: Proposed Section

125.502

Two commenters objected to HUD making the third category of

applicants (``[n]onprofit groups organizing to build their capacity to

provide fair housing enforcement'') eligible to receive FHIP funding

under Sec. 125.502. One of the commenters suggested that funding for

this category is already available under Sec. 125.503, Establishing New

Organizations, and that funding for ``capacity building'' should only

be used to assist existing groups. This commenter also felt that since

all of the activities under private enforcement are eligible for

funding, HUD is undermining the intent of the statute to promote high

quality enforcement activities. The commenter warned that HUD should

consider the practical risks of providing enforcement funds to

organizations with no proven track record. This commenter further

disagreed with HUD that making this category of nonprofit groups

eligible for funding will increase the number of private non-profit

fair housing organizations, and suggested that qualifications are more

important than numbers. Finally, this commenter argued that mere status

as a nonprofit organization should not qualify the organization to

receive funds for fair housing enforcement since many nonprofits

opposing fair housing efforts will be eligible.

Department's response: The Department does not agree with these

comments. Section 905 specifically includes nonprofit groups organizing

to build their capacity to provide fair housing enforcement as eligible

for continued development funding. If continued development funding

were limited to fair housing organizations, it would not differ from

the Private Enforcement Initiative, and there would be no need for this

separate category of FHIP activities. As distinct from activities under

proposed Sec. 125.503, which are specifically intended to result in the

establishment of new organizations, the activities funded under

proposed Sec. 125.502 are intended to permit existing organizations,

whether or not they are already fair housing organizations, to build

their capacity to provide fair housing enforcement. The argument that

nonprofits opposing fair housing efforts will be funded is not valid,

since funds are competitively awarded after an evaluation of the

proposed activities. Activities that oppose fair housing efforts would

not be funded, and any grantee who did engage in activities opposing

fair housing activities would be liable for misuse of funds.

To preserve the distinct characters of the Private Enforcement

Initiative and the Fair Housing Organization Initiative highlighted by

these comments, and in response to a comment discussed above (Eligible

Applicants under the Private Enforcement Initiative: Proposed

Sec. 125.402), the final rule limits eligible applicants for PEI

funding to qualified fair housing organizations (QFHOs) and fair

housing enforcement organizations with at least 1 year of experience in

complaint intake, complaint investigation, testing for fair housing

violations and enforcement of meritorious claims.

Establishing New Organizations: Proposed Section 125.503

One commenter suggested that the final rule contain criteria that

an applicant must satisfy to establish a new organization. The

commenter suggested that an applicant should have a firm grasp of all

federal, state and local fair housing laws, successful experience in

investigating, testing, conciliating and litigating fair housing

complaints or access to training to receive high quality assistance in

the development of the new organization.

With regard to targeted areas (Sec. 125.503(c)), this commenter

also

[[Page 58450]]

suggested that HUD should consider funding applicants if the applicant

demonstrates the need--the existence of a FHAP or QFHO within the state

should never outweigh the documented need for private enforcement

activities.

Department's response: The Department initially reasoned, in the

proposed rule, that addressing the national need for private fair

housing enforcement organizations would best be served by making this

category of funding for establishing new organizations broadly

available. The commenter emphasizes the broad range of specialized

knowledge and experience that would be necessary to establish a

successful, efficient enforcement organization, and the Department

agrees with the validity of these observations. In order to accommodate

both concerns (national need and specialized knowledge), the final rule

provides that QFHOs, FHOs, and other organizations with at least three

years of experience in complaint intake, complaint investigation, and

enforcement of meritorious claims involving the use of testing evidence

are eligible applicants for funding to establish new organizations.

This will maximize the pool of eligible applicants, while still

limiting it to those with substantial fair housing enforcement

experience.

The Department also agrees with the comment that the rule should

permit funding applications for areas with a demonstrated need for a

fair housing organization. The Department, in its FHIP NOFA published

annually in the Federal Register, may identify targeted unserved and

underserved areas that will receive priority for funding under the

Establishing New Organizations component of the Fair Housing

Organizations Initiative. The final rule provides that an applicant may

also seek funding to establish a new organization in a locality not

identified as a target area, but in such a case, the applicant must

submit sufficient evidence to establish the proposed area as being

currently underserved by fair housing enforcement organizations or as

containing large concentrations of protected classes.

Awarding Funding to Most Resource-Poor Applicant

In the preamble of the proposed rule, the Department specifically

solicited public comment on whether it should award FHIP funds to the

applicant that is most resource-poor when choosing between two

otherwise equally deserving applicants. The Department received three

public comments on this issue. All three commenters objected to using

the ``resource-poor'' factor to award funding in the event of a tie

between two applicants.

Two commenters stated that a QFHO or FHO may have solid funding for

particular activities, but the specific activity for which it seeks

FHIP funds may be one that its local funder will not support. These

commenters also suggested that HUD's objective should not be to

distribute the funds in the most efficient manner, but rather in a

manner that will have the greatest impact on fair housing enforcement.

Another commenter supported funding resource-poor organizations,

but felt that funding for more substantial organizations was more

critical.

Department's response: The Department will provide for tie-breaking

criteria in individual NOFAs, and in that way, it will be able to use a

variety of factors, such as the term of the proposed activities and the

amount of funding requested, as appropriate in the context of the

priorities identified for a particular funding round.

Distribution of FHIP Funds According to an Allocation Formula

One comment in response to the ANPR suggested that HUD fund FHIP as

a noncompetitive, entitlement category to provide general operating

funds. In the proposed rule, HUD responded that with the present level

of FHIP funding, entitlement funding would not be an efficient method

of implementing FHIP. However, HUD stated that it might consider such

an approach in the future, depending upon the amount of future

appropriations, and the number of QFHOs. HUD also requested public

comment on the issue of distributing FHIP funds according to an

allocation formula, and on what criteria might be used to provide for

the fair and equitable distribution of funds on such a basis.

The Department received three comments from the public on this

issue. One commenter recommended that FHIP funding should be an

entitlement program, and that HUD should give preference to fair

housing groups which have been in existence for more than 5 years, with

a history of litigation.

Two commenters supported the concept of FHIP as an entitlement

program, and offered to work with HUD in developing an equitable

formula. However, no criteria for distribution were suggested.

Department's response: Although the comments received on this issue

favored a formula distribution, the lack of suggestions for specific

distribution criteria, and the continuing limiting factor of the

amounts made available for funding require that funding continue on a

competitive basis.

Miscellaneous Comments

One commenter with six concurring commenters suggested that HUD

adopt the following as part of the final rule: (1) The Department

should provide an administrative procedure for members of the public to

file complaints against fair housing organizations that engage in

questionable practices, and if an ALJ determines that the litigation is

baseless, then HUD should deny further FHIP funding to the offending

fair housing group for 5 years from the date of the ALJ's

determination; (2) HUD should require that each fair housing

organization submit its entire budget to HUD to ensure that FHIP funds

do not constitute more than 50% of its total budget pursuant to section

125.502(c)(1); (3) Fair housing groups should have the same monetary

award limitations as HUD has: $10,000 for the first offense, $25,000

for the second offense, and $50,000 for the third offense; and (4) HUD

should require that each fair housing organization file a detailed

report with HUD on the disbursements of any settlement award, and that

this report be available for public inspection.

Department's response: (1) Aggrieved parties may call HUD's

attention to misconduct on the part of its grantees at any time.

However, as a general rule, the Department will not act on any matter

which involves a pending action before a court or other tribunal.

Because of the broad range of possible findings, the Department does

not consider a funding ban for any fixed term an appropriate remedy to

be set in a rule. In reviewing applications, the Department currently

considers an applicant's experience in formulating and carrying out

programs to prevent or eliminate discriminatory practices, including

the applicant's management of past and current FHIP or other civil

rights projects. Any past misconduct by an applicant is taken into

account during this review.

(2) The Department's FHIP NOFAs currently require applicants to

submit an operating budget that describes the applicant's total planned

expenditures from all sources, including the value of in-kind and

monetary contributions, in the year for which funding is sought. This

is required so that the 50% budget determination pursuant to proposed

section 125.502(c)(1) may be made. To memorialize this requirement

under a rule is not necessary.

(3) Because the authorizing statute does not set monetary award

limitations on fair housing groups, HUD will not

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impose them administratively without a clear mandate to do so.

(4) The laws under which non-profits are organized require them to

file annual reports, including financial information, which is a matter

of public record. Beyond this extent, the Department will not require

additional disclosure.

One commenter suggested that all privately enforced Fair Housing

Act actions be reviewed by the Attorney General through use of a

similar declaration process as in qui tam litigation. This commenter

further suggested some sort of governmental review/approval of FHIP-

funded litigation counsel and regulatory control/cap for FHIP-funded

legal fees. In addition, the commenter suggested that the final rule

address HUD's own liability for frivolous lawsuits brought by private

litigants under Rule 11 of the Federal Rules of Civil Procedure, and

contain regulatory protection of proprietary information disclosed with

the expectation of confidence during the litigation process.

Department's response: Review by the Attorney General through use

of a declaration process is beyond the scope of the Department's

rulemaking and would have to be pursued through a legislative

amendment. The Department is not liable under Rule 11 of the Federal

Rules of Civil Procedure for lawsuits brought by private litigants.

Protection of proprietary information should be pursued under the rules

of the forum in which an action is brought, and the Department declines

to address this issue in its rule.

One commenter supported the continued eligibility of real estate

organizations to receive educational and outreach funds, but urged HUD

to make real estate organizations eligible in their own right to

receive FHIP Educational and Outreach funds. The commenter stated that

real estate organizations do carry out programs to prevent and

eliminate discriminatory housing practices. The commenter also asserted

that real estate organizations provide essential education to both real

estate professionals and the public on fair housing rights and

responsibilities, and are in the unique position of having direct

contact with members of the public at the time of sale, lease or

purchase.

Department's response: Real estate organizations are eligible to

receive educational and outreach funds, in accordance with section 905,

as ``public or private entities that are formulating or carrying out

programs to prevent or eliminate discriminatory housing practices''.

Section 905 recognized the value of real estate organizations in

continuing educational efforts to increase understanding by the public

of their fair housing rights and responsibilities, and the Department

agrees.

Finally, one commenter recommended that FHIP place emphasis on

enforcement over education; that FHIP deadlines should be reasonable

(90 days to apply and staggered for each Initiative); that NOFA

criteria should be more explicit; and that non-funded proposals should

be given feedback.

Department's response: Because of the way the FHIP program is

organized, it does place more emphasis on enforcement over education.

Three of the Initiatives basically fund enforcement activities; only

the Education and Outreach Initiative funds strictly educational

activities. Issues as to deadlines and criteria are addressed in NOFAs,

in which the Department makes every effort to assure the efficient and

equitable distribution of funds. Feedback on proposals is a

Departmental administrative issue that is outside the scope of this

rule. Such a service is heavily dependent on the availability of

resources to the Department.

III. Reinvention of the FHIP Final Rule

As mentioned in the discussion of the comments on the proposed

rule, the Department is taking advantage of the publication of this

final rule to streamline the FHIP rule in accordance with its overall

effort to reinvent regulations. Rather than amending individual

sections within part 125, the entire part has been re-drafted to

eliminate extraneous material such as language that only repeats the

statutory language, or provisions that are only advisory (rather than

binding) or non-exclusive, such as lists of suggested activities. The

rule is not substantively changed beyond those issues addressed in the

proposed rule and in response to the comments submitted on the proposed

rule. The result sought is a program that will be more responsive and

administratively flexible to address the needs recognized in the

authorizing statute.

IV. Technical Correction to Part 103

Presently, 24 CFR 103.405(b)(3) makes reference to actions that are

to be taken ``in accordance with 24 CFR 104.40''. There is no such

section, and the correct reference should be to 24 CFR 104.410(a). The

correction is made in this final rule.

V. Findings and Certifications

Regulatory Planning and Review.

This 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 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.

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 at the above address.

Impact on Small Entities.

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

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

approving it certifies that this rule does not have a significant

economic impact on a substantial number of small entities. The purpose

of the rule is to provide funding for fair housing investigation and

enforcement, and education and outreach activities.

Federalism Impact.

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

of Executive Order 12612, Federalism, has determined that the policies

contained in this rule will not have substantial direct effects on

states or their political subdivisions, or on 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, the rule is not subject to review under the order. The rule is

limited to implementing statutorily required revisions to the existing

Fair Housing Initiatives Program Regulation.

Impact on the Family.

The General Counsel, as the Designated Official under Executive

Order 12606, The Family, has determined that this rule has potential

for a beneficial, although indirect, impact on family formation,

maintenance, and general well-being. By promoting the values of fair

housing, the rule would benefit families by seeking to end

discrimination as a factor in the availability of housing. Accordingly,

[[Page 58452]]

since the impact on the family is beneficial, although indirect, no

further review is considered necessary.

List of Subjects

24 CFR Part 103

Administrative practice and procedure, Aged, Fair housing,

Individuals with disabilities, Intergovernmental relations,

Investigations, Mortgages, Penalties, Reporting and recordkeeping

requirements.

24 CFR Part 125

Fair housing, Grant programs--housing and community development,

Reporting and recordkeeping requirements.

The Catalog of Federal Domestic Assistance Numbers for the Fair

Housing Initiatives Program are 14.408, 14.409, 14.410 and 14.413.

Accordingly, the Department amends parts 103 and 125 of title 24 of

the Code of Federal Regulations as follows:

PART 103--FAIR HOUSING-COMPLAINT PROCESSING

1. The authority citation for part 103 continues to read as

follows:

Authority: 42 U.S.C. 3601-3619; 42 U.S.C. 3535(d).

2. In Sec. 103.405, paragraph (b)(3) is revised to read as follows:

Sec. 103.405 Issuance of charge.

* * * * *

(b) * * *

(3) Serve the charge and notifications in accordance with 24 CFR

104.410(a); and

* * * * *

3. Part 125 is revised to read as follows:

PART 125--FAIR HOUSING INITIATIVES PROGRAM

Sec.

125.103 Definitions.

125.104 Program administration.

125.105 Applications requirements.

125.106 Waivers.

125.107 Testers.

125.201 Administrative Enforcement Initiative.

125.301 Education and Outreach Initiative.

125.401 Private Enforcement Initiative.

125.501 Fair Housing Organizations Initiative.

Authority: 42 U.S.C. 3616 note; 42 U.S.C. 3535(d).

Sec. 125.103 Definitions.

In addition to the definitions that appear at section 802 of title

VIII (42 U.S.C. 3602), the following definitions apply to this part:

Assistant Secretary means the Assistant Secretary for Fair Housing

and Equal Opportunity in the Department of Housing and Urban

Development.

Department means the Department of Housing and Urban Development

(HUD).

Expert witness means a person who testifies, or who would have

testified but for a resolution of the case before a verdict is entered,

and who qualifies as an expert witness under the rules of the court

where the litigation funded by this part is brought.

Fair housing enforcement organization (FHO) means any organization,

whether or not it is solely engaged in fair housing enforcement

activities, that--

(1) Is organized as a private, tax-exempt, nonprofit, charitable

organization;

(2) Is currently engaged in complaint intake, complaint

investigation, testing for fair housing violations and enforcement of

meritorious claims; and

(3) Upon the receipt of FHIP funds will continue to be engaged in

complaint intake, complaint investigation, testing for fair housing

violations and enforcement of meritorious claims.

The Department may request an organization to submit documentation

to support its claimed status as an FHO.

FHIP means the Fair Housing Initiatives Program authorized by

section 561 of the Housing and Community Development Act of 1987 (42

U.S.C. 3616 note).

Meritorious claims means enforcement activities by an organization

that resulted in lawsuits, consent decrees, legal settlements, HUD and/

or substantially equivalent agency (under 24 CFR 115.6) conciliations

and organization initiated settlements with the outcome of monetary

awards for compensatory and/or punitive damages to plaintiffs or

complaining parties, or other affirmative relief, including the

provision of housing.

Qualified fair housing enforcement organization (QFHO) means any

organization, whether or not it is solely engaged in fair housing

enforcement activities, that--

(1) Is organized as a private, tax-exempt, nonprofit, charitable

organization;

(2) Has at least 2 years experience in complaint intake, complaint

investigation, testing for fair housing violations and enforcement of

meritorious claims; and

(3) Is engaged in complaint intake, complaint investigation,

testing for fair housing violations and enforcement of meritorious

claims at the time of application for FHIP assistance.

For the purpose of meeting the 2-year qualification period for the

activities included in paragraph (2) of this definition, it is not

necessary that the activities were conducted simultaneously, as long as

each activity was conducted for 2 years. It is also not necessary for

the activities to have been conducted for 2 consecutive or continuous

years. An organization may aggregate its experience in each activity

over the 3 year period preceding its application to meet the 2-year

qualification period requirement.

The Department may request an organization to submit documentation

to support its claimed status as a QFHO.

Title VIII means title VIII of the Civil Rights Act of 1968, as

amended (42 U.S.C. 3600-3620), commonly cited as the Fair Housing Act.

Sec. 125.104 Program administration.

(a) FHIP is administered by the Assistant Secretary.

(b) FHIP funding is made available under the following initiatives:

(1) The Administrative Enforcement Initiative;

(2) The Education and Outreach Initiative;

(3) The Private Enforcement Initiative; and

(4) The Fair Housing Organizations Initiative.

(c) FHIP funding is made available in accordance with the

requirements of the authorizing statute (42 U.S.C. 3616 note), the

regulation in this part, and Notices of Funding Availability (NOFAs),

and is awarded through a grant or other funding instrument.

(d) Notices of Funding Availability under this program will be

published periodically in the Federal Register. Such notices will

announce amounts available for award, eligible applicants, and eligible

activities, and may limit funding to one or more of the Initiatives.

Notices of Funding Availability will include the specific selection

criteria for awards, and will indicate the relative weight of each

criterion. The selection criteria announced in Notices of Funding

Availability will be designed to permit the Department to target and

respond to areas of concern, and to promote the purposes of the FHIP in

an equitable and cost efficient manner.

(e) All recipients of FHIP funds must conform to reporting and

record maintenance requirements determined appropriate by the Assistant

Secretary. Each funding instrument will include provisions under which

the Department may suspend, terminate or recapture

[[Page 58453]]

funds if the recipient does not conform to these requirements.

(f) Recipients of FHIP funds may not use such funds for the payment

of expenses in connection with litigation against the United States.

(g) All recipients of funds under this program must conduct audits

in accordance with part 44 or part 45, as appropriate, of this title.

Sec. 125.105 Application requirements.

Each application for funding under the FHIP must contain the

following information, which will be assessed against the specific

selection criteria set forth in a Notice of Funding Availability.

(a) A description of the practice (or practices) that has affected

adversely the achievement of the goal of fair housing, and that will be

addressed by the applicant's proposed activities.

(b) A description of the specific activities proposed to be

conducted with FHIP funds including the final product(s) and/or any

reports to be produced; the cost of each activity proposed; and a

schedule for completion of the proposed activities.

(c) A description of the applicant's experience in formulating or

carrying out programs to prevent or eliminate discriminatory housing

practices.

(d) An estimate of public or private resources that may be

available to assist the proposed activities.

(e) A description of the procedures to be used for monitoring

conduct and assessing results of the proposed activities.

(f) A description of the benefits that successful completion of the

project will produce to enhance fair housing, and the indicators by

which these benefits are to be measured.

(g) A description of the expected long term viability of project

results.

(h) Any additional information that may be required by a Notice of

Funding Availability published in the Federal Register.

(Approved by the Office of Management and Budget under control

number 2529-0033. An agency may not conduct or sponsor, and a person

is not required to respond to, a collection of information unless

the collection displays a valid control number.)

Sec. 125.106 Waivers.

Upon determination of good cause, the Assistant Secretary may

waive, in a published Notice of Funding Availability or other Federal

Register notice, any requirement in this part that is not required by

statute.

Sec. 125.107 Testers.

The following requirements apply to testing activities funded under

the FHIP:

(a) Testers must not have prior felony convictions or convictions

of crimes involving fraud or perjury.

(b) Testers must receive training or be experienced in testing

procedures and techniques.

(c) Testers and the organizations conducting tests, and the

employees and agents of these organizations may not:

(1) Have an economic interest in the outcome of the test, without

prejudice to the right of any person or entity to recover damages for

any cognizable injury;

(2) Be a relative of any party in a case;

(3) Have had any employment or other affiliation, within one year,

with the person or organization to be tested; or

(4) Be a licensed competitor of the person or organization to be

tested in the listing, rental, sale, or financing of real estate.

Sec. 125.201 Administrative Enforcement Initiative.

The Administrative Enforcement Initiative provides funding to State

and local fair housing agencies administering fair housing laws

recognized by the Assistant Secretary under Sec. 115.6 of this

subchapter as providing rights and remedies which are substantially

equivalent to those provided in title VIII.

Sec. 125.301 Education and Outreach Initiative.

(a) The Education and Outreach Initiative provides funding for the

purpose of developing, implementing, carrying out, or coordinating

education and outreach programs designed to inform members of the

public concerning their rights and obligations under the provisions of

fair housing laws.

(b) Notices of Funding Availability published for the FHIP may

divide Education and Outreach Initiative funding into separate

competitions for each of the separate types of programs (i.e.,

national, regional and/or local, community-based) eligible under this

Initiative.

(c) National program applications, including those for Fair Housing

Month funding, may be eligible to receive, as provided for in Notices

of Funding Availability published in the Federal Register, a preference

consisting of additional points if they:

(1) Demonstrate cooperation with real estate industry

organizations; and/or

(2) Provide for the dissemination of educational information and

technical assistance to support compliance with the housing

adaptability and accessibility guidelines contained in the Fair Housing

Amendments Act of 1988.

(d) Activities that are regional are activities that are

implemented in adjoining States or two or more units of general local

government within a state. Activities that are local are activities

whose implementation is limited to a single unit of general local

government, meaning a city, town, township, county, parish, village, or

other general purpose political subdivision of a State. Activities that

are community-based in scope are those which are primarily focused on a

particular neighborhood area within a unit of general local government.

(e) Each non-governmental recipient of regional, local, or

community-based funding for activities located within the jurisdiction

of a State or local enforcement agency or agencies administering a

substantially equivalent (under part 115 of this subchapter) fair

housing law must consult with the agency or agencies to coordinate

activities funded under FHIP.

Sec. 125.401 Private Enforcement Initiative.

(a) The Private Enforcement Initiative provides funding on a

single-year or multi-year basis, to investigate violations and obtain

enforcement of the rights granted under the Fair Housing Act or State

or local laws that provide rights and remedies for discriminatory

housing practices that are substantially equivalent to the rights and

remedies provided in the Fair Housing Act. Multi-year funding may be

contingent upon annual performance reviews and annual appropriations.

(b) Organizations that are eligible to receive assistance under the

Private Enforcement Initiative are:

(1) Qualified fair housing enforcement organizations.

(2) Fair housing enforcement organizations with at least 1 year of

experience in complaint intake, complaint investigation, testing for

fair housing violations and enforcement of meritorious claims. For the

purpose of meeting this 1 year qualification period, it is not

necessary that the activities were conducted simultaneously, as long as

each activity was conducted for 1 year. It is also not necessary for

the activities to have been conducted for a continuous year. An

organization may aggregate its experience in each activity over the 2-

year period preceding its application to meet this 1 year qualification

period requirement.

Sec. 125.501 Fair Housing Organizations Initiative.

(a) The Fair Housing Organizations Initiative of the FHIP provides

funding to develop or expand the ability of existing eligible

organizations to

[[Page 58454]]

provide fair housing enforcement, and to establish, on a single-year or

multi-year basis contingent upon annual performance reviews and annual

appropriations, new fair housing enforcement organizations.

(b) Continued development of existing organizations.

(1) Eligible applicants. Eligible for funding under this component

of the Fair Housing Organizations Initiative are:

(i) Qualified fair housing enforcement organizations;

(ii) Fair housing enforcement organizations; and

(iii) Nonprofit groups organizing to build their capacity to

provide fair housing enforcement.

(2) Operating budget limitation. (i) Funding under this component

of the Fair Housing Organizations Initiative may not be used to provide

more than 50 percent of the operating budget of a recipient

organization for any one year.

(ii) For purposes of the limitation in this paragraph, operating

budget means the applicant's total planned budget expenditures from all

sources, including the value of in-kind and monetary contributions, in

the year for which funding is sought.

(c) Establishing new organizations.

(1) Eligible applicants. Eligible for funding under this component

of the Fair Housing Organizations Initiative are:

(i) Qualified fair housing enforcement organizations;

(ii) Fair housing enforcement organizations; and

(iii) Organizations with at least three years of experience in

complaint intake, complaint investigation, and enforcement of

meritorious claims involving the use of testing evidence.

(2) Targeted areas. FHIP Notices of Funding Availability may

identify target areas of the country that may receive priority for

funding under this component of the Fair Housing Organizations

Initiative. An applicant may also seek funding to establish a new

organization in a locality not identified as a target area, but in such

a case, the applicant must submit sufficient evidence to establish the

proposed area as being currently underserved by fair housing

enforcement organizations or as containing large concentrations of

protected classes.

Dated: August 17, 1995.

Elizabeth K. Julian,

Acting Deputy, Assistant Secretary for Policy and Initiatives, Fair

Housing and Equal Opportunity.

[FR Doc. 95-28746 Filed 11-24-95; 8:45 am]

BILLING CODE 4210-28-P