Office of the Secretary; HOME Investment Partnerships Program: Final Rule

SUMMARY: This final rule sets forth regulations to implement the HOME

Investment Partnerships Program (the HOME program). The HOME program

provides grants to States, units of general local government,

consortia, and insular areas to implement local housing strategies

designed to increase homeownership and affordable housing opportunities

for low- and very low-income Americans.

EFFECTIVE DATE: October 16, 1996.

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

Division, Office of Affordable Housing Programs, Room 7162, Department

of Housing and Urban Development, 451 Seventh Street, SW, Washington,

DC 20410, telephone number (202) 708-2470 (this is not a toll-free

number). A telecommunications device for hearing- and speech-impaired

persons (TTY) is available at 1-800-877-8339 (Federal Information Relay

Service).

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

The HOME Investment Partnerships Act (the HOME Act) (Title II of

the Cranston-Gonzalez National Affordable Housing Act) was signed into

law on November 28, 1990 (Pub. L. 101-625), and created the HOME

Investment Partnerships Program that provides funds to expand the

supply of affordable housing for very low-income and low-income

persons. Interim regulations for the HOME Investment Partnerships

Program were first published on December 16, 1991 (56 FR 65313) and are

codified 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).

A proposed rule (60 FR 36012) to modify the HOME allocation formula

and an interim rule (60 FR 36020) with clarifying changes to the HOME

regulation and a request for additional comments before the issuance of

a final rule were published on July 12, 1995. The proposed rule was

issued as an interim rule on January 23, 1996 (61 FR 1824). Finally, on

March 6, 1996 (61 FR 9036), an interim rule making a number of

streamlining amendments to the HOME regulation was published.

The preamble to the July 12, 1995 interim rule solicited comments

on various specific policy issues, as well as on any other aspect of

the HOME regulation, in anticipation of preparing a final rule. This

rule addresses the comments that were received, and makes the interim

HOME regulation a final rule.

II. Summary of Comments and Responses

Subpart A--General

The Department is appreciative of all the public comment on both

the proposed and interim rules published on July 12, 1995. Thirty seven

(37) comments were received on the interim rule and twenty-one (21)

comments were received on the proposed rule from State and local

participating jurisdictions, nonprofit developers, public interest

groups and community and nonprofit associations. This rule also

furthers goals of reinventing government by incorporating public input

in rulemaking and clarifying statutory language. The Department has

reviewed every section of the program rules and believes that the rule

has been substantially reinvented to be clearer and more user friendly.

The Department in a succession of program rules has attempted to

make the program rules more simple, and easier to understand and

administer in adherence with the principles of reinventing government.

The program experience of State and local participating jurisdictions

has informed and shaped the program rules in many areas such as the

recapture/resale provisions for new homebuyers, the nature and timing

of match, the targeting and operation of tenant-based rental

assistance.

Fifteen comments were received on general policy. Twelve commenters

supported the changes in the seventh interim rule and the growing

flexibility and simplification of the HOME program. They were pleased

with the open dialogue enjoyed with HUD staff in working out the

technical details, as well as with the opportunity to comment on the

entire body of regulations. One commenter found HOME to be flexible,

responsive to local needs, and fostering true public/private/community

collaboration. Another stated that HOME is now the single most

important and used low-income housing program. However, this commenter

was also concerned that HOME funds were being substituted for State and

local funds and requested that the HOME rule specifically prohibit

this.

Three commenters felt that HOME was in need of major significant

improvement, although they acknowledged that most of the needed changes

were statutory. One commenter stated that the abundant and burdensome

requirements do not provide an avenue for creative solutions to

affordable housing. Another commenter was increasingly concerned that

the original notion of a ``housing block grant'' with significant

flexibility to support locally designed initiatives is being lost.

Furthermore, the commenter noted that existing HOME restrictions are

not compatible with those under the Low Income Housing Tax Credit or

the Section 8 Certificate and Voucher programs.

Among the statutory requirements identified as particularly

burdensome by commenters were local match, income targeting, rent

limitations, per unit subsidy limitations, the period of affordability,

and wage rates. Requested statutory changes were: flexible treatment of

over-income tenants; allowing for on-site monitoring every two years;

excluding land acquisition and homeownership from Davis-Bacon

requirements; restoring the funding threshold, removal of the per-unit

subsidy limit; and conforming HOME to the Low Income Housing Tax Credit

program.

Requirements such as HOME rents, tiered income targeting, and match

are statutory provisions which are not subject to regulatory revision.

To the extent the Department has regulatory flexibility in the areas of

monitoring and sources of local match, it has exercised that

flexibility in this rule. For the convenience of the reader, the

preamble does distinguish which provisions are

[[Page 48737]]

statutory and not subject to regulatory revision. In providing more

local flexibility, the Department has created options which permit

participating jurisdictions to make choices in how to define income, to

expand eligible sources of match, to efficiently monitor rental

housing, and to prepare written agreements which reflect the

appropriate requirements.

Additional requirements which commenters identified as burdensome,

but which are actually regulatory, include: site and neighborhood

standards, the capping of low-income at the national income ceiling and

the use of HOME for project-based assistance.

These issues will be discussed section by section in the balance of

the preamble.

Section 92.2 Definitions

Commitment

Three comments were received on this definition. Two commenters

found the language under Sec. 92.2(i)(C) to be confusing. This section

refers to the requirement for a legally binding agreement between the

PJ and the project owner. The commenters noted that in a typical

acquisition project, the PJ will enter into a contract with the

purchaser who in turn will enter into a contract for sale with the

owner. The purchaser (who is the recipient of HOME funds) will acquire

title, rather than transfer title. The commenters recommended that new

language be added to define ``project owner'' as an entity that will

receive HOME assistance and will be the owner of the project not later

than the completion of the project.

Another commenter suggested that when land is being acquired for a

HOME project that the expected start of construction should be extended

from 12 to 24 months from the date of commitment.

The Department agrees with the clarification on project owner and

has made the change in the definition. The Department believes that 12

months from the time of project commitment to construction start is a

reasonable period of time and declines to make that change.

Community Housing Development Organization (CHDO)

Eleven comments were received on the definition of a CHDO. Two

commenters urged that the definition of a CHDO remain the same. Concern

was expressed that tampering with the CHDO definition could be harmful

to the development of local affordable housing delivery systems.

Eight commenters found that the current definition is restrictive,

targets a very narrow band of specific non-profit organizations, and

often disqualifies accomplished and committed community organizations.

Two commenters felt there needed to be additional avenues for groups

just forming to access capacity building funds.

Four commenters requested that the requirements concerning CHDO

governing board membership be changed to include all legitimate non-

profit housing providers. One commenter stated that the CHDO set-aside

should be a non-profit set-aside (statutory). State and local

governments, through their consolidated plans, should be able to

determine the appropriate CHDO organizational structure.

One commenter urged that CHDO qualifications be consistent with

requirements for non-profit participation in other federal housing

programs and the Low Income Housing Tax Credit program. Another

commenter found that the current regulations concerning demonstrated

capacity need to be more specific, and should include such elements as

a long term organizational plan and regulatory experience and

knowledge. A third commenter requested that the requirement that CHDOs

have a formal process for low-income beneficiaries to advise the CHDO,

be made as flexible as possible. Under no circumstances should CHDOs be

required to amend their bylaws if they can demonstrate a satisfactory

community consultation process.

One commenter found that the current CHDO model is purely urban and

negatively impacts on rural areas whose non-profits are relatively

young, primarily experienced in poverty programs and unfamiliar with

labor standards, Section 3, Section 504 and rehabilitation/acquisition

requirements. The same commenter urged that CHDOs be allowed to

undertake all eligible HOME activities, instead of those where the CHDO

acts in the riskier owner, developer or sponsor role.

The Department declines to make any changes in the community

housing development organization (CHDO) definition. The Department

believes that there was specific statutory intent to create an

entitlement for community-based nonprofit organizations who would own,

sponsor or develop HOME-assisted housing. While partnerships with State

and local government are critical to the development of affordable

housing, these organizations are viewed as private, independent

organizations separate and apart from State or local governments.

One of the major objectives of the Department's technical

assistance program is to increase the number of capable, successful

CHDOs able and willing to use the CHDO set-aside, required by the

statute.

Homeownership

Two comments were received. Both commenters supported allowing a PJ

to classify limited equity cooperatives and/or mutual housing as either

homeownership or rental housing based on State law. This would ensure

consistent treatment throughout a State's affordable housing programs.

It was suggested that the regulations define both terms. It was

recommended that the HOPE 2 definition of ``mutual housing'' be used.

The Department has, in fact, been granting waivers in deferring to

a participating jurisdiction's determination under State and local law

as to whether a unit was rental or homeownership. It is clarifying this

procedure in the final rule but is not defining the terms in deference

to State and local law.

Housing

The Department has expanded this definition to include all forms of

housing which are eligible for assistance under the HOME program. The

Department has also clarified that certain types of facilities do not

qualify as housing under the HOME program. Such facilities are

generally classified as ``public facilities'' and may be funded under

the Community Development Block Grant program.

Program Income

The Department has added a definition of program income to clarify

what is included and considered as program income. The Department did

this in response to many inquiries on the use and retention of program

income from participating jurisdictions.

Project

Thirteen comments were received. Commenters were unanimous in

urging HUD to eliminate the ``4 block rule'' for defining a single

project. Commenters stated that this requirement generates substantial,

unnecessary paperwork and results in the arbitrary division of projects

into four block segments. Commenters were unanimous in urging HUD to

allow local flexibility in defining ``project''. One commenter felt the

HUD Field Office should have this authority. All other commenters felt

that the local participant jurisdictions should have this authority.

[[Page 48738]]

Five commenters noted that scattered site housing projects which

are part of neighborhood revitalization strategies are discouraged by

the current requirement. Two commenters could see no compelling reason

for the ``4 block rule''.

Four commenters pointed out that the ``4 block rule'' is

particularly inappropriate for rural areas which often do not have

distinct neighborhoods, and are not divided into city blocks. One

commenter noted that block size varies, and suggested that a \1/2\-mile

radius be used instead.

One commenter raised concerns about how any change in the

definition would affect Davis-Bacon applicability.

The Department is amending the definition of project by deleting

the four block area provision. The Department recognizes the negative

effect on scattered site projects, subdivisions and the

inappropriateness of the standard in rural areas. However, the concept

of a project as a site or sites together with any building or buildings

located on the site(s) under common ownership, management and financing

and assisted with HOME funds as a single undertaking under this part

remains. To the extent twelve or more units are HOME-assisted and are

constructed under one construction contract, Davis-Bacon provisions

would apply, regardless of whether the contract covers units that

comprise one or more projects. However, on larger projects that

formerly comprised separate projects, Davis-Bacon applicability could

now be affected by the prohibition in Sec. 92.354 on arranging multiple

construction contracts within a single project for the purpose of

avoiding the wage provisions.

Reconstruction

One comment was received. The commenter expressed concern that

``rehabilitation'' and ``reconstruction'' are held to different

standards. It was recommended that the term ``reconstruction'' only

apply to those cases where a very small percentage of the existing

structure is maintained.

The definition of reconstruction continues to read that it is

considered rehabilitation for purposes of this part.

Single Room Occupancy (SRO) Housing

Four comments were received. All commenters strongly supported the

July 12, 1995 regulation clarifying that, for acquisition or

rehabilitation of an existing residential structure or hotel, neither

food preparation nor sanitary facilities are required within the units.

One commenter stated that it would like this flexibility to extend to

new construction and reconstruction projects as well.

One commenter urged that the HOME's SRO definition continue to

conform to the definition for other federal programs so the programs

can work together.

The HOME definition for SRO is adopted from a FHA multifamily

insurance program and it is more permissive in its occupancy standard.

The Department declines to eliminate the requirement to have either

food preparation or sanitary facilities when buildings are newly

constructed or converted from non-residential space. By creating new

housing with some or all of the basic amenities, it is hoped that the

units will be more marketable and livable in the future.

Subpart B--Allocation Formula

Section 92.50 Formula Allocation

On July 12, 1995, the Department published a proposed rule to make

a change in the operation of the HOME formula. It was proposed that

Section 92.50(d)(3) would be revised to maximize the number of units of

general local government which receive an initial allocation of HOME

funds.

Formerly, units of general local government, after an initial

distribution of funds available for allocation, were eliminated at

$250,000 and below. They were eliminated from the pool of eligible

jurisdictions and their allocations were redistributed among other

units of general local government. This redistribution technique

continued until 95% of the funds had been distributed among units of

general local government that received $500,000 or more. The new method

would drop only one jurisdiction on each recalculation, and

redistribute funds to all others, thus assuring that the maximum number

of units of general local government receive an allocation.

The Department received 12 comments on this section of the proposed

rule.

On the formula redistribution technique to maximize the number of

participating jurisdictions, eight commenters favored the change while

two did not. One of the two commenters felt that additional performance

criteria should be added to the formula calculations rewarding good

performance.

Another commenter suggested that the Department establish a

participation threshold of $500,000/$750,000 regardless of the annual

appropriation. PJs who previously qualified under a lower threshold

would be grandfathered (statutory change). The same commenter

recommended that allocations for newly formed or expanded consortia

come from the State set-aside rather than from the PJ set-aside

(statutory change).

The Department has adopted the proposed formula change and

republished the rule on January 23, 1996 for effect in order to use the

methodology for FY 1996 allocations. The two other suggested changes

have not been made because they would require statutory changes.

Subpart E--Program Requirements

Section 92.201 Distribution of Assistance

Two comments were received. Both commenters expressed concern that

State participating jurisdictions can allocate funds to participating

jurisdictions which receive their own direct funding allocation. This

diverts HOME funds from smaller rural communities which are in great

need of these funds. The commenters urged that the regulations be

revised to prohibit this practice.

The State's ability to distribute HOME funds to projects anywhere

within the State is a statutory provision.

Section 92.202 Site and Neighborhood Standards

Ten comments were received. The commenters were unanimous in

recommending that site and neighborhood standards not apply to HOME new

construction projects. Commenters felt that these standards inhibit

investment in minority areas, discourage revitalization of the most

needy areas and keep participating jurisdictions from assisting

minority families who wish to move into racially mixed areas.

Commenters considered the imposition of federal standards to be

contrary to the basic notion of local control and discretion inherent

in the HOME program.

Five commenters stated that compliance with State and local

standards should be sufficient. Therefore, Federal site and

neighborhood requirements should be entirely eliminated. One commenter

noted that the Federal standards often conflict with Court ordered

housing plans.

Five commenters recommended that participating jurisdictions be

permitted to address the issues of concentration and impact as part of

their consolidated plans. This would allow for public input and the

adoption of standards which are appropriate for local needs.

The Department is limiting the application of site and neighborhood

standards to newly constructed rental

[[Page 48739]]

projects and excluding new construction homeowner projects. The

Department believes that the creation of new homeowner opportunities is

important to all neighborhoods.

Section 92.203 Income Determinations

Five comments were received. Four commenters requested that

participating jurisdictions have the option to define income in the

same manner as the CDBG program. Current HOME requirements are unduly

strict and labor intensive. Under CDBG, jurisdictions may select one of

three criteria; (a) Section 8; (b) census long form; (c) IRS adjusted

gross income. Since CDBG and HOME are often combined in the same

project, allowing the same income definition to be used facilitates

program administration.

One commenter recommended retaining the Section 8 definition for

income as a more accurate reflection of a person's income.

Commenters also urged flexibility in obtaining income verification.

One commenter recommended that participating jurisdictions be permitted

to either directly obtain verification or accept the verification from

another program with income requirements that are at least as strict.

One commenter urged that occupants of HOME assisted units who do not

receive Section 8 should simply be allowed to report income based on a

pay stub or tax return. Two commenters requested that HOME

participating jurisdictions be allowed to use the same ``presumed

income eligibility'' approach for special needs populations that the

CDBG program uses.

Special needs populations may only be presumed income eligible in

the CDBG Program for limited clientele, at least 51 percent of whom are

low or moderate income persons. For housing, income eligibility must be

established.

One commenter requested that the Section 8 income qualification

process not be used in determining eligibility for homeownership

assistance. Section 8 criteria are designed for rental assistance and

can penalize a person who has saved for a downpayment or home

maintenance.

One commenter requested that HUD eliminate the requirement that

caps the 80% of median income level in high cost communities at the

national median. This penalizes such communities.

The Department has adopted the three options to define income

currently permitted in the CDBG Program. For rental projects, the HOME

statute requires that income be verified initially and during the

period of affordability. However, the Department has also provided

three ways to determine tenant eligibility before a tenant receives the

benefit of HOME assistance. The options create greater flexibility in

initial and subsequent income determinations for tenants occupying

HOME-assisted rental units.

In regard to the request to remove income limit caps in high cost

areas, the Department recently reevaluated its policy of capping Low-

Income limits at the national median family income (currently $41,600

for a family of four) in areas with unusually high income. It

determined that it continues to make good policy sense to have an

income limit cap in this era of increasingly scarce Federal housing

assistance resources, and that it has legislative authority to set a

cap. HUD also has determined, however, that the logic of the income

limits calculation system suggested that higher income limits should be

permitted for high-income areas with unusually high housing-cost-to-

income relationships. On May 2, 1996, HUD Notice 96-01 increased the

Low-Income limits for 8 metropolitan and 12 nonmetropolitan areas based

on this determination.

Section 92.205 Eligible Activities: General

Fifteen comments were received concerning eligible activities.

Refinancing of Multifamily Properties

Thirteen comments concerned the refinancing of multifamily

properties. One commenter opposed using HOME funds for refinancing

multifamily properties because it does not generally result in a net

increase in affordable housing.

Twelve commenters supported using HOME funds for refinancing

multifamily properties. Refinancing was seen as an important tool in

preserving affordable housing. Refinancing was also viewed as an

effective way to leverage private funds. One commenter noted that in a

soft market, refinancing is often the most cost effective way to

increase the number of affordable units. Several commenters stated that

refinancing ensures that existing affordable units are retained at a

level of affordability and maintenance which would justify the HOME

investment. Another commenter stated that it is often necessary to

include the refinancing of debt in a rehabilitation financing package

in order to attract conventional lenders. One commenter found that in

rural areas where HOME rents are low, the refinancing of existing debt

is needed to ensure project feasibility.

Despite strong support for allowing multifamily refinancing, most

commenters felt refinancing should only be permitted under certain

circumstances. HUD was urged to move cautiously after further

consultation with HOME participating jurisdictions and organizations.

However, one commenter stated that HUD should allow participating

jurisdictions to structure their own refinancing provisions subject to

local HUD office approval (similar to resale/recapture provisions).

One commenter would limit refinancing to properties where ownership

has recently been, or is being transferred to a public entity, a non-

profit or resident owners. Another commenter would limit refinancing to

projects owned by non-profits where refinancing would result in lowered

rents and where code violations exist. Another commenter would limit

refinancing to use in conjunction with receivership, provided continued

affordability and stability of units is maintained. Another commenter

would limit refinancing to buildings where either increased affordable

units or reduced rents could be demonstrated. Another commenter would

limit refinancing to debt incurred to improve property within the last

twelve months, provided the debt service would be reduced and rents

would be lowered. Another commenter would require that at least 49

percent of the units must be HOME-assisted and the affordability period

be 20 years regardless of the amount of HOME assistance.

The Department recognizes the necessity of refinancing for some

multifamily projects but is also aware that the use of HOME funds for

this purpose reduces the amount of funds available for the development

of additional affordable units. In developing guidance in the final

rule at Sec. 92.206(b)(2), the Department felt refinancing should be

permissible under certain circumstances according to guidelines

developed by the participating jurisdiction as part of its consolidated

plan. At minimum, the guidelines would require refinancing be done in

connection with rehabilitation, reduce overall project costs when HOME

funds are lent and subject multifamily rental projects be to a longer

affordability period of at least 15 years. A participating jurisdiction

would also identify whether refinancing would be permitted city wide or

limited to a particular area such as a neighborhood identified in

neighborhood revitalization strategy, an Empowerment Zone or Enterprise

community. HOME funds cannot be

[[Page 48740]]

used to refinance a multifamily loan made with Federal funds or which

is Federally insured.

Other Activities

One commenter recommended that housing counseling be an eligible

activity for households which are considering applying for HOME

assistance, or households which have applied and been rejected.

Currently, housing counseling is only eligible as a project soft cost

for owners or tenants of funded projects.

Participating jurisdictions may also use their administrative funds

to cover the cost of homebuyer counseling programs.

One commenter recommended that HOME be allowed to fund exterior

painting, landscaping and clean-up in neighborhood revitalization

areas, along with the development of affordable housing to further

neighborhood stability.

While the Department is providing additional flexibility with

regard to housing standards, it is not permitting its use for emergency

repair or neighborhood cleanup programs with HOME funds unless all

assisted units are brought up to an established standard (see

Sec. 92.251). The HOME Program was created to be a housing production

program and has successfully assisted 184,000 units of standard

housing.

Forms of Assistance

Ten comments were received. Eight comments concerned loan

guarantees.

Loan Guarantees

Commenters were unanimous in supporting the July 12, 1995

regulatory change establishing the eligibility of loan guarantees.

Commenters considered loan guarantees to be an excellent way to

leverage the use of private funds and welcomed this flexibility.

However, most commenters felt that the loan guarantee requirements

needed further revisions. One commenter requested that the regulations

clarify that loan guarantees must be used to expand the availability of

private financing or obtain more favorable terms. This same commenter

found the 20% cap on the guarantee fund to be too rigid and recommended

an increase to 50%, with the provision for additional waivers. Another

commenter felt investor interest may be reduced by the requirement that

all guaranteed loans must meet HOME requirements. The commenter

suggested a less restrictive standard for projects which have no direct

HOME subsidy, such as the project having at least 20% of the units

affordable as long as the HOME funds guarantee the loan (statutory

change).

One commenter made numerous suggestions for revising the way a loan

guarantee pool should be structured. The commenter was concerned that

current language appears to require participating jurisdictions to

underwrite and manage subrecipient loans, and urged that participating

jurisdictions be given the authority to delegate this to the

subrecipient. This commenter also noted that most loan pools are

established by dollar amount, and not by the number of estimated loans.

The commenter recommended that participating jurisdictions be given

both options. The commenter was concerned with the prohibition on

increasing the number of loans, and the fact that the current

requirements result in guaranteeing initial loans at 100%.

Recommendations include allowing the draw down of funds when there is a

clear binding commitment in place with the lender; allowing non-

eligible HOME loans to be included in the loan pool, provided the loan

guarantee is limited to HOME eligible loans; allowing HOME funds to

subsidize interest on the loan pool; clarifying that repayment of non-

HOME funds are not subject to HOME eligibility restrictions; and

providing for Secretarial approval of other loan guarantee models which

meet the basic purpose of the regulations.

The Department is open to additional suggestions concerning the way

to structure loan guarantees as was indicated in the preamble to July

12, 1995 rule. A participating jurisdiction may carry out a loan

guarantee program through a subrecipient, with the duties and

responsibilities detailed in a written agreement. However, the

participating jurisdiction is ultimately responsible for the

administration of all of its HOME funds. HOME funds may be drawn down

for a loan guarantee at the point in time when HOME funds are invested

in a project. While this may lead to 100 percent guarantee of earlier

loans in order to establish a minimum balance in the guarantee fund,

that will quickly diminish as successive loans are guaranteed. The

Department in creating a ``project'' concept of a certain number of

loans to be guaranteed did so in order to trigger the reporting of the

units being assisted at the end of the project, regardless of whether

all the projected loans were made. HOME funds can also be used to write

down the interest rate of private loans in order to make the loan more

affordable for new homebuyers or project owners. In the July 12, 1995

rule, the Department at Sec. 92.205(b)(2) made it clear that while

loans funds guaranteed with HOME funds are subject to all HOME

requirements, funds which are used to repay the guaranteed loans are

not.

Other

One commenter requested that ``compensating balances'' be

specifically allowed. Another commenter recommended that HOME provide

bridge financing for tax credit projects, and for a long-term loan

guarantee program like Section 108 (statutory change).

The Department believes that the loan guarantee concept is a more

efficient way to leverage private funds than the compensating balance

approach. In a new section at Sec. 92.206(g), the Department has

clarified that HOME funds may be used for construction or bridge

financing. The Department does not currently have statutory authority

to create a Section 108 type program for HOME but has suggested such an

approach in its current legislative package.

One commenter recommended that the regulations clarify the

eligibility of equity investments which are part of the financial work-

out of an existing low-income housing project.

Under existing rules, a participating jurisdiction may provide

funds in the form of an equity investment. This means that the

participating jurisdiction becomes part owner of the housing. The

eligible cost would be acquisition.

Termination Before Completion

Current regulations require the repayment of all funds expended on

a project which does not go forward. One commenter proposed that

participating jurisdictions be allowed to forgive such repayment where

there are impediments to project development which are reasonably

beyond the control of the owner. This approach is consistent with

policy which forgives CHDO project-specific loans. There are instances

where neither the owner nor the PJ can recover these funds.

Participating jurisdictions should not be required to assume financial

liability for such situations.

The Department declines to change its policy with regard to

reimbursement of funds when a project does not proceed, but will

examine the facts relating to specific instances as they occur. The

statute provides separate loan authority to cover CHDO predevelopment

costs, which are not eligible for other HOME projects and may be

forgiven if the project does not go forward.

[[Page 48741]]

Manufactured Housing

Five comments were received on the requirement that HOME-assisted

manufactured housing for rent or homeownership be situated on permanent

foundations.

One commenter suggested that State laws governing the taxation of

manufactured housing as real property should be the standard for

determining whether a unit is considered HOME-eligible.

Four commenters recommended that the permanent foundation

requirement be eliminated. All of these commenters cited the

significant additional cost (estimated at about $7,500 by some

commenters) as an obstacle to providing affordable housing in rural

areas and as the primary reason for elimination. Three of the

commenters questioned HUD's assumption that permanent foundations make

manufactured housing units safer. One of the commenters pointed out

that not all areas of the country experience the type of weather

patterns that might justify the expense of installing manufactured

housing units on permanent foundations.

One commenter urged the Department to maintain its current

requirements with respect to manufactured housing. The commenter cited

safety and the need to develop a stock of permanently situated,

standard manufactured housing in rural areas as the justification for

this position.

The Department has removed references to manufactured housing in

Secs. 92.252 and 92.254. The Department has included under eligible

activities, a new section at Sec. 92.205(a)(5) on manufactured housing

in which it has eliminated the requirement for a permanent foundation

in deference to local and State standards for this type of unit.

Section 92.206 Eligible Project Costs

Three comments were received. Two commenters recommended that the

rule be revised to permit initial operating reserves for new

construction and all rehabilitation projects, not just substantial

rehabilitation projects.

The Department has made this change as well as clarifying that

reserves for initial operating expenses (which include scheduled

payments to project replacement reserves) permitted for the first 18

months of a project may remain with the project after that period at

the discretion of the participating jurisdiction.

Another commenter suggested that all pre-environmental clearance

activity costs be reimbursable activity delivery costs.

The Department agrees that participating jurisdictions may incur

costs which may be reimbursed with HOME funds, provided all HOME

requirements have been met, including the environmental review

requirements of Part 58. Under certain circumstances, costs may be

incurred prior to the award of a fiscal year HOME allocation and

charged to the HOME allocation after its award. This is discussed under

the new Sec. 92.212. However, costs for activities covered by Part 58

can not be reimbursed if the NEPA requirements are not met prior to

incurring these costs. The costs of preparing environmental reviews and

clearances may be charged to either administrative costs or project

costs. This is clarified under Sec. 92.207(g).

Section 92.207 Eligible Administration and Planning Costs

Four comments were received. Two commenters said that the 10

percent administrative fee is insufficient and should be increased

(statutory). They also recommended that participating jurisdictions be

permitted to charge application and monitoring fees of developers of

HOME-assisted projects. One commenter recommended that the Department

return to its original regulatory language of permitting 10 percent of

the HOME allocation to be spent on administration. They objected to the

cost allocation methods suggested at Sec. 92.207(a)(1).

Participating jurisdictions are permitted to charge nominal

application fees to discourage frivolous applications. The HOME

Program, however, provides a 10 percent administrative fee for ongoing

administration of the program. The cost allocation methods detailed at

Sec. 92.207(a)(1) are simply an amplification of the procedures

required by OMB Circular A-87 revised and OASC-10, Cost Principles and

Procedures for Establishing Cost Allocation Plans.

The Department has also clarified that meeting the requirements

under Subpart H, Other Federal Requirements, is an eligible

administrative cost.

The third commenter recommended that the Section 8 Housing Quality

Standards inspection for a unit receiving tenant-based rental

assistance be an eligible related soft cost chargeable to a TBRA

project.

The Department declines to make this change since it views the

operation of a tenant-based rental assistance program as an

administrative cost under the 10 percent administrative cost cap.

Assisted Units in Multi-unit Projects

The Department in a new paragraph at Sec. 92.205(d) expressly

permits HOME funds to assist less than all units in a project and

addresses prorating costs in projects with less than 100 percent HOME-

assisted units. The regulation permits cost allocation when the units

are not comparable in size, features or amenities. Guidance on

attribution of eligible costs to the HOME program is detailed in CPD

Notice-94-12, Allocating costs and identifying HOME-assisted units in

multifamily projects.

Section 92.208 Eligible CHDO Operating Expense and Capacity Building

Costs

One commenter recommended that the 5 percent CHDO operating

expenses be deducted from the CHDO set-aside.

The statute provides that both the 10 percent administrative amount

and the 5 percent CHDO operating fund be deducted from the

participating jurisdiction's total allocation. A participating

jurisdiction has discretion about whether to use either or both

allowable percentages.

Section 92.211 Tenant-based Rental Assistance

Six comments were received. All six commenters endorsed the interim

rule change which permitted HOME tenant-based rental assistance to be

targeted to special needs populations. One commenter asked whether

special needs populations would be defined for this purpose, suggesting

that complete local flexibility be permitted within the confines of

existing civil rights and fair housing law.

The Department declines to define special needs populations and

defers to the priorities which participating jurisdictions establish in

their consolidated plan under 24 CFR 91.

Secs. 92.209, 210 and 211 on tenant-based rental assistance and

security deposits have all been consolidated in Sec. 92.209. This

section contains clarification of required income eligibility

determinations and annual property inspections.

Section 92.212 Pre-award Costs

The Department added a new section covering pre-award costs and the

requirements which must be met.

Section 92.214 Prohibited Activities

Six comments were received on this section of the rule. Five of the

commenters recommended that the Department permit the funding of both

operating reserves and reserves for replacement. To the extent the

Department permits initial operating

[[Page 48742]]

reserves for the first eighteen months of a project, these funds can

remain in the project at the discretion of the participating

jurisdiction. Two of the five commenters suggested that the Department

also permit operating subsidies.

As discussed earlier under Sec. 92.206, Eligible project costs, the

Department agrees that during the initial rentup of a project both

operating reserves and reserves for replacement required for the first

18 months of a project may be funded and retained by the project at the

discretion of the participating jurisdiction.

With the program emphasis on production, the Department declines to

fund operating subsidies.

Two commenters also requested that participating jurisdictions be

permitted to add additional HOME funds to projects during the period of

affordability, to handle unanticipated costs particularly during a

twenty year affordability period.

While the Department declines to make this a general policy, it

would be willing to examine cases where it might be appropriate to

permit additional funding.

Income Targeting

Section 92.216 Income Targeting: Tenant-based Rental Assistance and

Rental Units

Four comments were received on the overall targeting requirement

for project and rental assistance under the HOME Program. Two of the

commenters suggested that the targeting requirements be changed to

parallel the requirements for the low-income housing tax credit i.e.

that 20 percent of the units be reserved for households at 50 percent

of median income or that 40 percent of the units be reserved for

households at 60 percent of median income (statutory).

One commenter suggested that the complex rent structure be

eliminated while retaining a single targeting requirement that all

assistance should benefit tenant households below 80 percent of median

income (statutory).

Another commenter objected to the requirement that family income

and family size and composition be reexamined at least annually

(statutory).

Since all the changes require statutory amendments, the Department

did not adopt any of these changes. See Sec. 92.203(a)(1) for options

in determining tenant eligibility in HOME-assisted rental housing.

Matching Contribution Requirement

The Department received comments from seventeen parties regarding

match. Four of these commenters recommended that the HOME match

requirements be eliminated (statutory). Two commenters suggested that

the match concept be replaced by a leverage requirement (statutory).

One of these commenters suggested a 50% to 75% non-Federal leverage

requirement.

Numerous other commenters made specific suggestions for changing

the current match requirements.

Sections 92.218-92.222, covering the match contribution

requirements, have been revised to make the sections clearer, to

reflect policy determinations gained through program operation and to

expand the sources of match in response to public comment.

Section 92.218 Amount of Matching Contribution

One commenter stated that the requirement that match liability and

contributions be calculated on a fiscal year basis is cumbersome. The

commenter suggested that, in light of the consolidated plan and the

adoption of single program years that may not coincide with the Federal

fiscal year, participating jurisdictions be permitted to count match on

a program year basis.

While the Department is sympathetic to the comment, the statute

refers to funds expended ``during the fiscal year''.

Another commenter suggested that match liability be incurred at the

time of project completion, rather than as a PJ expends HOME funds.

This, the commenter asserted, would simplify tracking and monitoring

match.

The statute specifies that match liability is incurred as HOME

funds are expended.

Section 92.219 Recognition of Matching Contribution

Three commenters suggested that all State affordable housing

resources be counted as match. Instead of tracking contributions to

specific, eligible housing projects, States should be permitted to

certify that they are committing resources to decent, safe and

affordable housing for low-income persons. These three commenters and

an additional commenter contended that other affordable housing (not

assisted with HOME funds) should not be required to meet the criteria

set out in the rule to qualify as match. One of the three commenters

stated that State participating jurisdictions should not be required to

have written agreements with the owners of other affordable housing

counted as match to ensure that the projects meet the criteria to

qualify as affordable housing.

The statute requires other affordable housing counted as match to

meet the qualifications of Section 215 of the statute. For projects

containing both HOME-assisted and affordable housing units, there

appeared to be confusion that contributions to affordable housing units

could only be counted if at least 50% of the units were HOME assisted.

The Department wants to clarify that contributions to affordable

housing that meet the requirements in Sec. 92.219(b) should be

recognized whether there are no, some or a majority of HOME-assisted

units in the project. The Department also wishes to stress that

contributions are counted only after a written agreement is executed.

Two commenters asked the Department to clarify that housing that is

``substantially equivalent'' to HOME-assisted housing may be counted as

match.

There is currently no such requirement in the HOME program. This

was proposed statutory language that was never passed.

Section 92.220 Form of Matching Contribution

Thirteen commenters requested that the Department expand the

definition of match so that additional types of contributions would be

deemed eligible.

Five commenters suggested that sweat equity be counted as an

eligible match. One of these commenters suggested that this provision

be extended only to organized mutual self-help groups that can document

shared labor requirements.

The Department recognizes the value of a sweat equity contribution

by homeowners as a source of match and has changed the rule

accordingly.

Five commenters suggested that owner equity in homeownership or

rental projects be counted as an eligible match. One of these

commenters suggested that this provision be extended only in cases

where the equity is a ``permanent contribution'' to the affordable

housing.

By definition owner equity is not a permanent contribution to

affordable housing because owners realize their equity upon sale of the

unit or project. However, under cash contributions made from nonfederal

sources, Sec. 92.220(a)(1)(i), the Department has clarified that cash

contributions made to a nonprofit organization for use in a HOME

project may be counted as match.

Six commenters suggested that the value of social services provided

to the residents of HOME-assisted and HOME-eligible housing be counted

as matching contributions. Several of the

[[Page 48743]]

commenters pointed out that significant State and local resources are

expended for this purpose. One of the commenters suggested that the

value of all non-Federal services provided to the residents of HOME-

assisted or other affordable housing (i.e., whether the services are

housing-based or provided to the general community) be permitted to be

counted as match.

The Department has changed the rule to recognize as match the

direct costs related to supportive services necessary to facilitate

independent living or required as part of self-sufficiency programs

provided to residents of HOME-assisted units during the period of

affordability. In addition, the Department has recognized the value of

homebuyer counseling services provided to families who acquire

properties with HOME funds.

Two commenters requested that the rule be changed to count 100% of

the value of tax-exempt bond financing for affordable housing, rather

than the 25% per loan for single-family projects and 50% for

multifamily projects currently permitted (statutory).

Two commenters suggested that the rule be changed to permit donated

professional services to be valued at their market value, rather than

the labor rate established annually for the program.

The rule has been changed to value skilled labor at the rate which

is normally charged while unskilled labor will be valued at a rate set

by the Secretary. The rate is currently $10 per hour.

One commenter suggested that in-kind administrative services

provided to State HOME programs by small local governments be counted

as an eligible match contribution.

Match credit derived from administrative expenses is not recognized

statutorily as a source of match.

Four commenters stated that funds lent to affordable housing

projects (HOME and non-HOME) that are repaid to the original source,

rather than the local HOME account, should be counted as match.

This is currently permitted. However, the value of the match is the

present value of the yield foregone on a below-market interest rate

loan, not the full face value.

Five commenters wrote in support of the two changes made in the

July 12, 1995 rule to count fees and charges waived by nongovernmental

entities as match and to permit match requirements for forgiven CHDO

redevelopment loans to be waived.

Section 92.221 Match Credit

Two commenters asserted that the requirement that match be credited

in the year that it is made may cause compliance problems (i.e.,

inadequate match contributions in a given year) when a PJ relies upon

multi-year match contributions such as property tax forgiveness.

This may be true if there is a long delay in dedicating the match

contribution. However, the current rule permits the present value of

the tax-exemption over the period of forgiveness to be credited

immediately, not year-by-year.

One commenter recommended that States be permitted to accept

resources from local participating jurisdictions to use for State match

contributions.

Although not explicitly stated in the regulation, for a HOME-

assisted project a State may count resources provided by a locality as

match as described in Sec. 92.221(c).

Section 92.222 Match Reduction

One commenter urged the Department to reduce the match requirement

for CHDO activities.

There is no statutory authority to permit this.

Another commenter contended that match reductions granted to States

for disasters and distress result in inequities that complicate the

administration of the program. Specifically, this commenter stated

that, when States can offer HOME funds without match requirements to

jurisdictions within urban counties or consortia and the consortia or

urban county itself must provide full match, the local PJ is put at a

disadvantage in using its HOME funds.

Match reduction based on disaster designation would be the same for

both a State and a local jurisdiction, because a State match reduction

applies only to funds the State uses in a disaster area. While the

Department recognizes the different match liability between State and

local HOME funds created by distress designations, it is clear that

there is not sufficient HOME funds from either source to address the

affordable housing needs and that HOME funds should not go unused in

any community.

Subpart F--Project Requirements

Section 92.250 Maximum Per-Unit Subsidy Amount

Two comments on the maximum per-unit subsidy limits were received.

One commenter proposed that Congress eliminate the statutory provision

requiring HUD to establish per-unit subsidy limits. This commenter

contended that local governments are in the best position to establish

limits based on knowledge of local construction costs and housing

conditions.

Section 212(e) of NAHA was specific that the Secretary shall

establish limits on the amount of HOME funds which can be invested on a

per unit basis, therefore, it would require a statutory change. The

Department has also added a new paragraph to highlight the requirement

for and use of locally-developed subsidy layering guidelines when HOME

funds are combined with other governmental assistance.

Another commenter suggested that the Department reconsider its

decision to define group housing as being one unit to permit more HOME

funds to be expended on such units.

This is not a regulatory definition. See CPD Notice 94-01, Using

HOME Funds for Single Room Occupancy and Group Housing, which provides

great flexibility to participating jurisdictions in how they

characterize SROs and group homes.

Section 92.251 Property Standards

Thirteen parties commented on the property standards applicable to

properties assisted with HOME program funds. Nearly all the commenters

recommended some form of change to the existing requirement that all

HOME-assisted properties meet the Section 8 Housing Quality Standards

(HQS).

Eleven commenters recommended that the Department, under some

circumstances, permit HOME to be used for emergency repairs in which a

unit will not be brought up to HQS. Five of the commenters suggested

that the Department establish a maximum per unit dollar limit for

emergency repairs where a unit would not be required to meet HQS or

some other housing code. Another commenter suggested that the

Department limit the percentage of each HOME allocation that could be

used for such repairs.

Two commenters, who supported emergency repairs, recommended that

the Department maintain HQS as the standard for all other HOME assisted

units.

Three commenters suggested that the Department permit home repair,

weatherization or handicapped accessibility that will not bring a unit

up to code. Another commenter, who favored elimination of the HQS

requirement, felt that, at a minimum, single family housing should be

exempted from the requirement.

Four commenters recommended that the Department require units to

meet

[[Page 48744]]

locally-established housing codes. Two other commenters suggested that

State participating jurisdictions that adopt national model codes be

permitted to use those as the HOME property standard.

One commenter suggested that the Department replace the HQS

requirement with the FHA Minimum Property Standards, to prevent

duplicative inspections where HOME and FHA insurance are being

combined.

Two commenters recommended that the Department continue to require

substantially rehabilitated units to meet the cost-effective energy

conservation standards. Another commenter requested that the Department

make these standards optional.

One commenter recommended that the Department continue to apply the

Council of American Building Official's Model Energy Code to HOME-

funded new construction (statutory).

Two commenters requested that the HQS requirement be eliminated for

manufactured housing units.

Many of these comments with regard to the use of HOME funds have

been addressed in the preamble under eligible activities and project

costs. With regard to the property standard that a HOME-assisted

project must meet, the Department has revised the rule to permit newly

constructed or rehabilitated housing to meet local codes,

rehabilitation standards, ordinances, and zoning ordinances. In the

absence of local code for new construction or rehabilitation, housing

must meet one of the model codes cited in this section. All other HOME

units including those occupied by tenants receiving HOME tenant-based

rental assistance, must meet Section 8 Housing Quality Standards (HQS).

During the affordability period, rental units must continue to meet the

standard which was initially used when the unit was assisted. The cost

effective energy conservation and effectiveness standards have been

deleted as a requirement because they were deleted from 24 CFR Part 39

although participating jurisdictions are encouraged to use them as

guidelines in the rehabilitation of HOME-assisted housing. New

guidelines will be issued shortly.

Section 92.252 Qualification as Affordable Housing: Rental Housing

Nineteen parties provided comments on the HOME provisions for the

qualification of affordable rental housing. Most of the commenters

recommended changes to simplify the rental requirements or to conform

the HOME requirements with those of the Low-Income Housing Tax Credit

(LIHTC).

The Department has revised this whole section to make the rental

requirements easier to understand and clarified the procedures with

regard to initial and subsequent tenant eligibility determinations.

With the statutorily required two tier income targeting and annual

income recertification requirements, the HOME statute differs from the

LIHTC requirements. The rule spells out the options by which tenant

income can be reviewed during the affordability period and offers a

degree of flexibility for single-family rental properties. One option

permits a tenant to submit a written statement of income, which may be

actual income or income ranges which delineate when a tenant is below

50 percent or above 80 percent of median income. The tenant submits

this statement as well as a certification to its completeness and

accuracy. For multifamily projects with longer periods of

affordability, tenant income must be examined periodically using source

documents indicating annual income.

Two commenters recommended that the Department eliminate the 20-

year period of affordability for rental new construction and base

affordability periods on the amount of HOME funds invested regardless

of activity. One of these commenters felt that all HOME requirements

should be eliminated once the HOME funds have been repaid (statutory).

The other commenter suggested that the Department establish a de

minimis threshold of $2,500. Units receiving less than this amount in

HOME funds would have no HOME requirements.

The Department is retaining the longer affordability period for new

construction rental projects because of the substantial investment of

HOME funds in these projects. The other recommendations can not be

implemented because they are statutory.

One commenter felt that the affordability periods established in

the HOME rule were too short and did not accurately reflect the

statutory provision that HOME-assisted properties remain affordable for

their useful life. Another commenter suggested that participating

jurisdictions be given the authority to waive affordability periods for

rental projects in those instances where a tenant wishes to purchase

the assisted unit. This commenter also felt that rental units in HOME-

assisted homeownership projects should not be subject to the rental

requirements.

The Department has made provision for the purchase of a rental unit

by an existing tenant as a way to encourage homeownership. That

provision is included at Sec. 92.255, which describes the affordability

requirements depending upon whether additional HOME funds are invested

to assist the existing tenant to become a homebuyer. In response to the

last comment, the Department has reconsidered the automatic application

of rental requirements to rental units in HOME-assisted homeownership

projects. The new requirements are discussed in Sec. 92.254(a)(ii)(5).

One commenter recommended that the separate program-wide and

project-specific income targeting requirements be eliminated and

replaced with a more flexible system. Specifically, the commenter

suggested that all HOME rental units be initially occupied by families

with incomes below 60% of area median income and carry rents not to

exceed 30% of the income of a family at 80% of area median income

(statutory).

Ten commenters approved of the July 12, 1995 regulatory change with

respect to rent levels when HOME is combined with State or Federal

project-based assistance. Four commenters believed that the Department

should extend this provision to HOME-assisted units occupied by

families receiving tenant-based assistance. One commenter felt that the

provision should be extended to include local project-based assistance.

On the change in the threshold for the 20 percent very-low income

occupancy requirement from a project with three units to a project with

five units, the Department received fourteen comments. Twelve of those

comments were supportive of the change citing an easing of

administrative requirements for small rental properties. Three

commenters, national public interest groups, opposed the change as a

diminishment of the potential number of units occupied by very-low

tenants.

The Department because of language in Section 215(a)(1)(B) of the

statute can not provide similar treatment for local project-based

rental assistance as it did for Federal or State rental assistance.

Section 92.253 Tenant and Participant Protections

Two parties commented on the HOME tenant and participant

protections. One commenter recommended that the Department delete these

provisions and permit participating jurisdictions to develop their own

standards (statutory). Another commenter specifically objected to the

requirement that tenants be given 30 days notice before tenancy can be

terminated for cause. (statutory). The commenter states that the HOME

requirements are inconsistent with other

[[Page 48745]]

HUD program requirements, which differentiate between ``good cause''

and ``material noncompliance.'' The effect of this provision, the

commenter claims, is that owners must wait 30 days to begin eviction

proceedings for a tenant that has failed to pay rent or has committed a

violent crime on the premises. The commenter recommends eliminating the

notice requirement.

Because of the statutory nature of these items, the Department has

not accepted these recommendations.

Section 92.254 Qualification as Affordable Housing: Homeownership

Seventeen parties commented on the provisions that set out the

qualifying criteria for affordable homeownership units. Three

commenters objected to the requirement that the purchase-price or

after-rehabilitation value of assisted homeownership units not exceed

95% of the median purchase price for the area. One commenter pointed

out that this requirement makes it difficult to assist low-income

elderly persons who are ``house-rich.'' Another expressed the belief

that this provision limited homebuyer assistance programs to areas of

low-income concentration (statutory).

In response to these comments but recognizing the need to carry out

statutory intent, the Department is offering a participating

jurisdiction the option of determining 95 percent of the median area

purchase price locally and putting that information into its

consolidated plan for approval by the Department. Alternatively, a

participating jurisdiction can continue to use and may obtain the

Single Family Mortgage Limits for Section 203(b) from the single

housing family division in the field office. The information will no

longer be distributed nationally by the Office of Affordable Housing

Programs, CPD Headquarters.

Four other commenters did not object to the limitation on purchase

price, but recommended elimination of the limit on the appraised value

of a unit at the time of acquisition. Two commenters contended that the

purchase price limitation alone was sufficient to limit the use of HOME

funds to suitable, modest housing. One commenter noted that the

appraised value limitation has a negative impact on the use of newly

constructed units, which typically have higher appraised value, in the

HOME Program. Another commenter recommended that the Department permit

participating jurisdictions to use alternate method to appraisals to

determine after-rehabilitation value of properties.

Whether using the Section 203(b) or locally derived 95 percent of

median purchase price limits, a participating jurisdictions will be

responsible for setting the limits, determining the property value of

units which are acquired and rehabilitated, and demonstrating that HOME

funds are used in keeping with statutory intent, that of subsidizing

the purchase of modest housing. The requirement for an appraisal has

been eliminated, however, PJs must have a reasonable method to

determine property value.

Twelve commenters expressed their approval of the changes made to

the homebuyer assistance recapture provisions in the July 12, 1995

interim rule. This rule provided participating jurisdictions additional

flexibility in establishing recapture rules. The commenters felt that

these changes would make the HOME Program easier to use in a variety of

housing markets.

Two commenters objected to the provision that applies the resale

restrictions to homebuyer units for which no direct subsidy was

provided to the homebuyer so that no HOME funds will be subject to

recapture. One State commented that it uses its HOME funds to

revitalize distressed areas by rehabilitating housing and selling it at

market price. Because the area is distressed, demand is low, and the

housing is available at affordable prices without the need for

homebuyer assistance. Most of the homebuyers are low-income. The State

urged that homebuyers who are buying housing rehabilitated or

constructed with HOME funds in distressed neighborhoods not be burdened

with deed restrictions which make the property even less desirable.

The final rule contains a new provision under which resale deed or

other restrictions are not required to be imposed. The provision

permits the participating jurisdiction to do a market analysis which

supports a presumption that the housing meets the resale requirements,

i. e., the housing will be available to a subsequent low-income

purchaser who will use the property as its principal residence and will

be sold at a price which is affordable to a reasonable range of low-

income homebuyers and affords the homeowner a fair return on

investment. The market analysis must include an evaluation of the

location and characteristics of the housing and residents in the

neighborhood in relation to housing and incomes in the housing market

area. If a participating jurisdiction in preparing a neighborhood

revitalization strategy or an Empowerment Zone or Enterprise Community

application has developed this type of market data, those submissions

may serve as the required analysis under this section.

One commenter asked that the Department clarify that the net

proceeds of a homebuyer unit resale include the original homebuyer's

investment in capital improvements.

The net proceeds, the sales price minus loan repayment other than

HOME funds and closing costs, does not include capital improvements,

except to the extent that these improvements would be reflected in the

sales price. However, capital improvements are included in the

calculation of the homebuyer's investment in the property and

considered in determining the amount of HOME funds to be recaptured.

The Department has added a new section on Special considerations

for single family properties with more than one unit. This section

clarifies the application of rental requirements when HOME funds are

used to assist both the homeowners unit and one or more rental units.

If HOME funds are used to assist only the rental units in such a

property then the requirements of Sec. 92.252 would apply and the

owner-occupied unit would not be subject to the income targeting or

affordability provisions of Sec. 92.254.

Section 92.255 Mixed-income Projects

One commenter contended that, in projects with units that are not

HOME-assisted, incomes should be collected only for residents of units

that are HOME-assisted.

This section is retitled and the requirements previously in this

section have been incorporated into the match section at

Sec. 92.219(a). In response to the commenter, income information is not

required to be collected for tenants occupying units that are not HOME-

assisted unless the units are HOME eligible and an investment in these

units is being counted as a match contribution.

Section 92.256 Mixed-use Projects

One commenter suggested that the Department eliminate the

requirement that mixed use projects be at least 51% residential in

order for contributions to the nonresidential portion to count as match

(statutory).

This section is being eliminated and the statutory requirement on

match is being consolidated into the rule at Sec. 92.219(a)(4).

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

Insurance

Six commenters recommended elimination of the provision extending

[[Page 48746]]

the HOME period of affordability to match the term of the mortgage when

HOME and FHA mortgage insurance are combined. Commenters noted that

this placed a significant burden on owners receiving a small amount of

HOME funds, especially homebuyers receiving downpayment assistance.

Others characterized the requirement as unfairly penalizing projects

that receive FHA mortgage insurance. An additional commenter suggested

that the requirement apply only to projects receiving more than $15,000

in HOME funds.

One commenter supported the requirement and recommended that it be

left intact.

The Department agrees with the majority of commenters and has

eliminated this provision.

Subpart G--Community Housing Development Organizations

Thirteen comments were received relating to the CHDO set-aside,

operating expenses, and redevelopment costs.

Section 92.300 Set-aside for Community Housing Development

Organizations

One commenter felt that the rule as it now stands is excellent but

the unwillingness of certain participating jurisdictions to delegate

authority to CHDOs is a significant issue. This view was echoed by a

second commenter who criticized participating jurisdictions for their

unwillingness to provide CHDO operating funds. This commenter

recommends that the final rule elaborate on the extent to which CHDOs

may retain funds repaid from set-aside projects and, by so doing,

distinguish between these repayments and program income which must be

returned to the PJ. The commenter also objects to participating

jurisdictions requiring that local match provided to CHDO projects be

returned to the local or State trust fund account upon repayment

instead of being retained by the CHDO. In the commenter's view, this

policy seriously undermines the ability of any CHDO to obtain local

match.

The Department is revising this section to permit participating

jurisdictions to allow CHDOs, who are assisting homebuyers in

connection with the development of homebuyer housing under Sec. 92.254,

to retain the return of the investment of HOME funds (i.e. interest on

HOME loans, the proceeds from permanent financing) for use for HOME-

eligible or other affordable housing activities. However, any recapture

of HOME funds not meeting the affordability requirements is required to

be used for HOME activities in accordance with the requirements of Part

92.

In the opinion of three commenters, owner-occupied housing

rehabilitation should be included among eligible CHDO set-aside

projects while a fourth supports allowing downpayment assistance to be

included as well. One of these commenters goes further in recommending

that any HOME-eligible activity undertaken by a CHDO, including tenant-

based assistance, be considered as a set-aside project. This view was

also expressed by three other commenters. Yet another commenter

proposed that a carry-over credit be instituted for funding provided in

excess of the minimum 15 percent set-aside in any year (statutory).

The statutory provisions established the CHDO set-aside exclusively

for community-based nonprofits who would own, sponsor or develop

affordable housing. It is in keeping with this special intent, that the

Department declines to include other eligible activities for use of

set-aside funds. The Department has also determined that the statute is

clear that a minimum of 15 percent of each year's HOME allocation

should be reserved and used by CHDOs.

One commenter requested that the language in Sec. 92.300(a)

relating to CHDO ownership of projects in partnership with other

persons or entities should be changed to make clear that separate

nonprofit subsidiaries as well as wholly owned for-profit subsidiaries

can be a managing general partner. According to the commenter, it is

common, particularly when using Low-Income Housing Tax Credits, for

CHDOs to establish a separate, nonprofit subsidiary to be the managing

general partner.

The Department has made that clarification.

One commenter strongly expressed their opposition to Federally

mandated set-asides in general and the 15 percent CHDO set-aside in

particular believing that the Federal government should not dictate

which housing providers receive States fund. According to the

commenter, States face the distressing prospect of losing scarce

housing funds to reallocation because they have few qualified

nonprofits and even fewer qualified CHDOs. This commenter recommends

that, at a minimum, the set-aside should be transformed into a general

nonprofit set-aside, using a reasonable definition such as that

utilized under the Low-Income Housing Tax Credit (statutory).

Another commenter objected to the CHDO set-aside, stating that it

often must award funds to nonprofit groups that are less qualified than

for-profit developers in order to meet this requirement. The commenter

recommends that all references to CHDOs be deleted from the law and

that the CHDO set-aside be transformed into a general non-profit set-

aside (statutory).

With respect to CHDO operating expenses, one commenter believes

that the requirement limiting availability to CHDOs expected to receive

set-aside funds within 24 months should be eliminated. Instead, the

agreement between the PJ and the CHDO should specify the expectations

of the parties. In addition, the commenter feels that if the operating

support is being used to strengthen a CHDO's asset or property

management capacity, then the agreement should also set benchmarks for

these efforts. Finally, the commenter suggests that language in the

regulations describing eligible uses for operating support be changed

to make clear that such support is not limited to the costs directly

associated with the development of specific projects.

Another commenter recommended that the provision of operating funds

to CHDOs be made mandatory since participating jurisdictions seem

unwilling to provide this support (statutory). The Department believes

that CHDO operating funds are the means to permit CHDOs to successfully

use HOME funds for projects in which they are owners, sponsors or

developers. These operating funds may be used for general

administrative and operating expenses as well as for project costs, but

they are being provided in connection with the anticipated use of HOME

funds, just as they are provided to participating jurisdictions for the

production of HOME-assisted affordable housing. The Department has

clarified at Sec. 92.300(f) that the limitation on the amount of HOME

funding received by a CHDO in any fiscal year does not include

administrative funds provided under Sec. 92.207 when a CHDO is acting

in a subrecipient or contractor capacity.

Section 92.301 Project-specific Assistance to Community Housing

Development Organizations

One commenter recommends that the authority to use HOME as

redevelopment funds that would not need to be repaid if the project did

not go forward be extended to non-CHDO owners and developers

(statutory).

[[Page 48747]]

Subpart H--Other Federal Requirements

Section 92.350 Equal Opportunity and Fair Housing

Four comments were received on this section. Two commenters

objected to the imposition of the Section 3 rule, which they contend

goes substantially beyond local capacity to administer employment and

training programs. They indicate that the rule requirements go far

beyond the statutory requirement of employing local residents to the

``greatest extent feasible''. They also contend that the Davis Bacon

requirements impede Section 3 objectives in that small, local

contractors do not have the administrative expertise to maintain

compliance and reporting records.

One commenter suggested that local minority and women's owned

business programs should be given credit for meeting Section 3

requirements. Another commenter complained that it is burdensome to

apply Section 3 requirements to a whole project when Federal funds

often represent a small portion of the financing.

The Section 3 requirements were subject to separate rulemaking and

comment and the Department has not altered the requirements in this

section.

One commenter suggested that affirmative marketing compliance

monitoring should be done at the same time that HOME projects are

monitored for rents, tenant incomes, and Housing Quality Standards.

The Department believes examination of affirmative marketing

records during on-site inspections and reviews of rents is a good

suggestion, however, no change has been made to the regulation.

Section 92.352 Environmental Review

Seven comments were received. Two commenters requested that

participating jurisdictions be authorized to use substantially

equivalent State or local environmental law and review procedures in

place of NEPA (statutory). Four commenters requested that States be

authorized to assume responsibility for the release of funds based on

environmental reviews and certifications completed by State recipients

and State CHDOs. The current procedure requiring States to request

funds release from HUD delays projects.

Four commenters requested that 1-4 unit projects and all owner-

occupied homeownership projects be exempt from environmental review

(statutory). Two commenters requested that historic preservation

reviews be waived for emergency repairs. Two commenters requested that

one environmental review and funds release process be allowed for

projects receiving both HOME and CDBG funds.

One commenter found current requirements unduly restrictive

concerning options. The commenter noted that the Department allows

options to be undertaken prior to environmental review, when a full

refund of the option fee is provided if the project does not go

forward. However, the commenter noted that such a scenario is unlikely

in real estate transactions. The commenter urged that options be

treated as other initial feasibility actions, in that options allow the

developer to secure the right, but not the obligation to purchase a

site. The commenter also requested that options purchased with non-

federal funds be permitted prior to environmental review, even if HOME

funds will be subsequently used.

Environmental review requirements are subject to separate

rulemaking under 24 CFR 58. Part 58 currently authorizes States to

exercise HUD's responsibilities with respect to approval of a State

recipient's environmental certification and RROF. However, when a State

elects to directly undertake the HOME program, HUD provides the second

level of review. Therefore, States must submit their certification and

RROF to HUD. Part 58 has been revised to allow purchase options prior

to the completion of an environmental review, if the option agreement

is subject to a determination by the recipient of the desirability of

the property following the environmental review and the option cost

reflects a nominal portion of the purchase price. Participating

jurisdictions may currently conduct a single environmental review and

submit a single RROF for projects funded with both CDBG and HOME,

provided the separate funding sources are identified.

Section 92.353 Displacement, Relocation and Acquisition

Four comments were received on this section. Two commenters

recommend altering the Uniform Relocation Act requirements for tenants

displaced by HOME or CDBG-financed activity. They view benefits for a

five year period as overly generous and suggest that the benefits be

for two years and be paid once at the capitalized value of the

benefits.

The calculation of benefits is based on explicit statutory

language. Persons whose displacement is subject to the Uniform

Relocation Act (URA) are entitled to an amount that is 42 times the

difference between their rent at the unit from which they are displaced

and the comparable unit they are offered (or 42 times the difference

between 30% of household income and the rent at the comparable unit, if

that results in a larger payment). For low and moderate income persons

whose displacement is subject to section 104(d) of the Housing and

Community Development Act of 1974, the payment is calculated to assure

that their post-relocation shelter costs do not exceed 30% of income

for five years. Since these benefit levels are set by statute, the

Department has no authority to change them.

Two commenters strongly recommended that the URA requirements be

simplified for homeownership situations. Current rules require that the

participating jurisdiction notify the sellers of the property that the

property is not being acquired under eminent domain and that they are

not eligible for relocation benefits. Additionally, if the unit being

offered for sale is occupied by a tenant, relocation benefits would be

triggered. It was recommended that homebuyer programs be exempt from

relocation requirements when the participating jurisdiction has no role

in determining which house is selected by the buyer when it is offered

for sale on the open market.

When HOME funds are used for homeownership programs, the property

purchased is a Federally-assisted acquisition. Thus, it is subject to

the provisions of the URA, and sellers and displaced tenants must be

accorded certain rights and benefits. Although the selling homeowner is

not entitled to relocation benefits, it is necessary to inform the

seller that the purchaser does not have the power of eminent domain and

of the estimate of fair market value. These actions are necessary to

meet the URA requirements of section 301 (2) and (3). If there are

tenants in the home, they are entitled to the standard URA benefits.

Since these are statutory requirements, the Department cannot change or

waive them.

Section 92.354 Labor

Nine comments were received on this section of the rule. Four

commenters suggested eliminating the Davis-Bacon requirements for the

HOME Program, and if not eliminated completely, at least conforming the

requirements to CDBG in that land acquisition with HOME would not

trigger Davis Bacon requirements. It was also suggested that some

substantial dollar amount trigger Davis-Bacon (statutory).

Two commenters suggested that Davis Bacon requirements not be

applied to homeownership projects when the units are sold to individual

homebuyers.

[[Page 48748]]

Two commenters complained about the substantial administrative

burden of the requirements and how that discourages small, local

contractors from participating in contradiction to the Section 3 goals

and requirements.

Davis-Bacon requirements apply to twelve or more HOME-assisted

units under one construction contract, whether rental or homeowner.

Small, local contractors can work on single family units or small

rental projects while gaining experience before taking on a larger

project with Davis Bacon requirements.

Section 92.356 Conflict of Interest

The third change in the July 12, 1995 proposed rule, the

application of conflict of interest rules to developers, whether for

profit or nonprofit, of projects receiving HOME funds elicited sixteen

comments. Eleven commenters endorsed the application of the

requirements either totally or with qualifications relating to

occupancy of resident managers or income-qualified CHDO board members.

Five commenters opposed the application of the requirements as too

burdensome and intrusive on the participating jurisdiction's

administration of the program.

The Department believes that the positive comments outweigh the

negative ones and has adopted the conflict of interest provisions for

developers, both profit and nonprofit, that receive HOME funds. The

determination of a conflict is made at the State or local level and

does not involve the Department, unlike the procedure when the conflict

involves an official or an employee of the participating jurisdictions,

its State recipients or subrecipients.

Subpart K--Program Administration

Section 92.502 C/MIS: Disbursement of HOME Funds

Five parties commented on C/MI and disbursement-related issues. All

of the commenters suggested ways in which they believed the Department

could simplify or streamline the current system. Three commenters

recommended that the Department eliminate or relax the requirement that

HOME funds drawn from the Treasury account be expended for eligible

costs within 15 days (statutory). One of the commenters suggested

extending the period to 30 days. Two commenters recommended that

participating jurisdictions be allowed to draw lump sums for projects

and place the funds in escrow accounts (statutory).

Three commenters requested that participating jurisdictions be

permitted to draw down lump sums of HOME funds for long-term relocation

expenses. One commenter stated that long-term relocation obligations

prevented it from sending in project completion forms. Both commenters

believed that the five-year deadline for the expenditure of funds would

elapse before participating jurisdictions had completed monthly

payments for relocation.

Existing policies should be adequate to permit required payments of

relocation benefits without delaying project completion. Although

relocation benefits to displaced tenants may be calculated to assist

them with their shelter costs for as long as 5 years, the Department

does not require that monthly payments be made for such a period.

Although a single lump sum payment of benefits is prohibited by statute

(except where down payment assistance is involved), the Department

allows great latitude to displacing agencies in setting up the payout

of the assistance. For example, quarterly or semi-annual payments could

be made for a period deemed reasonable by the participating

jurisdiction, at the end of which the balance could be paid to the

displaced person.

One commenter noted that the Department needs to reduce the

complexity of drawing down funds and decrease the time that it takes

project set-up forms faxed to HUD to be entered into the system. The

commenter suggested that the Department adopt the Payment Management

System used by the Department of Health and Human Services.

Two commenters stated that the reports generated by the C/MIS

should be useful and user friendly. One commenter suggested that the C/

MIS operating hours being changed to accommodate participating

jurisdictions in western time zones.

One commenter suggested that CHDOs be permitted to set up their own

accounts in the C/MIS.

The same commenter suggested that subrecipients be permitted to

have their own U.S. Treasury accounts and draw HOME funds directly from

the Treasury.

Two commenters suggested that the new Integrated Data and

Information System (IDIS) being developed by the Department for HOME

and other programs allow participating jurisdictions to set up HOME

funds for broad activities (e.g., rehabilitation) rather than on a

project-by-project basis. One of these commenters recommended that

information on families receiving HOME tenant-based rental assistance

(i.e., social security number, tenant contribution, amount of subsidy)

be included as part of a project completion report rather than at set-

up.

There currently is no project completion form required for TBRA.

The new Integrated Data and Information system (IDIS) will continue to

collect data on a project basis. Only participating jurisdictions and

state recipients are permitted to have HOME funds deposited directly

into their own bank accounts (statutory).

Three commenters requested that participating jurisdictions be

permitted to accumulate significant amounts of program income in their

local HOME accounts before being required to expend the funds.

Currently, participating jurisdictions are required to disburse program

income on hand before drawing any additional funds from the U.S.

Treasury. The commenters contend that this results in administrative

burden, particularly when only small amounts of program income are on

hand.

This is an OMB and Treasury Department requirement for all Federal

programs under part 85, not a HOME regulatory requirement. Our current

(nonregulatory) guidance to participating jurisdictions is that they

may undertake a periodic accounting of program income whenever their

financial reports are normally available and spend those funds before

drawing additional Federal funds.

One commenter objected to the requirement at Sec. 92.502(g) that

requires States to designate the local PJ as a State recipient and

suballocate its HOME funds when a State and local PJ undertake a

jointly funded project.

This requirement has been dropped and State and local participating

jurisdictions can each set up a project for its share of the funds and

report on the proportionate number of units.

Another commenter expressed concern about jointly funded projects

undertaken by CHDOs. The commenter believes that the State funds

suballocated to a local participating jurisdiction is credited to that

jurisdiction, rather than the State.

This is not the case. The State funds retain their identity, so all

expenditures and production information related to the State's share of

the project are included in the State's report.

Section 92.503 Program Income, Repayments, and Recaptured Funds

In response to many public comments and numerous requests for

clarification, the Department has created a new section describing

program income, repayments and funds that are recaptured. In prior

rules, program

[[Page 48749]]

income has often been described as a return on the investment of HOME

funds. This section hopefully will provide adequate guidance to

participating jurisdiction on these issues.

Section 92.504 PJ Responsibilities; Written Agreements; Monitoring

The Department has substantially revised this section to be more

specific about the contents of the written agreement between the

participating jurisdiction and the entity receiving the HOME funds. The

revisions were done in response to many comments requesting

clarification about the contents of the agreement.

Six comments were received regarding the HOME monitoring

requirements at Sec. 92.504(e). All of the commenters felt that the

current requirements were too burdensome and should be changed.

Two commenters suggested that the HOME monitoring requirements be

changed to conform with the LIHTC monitoring requirements, which they

felt offered more flexibility in determining the number of tenant files

reviewed and the frequency of on-site visits. One commenter suggested

that less information should be required from tenants whose rents are

close to market rents than from those who receive a significant

subsidy. The commenter suggests a single pay stub as proof of low-

income status.

Two commenters felt that participating jurisdictions should be

permitted to develop their own monitoring plans to assure project

compliance with HOME requirements. One of these commenters suggested

that these plans could be subject to HUD approval.

Another commenter suggested that HUD, in place of the current

monitoring provisions, require participating jurisdictions to develop

monitoring plans that include an initial on-site inspection, biannual

on-site financial and management reviews and remote monitoring of

tenant files and financial statements in alternate years. One commenter

recommended that HOME rental projects be monitored every two years

rather than annually, regardless of the size of the project.

The Department has provided options with regard to determining

tenant income during the period of affordability which are discussed

under the preamble comments at Sec. 92.203.

With regard to monitoring requirements, the Department has created

additional flexibility in the schedule for on-site inspections of

smaller projects as permitted by the statute.

One commenter stated that the Department should eliminate the

requirement that, when a PJ applies a longer period of affordability

period to a project than is required by HUD, monitoring of the project

continue for the extended affordability period.

There is no such requirement.

One commenter suggested that, when a project is found to be out of

compliance with HOME requirements and the participating jurisdiction is

unable to obtain timely repayment from the owner, the Department reduce

the participating jurisdictions future grants rather than require

repayment to the HOME account.

The Department declines to make this change because it reduces

funds available to provide affordable housing but will review cases as

necessary to determine appropriate action.

Section 92.506 Audits

One commenter wrote in support of the Office of Management and

Budget's efforts to increase the threshold for audits from $25,000 to

$300,000.

A bill has been proposed to make this change but has not been

enacted.

Section 92.508 Recordkeeping

The Department has revised this section to ensure consistency with

the requirements of Part 92. In addition, the period for record

retention has been extended to five years in keeping with the Part 91

Consolidated Plan requirement. In response to comments, the Department

has clarified the record retention period for various types of records.

The Department has clarified that certain records do not have to be

retained for the full period of affordability for rental projects.

Section 92.552 Notice and Opportunity for Hearing; Sanctions

The Department recently published a proposed regulation at 61 FR

18026 (April 23, 1996) setting forth hearing procedures for formal

hearings according to the Administrative Procedures Act (5 U.S.C. 551

et seq.). The Department intends to adopt these hearing procedures for

the HOME program. Conforming changes to the HOME regulations will be

made when the final rule for Part 26 is published.

Conforming Changes to Part 91

The Department has made conforming changes to 24 CFR part 91, the

Consolidated Plan. If a participating jurisdiction chooses to refinance

existing debt in connection with the rehabilitation of multifamily

properties, it would be required to develop guidelines which would

describe under what conditions it would permit the use of HOME funds

for refinancing. The guidelines would be made part of the participating

jurisdiction's consolidated plan and be subject to public review and

comment.

Extension of Interim Rule

Section 92.5 of the interim rule 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. This section also provides that the expiration period may

be extended by notice published in the Federal Register, and the

Department is hereby providing notice that the interim rule remains in

effect without interruption until the effective date of this final

rule.

III. Findings and Certifications

Paperwork Reduction Act. The information collection requirements

for the HOME Investment Partnerships Program 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 2577-0191. This final rule does not contain additional mandatory

information collection requirements, but does contain additional

voluntary information collection requirements in Secs. 92.206 and

92.254. When received, the OMB approval number for these information

collection requirements will be published in a separate notice in the

Federal Register. 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.

Unfunded Mandates Reform Act. Title II of the Unfunded Mandates

Reform Act of 1995 establishes requirements for Federal agencies to

assess the effects of their regulatory actions on State, local, local

and tribal governments and the private sector. This rule does not

impose any Federal mandates on any State, local or tribal governments

or the private sector within the meaning of the Unfunded Mandates

Reform Act of 1995.

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

[[Page 48750]]

p.m. weekdays in the Office of the Rules Docket Clerk.

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.

Impact on Small Entities. The Secretary, in accordance with the

Regulatory Flexibility Act (5 U.S.C. 605(b)) has reviewed and approved

this rule, and in so doing certifies that this rule will 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.

Federalism Impact. The General Counsel has determined, as the

Designated Official for HUD under section 6(a) of Executive Order

12612, Federalism, that this rule does not have federalism implications

concerning the division of local, State, and federal responsibilities.

While the HOME Program 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 final 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 rule would not have significant impact on family formation,

maintenance, and general well-being. Assistance provided under this

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 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

24 CFR Part 91

Aged, Grant programs--housing and community development, Homeless,

Individuals with disabilities, Low- and moderate-income housing,

Reporting and recordkeeping requirements.

24 CFR Part 92

Grant programs--housing and community development, Manufactured

homes, Rent subsidies, Reporting and recordkeeping requirements.

Accordingly, the Department amends parts 91 and 92 of title 24 of

the Code of Federal Regulations as follows:

PART 91--CONSOLIDATED SUBMISSIONS FOR COMMUNITY PLANNING AND

DEVELOPMENT PROGRAMS

1. The authority citation for part 91 continues to read as follows:

Authority: 42 U.S.C. 3535(d), 3601-3619, 5301-5315, 11331-11388,

12701-12711, 12741-12756, and 12901-12912.

2. Section 91.220 is amended by adding a new paragraph (g)(2)(iii),

to read as follows:

Sec. 91.220 Action plan.

* * * * *

(g) * * *

(2) * * *

(iii) If the participating jurisdiction intends to use HOME funds

to refinance existing debt secured by multifamily housing that is being

rehabilitated with HOME funds, it must state its refinancing guidelines

required under 24 CFR 92.206(b). The guidelines shall describe the

conditions under which the participating jurisdictions will refinance

existing debt. At minimum, the guidelines must:

(A) Demonstrate that rehabilitation is the primary eligible

activity and ensure that this requirement is met by establishing a

minimum level of rehabilitation per unit or a required ratio between

rehabilitation and refinancing.

(B) Require a review of management practices to demonstrate that

disinvestment in the property has not occurred; that the long term

needs of the project can be met; and that the feasibility of serving

the targeted population over an extended affordability period can be

demonstrated.

(C) State whether the new investment is being made to maintain

current affordable units, create additional affordable units, or both.

(D) Specify the required period of affordability, whether it is the

minimum 15 years or longer.

(E) Specify whether the investment of HOME funds may be

jurisdiction-wide or limited to a specific geographic area, such as a

neighborhood identified in a neighborhood revitalization strategy under

24 CFR 91.215(e)(2) or a Federally designated Empowerment Zone or

Enterprise Community.

(F) State that HOME funds cannot be used to refinance multifamily

loans made or insured by any Federal program, including CDBG.

3. Section 91.320 is amended by adding a new paragraph (g)(2)(iii),

to read as follows:

Sec. 91.320 Action plan.

* * * * *

(g) * * *

(2) * * *

(iii) If the State intends to use HOME funds to refinance existing

debt secured by multifamily housing that is being rehabilitated with

HOME funds, it must state its refinancing guidelines required under 24

CFR 92.206(b). The guidelines shall describe the conditions under which

the State will refinance existing debt. At minimum, the guidelines

must:

(A) Demonstrate that rehabilitation is the primary eligible

activity and ensure that this requirement is met by establishing a

minimum level of rehabilitation per unit or a required ratio between

rehabilitation and refinancing.

(B) Require a review of management practices to demonstrate that

disinvestment in the property has not occurred; that the long term

needs of the project can be met; and that the feasibility of serving

the targeted population over an extended affordability period can be

demonstrated.

(C) State whether the new investment is being made to maintain

current affordable units, create additional affordable units or both.

(D) Specify the required period of affordability, whether it is the

minimum 15 years or longer.

(E) Specify whether the investment of HOME funds may be

jurisdiction-wide or limited to a specific geographic area, such as a

neighborhood identified in a neighborhood revitalization strategy under

24 CFR Sec. 91.215(e)(2) or a Federally designated Empowerment Zone or

Enterprise Community.

(F) State HOME funds cannot be used to refinance multifamily loans

made or insured by any Federal program, including CDBG.

4. Part 92 is revised to read as follows:

PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM

Subpart A--General

Sec.

92.1 Overview.

92.2 Definitions.

92.4 Waivers and suspension of requirements for disaster areas.

[[Page 48751]]

Subpart B--Allocation Formula

92.50 Formula allocation.

Insular Areas Program

92.60 Allocation amounts for insular areas.

92.61 Program description.

92.62 Review of program description and certifications.

92.63 Amendments to program description.

92.64 Applicability of requirements to insular areas.

92.65 Funding sanctions.

92.66 Reallocation.

Subpart C--Consortia; Designation and Revocation of Designation as a

Participating Jurisdiction

92.100 [Reserved]

92.101 Consortia.

92.102 Participation threshold amount.

92.103 Notification of intent to participate.

92.104 Submission of a consolidated plan.

92.105 Designation as a participating jurisdiction.

92.106 Continuous designation as a participating jurisdiction.

92.107 Revocation of designation as a participating jurisdiction.

Subpart D--Submission Requirements

92.150 Submission requirements.

Subpart E--Program Requirements

92.200 Private-public partnership.

92.201 Distribution of assistance.

92.202 Site and neighborhood standards.

92.203 Income determinations.

92.204 Applicability of requirements to entities that receive a

reallocation of HOME funds, other than participating jurisdictions.

Eligible and Prohibited Activities

92.205 Eligible activities: General.

92.206 Eligible project costs.

92.207 Eligible administrative and planning costs.

92.208 Eligible community housing development organization (CHDO)

operating expense and capacity building costs.

92.209 Tenant-based rental assistance: Eligible costs and

requirements.

92.212 Pre-award costs.

92.213 [Reserved]

92.214 Prohibited activities.

92.215 Limitation on jurisdictions under court order.

Income Targeting

92.216 Income targeting: Tenant-based rental assistance and rental

units.

92.217 Income targeting: Homeownership.

Matching Contribution Requirement

92.218 Amount of matching contribution.

92.219 Recognition of matching contribution.

92.220 Form of matching contribution.

92.221 Match credit.

92.222 Reduction of matching contribution requirement.

Subpart F--Project Requirements

92.250 Maximum per-unit subsidy amount and subsidy layering.

92.251 Property standards.

92.252 Qualification as affordable housing: Rental housing.

92.253 Tenant and participant protections.

92.254 Qualification as affordable housing: Homeownership.

92.255 Converting rental units to homeownership units for existing

tenants.

92.256 [Reserved].

92.257 Religious organizations.

92.258 Elder cottage housing opportunity (ECHO) units.

Subpart G--Community Housing Development Organizations

92.300 Set-aside for community housing development organizations

(CHDOs).

92.301 Project-specific assistance to community housing development

organizations.

92.302 Housing education and organizational support.

92.303 Tenant participation plan.

Subpart H--Other Federal Requirements

92.350 Other Federal requirements.

92.351 Affirmative marketing; minority outreach program.

92.352 Environmental review.

92.353 Displacement, relocation, and acquisition.

92.354 Labor.

92.355 Lead-based paint.

92.356 Conflict of interest.

92.357 Executive Order 12372.

Subpart I--Technical Assistance

92.400 Coordinated Federal support for housing strategies.

Subpart J--Reallocations

92.450 General.

92.451 Reallocation of HOME funds from a jurisdiction that is not

designated a participating jurisdiction or has its designation

revoked.

92.452 Reallocation of community housing development organization

set-aside.

92.453 Criteria for competitive reallocations.

92.454 Reallocations by formula.

Subpart K--Program Administration

92.500 The HOME Investment Trust Fund.

92.501 HOME Investment Partnership Agreement.

92.502 Program disbursement and information system.

92.503 Program income, repayments, and recaptured funds.

92.504 Participating jurisdiction responsibilities; written

agreements; on-site inspections.

92.505 Applicability of uniform administrative requirements.

92.506 Audit.

92.507 Closeout.

92.508 Recordkeeping.

92.509 Performance reports.

Subpart L--Performance Reviews and Sanctions

92.550 Performance reviews.

92.551 Corrective and remedial actions.

92.552 Notice and opportunity for hearing; sanctions.

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

Subpart A--General

Sec. 92.1 Overview.

This part implements the HOME Investment Partnerships Act (the HOME

Investment Partnerships Program). In general, under the HOME Investment

Partnerships Program, HUD allocates funds by formula among eligible

State and local governments to strengthen public-private partnerships

and to expand the supply of decent, safe, sanitary, and affordable

housing, with primary attention to rental housing, for very low-income

and low-income families. Generally, HOME funds must be matched by

nonfederal resources. State and local governments that become

participating jurisdictions may use HOME funds to carry out multi-year

housing strategies through acquisition, rehabilitation, and new

construction of housing, and tenant-based rental assistance.

Participating jurisdictions may provide assistance in a number of

eligible forms, including loans, advances, equity investments, interest

subsidies and other forms of investment that HUD approves.

Sec. 92.2 Definitions.

The terms ``1937 Act'', ``ALJ'', ``Fair Housing Act'', ``HUD'',

``Indian Housing Authority (IHA)'', ``Public Housing Agency (PHA)'',

and ``Secretary'' are defined in 24 CFR 5.100.

Act means the HOME Investment Partnerships Act at title II of the

Cranston-Gonzalez National Affordable Housing Act, as amended, 42

U.S.C. 12701 et seq.

Adjusted income. See Sec. 92.203.

Annual income. See Sec. 92.203.

Certification shall have the meaning provided in section 104(21) of

the Cranston-Gonzalez National Affordable Housing Act, as amended, 42

U.S.C. 12704.

Commitment means:

(1) The participating jurisdiction has executed a legally binding

agreement with a State recipient, a subrecipient or a contractor to use

a specific amount of HOME funds to produce affordable housing or

provide tenant-based rental assistance; or has executed a written

agreement reserving a specific amount of funds to a community housing

development organization; or has met the requirements to commit to a

specific local project, as defined in paragraph (2), of this

definition.

(2) Commit to a specific local project means:

(i) If the project consists of rehabilitation or new construction

(with

[[Page 48752]]

or without acquisition) the participating jurisdiction (or State

recipient or subrecipient) and project owner have executed a written

legally binding agreement under which HOME assistance will be provided

to the owner for an identifiable project under which construction can

reasonably be expected to start within twelve months of the agreement

date. If the project is owned by the participating jurisdiction or

State recipient, the project has been set up in the disbursement and

information system established by HUD, and construction can reasonably

be expected to start within twelve months of the project set-up date.

(ii)(A) If the project consists of acquisition of standard housing

and the participating jurisdiction (or State recipient or subrecipient)

is acquiring the property with HOME funds, the participating

jurisdiction (or State recipient or subrecipient) and the property

owner have executed a legally binding contract for sale of an

identifiable property and the property title will be transferred to the

participating jurisdiction (or State recipient or subrecipient) within

six months of the date of the contract.

(B) If the project consists of acquisition of standard housing and

the participating jurisdiction (or State recipient or subrecipient) is

providing HOME funds to a family to acquire single family housing for

homeownership or to a purchaser to acquire rental housing, the

participating jurisdiction (or State recipient or subrecipient) and the

family or purchaser have executed a written agreement under which HOME

assistance will be provided for the purchase of the single family

housing or rental housing and the property title will be transferred to

the family or purchaser within six months of the agreement date.

(iii) If the project consists of tenant-based rental assistance,

the participating jurisdiction (or State recipient, or subrecipient)

has entered into a rental assistance contract with the owner or the

tenant in accordance with the provisions of Sec. 92.209.

Community housing development organization means a private

nonprofit organization that:

(1) Is organized under State or local laws;

(2) Has no part of its net earnings inuring to the benefit of any

member, founder, contributor, or individual;

(3) Is neither controlled by, nor under the direction of,

individuals or entities seeking to derive profit or gain from the

organization. A community housing development organization may be

sponsored or created by a for-profit entity, but:

(i) The for-profit entity may not be an entity whose primary

purpose is the development or management of housing, such as a builder,

developer, or real estate management firm.

(ii) The for-profit entity may not have the right to appoint more

than one-third of the membership of the organization's governing body.

Board members appointed by the for-profit entity may not appoint the

remaining two-thirds of the board members; and

(iii) The community housing development organization must be free

to contract for goods and services from vendors of its own choosing;

(4) Has a tax exemption ruling from the Internal Revenue Service

under section 501(c) (3) or (4) of the Internal Revenue Code of 1986

(26 CFR 1.501(c)(3)-1);

(5) Does not include a public body (including the participating

jurisdiction). An organization that is State or locally chartered may

qualify as a community housing development organization; however, the

State or local government may not have the right to appoint more than

one-third of the membership of the organization's governing body and no

more than one-third of the board members may be public officials or

employees of the participating jurisdiction or State recipient. Board

members appointed by the State or local government may not appoint the

remaining two-thirds of the board members;

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

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

(7) Has among its purposes the provision of decent housing that is

affordable to low-income and moderate-income persons, as evidenced in

its charter, articles of incorporation, resolutions or by-laws;

(8) Maintains accountability to low-income community residents by:

(i) Maintaining at least one-third of its governing board's

membership for residents of low-income neighborhoods, other low-income

community residents, or elected representative of low-income

neighborhood organizations. For urban areas, ``community'' may be a

neighborhood or neighborhoods, city, county or metropolitan area; for

rural areas, it may be a neighborhood or neighborhoods, town, village,

county, or multi-county area (but not the entire State); and

(ii) Providing a formal process for low-income program

beneficiaries to advise the organization in its decisions regarding the

design, siting, development, and management of affordable housing;

(9) Has a demonstrated capacity for carrying out activities

assisted with HOME funds. An organization may satisfy this requirement

by hiring experienced key staff members who have successfully completed

similar projects, or a consultant with the same type of experience and

a plan to train appropriate key staff members of the organization; and

(10) Has a history of serving the community within which housing to

be assisted with HOME funds is to be located. In general, an

organization must be able to show one year of serving the community

before HOME funds are reserved for the organization. However, a newly

created organization formed by local churches, service organizations or

neighborhood organizations may meet this requirement by demonstrating

that its parent organization has at least a year of serving the

community.

Family has the same meaning given that term in 24 CFR 5.403.

HOME funds means funds made available under this part through

allocations and reallocations, plus program income.

Homeownership means ownership in fee simple title or a 99 year

leasehold interest in a one- to four-unit dwelling or in a condominium

unit, or equivalent form of ownership approved by HUD. The ownership

interest may be subject only to the restrictions on resale required

under Sec. 92.254(a); mortgages, deeds of trust, or other liens or

instruments securing debt on the property as approved by the

participating jurisdiction; or any other restrictions or encumbrances

that do not impair the good and marketable nature of title to the

ownership interest. For purposes of the insular areas, homeownership

includes leases of 40 years or more. The participating jurisdiction

must determine whether or not ownership or membership in a cooperative

or mutual housing project constitutes homeownership under State law.

Household means one or more persons occupying a housing unit.

Housing includes manufactured housing and manufactured housing

lots, permanent housing for disabled homeless persons, transitional

housing, single-room occupancy housing, and group homes. Housing also

includes elder cottage housing opportunity (ECHO) units that are small,

free-standing, barrier-free, energy-efficient, removable, and designed

to be installed adjacent to existing single-family dwellings. Housing

does not include emergency shelters (including shelters

[[Page 48753]]

for disaster victims) or facilities such as nursing homes, convalescent

homes, hospitals, residential treatment facilities, correctional

facilities and student dormitories.

Insular areas means Guam, the Northern Mariana Islands, the United

States Virgin Islands, and American Samoa.

Jurisdiction means a State or unit of general local government.

Low-income families means families whose annual incomes do not

exceed 80 percent of the median income for the area, as determined by

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

may establish income ceilings higher or lower than 80 percent of the

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

are necessary because of prevailing levels of construction costs or

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

Metropolitan city has the meaning given the term in 24 CFR 570.3.

Neighborhood means a geographic location designated in

comprehensive plans, ordinances, or other local documents as a

neighborhood, village, or similar geographical designation that is

within the boundary but does not encompass the entire area of a unit of

general local government; except that if the unit of general local

government has a population under 25,000, the neighborhood may, but

need not, encompass the entire area of a unit of general local

government.

Participating jurisdiction means a jurisdiction (as defined in this

section) that has been so designated by HUD in accordance with

Sec. 92.105.

Person with disabilities means a household composed of one or more

persons, at least one of whom is an adult, who has a disability.

(1) A person is considered to have a disability if the person has a

physical, mental, or emotional impairment that:

(i) Is expected to be of long-continued and indefinite duration;

(ii) Substantially impedes his or her ability to live

independently; and

(iii) Is of such a nature that such ability could be improved by

more suitable housing conditions.

(2) A person will also be considered to have a disability if he or

she has a developmental disability, which is a severe, chronic

disability that:

(i) Is attributable to a mental or physical impairment or

combination of mental and physical impairments;

(ii) Is manifested before the person attains age 22;

(iii) Is likely to continue indefinitely;

(iv) Results in substantial functional limitations in three or more

of the following areas of major life activity: self-care, receptive and

expressive language, learning, mobility, self-direction, capacity for

independent living, and economic self-sufficiency; and

(v) Reflects the person's need for a combination and sequence of

special, interdisciplinary, or generic care, treatment, or other

services that are of lifelong or extended duration and are individually

planned and coordinated. Notwithstanding the preceding provisions of

this definition, the term ``person with disabilities'' includes two or

more persons with disabilities living together, one or more such

persons living with another person who is determined to be important to

their care or well-being, and the surviving member or members of any

household described in the first sentence of this definition who were

living, in a unit assisted with HOME funds, with the deceased member of

the household at the time of his or her death.

Program income means gross income received by the participating

jurisdiction, State recipient, or a subrecipient directly generated

from the use of HOME funds or matching contributions. When program

income is generated by housing that is only partially assisted with

HOME funds or matching funds, the income shall be prorated to reflect

the percentage of HOME funds used. Program income includes, but is not

limited to, the following:

(1) Proceeds from the disposition by sale or long-term lease of

real property acquired, rehabilitated, or constructed with HOME funds

or matching contributions;

(2) Gross income from the use or rental of real property, owned by

the participating jurisdiction, State recipient, or a subrecipient,

that was acquired, rehabilitated, or constructed, with HOME funds or

matching contributions, less costs incidental to generation of the

income;

(3) Payments of principal and interest on loans made using HOME

funds or matching contributions;

(4) Proceeds from the sale of loans made with HOME funds or

matching contributions;

(5) Proceeds from the sale of obligations secured by loans made

with HOME funds or matching contributions;

(6) Interest earned on program income pending its disposition; and

(7) Any other interest or return on the investment permitted under

Sec. 92.205(b) of HOME funds or matching contributions.

Project means a site or sites together with any building (including

a manufactured housing unit) or buildings located on the site(s) that

are under common ownership, management, and financing and are to be

assisted with HOME funds as a single undertaking under this part. The

project includes all the activities associated with the site and

building. For tenant-based rental assistance, project means assistance

to one or more families.

Project completion means that all necessary title transfer

requirements and construction work have been performed; the project

complies with the requirements of this part (including the property

standards under Sec. 92.251); the final drawdown has been disbursed for

the project; and the project completion information has been entered in

the disbursement and information system established by HUD. For tenant-

based rental assistance, project completion means the final drawdown

has been disbursed for the project.

Reconstruction means the rebuilding, on the same lot, of housing

standing on a site at the time of project commitment. The number of

housing units on the lot may not be decreased or increased as part of a

reconstruction project, but the number of rooms per unit may be

increased or decreased. Reconstruction also includes replacing an

existing substandard unit of manufactured housing with a new or

standard unit of manufactured housing. Reconstruction is rehabilitation

for purposes of this part.

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.

State means any State of the United States, the District of

Columbia, the Commonwealth of Puerto Rico, or any agency or

instrumentality thereof that is established pursuant to legislation and

designated by the chief executive officer to act on behalf of the State

with regard to the provisions of this part.

State recipient. See Sec. 92.201(b)(2).

Subrecipient means a public agency or nonprofit organization

selected by the participating jurisdiction to administer all or a

portion of the participating jurisdiction's HOME program. A public

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agency or nonprofit organization that receives HOME funds solely as a

developer or owner of housing is not a subrecipient. The participating

jurisdiction's selection of a subrecipient is not subject to the

procurement procedures and requirements.

Tenant-based rental assistance is a form of rental assistance in

which the assisted tenant may move from a dwelling unit with a right to

continued assistance. Tenant-based rental assistance under this part

also includes security deposits for rental of dwelling units.

Transitional housing means housing that:

(1) Is designed to provide housing and appropriate supportive

services to persons, including (but not limited to) deinstitutionalized

individuals with disabilities, homeless individuals with disabilities,

and homeless families with children; and

(2) Has as its purpose facilitating the movement of individuals and

families to independent living within a time period that is set by the

participating jurisdiction or project owner before occupancy.

Unit of general local government means a city, town, township,

county, parish, village, or other general purpose political subdivision

of a State; a consortium of such political subdivisions recognized by

HUD in accordance with Sec. 92.101; and any agency or instrumentality

thereof that is established pursuant to legislation and designated by

the chief executive to act on behalf of the jurisdiction with regard to

provisions of this part. When a county is an urban county, the urban

county is the unit of general local government for purposes of the HOME

Investment Partnerships Program.

Urban county has the meaning given the term in 24 CFR 570.3.

Very low-income families means low-income families whose annual

incomes do not exceed 50 percent of the median family income for the

area, as determined by HUD with adjustments 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 findings

that such variations are necessary because of prevailing levels of

construction costs or fair market rents, or unusually high or low

family incomes.

Sec. 92.4 Waivers and suspension of requirements for disaster areas.

HUD's authority for waiver of regulations and for the suspension of

requirements to address damage in a Presidentially declared disaster

area is described in 24 CFR 5.110 and in section 290 of the Act,

respectively.

Subpart B--Allocation Formula

Sec. 92.50 Formula allocation.

(a) Jurisdictions eligible for a formula allocation. HUD will

provide allocations of funds in amounts determined by the formula

described in this section to units of general local governments that,

as of the end of the previous fiscal year, are metropolitan cities,

urban counties, or consortia approved under Sec. 92.101; and States.

(b) Amounts available for allocation; State and local share. The

amount of funds that are available for allocation by the formula under

this section is equal to the balance of funds remaining after reserving

amounts for Indian tribes, insular areas, housing education and

organizational support, other support for State and local housing

strategies, and other purposes authorized by Congress, in accordance

with the Act and appropriations.

(c) Formula factors. The formula for determining allocations uses

the following factors. The first and sixth factors are weighted 0.1;

the other four factors are weighted 0.2.

(1) Vacancy-adjusted rental units where the household head is at or

below the poverty level. These rental units are multiplied by the ratio

of the national rental vacancy rate over a jurisdiction's rental

vacancy rate.

(2) Occupied rental units with at least one of four problems

(overcrowding, incomplete kitchen facilities, incomplete plumbing, or

high rent costs). Overcrowding is a condition that exists if there is

more than one person per room occupying the unit. Incomplete kitchen

facilities means the unit lacks a sink with running water, a range, or

a refrigerator. Incomplete plumbing means the unit lacks hot and cold

piped water, a flush toilet, or a bathtub or shower inside the unit for

the exclusive use of the occupants of the unit. High rent costs occur

when more than 30 percent of household income is used for rent.

(3) Rental units built before 1950 occupied by poor families.

(4) Rental units described in paragraph (c)(2) of this section

multiplied by the ratio of the cost of producing housing for a

jurisdiction divided by the national cost.

(5) Number of families at or below the poverty level.

(6) Population of a jurisdiction multiplied by a net per capita

income (pci). To compute net pci for a jurisdiction or for the nation,

the pci of a three person family at the poverty threshold is subtracted

from the pci of the jurisdiction or of the nation. The index is

constructed by dividing the national net pci by the net pci of a

jurisdiction.

(d) Calculating formula allocations for units of general local

government. (1) Initial allocation amounts for units of general local

government described in paragraph (a)(1) of this section are determined

by multiplying the sum of the shares of the six factors in paragraph

(c) of this section by 60 percent of the amount available under

paragraph (b) of this section for formula allocation. The shares are

the ratio of the weighted factor for each jurisdiction over the

corresponding factor for the total for all of these units of general

local government.

(2) If any of the initial amounts for such units of general local

government in Puerto Rico exceeds twice the national average, on a per

rental unit basis, that amount is capped at twice the national average.

(3) To determine the maximum number of units of general local

government that receive a formula allocation, only one jurisdiction

(the unit of general local government with the smallest allocation of

HOME funds) is dropped from the pool of eligible jurisdictions on each

successive recalculation. Then the amount of funds available for units

of general local government is redistributed to all others. This

recalculation/redistribution continues until all remaining units of

general local government receive an allocation of $500,000 or more.

Only units of general local government which receive an allocation of

$500,000 or more under the formula will be awarded an allocation. In

fiscal years in which Congress appropriates less than $1.5 billion of

HOME funds, $335,000 is substituted for $500,000.

(4) The allocation amounts determined under paragraph (d)(3) of

this section are reduced by any amounts that are necessary to provide

increased allocations to States that have no unit of general local

government receiving a formula allocation (see paragraph (e)(4) of this

section). These reductions are made on a prorata basis, except that no

unit of general local government allocation is reduced below $500,000

(or $335,000 in fiscal years in which Congress appropriates less than

$1.5 billion of HOME funds).

(e) Calculating formula allocations for States. (1) Forty percent

of the funds available for allocation under paragraph (b) of this

section are allocated to States. The allocation amounts for States are

calculated by determining initial amounts for each State, based on the

[[Page 48755]]

sum of the shares of the six factors. For 20 percent of the funds to be

allocated to States, the shares are the ratio of the weighted factor

for the entire State over the corresponding factor for the total for

all States. For 80 percent of the funds to be allocated to States, the

shares are the ratio of the weighted factor for all units of general

local government within the State that do not receive a formula

allocation over the corresponding factor for the total for all States.

(2) If the initial amounts for Puerto Rico (based on either or both

the 80 percent of funds or 20 percent of funds calculation) exceed

twice the national average, on a per rental unit basis, each amount

that exceeds the national average is capped at twice the national

average, and the resultant funds are reallocated to other States on a

prorata basis.

(3) If the initial amounts when combined for any State are less

than the $3,000,000, the allocation to that State is increased to the

$3,000,000 and all other State allocations are reduced by an equal

amount on a prorata basis, except that no State allocation is reduced

below $3,000,000.

(4) The allocation amount for each State that has no unit of

general local government within the State receiving an allocation under

paragraph (d) of this section is increased by $500,000. Funds for this

increase are derived from the funds available for units of general

local government, in accordance with paragraph (d)(4) of this section.

Insular Areas Program

Sec. 92.60 Allocation amounts for insular areas.

(a) Initial allocation amount for each insular area. The initial

allocation amount for each insular area is determined based upon the

insular area's population and occupied rental units compared to all

insular areas.

(b) Threshold requirements. The HUD Field Office shall review each

insular area's progress on outstanding allocations made under this

section, based on the insular area's performance report, the timeliness

of close-outs, and compliance with fund management requirements and

regulations, taking into consideration the size of the allocation and

the degree and complexity of the program. If HUD determines from this

review that the insular area does not have the capacity to administer

effectively a new allocation, or a portion of a new allocation, in

addition to allocations currently under administration, HUD may reduce

the insular area's initial allocation amount.

(c) Previous audit findings and outstanding monetary obligations.

HUD shall not make an allocation to an insular area that has either an

outstanding audit finding for any HUD program, or an outstanding

monetary obligation to HUD that is in arrears, or for which a repayment

schedule has not been established. This restriction does not apply if

the HUD Field Office finds that the insular area has made a good faith

effort to clear the audit and, when there is an outstanding monetary

obligation to HUD, the insular area has made a satisfactory arrangement

for repayment of the funds due HUD and payments are current.

(d) Increases to the initial allocation amount. If funds reserved

for the insular areas are available because HUD has decreased the

amount for one or more insular areas in accordance with paragraphs (b)

or (c) of this section, or for any other reason, HUD may increase the

allocation amount for one or more of the remaining insular areas based

upon the insular area's performance in committing HOME funds within the

24 month deadline, producing housing units described in its program

description, and meeting HOME program requirements. Funds that become

available but which are not used to increase the allocation amount for

one or more of the remaining insular areas will be reallocated in

accordance with Sec. 92.66.

(e) Notice of allocation amounts. HUD will notify each insular

area, in writing, as to the amount of its HOME allocation.

Sec. 92.61 Program description.

(a) Submission requirement. Not later than 90 days after HUD

notifies the insular area of the amount of its allocation, the insular

area must submit a program description and certifications to HUD.

(b) Content of program description. The program description must

contain the following:

(1) An executed Standard Form 424;

(2) The estimated use of HOME funds and a description of projects

and eligible activities, including number of units to be assisted,

estimated costs, and tenure type (rental or owner occupied) and, for

tenant assistance, number of households to be assisted;

(3) A timetable for the implementation of the projects or eligible

activities;

(4) If the insular area intends to use HOME funds for homebuyers,

the guidelines for resale or recapture as required in

Sec. 92.254(a)(5);

(5) If the insular area intends to use HOME funds for tenant-based

rental assistance, a description of how the program will be

administered consistent with the minimum guidelines described in

Sec. 92.209;

(6) If an insular area intends to use other forms of investment not

described in Sec. 92.205(b), a description of the other forms of

investment;

(7) A statement of the policy and procedures to be followed by the

insular area to meet the requirements for affirmative marketing, and

establishing and overseeing a minority and women business outreach

program under Sec. 92.351;

(8) If the insular intends to use HOME funds for refinancing along

with rehabilitation, the insular area's guidelines described in

Sec. 92.206(b).

(c) Certifications. The following certifications must accompany the

program description:

(1) A certification that, before committing funds to a project, the

insular area will evaluate the project in accordance with guidelines

that it adopts for this purpose and will not invest any more HOME funds

in combination with other governmental assistance than is necessary to

provide affordable housing;

(2) If the insular area intends to provide tenant-based rental

assistance, the certification required by Sec. 92.209;

(3) A certification that the submission of the program description

is authorized under applicable law and the insular area possesses the

legal authority to carry out the HOME Investment Partnerships Program,

in accordance with the HOME regulations;

(4) A certification that it will comply with the acquisition and

relocation requirements of the Uniform Relocation Assistance and Real

Property Acquisition Policies Act of 1970, as amended, implementing

regulations at 49 CFR part 24 and the requirements of Sec. 92.353;

(5) A certification that the insular area will use HOME funds in

compliance with all requirements of this part;

(6) The certification with regard to the drug-free workplace

required by 24 CFR part 24, subpart F; and

(7) The certification required with regard to lobbying required by

24 CFR part 87, together with disclosure forms, if required by 24 CFR

part 87.

Sec. 92.62 Review of program description and certifications.

(a) Review of program description. The responsible HUD Field Office

will review an insular area's program description and will approve the

description unless the insular area has failed to submit information

sufficient to allow HUD to make the necessary determinations required

for Sec. 92.61

[[Page 48756]]

(b)(4), (b)(6), and (b)(7), or the guidelines under (b)(8) are not

satisfactory to HUD, if applicable; or if the level of proposed

projects or eligible activities is not within the management capability

demonstrated by past performance in housing and community development

programs. If the insular area has not submitted information on

Sec. 92.61 (b)(4), (b)(6), and (b)(7), or the guidelines under (b)(8)

are not satisfactory to HUD, if applicable; or if the level of proposed

projects or eligible activities is not within the management capability

demonstrated by past performance in housing and community development

programs, the insular area may be required to furnish such further

information or assurances as HUD may consider necessary to find the

program description and certifications satisfactory. The HUD Field

Office shall work with the insular area to achieve a complete and

satisfactory program description.

(b) Review period. Within thirty days of receipt of the program

description, the HUD Field Office will notify the insular area if

determinations cannot be made under Sec. 92.61 (b)(4), (b)(6), (b)(7),

or (b)(8) with the supporting information submitted, or if the proposed

projects or activities are beyond currently demonstrated capability.

The insular area will have a reasonable period of time, agreed upon

mutually, to submit the necessary supporting information or to revise

the proposed projects or activities in its program description.

(c) HOME Investment Partnership Agreement. After HUD Field Office

approval under this section, a HOME funds allocation is made by HUD

execution of the agreement, subject to execution by the insular area.

The funds are obligated on the date HUD notifies the insular area of

HUD's execution of the agreement.

Sec. 92.63 Amendments to program description.

An insular area must submit to HUD for approval any substantial

change in its HUD-approved program description that it makes and must

document any other changes in its file. A substantial change involves a

change in the guidelines for resale or recapture (Sec. 92.61(b)(4)),

other forms of investment (Sec. 92.61(b)(6)), minority and women

business outreach program (Sec. 92.61(b)(7)) or refinancing

(Sec. 92.61(b)(8)); or a change in the tenure type of the project or

activities; or a funding increase to a project or activity of $100,000

or 50% (whichever is greater). The HUD Field Office will notify the

insular area if its program description, as amended, does not permit

determinations to be made under Sec. 92.61 (b)(4), (b)(6), (b)(7), or

(b)(8), or if the level of proposed projects or eligible activities is

not within the management capability demonstrated by past performance

in housing and community development programs, within 30 days of

receipt. The insular area will have a reasonable period of time, agreed

upon mutually, to submit the necessary supporting information to revise

the proposed projects or activities in its program description.

Sec. 92.64 Applicability of requirements to insular areas.

(a) Insular areas are subject to the same requirements in subpart E

(Program Requirements), subpart F (Project Requirements), subpart K

(Program Administration), and subpart L (Performance Reviews and

Sanctions) of this part as participating jurisdictions, except for the

following:

(1) Subpart E (Program Requirements): Administrative costs, as

described in Sec. 92.207, are eligible costs for insular areas in an

amount not to exceed 15 percent of the HOME funds provided to the

insular area. The matching contribution requirements in this part do

not apply.

(2) Subpart K (Program Administration):

(i) Section 92.500 (The HOME Investment Trust Fund) does not apply.

HUD will establish a HOME account in the United States Treasury for

each insular area and the HOME funds must be used for approved

activities. A local account must be established for program income.

Each insular area may use either a separate local HOME account or a

subsidiary account within its general fund (or other appropriate fund)

as the local HOME account. HUD will recapture HOME funds in the HOME

Treasury account by the amount of:

(A) Any funds that are not committed within 24 months after the

last day of the month in which HUD notifies the insular area of HUD's

execution of the HOME Investment Partnership Agreement;

(B) Any funds that are not expended within five years after the

last day of the month in which HUD notifies the insular area of HUD's

execution of the HOME Investment Partnership Agreement; and

(C) Any penalties assessed by HUD under Sec. 92.552.

(ii) Section 92.502 (Program disbursement and information system)

applies, except that references to the HOME Investment Trust Fund mean

HOME account. In addition, Sec. 92.502(c) does not apply, and instead

compliance with Treasury Circular No. 1075 (31 CFR part 205) and 24 CFR

85.21 is required.

(iii) Section 92.503 (Program income, repayments, and recaptured

funds) applies, except that the funds may be retained provided the

funds are used for eligible activities in accordance with the

requirements of this section.

(3) Section 92.504 (Participating jurisdiction responsibilities;

written agreements; on-site inspections) applies, except that the

written agreement must ensure compliance with the requirements in this

section.

(4) Section 92.508 (Recordkeeping) applies with respect to the

records that relate to the requirements of this section.

(5) Section 92.509 (Performance reports) applies, except that a

performance report is required for the fiscal year allocation only

after completion of the approved projects funded by the allocation.

(6) Subpart L (Performance Reviews and Sanctions): Section 92.552

does not apply. Instead, Sec. 92.65 applies.

(b) The requirements of subpart H (Other Federal Requirements) of

this part apply as follows: Sec. 92.357 Executive Order 12372 applies

as written, and the requirements of the remaining sections which apply

to participating jurisdictions are applicable to the insular areas.

(c) Subpart B (Allocation Formula), subpart C (Consortia;

Designation and Revocation as a Participating Jurisdiction), subpart D

(Submission Requirements), and subpart G (Community Housing Development

Organizations) of this part do not apply.

(d) Subpart A (General) applies, except that for the definitions of

``commitment'', ``program income'', and ``subrecipient'',

``participating jurisdiction'' means ``insular area.''

Sec. 92.65 Funding sanctions.

Following notice and opportunity for informal consultation, HUD may

withhold, reduce or terminate the assistance where any corrective or

remedial actions taken under Sec. 92.551 fail to remedy an insular

area's performance deficiencies, and the deficiencies are sufficiently

substantial, in the judgment of HUD, to warrant sanctions.

Sec. 92.66 Reallocation.

Any HOME funds which are reduced or recaptured from an insular

area's allocation and which are not used to increase the allocation

amount for one or more of the remaining insular areas as provided in

Sec. 92.60 of this part, will be reallocated by HUD to the States in

[[Page 48757]]

accordance with the requirements in subpart J for reallocating funds

initially allocated to a State.

Subpart C--Consortia; Designation and Revocation of Designation as

a Participating Jurisdiction

Sec. 92.100 [Reserved]

Sec. 92.101 Consortia.

(a) A consortium of geographically contiguous units of general

local government is a unit of general local government for purposes of

this part if the requirements of this section are met.

(1) One or more members of a proposed consortium or an existing

consortium whose consortium qualification terminates at the end of the

fiscal year, must provide written notification by March 1 to the HUD

Field Office of its intent to participate as a consortium in the HOME

Program for the following fiscal year. Provided that subsequent

deadlines could be met, the Field Office may accept notification at a

later date.

(2) The proposed consortium must provide, at such time and in a

manner and form prescribed by HUD, the qualification documents, which

will include submission of:

(i) A written certification by the State that the consortium will

direct its activities to alleviation of housing problems within the

State; and

(ii) Documentation which demonstrates that the consortium has

executed one legally binding cooperation agreement among its members

authorizing one member unit of general local government to act in a

representative capacity for all member units of general local

government for the purposes of this part and providing that the

representative member assumes overall responsibility for ensuring that

the consortium's HOME Program is carried out in compliance with the

requirements of this part.

(3) Before the end of the fiscal year in which the notice of intent

and documentation are submitted, HUD must determine that the consortium

has sufficient authority and administrative capability to carry out the

purposes of this part on behalf of its member jurisdictions. HUD will

endeavor to make its determination as quickly as practicable after

receiving the consortium's documentation in order to provide the

consortium an opportunity to correct its submission, if necessary. If

the submission is deficient, HUD will work with the consortium to

resolve the issue, but will not delay the formula allocations.

(b) A metropolitan city or an urban county may be a member of a

consortium. A unit of general local government that is included in an

urban county may be part of a consortium, only if the urban county

joins the consortium. The included local government cannot join the

consortium except through participation in the urban county.

(c) A non-urban county may be a member of a consortium. However,

the county cannot on its own include the whole county in the

consortium. A unit of local government located within the non-urban

county that wishes to participate as a member of the consortium must

sign the HOME consortium agreement.

(d) If the representative unit of general local government

distributes HOME funds to member units of general local government, the

representative unit is responsible for applying to the member units of

general local government the same requirements as are applicable to

subrecipients.

(e) The consortium's qualification as a unit of general local

government continues for a period of three successive Federal fiscal

years, or until HUD revokes its designation as a participating

jurisdiction, or until an urban county member fails to requalify under

the CDBG program as an urban county for a fiscal year included in the

consortium's qualification period, or the consortium fails to receive a

HOME allocation for the first Federal fiscal year of the consortium's

qualification period and does not request to be considered to receive a

HOME allocation in each of the subsequent two years. However, if a

member urban county's three year CDBG qualification cycle is not the

same as the consortium, the consortium may elect a shorter

qualification period than three years to synchronize with the urban

county's qualification period. During the period of qualification,

additional units of general local government may join the consortium,

but no included unit of general local government may withdraw from the

consortium. See 24 CFR part 91, subpart E, for consolidated plan

requirements for consortia, including the requirement that all members

of the consortia must be on the same program year.

Sec. 92.102 Participation threshold amount.

(a) To be eligible to become a participating jurisdiction, a unit

of general local government must have a formula allocation under

Sec. 92.50 that is equal to or greater than $750,000; or

(b) If a unit of general local government's formula allocation is

less than $750,000, HUD must find:

(1) The unit of general local government has a local PHA and has

demonstrated a capacity to carry out the provisions of this part, as

evidenced by satisfactory performance under one or more HUD-

administered programs that provide assistance for activities comparable

to the eligible activities under this part; and

(2) The State has authorized HUD to transfer to the unit of general

local government a portion of the State's allocation or the State, the

unit of general local government, or both, has made available its own

resources such that the sum of the amounts transferred or made

available are equal to or greater than the difference between the unit

of general local government's formula allocation and $750,000.

(c) In fiscal years in which Congress appropriates less than $1.5

billion for this part, $500,000 is substituted for $750,000 each time

it appears in this section.

Sec. 92.103 Notification of intent to participate.

(a) Not later than 30 days after receiving notice of its formula

allocation amount, a jurisdiction must notify HUD in writing of its

intention to become a participating jurisdiction.

(b) A unit of general local government that has a formula

allocation of less than $750,000, or less than $500,000 in fiscal years

in which Congress appropriates less than $1.5 billion for this part,

must submit, with its notice, one or more of the following, as

appropriate, as evidence that it has met the threshold allocation

requirements in Sec. 92.102(b):

(1) Authorization from the State to transfer a portion of its

allocation to the unit of general local government;

(2) A letter from the governor or designee indicating that the

required funds have been approved and budgeted for the unit of general

local government;

(3) A letter from the chief executive officer of the unit of

general local government indicating that the required funds have been

approved and budgeted.

Sec. 92.104 Submission of a consolidated plan.

A jurisdiction that has not submitted a consolidated plan to HUD

must submit to HUD, not later than 90 days after providing notification

under Sec. 92.103, a consolidated plan in accordance with 24 CFR part

91.

Sec. 92.105 Designation as a participating jurisdiction.

When a jurisdiction has complied with the requirements of

Secs. 92.102 through 92.104 and HUD has approved the jurisdiction's

consolidated plan in accordance with 24 CFR part 91, HUD

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will designate the jurisdiction as a participating jurisdiction.

Sec. 92.106 Continuous designation as a participating jurisdiction.

Once a State or unit of general local government is designated a

participating jurisdiction, it remains a participating jurisdiction for

subsequent fiscal years and the requirements of Secs. 92.102 through

92.105 do not apply, unless HUD revokes the designation in accordance

with Sec. 92.107.

Sec. 92.107 Revocation of designation as a participating jurisdiction.

HUD may revoke a jurisdiction's designation as a participating

jurisdiction if:

(a) HUD finds, after reasonable notice and opportunity for hearing

as provided in Sec. 92.552(b) that the jurisdiction is unwilling or

unable to carry out the provisions of this part, including failure to

meet matching contribution requirements; or

(b) The jurisdiction's formula allocation falls below $750,000 (or

below $500,000 in fiscal years in which Congress appropriates less than

$1.5 billion for this part) for three consecutive years, below $625,000

(or below $410,000 in fiscal years in which Congress appropriates less

than $1.5 billion for this part) for two consecutive years, or the

jurisdiction does not receive a formula allocation in any one year.

(c) When HUD revokes a participating jurisdiction's designation as

a participating jurisdiction, HUD will reallocate any remaining funds

in the jurisdiction's HOME Investment Trust Fund established under

Sec. 92.500 in accordance with Sec. 92.451.

Subpart D--Submission Requirements

Sec. 92.150 Submission requirements.

In order to receive its HOME allocation, a participating

jurisdiction must submit a consolidated plan in accordance with 24 CFR

part 91. That part includes requirements for the content of the

consolidated plan, the process of developing the consolidated plan,

including citizen participation, the submission date, HUD approval, and

amendments.

Subpart E--Program Requirements

Sec. 92.200 Private-public partnership.

Each participating jurisdiction must make all reasonable efforts to

maximize participation by the private sector in accordance with section

221 of the Act.

Sec. 92.201 Distribution of assistance.

(a) Local. (1) Each local participating jurisdiction must, insofar

as is feasible, distribute HOME funds geographically within its

boundaries and among different categories of housing need, according to

the priorities of housing need identified in its approved consolidated

plan.

(2) The participating jurisdiction may only invest its HOME funds

in eligible projects within its boundaries, or in joint projects within

the boundaries of contiguous local jurisdictions which serve residents

from both jurisdictions.

(b) State. (1) Each State participating jurisdiction is responsible

for distributing HOME funds throughout the State according to the

State's assessment of the geographical distribution of the housing

needs within the State, as identified in the State's approved

consolidated plan. The State must distribute HOME funds to rural areas

in amounts that take into account the non-metropolitan share of the

State's total population and objective measures of rural housing need,

such as poverty and substandard housing, as set forth in the State's

approved consolidated plan. To the extent the need is within the

boundaries of a participating unit of general local government, the

State and the unit of general local government shall coordinate

activities to address that need.

(2) A State may carry out its own HOME program without active

participation of units of general local government or may distribute

HOME funds to units of general local government to carry out HOME

programs in which both the State and all or some of the units of

general local government perform specified program functions. A unit of

general local government designated by a State to receive HOME funds

from a State is a State recipient.

(3) (i) A State that uses State recipients to perform program

functions shall ensure that the State recipients us

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