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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A96-22864

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** September 16, 1996
- **Citation:** 61 FR 48736

## Text

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

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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

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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A96-22864. Public record. Not legal advice.