Tenant Participation in Multifamily Housing Projects

SUMMARY: This rule consolidates into one subpart the nearly identical

provisions concerning tenant participation in certain mortgagor

initiated actions that require HUD approval. Currently, these

procedures are found in four subparts. The rule also provides an easier

to follow statement of applicability.

EFFECTIVE DATE: December 9, 1996.

FOR FURTHER INFORMATION CONTACT: Barbara D. Hunter, Director, Program

Management Division, Office of Multifamily Housing Development, Room

6184, Department of Housing and Urban Development, 451 Seventh Street,

SW., Washington, DC 20410-8000, telephone (202) 708-4162. (This is not

a toll-free telephone number.) Hearing- or speech-impaired individuals

may access this number via TTY by calling the Federal Information Relay

Service at 1-800-877-8339.

SUPPLEMENTARY INFORMATION:

Background

On March 4, 1995, President Clinton issued a memorandum to all

Federal departments and agencies regarding regulatory reinvention. In

response to this memorandum, the Department of Housing and Urban

Development conducted a page-by-page review of its regulations to

determine which can be eliminated, consolidated, or otherwise improved.

As a result of this review the Department determined that 24 CFR

part 245 could be streamlined to make it more understandable and easier

to use. Part 245 implements various provisions of section 202 of the

Housing and Community Development Amendments of 1978 (42 U.S.C. 1715z-

1b). It contains provisions on tenants' right to organize, on

noninterference with tenants' efforts to obtain assistance, and the

procedures for tenant participation in several mortgagor initiated

actions that require HUD approval.

Part 245 applies to certain types of multifamily housing projects,

each of which is or has been subsidized by HUD. This includes assisted

projects that are or were insured by HUD under the National Housing

Act, projects with direct loans from HUD under section 202 of the

Housing and Urban Development Act of 1965, and State and local housing

agency financed projects that receive section 236 or Rent Supplement

assistance.

This rule revises Sec. 245.10 to make it easier for the user to

move from the information known to the user, namely, type of project

and financing and get the information the user seeks from the section,

namely, which subparts apply to a specific project.

Under the current rule there are five subparts containing tenant

participation procedures. Subparts D through H concern, respectively,

approvals of: (1) Increase in maximum permissible rents, (2) conversion

from project-paid utilities to tenant paid utilities, (3) conversion of

residential units to a nonresidential use, or to cooperative housing or

condominiums, (4) partial release of mortgage security, and (5) major

capital additions to the project.

This rule consolidates into one subpart (subpart E) the procedures

for the actions described in items (2) through (5), above. It does not

substantively alter the procedures. Rather, it reflects the fact that

each of the current separate procedures are substantially the same and

lend themselves to being consolidated. The Department has retained a

separate subpart (subpart D) for tenant rent increase procedures. While

the overall rent increase process is similar to the other tenant

participation procedures, it is sufficiently different in detail that

it would not be helpful to the user to consolidate it with the other

procedures.

The rule also makes a conforming amendment to Sec. 245.15(a) and

updates cross-references in Sec. 245.205.

Justification for Final Rulemaking

The Department generally publishes a rule for public comment before

issuing a rule for effect, in accordance with its regulations on

rulemaking in 24 CFR part 10. However, part 10 provides for exceptions

to the general rule if the agency finds good cause to omit advance

notice and public participation. The good cause requirement is

satisfied when prior public procedure is ``impracticable, unnecessary,

or contrary to the public interest'' (24 CFR 10.1). The Department

finds that good cause exists to publish this rule for effect without

first soliciting public comment. This rule clarifies and consolidates

regulatory provisions and does not establish or affect substantive

policy. Therefore, prior public comment is unnecessary.

Findings and Certifications

Paperwork Reduction Act Statement

This rule does not alter existing information collection

requirements. The information collection requirements contained in

Secs. 245.416, 245.417, 245.418, 245.419, and 245.425 of this rule were

previously submitted to the Office of Management and Budget for review

under the Paperwork Reduction Act of 1995 (42 U.S.C. 3501-3520) and

have been approved under the control number 2502-0310. 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.

Regulatory Flexibility Act

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

U.S.C. 605(b)) has reviewed and approved this final rule, and in so

doing certifies that this rule will not have a significant economic

impact on a substantial number of small entities. This rule streamlines

the 24 CFR part 245 by removing redundant provisions. The rule will

have no adverse or disproportionate economic impact on small

businesses.

Environment

A Finding of No Significant Impact with respect to the environment

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

implementing section 102(2)(C) of the National Environmental Policy Act

of 1969, 42 U.S.C. 4332. The Finding of No Significant Impact is

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

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

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

Unfunded Mandates Reform Act

The Secretary has reviewed this rule before publication and by

approving it certifies, in accordance with the Unfunded Mandates Reform

Act of 1995 (2 U.S.C. 1532), that this rule does not impose a Federal

mandate that will result in the expenditure by State, local, and tribal

governments, in the aggregate, or by the private sector, of $100

million or more in any one year.

Executive Order 12612, Federalism

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

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

contained in this rule do not have federalism implications and, thus,

are not subject

[[Page 57961]]

to review under the Order. No programmatic or policy changes result

from its promulgation which would affect the existing relationship

between the Federal government and State and local government.

Executive Order 12606, The Family

The General Counsel, as the Designated Official under Executive

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

potential for significant impact on family formation, maintenance, and

general well-being, and, thus, is not subject to review under the

Order. No significant change in existing HUD policies or programs will

result from promulgation of this rule as those policies and programs

relate to family concerns.

List of Subjects in 24 CFR Part 245

Condominiums, Cooperatives, Grant programs--housing and community

development, Loan programs--housing and community development, Low and

moderate income housing, Rent subsidies, Reporting and recordkeeping

requirements, Utilities.

Accordingly, part 245 of title 24 of the Code of Federal

Regulations is amended as follows:

PART 245--TENANT PARTICIPATION IN MULTIFAMILY HOUSING PROJECTS

1. The authority citation for part 245 is revised to read as

follows:

Authority: 12 U.S.C. 1715z-1b; 42 U.S.C. 3535(d).

2. Section 245.10 is revised to read as follows:

Sec. 245.10 Applicability of part.

(a) Except as otherwise expressly limited in this section, this

part applies in its entirety to a mortgagor of any multifamily housing

project that meets the following--

(1) Project subject to HUD insured or held mortgage under the

National Housing Act. The project has a mortgage that--

(i) Has received final endorsement on behalf of the Secretary and

is insured or held by the Secretary under the National Housing Act (12

U.S.C. 1701--1715z-20); and

(ii) Is assisted under:

(A) Section 236 of the National Housing Act (12 U.S.C. 1715z-1);

(B) The Section 221(d)(3) BMIR Program;

(C) The Rent Supplement Program;

(D) The Section 8 Loan Management Set-Aside Program following

conversion to such assistance from the Rent Supplement Program

assistance;

(2) Section 202 project. The project has a direct mortgage loan

from HUD at a below-market interest rate under the Section 202 Loans

for the Elderly or Handicapped BMIR Program. This part applies in its

entirety to the mortgagor if the project is assisted under the Rent

Supplement Program or under the Section 8 LMSA Program following

conversion to such assistance from Rent Supplement Program assistance.

If the project is not so assisted, only subparts A, D, and E of this

part apply to the mortgagor;

(3) Formerly HUD-owned project. The project--

(i) Before being acquired by the Secretary, was assisted under:

(A) Section 236 of the National Housing Act (12 U.S.C. 1715z-1);

(B) The Section 221(d)(3) BMIR Program;

(C) The Rent Supplement Program; or

(D) The Section 8 LMSA Program following conversion to such

assistance from assistance under the Rent Supplement Program; and

(ii) Was sold by the Secretary subject to a mortgage insured or

held by the Secretary and an agreement to maintain the low- and

moderate-income character of the project; or

(4) State or local housing finance agency project. The project

receives assistance under section 236 of the National Housing Act (12

U.S.C. 1715z-1) or the Rent Supplement Program administered through a

State or local housing finance agency, but does not have a mortgage

insured under the National Housing Act or held by the Secretary.

Subject to the further limitation in paragraph (b) of this section,

only the provisions of subparts A and C of this part and of subpart D

of this part for requests for approval of a conversion of a project

from project-paid utilities to tenant-paid utilities or of a reduction

in tenant utility allowances, apply to a mortgagor of such a project.

(b) Limitation for cooperative mortgagor. Only the provisions of

subparts A and C of this part apply to a mortgagor of any multifamily

housing project described in paragraph (a) of this section if the

mortgagor is a cooperative housing corporation or association.

(c) Definitions.

Rent Supplement Program means the assistance program authorized by

section 101 of the Housing and Urban Development Act of 1965 (12 U.S.C.

1701s).

Section 8 LMSA Program means the Section 8 Loan Management Set-

Aside Program implemented under 24 CFR part 886, subpart A.

Section 202 Loans for the Elderly or Handicapped BMIR Program means

the below-market interest rate loan program authorized under section

202 of the Housing Act of 1959, as in effect before August 22, 1974 (12

U.S.C. 1701q).

Section 221(d)(3) BMIR Program means the below-market interest rate

mortgage insurance program under section 221(d)(3) and the proviso of

section 221(d)(5) of the National Housing Act (12 U.S.C. 1715l(d)(3)

and 1715l(d)(5)).

3. In Sec. 245.15, paragraph (a) is revised to read as follows:

Sec. 245.15 Notice to tenants.

(a) Whenever a mortgagor is required under subparts D or E of this

part to serve notice on the tenants of a project, the notice must be

served by delivery, except, for a high-rise project, the notice may be

served either by delivery or by posting. If service is made by

delivery, a copy of the notice must be delivered directly to each unit

in the project or mailed to each tenant. If service is made by posting,

the notice must be posted in at least three conspicuous places within

each building in which the affected dwelling units are located and,

during any prescribed tenant period, in a conspicuous place at the

address stated in the notice where the materials in support of the

mortgagor's proposed action are to be made available for inspection and

copying. Posted notices must be maintained intact and in legible form

during any prescribed notice period.

* * * * *

Sec. 245.205 [Amended]

4. In Sec. 245.205:

a. Paragraph (b) is amended by removing the words ``under part 215

of this chapter'' and adding, in their place, the words ``under section

101 of the Housing and Urban Development Act of 1965 (12 U.S.C.

1701s)''; and

b. Paragraph (c) is amended by removing the words ``part 882'' and

adding, in their place, the words ``part 982''.

5. Subpart E is revised to read as follows:

Subpart E--Procedures for Requesting Approval of a Covered Action

Sec.

245.405 Applicability of subpart.

245.410 Notice to tenants.

245.415 Submission of materials to HUD: Timing of submission.

245.416 Initial submission of materials to HUD: Conversion from

project-paid utilities to tenant-paid utilities or a reduction in

tenant utility allowances.

[[Page 57962]]

245.417 Initial submission of materials to HUD: Conversion of

residential units to a nonresidential use, or to cooperative housing

or condominiums.

245.418 Initial submission of materials to HUD: Partial release of

mortgage security.

245.419 Initial submission of materials to HUD: Major capital

additions.

245.420 Rights of tenants to participate.

245.425 Submission of request for approval to HUD.

245.430 Decision on request for approval.

245.435 Non-insured projects: Conversion from project-paid

utilities to tenant-paid utilities or a reduction in tenant utility

allowances.

Subpart E--Procedures for Requesting Approval of a Covered Action

Sec. 245.405 Applicability of subpart.

The requirements of this subpart apply to any request by a

mortgagor, as provided by Sec. 245.10, for HUD approval of one or more

of the following covered actions:

(a) Conversion of a project from project-paid utilities to tenant-

paid utilities, or a reduction in tenant utility allowances.

(b) Conversion of residential units in a multifamily housing

project to a nonresidential use or to condominiums, or the transfer of

the project to a cooperative housing mortgagor corporation or

association. Conversion of a project to a cooperative or of a portion

of a project to nonresidential use does not constitute a change of use

requiring mortgagee approval.

(c) A partial release of mortgage security. The requirements of

this subpart, however, do not apply to any release of property from a

mortgage lien with respect to a utility easement or a public taking of

such property by condemnation or eminent domain.

(d) Making major capital additions to the project. For the purposes

of this subpart, the term ``major capital additions'' includes only

those capital improvements that represent a substantial addition to the

project. Upgrading or replacing existing capital components of the

project does not constitute a major capital addition to the project.

Sec. 245.410 Notice to tenants.

At least 30 days before submitting a request to HUD for approval of

an action described in Sec. 245.405, the mortgagor must serve notice of

the proposed covered action on the project tenants, as provided in

Sec. 245.15. The notice shall state that--

(a) The mortgagor intends to submit a request to HUD for approval

of the covered action or actions specified in the notice;

(b) The tenants have the right to participate as provided in

Sec. 245.420, and what those rights are, including the address at which

the materials required to be made available for inspection and copying

under that section are to be kept;

(c) Tenant comments on the proposed covered action may be sent to

the mortgagor at a specified address or directly to the local HUD

office, and comments sent to the mortgagor will be transmitted to HUD,

along with the mortgagor's evaluation of them, when the request for

HUD's approval is submitted;

(d) HUD will approve or disapprove the proposed action, based upon

its review of the information submitted and all tenant comments

received. In the case of a proposed reduction in tenant-paid utilities,

the notice must also state that HUD may adjust the proposed reduction

upward or downward;

(e) In the case of a proposed conversion of residential units,

partial release of mortgage security, or major capital additions to the

project, the proposed action may require the owner to request HUD

approval of a rent increase; and

(f) The mortgagor will notify the tenants of HUD's decision and it

will not begin to effect any approved action (in accordance with the

terms of existing leases) until at least 30 days from the date of

service of the notification.

Sec. 245.415 Submission of materials to HUD: Timing of submission.

(a) Initial submission. The mortgagor must submit the materials

applicable to the covered action, as specified in Secs. 245.416 through

245.419, to the local HUD office when the notice required under

Sec. 245.410 is served on the tenants.

(b) Subsequent submission. If additional notice under

Sec. 245.420(c) is required, the mortgagor must submit to HUD any

changes to the materials required under Secs. 245.416 through 245.419

when the notice required under Sec. 245.420(c) is served on the

tenants.

Sec. 245.416 Initial submission of materials to HUD: Conversion from

project-paid utilities to tenant-paid utilities or a reduction in

tenant utility allowances.

In the case of a conversion from project-paid utilities to tenant-

paid utilities or a reduction in tenant utility allowances, the

mortgagor must submit the following materials to the local HUD office:

(a) A copy of the notice to tenants;

(b) In the case of a proposed conversion from project-paid

utilities to tenant-paid utilities--

(1) A statement indicating:

(i) The type of utility or utilities involved;

(ii) The number of units in the project by type and size;

(iii) The average utility consumption data by unit type and size

for comparable projects, and utility rate information, as obtained from

the utility supplier;

(iv) The estimated monthly cost of the utilities to be paid by the

tenants by unit type and size, based upon the consumption data and rate

information described in paragraph (b)(1)(iii) of this section;

(v) The monthly cost for the past year of paying for the utility or

utilities involved on a project basis (actual cost) and by unit type

and size (estimated breakdown);

(vi) An estimate of the cost of conversion, as obtained from the

utility supplier or from bids from contractors;

(vii) The source and terms of financing for the conversion (to the

extent known); and

(viii) The estimated effect of the conversion on the total housing

costs of the tenants by unit type and size, taking into account the

estimated cost of conversion (including the cost of its financing), the

estimated monthly cost of utilities to be paid by the tenants by unit

type and size, the proposed utility allowances, and the estimated

change in the rents paid to the mortgagor resulting from the

conversion; and

(2) A copy of the portion of the project's Energy Conservation Plan

which addresses the cost-effectiveness determination associated with

converting the project to tenant-paid utilities; and

(c) In the case of a proposed reduction in tenant utility

allowances, a statement indicating the information described in

paragraphs (b)(1)(i), (b)(1)(ii), (b)(1)(iii) and (b)(1)(iv) of this

section, the utility allowances proposed for reduction, and a

justification of the proposed reduction.

(Approved by the Office of Management and Budget under control

number 2502-0310)

Sec. 245.417 Initial submission of materials to HUD: Conversion of

residential units to a nonresidential use, or to cooperative housing or

condominiums.

In the case of a conversion of residential units to a

nonresidential use, or to cooperative housing or condominiums, the

mortgagor must submit the following materials to the local HUD office

in accordance with Secs. 245.415 and 245.419:

(a) In the case of a proposed conversion of residential rental

units to nonresidential use:

[[Page 57963]]

(1) A statement describing the proposed conversion;

(2) A statement describing the estimated effect of the proposed

conversion on the value of the project, the project rent schedule, the

number of dwelling units in the project, a list of the units to be

converted and their occupancy, the amount of subsidy available to the

project, and the project income and expenses (including property

taxes);

(3) A statement assessing the compatibility of the proposed

nonresidential use with the residential character of the project;

(4) Written approval of the mortgagee if required;

(5) An undertaking by the mortgagor to pay all relocation costs

that may be required by HUD for tenants required to vacate the project

because of the conversion; and

(6) A copy of the notice to tenants.

(b) In the case of a proposed transfer of the project to a

cooperative housing mortgagor corporation or association (conversion of

residential rental units to residential cooperative housing), the

materials specified in paragraphs (a)(1), (a)(2) and (a)(3) of this

section and the following additional materials:

(1) An estimate of the demand for cooperative housing, including an

estimate of the number of present tenants interested in purchasing

cooperative housing;

(2) Estimates of downpayments and monthly carrying charges that

will be required; and

(3) Copies of proposed organizational documents, including By-Laws,

Articles of Incorporation, Subscription Agreement, Occupancy Agreement,

and Sale Document.

(c) In the case of a proposed conversion of residential rental

units to condominium units, the materials specified in paragraphs

(a)(1), (a)(4), and (a)(6) of this section and the following additional

materials:

(1) An estimate of the demand for condominium housing, including an

estimate of the number of present tenants interested in purchasing

units;

(2) Estimates of downpayments, monthly mortgage payments and

condominium association fees that will be required; and

(3) A list of the units to be converted and their occupancy.

(Approved by the Office of Management and Budget under control

number 2502-0310)

Sec. 245.418 Initial submission of materials to HUD: Partial release

of mortgage security.

In the case of a partial release of mortgage security, the

mortgagor must submit the following materials to the local HUD office:

(a) A statement describing the portion of the property that is

proposed to be released and the transaction requiring the release;

(b) A statement describing the estimated effect of the proposed

release on the value of the project, the number of dwelling units in

the project, the project income and expenses (including property

taxes), the amount of subsidy available to the project, and the project

rent schedule;

(c) A statement describing the proposed use of the property to be

released and the persons who will have responsibility for the operation

and maintenance of that property, and assessing the compatibility of

that use with the residential character of the project;

(d) A statement describing the proposed use of any proceeds to be

received by the mortgagor as a result of the release; and

(e) A copy of the notice to tenants.

(Approved by the Office of Management and Budget under control

number 2502-0310)

Sec. 245.419 Initial submission of materials to HUD: Major capital

additions.

In the case of major capital additions, the mortgagor must submit

the following materials to the local HUD office:

(a) The general plans and sketches of the proposed capital

additions;

(b) A statement describing the estimated effect of the proposed

capital additions on the value of the project, the project income and

expenses (including property taxes), and the project rent schedule;

(c) A statement describing how the proposed capital additions will

be financed and the effect, if any, of that financing on the tenants;

(d) A statement assessing the compatibility of the proposed capital

additions with the residential character of the project; and

(e) A copy of the notice to tenants.

(Approved by the Office of Management and Budget under control

number 2502-0310)

Sec. 245.420 Rights of tenants to participate.

(a) The tenants (including any legal or other representatives

acting for tenants individually or as a group) must have the right to

inspect and copy the materials that the mortgagor is required to submit

to HUD pursuant to Sec. 245.415, for a period of 30 days from the date

on which the notice required under Sec. 245.410 is served on the

tenants. During this period, the mortgagor must provide a place (as

specified in the notice) reasonably convenient to tenants in the

project where tenants and their representatives can inspect and copy

these materials during normal business hours.

(b) The tenants have the right during this period to submit written

comments on the proposed conversion to the mortgagor and to the local

HUD office. Tenant representatives may assist tenants in preparing

these comments.

(c) If the mortgagor, whether at HUD's request or otherwise, makes

any material change during a tenant comment period in the materials

submitted to HUD pursuant to Sec. 245.415, the mortgagor must notify

the tenants of the change, in the manner provided in Sec. 245.15, and

make the materials as changed available for inspection and copying at

the address specified in the notice for this purpose. The tenants have

a period of 15 days from the date of service of this additional notice

(or the remainder of any applicable comment period, if longer) in which

to inspect and copy the materials as changed and to submit comments on

the proposed covered action, before the mortgagor may submit its

request to HUD for approval of the covered action.

Sec. 245.425 Submission of request for approval to HUD.

Upon completion of the tenant comment period, the mortgagor must

review the comments submitted by tenants and their representatives and

prepare a written evaluation of the comments. The mortgagor must then

submit the following materials to the local HUD office:

(a) The mortgagor's written request for HUD approval of the covered

action;

(b) Copies of all written tenant comments;

(c) The mortgagor's evaluation of the tenant comments on the

proposed conversion or reduction;

(d) A certification by the mortgagor that it has complied with all

of the requirements of Sec. 245.410, Sec. 245.415, Secs. 245.416

through 245.419, as applicable, Sec. 245.420, and this section; and

(e) Such additional materials as HUD may have specified in writing.

(Approved by the Office of Management and Budget under control

number 2502-0310)

Sec. 245.430 Decision on request for approval.

(a) After considering the mortgagor's request for approval and the

materials submitted in connection with the request, HUD must notify the

mortgagor in writing of its approval or disapproval of the proposed

covered action, including, if applicable, its adjustment

[[Page 57964]]

upward or downward of the proposed reduction in tenant-paid utilities.

HUD must provide its reasons for its determination.

(b) The mortgagor must notify the tenants of HUD's decision in the

manner provided in Sec. 245.15. If HUD has approved the proposed

covered action, the notice must state:

(1) The effective date of the covered action (which must be at

least 30 days from the date of service of the notice and in accordance

with the terms of existing leases);

(2) In the case of HUD's approval of a conversion from project-paid

utilities to tenant-paid utilities or a reduction in tenant utility

allowances, the amount of the rent to be paid to the mortgagor and the

utility allowance for each unit; and

(3) In the case of HUD's approval of a conversion of residential

units in a multifamily housing project to a nonresidential use or the

transfer of the project to a cooperative housing mortgagor corporation

or association, which residential rental units are to be converted and

whether the conversion is to nonresidential use or to cooperative or

condominium units.

Sec. 245.435 Non-insured projects: Conversion from project-paid

utilities to tenant-paid utilities or a reduction in tenant utility

allowances.

(a) In the case of a proposed conversion from project-paid

utilities to tenant-paid utilities or a reduction in tenant utility

allowances involving a project that is assisted under section 236 of

the National Housing Act (12 U.S.C. 1715z-1) or section 101 of the

Housing and Urban Development Act of 1965 (12 U.S.C. 1701s) but that

does not have a mortgage insured by HUD or held by the Secretary, the

provisions of this section and of Secs. 245.405 through 245.425 apply

to the mortgagor (project owner), except that--

(1) The notice to tenants required under Sec. 245.410 must be

modified to reflect the procedural changes made by this section;

(2) The materials (including tenant comments) required to be

submitted to HUD under Secs. 245.415 and 245.425 must be submitted to

the State or local agency administering the Section 236 assistance or

rent supplement assistance contracts, rather than to HUD; and

(3) The State or local agency must certify that the mortgagor has

complied with the requirements of Secs. 245.410, 245.415, 245.416,

245.420, and 245.425.

(b) After the State or local agency has considered the request for

approval of a conversion or reduction that meets the requirements of

Sec. 245.425, it must make a determination to approve or disapprove the

conversion, or to approve, adjust upward or downward, or disapprove the

reduction. If the agency determines to approve the conversion or

reduction (as originally proposed or as adjusted), it must submit to

the appropriate local HUD office the mortgagor's request for approval

of the conversion or reduction, along with the comments of the tenants

and the mortgagor's evaluation of the comments, and must certify to HUD

that the mortgagor is in compliance with the requirements of this

subpart. HUD must review the agency's determination and certification

and notify the agency of its approval or disapproval of the proposed

conversion or of its approval, adjustment upward or downward, or

disapproval of the proposed reduction. HUD will not unreasonably

withhold approval of a conversion or reduction approved by the State or

local agency.

(c) If the agency determines to disapprove the conversion or

reduction, there is no HUD review of the agency's determination.

(d) The agency must notify the mortgagor of the final disposition

of the request, and it must furnish the mortgagor with a written

statement of the reasons for its approval or disapproval. The mortgagor

must make the reasons for approval or disapproval known to the tenants,

by service of notice on them as provided in Sec. 245.15. If the agency

has approved the proposed conversion or a reduction, the notice must

set forth the information prescribed in Sec. 245.430(b) (1) and (2).

Subparts F, G, and H [Removed]

6. Subpart F (Secs. 245.505 through 245.530), subpart G

(Secs. 245.605 through 245.630), and subpart H (Secs. 245.705 through

245.730) are removed.

Dated: October 31, 1996.

Nicolas P. Retsinas,

Assistant Secretary for Housing-Federal Housing Commissioner.

[FR Doc. 96-28716 Filed 11-7-96; 8:45 am]

BILLING CODE 4210-27-P