File:
Summary
Docket No. FR-5563-P-01, RIN 2501-AC94
To whom it may concern:
The National Council of State Housing Agencies (NCSHA) is pleased to comment on the HOME Investment Partnerships program (HOME) Proposed Rule on behalf of our state Housing Finance Agency (HFA) members, the majority of whom are the HOME state participating jurisdiction (PJ) in their respective states. NCSHA recognizes the HOME program as vital to providing affordable housing in our country. We have supported HOME from its beginning, and advocating for HOME funding, increased flexibility, and improved efficiency remains one of NCSHA’s top priorities.
NCSHA is a national nonprofit, nonpartisan Washington, DC‐based association that represents the interests of state HFAs before the Administration and the Congress. In addition to our policy and advocacy work, NCSHA provides HFAs education and training and facilitates best practice exchange among them.
HFAs are state‐chartered housing agencies that operate in every state, the District of Columbia, New York City, Puerto Rico, and the U.S. Virgin Islands. Though they vary widely in their characteristics, including their relationship to state government, HFAs have in common their public‐purpose mission to provide affordable housing to the people of their states who need it. HFAs administer a wide range of affordable housing and community development programs, including HOME, tax‐exempt Housing Bonds, the Low Income Housing Tax Credit (Housing Credit), Section 8, down payment assistance, and state trust funds.
HOME uniquely empowers states and localities to respond to the housing needs they judge most pressing, allowing them to serve the whole spectrum of need, from homeless to ownership to disaster recovery, from urban to rural areas, and all low‐income populations, including families with children, the elderly, and persons with special needs. NCSHA urges HUD to continue to provide the flexibility that has made HOME so successful. We support efforts to strengthen HOME but caution against efforts that overly restrict PJ flexibility in administering it.
HFAs, as PJs for entire states, are uniquely positioned to judge and allocate assistance to the most pressing needs in their states and to combine HOME with other federal housing resources such as the Housing Credit and Housing Bonds. However, state PJs are also faced with unique challenges in their administration of HOME. A number of state PJs administer HOME across large geographic and rural areas.
Many provisions in the Proposed Rule will affect HOME administration at the state level differently than at the local level. NCSHA urges HUD to consider how additional requirements or changes will affect state PJs in distinct and unique ways. We have highlighted areas of particular concern in our below comments and suggestions.
Maximum Purchase Price
NCSHA strongly urges HUD to allow PJs to use alternative methods for meeting the maximum purchase price requirement when using HOME funds for owner-occupied rehabilitation. In its current form, the Proposed Rule would sharply curtail rehabilitation projects and programs and would eliminate them in many rural areas or on tribal lands.
Ninety-five percent of the area median sales price is too low in many areas, for the same reasons outlined in the Proposed Rule—age, size, and poor condition of the housing stock; the relatively small number of sales of existing housing that take place, and the small number of new housing units that are produced and sold annually—to allow for owner-occupied rehabilitation. Therefore, performing needed owner-occupied rehabilitation in numerous areas would cause the value of the HOME-assisted property to exceed 95 percent of the median purchase price for the area and would prevent the use of HOME in many of the neediest areas.
The Proposed Rule’s method for calculating an alternative limit based on recent sales is not feasible for many state PJs because of the administrative burden this creates and/or because the necessary data is not available because the state is a non-disclosure state.
Additional methods for establishing a maximum purchase price limit we suggest HUD allow PJs to use include: using the same exemption provided in the Proposed Rule for new construction, continuing to use the FHA 203b limits, or using the Mortgage Revenue Bonds (MRB) purchase price limits.
Qualification as Affordable Rental Housing
NCSHA requests that HUD provide more flexibility around its requirement that all HOME funds invested in a unit that is not occupied within 18 months of the date of project completion trigger repayment. HUD should take changing market circumstances and issues outside the control of the PJ into account before requiring repayment. We also believe that six months is too short a timeframe to require that either the unit be rented or that the PJ be required to report to HUD on its marketing plan and efforts.
Markets vary widely across the country and causes unrelated to need or marketing efforts, such as severe winter weather, can prevent units from being rented or sold within six months in many situations. We request that you allow the PJ more time to market the unit and to move through more of the local market’s rental cycle before requiring reports on marketing. Preparing and submitting the information to HUD and HUD’s efforts to review the information impose increased burdens on both PJs and HUD and should therefore be avoided unless necessary. We also request that HUD provide for an exception within the regulations if the development is affected by extenuating circumstances, such as a natural disaster or fire.
On the Proposed Rule’s requirement that PJs review and approve rents proposed by owners, we believe that the current practice for reviewing rents is sufficient and the added burden the Proposed Rule would impose is not necessary. We request that HUD not include this provision in the Final Rule and that at a minimum, HUD only require PJs to review and approve rents that would be increased by more than 10 percent.
Qualification as Affordable Homeownership Housing
We recognize that Public Law 112-55, providing FY 2012 funding to HUD, included a requirement that any homeownership unit not sold within six months be rented to an eligible tenant. NCSHA does not support this provision and urges HUD not to apply it to HOME funds appropriated after FY 2012. Local homeownership markets fluctuate for a variety of factors and six months does not provide adequate time to account for these natural fluctuations. For example, in some parts of the country the home sales market basically shuts down for extended parts of the year due to severe winter weather. Other homeownership markets may be strongly influenced by the school season. Additionally, the possibility of the homeownership unit being quickly switched to rental housing could add difficulty to developer efforts to secure financing.
We think that extending the timeframe to between 12 and 18 months before requiring a homeownership unit to be rented would address these concerns.
NCSHA is also concerned about the effects of forcing PJs that developed the units for homeownership to manage scattered-site rental properties. We urge HUD to allow PJs to transition rental properties converted because of this provision back to homeownership, as they were originally intended to be, as easily as possible. Converting housing originally intended for homeownership to rental should not trigger the traditional HOME affordability period for rental housing when it is used for rental until an eligible homebuyer is identified.
NCSHA understands the importance of housing counseling and many of our HFAs require housing counseling for a variety of programs. However, we urge HUD to provide enough flexibility such that PJs are not required to require counseling in some of the limited instances where it is either not necessary or feasible. We request that PJs have the flexibility to charge for the cost of counseling.
CHDO Capacity
NCSHA is concerned that the additional requirements on CHDOs proposed in the Rule will result in a reduction of partners available to PJs to meet their goal of producing and providing affordable housing. Some areas already have a very limited number of CHDOs and the increased requirements may reduce that number further. Additionally, requiring that CHDOs already have development experience will impede efforts to build up new CHDOs.
New provisions requiring CHDOs to have paid employee staff with development experience and disallowing the use of consultants or volunteers may cause numerous CHDOs to lose their status and in some cases there are not other qualified CHDOs available to fill the void. In some areas, especially rural areas, CHDOs may not be able to justify bringing on paid staff with development experience for the number of units they produce. This provision may also cause some CHDOs to prioritize development experience over management experience even though the CHDO will need management expertise throughout the compliance period for a development.
We suggest HUD continue to allow CHDOs to use consultants and volunteers for development capacity. Additional options for development capacity may include a written agreement or contract between a CHDO and a nonprofit or governmental entity that can provide the CHDO with staff with development experience as needed or a fee for service arrangement. We also suggest that HUD allow CHDOs to use office space made available to them by governmental entities or for-profits rather than expending scarce funds for other office space.
We request that a PJ’s certification of a CHDO upon committing funds to the CHDO be adequate certification for at least one year, rather than requiring a PJ to recertify the same CHDO every time it commits funds.
CHDO Set-Aside
For housing considered sponsored by a CHDO, HUD should provide flexibility in its requirement that if the limited partnership or limited liability company agreement permits the CHDO to be removed as general partner or sole managing member, the applicable agreement must provide that the removal must be for cause and that the CHDO must be replaced with another CHDO. Housing Credit syndicators will not agree to such stringent ownership restrictions and will thus prevent the combination of HOME and Housing Credit in future CHDO developments. In addition, as stated earlier, some areas have a very limited number of CHDOs and so finding a replacement CHDO may not be possible. We strongly urge HUD to alter the provision to require replacement by another CHDO to the extent feasible but not make it an absolute requirement.
Additionally, we encourage HUD to continue to allow the CHDO or its subsidiary to be a co-general partner, as is currently common in developments including both HOME funds and Housing Credits, and not require that the CHDO or its subsidiary be the sole general partner or sole managing member as required by the Proposed Rule.
NCSHA encourages HUD to not limit the number of developments for which a CHDO can be considered a developer by also requiring the CHDO to be the owner. A CHDO may be qualified to develop a project but may not choose to also own it. Additionally, we again encourage HUD to allow the CHDO to be a co-general partner and not be required to have sole charge of construction.
Also, the Rule appears to eliminate multifamily housing when describing what housing is considered developed by a CHDO and eliminates homebuyer housing when describing what housing is sponsored by a CHDO. We urge HUD to ensure that these remain options in the Final Rule.
We ask that HUD remove “in fee simple absolute” when describing owned housing or to make clear that long-term leasehold arrangements are included in its definition of owned. In some states, leases with terms of at least 99 years are recognized as permanent ownership and leased fee ownership is also used on tribal lands. Its exclusion would result in lost vital partnerships between CHDOs and local units of government.
We request that HUD clarify what documentation must be in place when HOME and set-aside funds are committed and/or committed to a specific local project. We are concerned that this provision would require a CHDO to spend resources determining feasibility and viability for a development with no assurance of funding and they therefore will be unwilling to take the risk.
We also request that HUD provide examples of what should be included in the legally binding agreement. We ask that HUD be as flexible as possible on these provisions and to keep in mind the level of administrative burden and difficulty in securing multiple funding sources, as it provides further guidance on these provisions. Also, while examples are appreciated, we ask that HUD not create an all-inclusive list.
NCSHA urges you to increase the number of activities eligible for the CHDO set-aside. For example, we encourage you to allow homeownership rehabilitation projects, which some CHDOs already undertake, as an eligible CHDO set-aside activity.
Eligible Activities
NCSHA recognizes that the Proposed Rule reflects Public Law 112-55’s requirement that funding for projects not completed within four years of the commitment date be repaid, with allowance for the Secretary to provide a one-year extension. We appreciate the need to use government resources wisely and to recycle resources from uncompleted projects when appropriate, but we urge HUD to provide more flexibility than the Proposed Rule would provide.
For example, the timeline for using HOME funds for pre-development loans is likely to considerably differ from when the funds are used for construction. HOME funds are also frequently combined with other funding sources, such as Housing Credits, and delays with the other funding sources or unexpected construction issues could cause the entire development to fail if repayment of HOME funds is automatically triggered. Unfortunately, some affordable housing developments become delayed for years in litigation. We encourage HUD to allow for exceptions within the regulations if the development is affected by extenuating circumstances causing delays.
If repayment were to be required, we request the flexibility for PJs to provide a housing subsidy other than HOME within the same jurisdiction and meeting HOME program requirements in place of repayment of HOME funds invested in a development not completed within four years, or five years including the one-year extension, of the commitment date.
Income Determination
NCSHA opposes HUD’s proposal to require that PJs examine at least three months of earning documentation to determine income. We encourage HUD to retain the option for PJs to use the Section 8 income definition or the IRS’ definition of adjusted gross income. PJs are able to comply with the Section 8 income definition without examining three months of earning documentation. Additionally, requiring three months of earning documentation for HOME would complicate the federal government’s efforts to streamline federal housing program requirements as part of its alignment initiative.
We recommend that employer statements of income be added as an acceptable method of verifying an individual’s annual income.
We request that subrecipients be allowed to choose the income definition they will use, within the HOME program regulations and subject to PJ guidance, and not be required to all use the same definition.
Whereas the Rule proposes to include all persons in the household for determination of income, we request that HUD specifically exclude the income of live-in aides.
The Rule appears to use the terms family and household interchangeably. We request that HUD use the terms consistently to avoid confusion.
Inspections
NCSHA supports allowing for inspections to occur at least once every three years during the affordability period. We appreciate that this aligns the HOME inspection schedule with that of the Housing Credit. We urge HUD to clarify that the inspection requirement does not apply to owner-occupied rehabilitation or to units receiving only HOME-funded down payment assistance.
We are concerned that a number of proposed provisions regarding inspections will increase the administrative burden on PJs. We encourage HUD to balance program regulations with the ability of PJs to administer the HOME program efficiently and cost effectively. We ask that PJs be allowed to choose to use architects and other qualified persons to perform or certify some inspections and to certify compliance on rehabilitation activities. We also ask that HUD allow PJs to contract with architects or engineers to establish inspection procedures and checklists and to conduct progress inspections of methods, materials, plans, specifications, and work write-ups.
Due to the difficulty it would create for state PJs to learn and enforce all of the local codes in their respective states, we request that state PJs not be responsible for enforcing local codes.
PJs should be given flexibility to decide the appropriate timeframe for following up on deficiencies, depending on the severity of the deficiency. Requiring on-site follow-up of every deficiency within 12 months creates an unnecessary burden on state PJs since there are alternative options for verifying that a deficiency has been corrected. In some cases, proof of work or other documentation that the deficiency has been corrected instead of an on-site inspection may be sufficient.
The proposed requirements for selecting a sample size for inspection are more complicated than necessary and could be difficult to align with other housing programs. We request that HUD allow 20 percent of the HOME-assisted units in a project, rather than in each building, constitute an acceptable sample size. We also ask that PJs be given the option to use the same sampling size as is used in the Housing Credit program.
The Rule would require PJs to conduct inspections of acquired housing no earlier than 30 days before committing HOME assistance. Thirty days is too short a time frame, and we suggest extending it. For example, second liens issued after a lender has approved a loan package will often not be completed within 30 days. We ask HUD to consider using a longer timeframe, for example an FHA appraisal must be within 120 days of the loan closing date and the Uniform Residential Appraisal Report (URAR) allows for an inspection to be good for 90 days.UPCS
Applying Uniform Physical Condition Standards (UPCS) to owner-occupied rehabilitation projects will increase the costs for this use of HOME funds and will result in fewer rehabilitation projects. NCSHA requests that UPCS not apply to owner-occupied rehabilitation activity. For activities where UPCS applies, we request that HUD allow for a reasonable period of transition.
Useful Life Requirement
NCSHA is opposed to the useful life requirements in the Proposed Rule. It should be up to the judgment of the PJ as to whether or not a system needs to be replaced at the time it performs rehabilitation work. While we support the goal of creating housing stability, the requirements, as proposed, would force PJs to replace major systems that are currently in good working order and have years of expected useful life remaining. This requirement would increase the cost of rehabilitation, resulting in fewer households being assisted, and would increase construction waste.
Monitoring
NCSHA strongly supports the ability for PJs to charge an annual monitoring fee. PJs’ portfolios are continuing to expand and therefore the cost of monitoring has continued to increase. As highlighted in the Rule, charging monitoring fees to owners of rental housing developments is standard industry practice.
We also support allowing PJs to use a risk-based system for monitoring. We encourage HUD to allow PJs to establish risk-based monitoring procedures that fit their individual needs. PJs also need the flexibility to respond to changing circumstances.
Underwriting and Subsidy LayeringNCSHA fully supports strong underwriting of HOME-assisted developments, but feels the Proposed Rule creates more burdensome requirements than are necessary. We urge HUD to give PJs as much flexibility as possible by limiting these requirements.
Student Rule
We believe a better approach to the student rule would be to align HOME’s student rule with that of the Housing Credit program because it is more likely that HOME funding will overlap with Housing Credits than with Section 8. At a minimum, we request that for developments that include both HOME funding and Housing Credits, the Housing Credit student rule be the applicable student rule.
Reconstruction
We support HUD’s change to reconstruction to allow housing destroyed or severely damaged and then demolished to be rebuilt under the reconstruction category. The Proposed Rule’s preamble states that HOME funds must be committed within 12 months of the time of destruction or damage, but the proposed revision on page 78366 of the Rule states six months. We encourage HUD to clarify that 12 months is the correct time period.
We also request that HUD allow for the housing to be reconstructed on another site if rebuilding the housing on the same lot makes the reconstructed unit vulnerable to being damaged as well, for example PJs should not be required to reconstruct the development in an area prone to flooding. We also request that HUD clarify that HOME-assisted housing still in its period of affordability be eligible for reconstruction.
HUD should allow for funds to be committed during periods longer than 12 months in certain circumstances, such as for PJs dealing with large-scale disasters.
Repayment
The statute requires that funds not used in accordance with the law be repaid. NCSHA strongly supports appropriate rules and enforcement to make sure federal funds are used in accordance with congressional intent. However, we believe HOME regulations go beyond the statutory requirement by requiring that all HOME funds invested in housing not meeting the affordability requirement at any point during the affordability period be repaid, regardless of how long the development was in compliance.
HUD should include a proration in its repayment requirement, such that grantees are not responsible for repaying the full amount of HOME funds provided to developments that complied with the HOME affordability requirements for a period of time.
Proration would better align the HOME program with the Housing Credit program. If a Housing Credit property falls out of compliance within the first 15 years of the affordability period, Housing Credits may be recaptured on a prorated basis.
NCSHA urges HUD to require that PJs use their best efforts to recapture funds, but not to require a guarantee of performance regardless of issues beyond the PJ’s control that may occur during the affordability period.
Match
We urge HUD to ensure its proposed change in the match requirements does not further reduce the value of housing stock, as it might in cases where land is donated, because requiring the sales price to be decreased by the value of the land will cause the value of surrounding housing to decrease. We urge HUD to provide match credit for applying the value of the donated land to reducing the mortgage instead of dropping the sales price.
We ask HUD to make clear in the Final Rule that bond financing is an eligible source of match for HOME. The HOME statute specifically lists proceeds from bond financing as an eligible form of contribution for meeting matching requirements. We also request that HUD allow owner cash equity to be an allowable source of match.
Troubled HOME Properties
NCSHA supports HUD’s efforts to give PJs the flexibility to assist troubled HOME-assisted rental properties. We urge HUD to allow PJs to assist a property before the property’s operating costs significantly exceed operating revenues. Providing assistance earlier to a property encountering difficulties may allow PJs to invest fewer new resources to address those difficulties.
We request that HUD also allow for PJs that made an original investment of HOME in the property through a loan be allowed to use any of the loan amount already repaid by the property to assist the property.
We also ask that PJs be allowed to reduce the number of HOME-assisted units, if the project contains more than the minimum number of units required to be designated as HOME-assisted, without written approval from HUD.Additional Comments
NCSHA encourages HUD to allow PJs to amend affordability restrictions without HUD approval as long as the restrictions continue to meet HUD requirements.
NCSHA does not support HUD’s proposal to require separate approval of a PJ’s resale and recapture requirements. We request that HUD provide grantees with additional guidance on what HUD considers sufficient detail on the requirements for inclusion in the annual Action Plan, but not set up another separate approval process.
Laundry and community facilities should be allowed both in the same building as HOME-assisted housing and in a detached building serving persons living in housing assisted by HOME. This allows more flexibility in construction while still providing the same needed services.
We request that HUD revise its policy of automatically canceling any activities that do not show a draw of funds within 12 months of the initial commitment date. This policy is problematic for PJs using HOME funds as permanent financing, since the funds do not go into the transaction until after construction of the development is complete. HUD should provide PJs the ability to enter into IDIS that they do not expect to draw the funds within 12 months. Needless administrative work is caused by HUD canceling the activity and then the PJ spending time re-opening the activity.
The physical address for a property may not be available at the time a project is identified. Therefore, PJs should retain the flexibility to not identify the physical address of a project at the time the written agreement is created.
NCSHA requests that PJs be allowed to limit a rental development to a certain subpopulation even if it has not described that particular limitation in the Action Plan, as long as it does not violate fair housing rules.
NCSHA urges HUD to be flexible in its definition of what constitutes a permanent foundation for manufactured housing. Some PJs might require that the housing be affixed permanently, but the housing may not have what is considered to be a permanent foundation.
We request that PJs be given the flexibility to refinance developments that have been funded with federal insurance or with an older HUD or rural development program.
NCSHA asks that eligible project costs include the ability to refinance a multifamily development without requiring rehabilitation, if rehabilitation is not necessary. We also request that HUD not require that rehabilitation costs exceed the amount of refinanced debt.
HUD should provide a clear and reasonable timeframe for responding to any submittal of information, documentation, or waiver requests submitted by PJs in accordance with the requirement of HOME regulations.
Thank you for your consideration of our comments. Please do not hesitate to contact me if we can provide additional information.
Sincerely,Barbara J. Thompson
Executive Director
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