HOME Investment Partnerships Program; American Dream Downpayment Initiative and Amendments to Homeownership Affordability, 16678-16685 [E7-5960]
Download as PDF
16678
Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Rules and Regulations
DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
24 CFR Part 92
[Docket No. FR–4832–F–02]
RIN 2501–AC93
HOME Investment Partnerships
Program; American Dream
Downpayment Initiative and
Amendments to Homeownership
Affordability
Office of the Secretary, HUD.
Final rule.
AGENCY:
ACTION:
SUMMARY: This rule follows publication
of, and considers the public comments
on, two earlier HUD rules. First, this
rule makes final the March 30, 2004,
interim rule establishing regulations for
a downpayment assistance component
under the HOME Investment
Partnerships Program (HOME), referred
to as the American Dream
Downpayment Initiative (ADDI).
Through the ADDI, HUD makes formula
grants to participating jurisdictions
under the HOME Program for the
purpose of assisting low-income
families to achieve homeownership. In
addition, this rule also makes final
HUD’s November 22, 2004, interim rule,
which revised and clarified the HOME
Program homeownership affordability
requirements of the HOME Investment
Partnerships Program. In response to the
public comments received on both
interim rules, this final rule clarifies
that the purchase of manufactured
homes is an ADDI eligible activity, and
broadens and clarifies the use of HOME
funds to help preserve affordable
housing previously assisted with HOME
funds.
DATES: Effective Date: May 4, 2007.
FOR FURTHER INFORMATION CONTACT:
Virginia Sardone, Director, Program
Policy Division, Office of Affordable
Housing Programs, Department of
Housing and Urban Development, 451
Seventh Street, SW., Room 7164,
Washington, DC 20410–7000; telephone
(202) 708–2470. (This is not a toll-free
number.) A telecommunications device
for hearing- and speech-impaired
persons (TTY) is available at (800) 877–
8339 (Federal Information Relay
Service).
SUPPLEMENTARY INFORMATION:
ycherry on PROD1PC64 with RULES4
I. Background
A. The HOME Program
The HOME Investment Partnerships
Program (HOME Program) is authorized
under Title II of the Cranston-Gonzalez
National Affordable Housing Act (42
VerDate Aug<31>2005
18:33 Apr 03, 2007
Jkt 211001
U.S.C. 12704 et seq.) (NAHA). Through
the HOME 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 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 multiyear
housing strategies through acquisition,
rehabilitation, and new construction of
housing, and through tenant-based
rental assistance. Participating
jurisdictions may provide assistance in
a number of eligible forms, including
grants, loans, advances, equity
investments, interest subsidies, and
other forms of assistance that HUD
approves. HUD’s regulations for the
HOME Program are located at 24 CFR
part 92.
B. The March 30, 2004, Interim Rule
Implementing the American Dream
Downpayment Initiative
The American Dream Downpayment
Act (Pub. L. 108–186, approved
December 16, 2003) (ADDI statute)
amended NAHA to establish a
downpayment assistance component
under the HOME program, referred to as
the American Dream Downpayment
Initiative (ADDI). Specifically, the ADDI
statute established a separate formula
under the HOME Program by which
HUD allocates funds to states that are
participating jurisdictions under the
HOME Program and to participating
jurisdictions within those states for the
purpose of making downpayment
assistance to low-income families who
are first-time homebuyers for the
purchase of single family housing that
will serve as the family’s principal
residence. The ADDI statute revised
section 271 of NAHA (12 U.S.C. 12881)
to establish specific statutory
requirements for administration of
ADDI, including the allocation of funds.
With respect to allocation of funds,
the ADDI statute established a formula
that is based primarily on the need for
assistance to homebuyers as measured
by the percentage of low-income
households residing in rental housing
within the participating jurisdiction.
This formula governs the allocation of
ADDI funds. Among other requirements,
the ADDI statute also established the
definitions applicable to ADDI,
authorized the use of ADDI funds for
certain rehabilitation costs completed in
conjunction with ADDI downpayment
assistance, established new
Consolidated Plan requirements, and
PO 00000
Frm 00002
Fmt 4701
Sfmt 4700
prescribed other requirements regarding
the allocation and use of ADDI funds.
Through the statutory requirement that
participating jurisdictions have a plan
for conducting targeted outreach to
public housing tenants and to families
receiving rental assistance from public
housing agencies, the ADDI statute
envisioned that among the low-income
families who will move from rental to
homeownership are those families who
are currently public housing residents
or who are receiving rental assistance.
ADDI provides a much-needed resource
to participating jurisdictions to assist
low-income families achieve the dream
of homeownership.
On March 30, 2004 (69 FR 16758),
HUD published an interim rule that
established regulations at 24 CFR part
92 for ADDI. The interim rule codified
the statutory formula (located at 42
U.S.C. 12821) for allocation of ADDI
funds to HOME participating
jurisdictions, identified eligible
activities and costs under ADDI, and
established other applicable
requirements.
C. The November 22, 2004, Interim Rule
Revising the HOME Program
Homeownership Affordability
Requirements
Section 215(b) of NAHA establishes
affordability requirements for HOMEassisted homeownership housing. These
requirements apply to both the initial
sale to a HOME-assisted homebuyer and
to any subsequent resale by that
homebuyer during the applicable period
of affordability. Specifically, the statute
provides that participating jurisdictions
must impose restrictions that either
require that (1) the HOME-assisted
housing be resold to another lowincome homebuyer at an affordable
price; or (2) the HOME-assisted housing
may be resold to any homebuyer
regardless of income, but the subsidy to
the original homebuyer must be
recaptured unless the net proceeds of
the sale are insufficient.
On November 22, 2004 (69 FR 68050),
HUD published an interim rule that
amended the regulations at 24 CFR part
92 for homeownership housing under
the HOME Program. The interim rule
revised the affordability requirements
for homeownership housing assisted
under the HOME program. Specifically,
the interim rule limited the amount of
the HOME investment subject to
recapture after the sale of a HOMEassisted homebuyer project during the
period of affordability to the net
proceeds of the sale. In addition, the
rule created a provision to allow
participating jurisdictions to preserve
HOME-assisted homebuyer housing as
E:\FR\FM\04APR4.SGM
04APR4
Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Rules and Regulations
ycherry on PROD1PC64 with RULES4
affordable housing by investing
additional HOME funds to acquire the
housing before foreclosure or at a
foreclosure sale.
II. This Final Rule: Differences Between
the March 30, 2004, ADDI Interim Rule,
the November 22, 2004, Affordability
Requirements Interim Rule, and This
Final Rule
This final rule follows publication of
the March 30, 2004, and the November
22, 2004, interim rules and takes into
consideration the public comments
received on the interim rules. After
careful consideration of the public
comments, HUD has made the following
changes to the interim rules.
1. Definition of first time homebuyer;
clarifying language regarding
manufactured housing as an eligible
activity. HUD is amending the definition
of first time homebuyer in the HOME
Investment Partnerships program
definitions to include those individuals
who own dwelling units not
permanently affixed to a foundation
(inadvertently omitted from the March
30, 2004, regulation); and amending the
ADDI regulations to include statutory
language on the purchase of
manufactured housing as an ADDI
eligible activity. Specifically, language
has been included stating that
individuals shall not be excluded from
consideration as a first-time homebuyer
on the basis that the individual owns or
owned, as a principal residence during
the three-year period prior to assistance
with ADDI funds, a dwelling unit whose
structure is not permanently affixed to
a permanent foundation in accordance
with local or other applicable
regulations or not in compliance with
state, local, or model building codes, or
other applicable codes, and cannot be
brought into compliance with such
codes for less than the cost of
constructing a permanent structure.
Also, although the regulatory definition
of ‘‘housing’’ includes manufactured
housing and manufactured housing lots,
the ADDI regulations now state that
ADDI funds may be used to purchase
manufactured housing units and
manufactured housing lots; the
manufactured housing must be
connected to permanent utility hookups; and the land on which the
manufactured housing is located must
be owned by the manufactured housing
owner, owned as cooperative, or subject
to a leasehold interest with a term, at
minimum, equal to the term of the
mortgage financing on the unit or the
period of affordability, whichever is
greater.
2. HOME funds for the preservation of
affordable housing. HUD has amended
VerDate Aug<31>2005
18:33 Apr 03, 2007
Jkt 211001
the HOME program’s eligible
administrative and planning costs to
now include as eligible the preservation
of affordable homeownership housing
previously assisted with HOME funds.
Also, the HOME program’s prohibitions
were amended to make clear that funds
may be used for assistance to preserve
affordability of homeownership
housing. Additionally, § 92.254(a)(9) has
been reorganized to more clearly
explain that HOME funds may be used
to acquire housing in default through a
purchase option, right of first refusal, or
other preemptive right before
foreclosure or through acquisition at a
foreclosure sale, as well as to assist
another homebuyer in purchasing the
housing. Furthermore, although HOME
funds cannot be used to repay a loan
made with HOME funds, HOME funds
may be used to pay foreclosure costs.
The regulations were also amended to
clarify that the investment of additional
HOME funds to preserve affordability is
considered an amendment of the
original project rather than a new
project.
3. HOME fund recaptures. HUD has
amended the final rule to clarify that
HOME fund recaptures cannot exceed
net proceeds, if there are in fact net
proceeds. No substantive change is
being made to the recapture
requirement; but, rather, HUD is
rewording the regulatory text for the
sake of clarity.
III. Discussion of Public Comments on
the March 30, 2004, Interim Rule
Establishing ADDI Regulations
The public comment period on the
ADDI interim rule closed on June 1,
2004, and HUD received 15 public
comments. Comments were received
from trade and professional
organizations representing the realtor,
homebuilder, and manufactured home
industries; state and local community
development agencies (as well as the
national organizations representing
these state and local agencies); private
citizens; and non-profit downpayment
assistance organizations. This section of
the preamble presents a summary of the
significant issues raised by the public
comments and HUD’s responses to those
issues.
A. General Comments
Six commenters expressed general
support for the ADDI interim rule. The
commenters wrote that ‘‘this program
will help reduce home buying costs and
allow people to achieve
homeownership’’ and that ADDI is
‘‘focused on providing additional
resources to HOME participating
jurisdictions for homeownership
PO 00000
Frm 00003
Fmt 4701
Sfmt 4700
16679
activities.’’ One commenter wrote that it
was pleased that HUD included
displaced homemakers and single
parent households among those eligible
to benefit from ADDI, and that the
inclusion of condominiums and
cooperative units within the definition
of single family housing was a positive
step.
The primary area of concern that
commenters mentioned was the
inability to use ADDI funds for ADDI
administrative costs. Several
commenters were concerned that even
though the regulation permits HOME
funds to be used for ADDI’s
administration and planning, lack of
additional funds for ADDI
administration will make oversight and
execution of the ADDI program
extremely difficult. Another area of
concern related to the requirement that
participating jurisdictions repay HOME/
ADDI funds on homes that go into
foreclosure.
Additional comments involved
perceived negative connotations of
manufactured housing, questions about
eligible new construction costs,
questions about the definition of first
time homebuyer, and concerns that
nonprofit homebuyer assistance
organizations may not be permitted to
participate in the ADDI. A breakdown of
the comments by subject area follows.
B. Use of HOME Administrative Funds
for ADDI Administrative Costs; ADDI
Funding
The March 30, 2004, interim rule
amended § 92.207 to make clear that a
participating jurisdiction may expend
HOME funds for payment of ADDI
administrative expenses. The expended
amount cannot exceed ten percent of the
fiscal year HOME basic formula. ADDI
funds cannot be used for administration
costs of the ADDI program.
Comment: Not providing for
additional funding for the ADDI
program is unduly burdensome to
participating jurisdictions. One
commenter wrote that the intent of the
ADDI program is to provide funding for
a new homebuyer initiative rather than
supplement funding for already existing
programs. According to the commenter,
new initiatives require new
administrative costs; thus, additional
funding is required in order to
sufficiently get the ADDI program up
and running. Another commenter wrote
that a 10 percent allocation of HOME
funds for both HOME and ADDI
administrative costs is inadequate to
meet program costs. An additional
commenter wrote that HUD should add
a participating jurisdiction’s ADDI
allocation to its HOME allocation to
E:\FR\FM\04APR4.SGM
04APR4
ycherry on PROD1PC64 with RULES4
16680
Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Rules and Regulations
calculate its ten percent program
administration limit. One commenter
asked HUD to amend the rule to allow
all participating jurisdictions to expend
up to 10 percent of their ADDI
allocations on administrative costs.
HUD Response. ADDI is a
downpayment assistance program under
the HOME Program. Most participating
jurisdictions already fund homebuyer
projects with their HOME Program
funds. Many of these projects are part of
homebuyer programs that provide
downpayment assistance to low-income
homebuyers. Consequently, many
participating jurisdictions will choose to
implement ADDI as part of their existing
homebuyer programs. HUD agrees that it
may be burdensome to some
participating jurisdictions to implement
ADDI without additional funding for
program administration. However, the
ADDI statute does not provide
additional funds for ADDI program
administration from ADDI funds.
Comment: Congress intended to allow
for the expenditure of ADDI funds as
administrative expenses. One
commenter wrote that Congress’ silence
on an administrative fee in the final
statutory language for the ADDI program
allows HUD the discretion to include a
jurisdiction’s FY 2004 and subsequent
ADDI allocation into its HOME
allocation for purposes of calculating an
administrative fee. Another commenter
wrote that Congress considered
including administrative funds for ADDI
and that the Senate Banking, Housing
and Urban Affairs Committee amended
the original Senate bill, S. 811, during
its mark-up of the bill to include a five
percent administrative provision for
ADDI. A third commenter wrote that the
ADDI statute should be interpreted to
authorize the same level of
administrative funding for ADDI
activities as is already available for all
other HOME activities, including those
that provide homeownership assistance.
Another commenter wrote that it
interprets 24 CFR 92.602 of the HOME
regulation as allowing a participating
jurisdiction to use ADDI funds to
finance ADDI project delivery costs.
HUD Response. HUD disagrees that
Congress’ silence on the eligibility of
administrative costs in the final
statutory language for the ADDI program
allows HUD the discretion to include a
jurisdiction’s FY 2004 and subsequent
ADDI allocations into its HOME
allocations for purposes of calculating
an administrative fee. As pointed out by
a commenter, Congress considered
including administrative funds for ADDI
and the Senate Banking, Housing and
Urban Affairs Committee amended the
original Senate bill, S. 811, during its
VerDate Aug<31>2005
18:33 Apr 03, 2007
Jkt 211001
mark-up of the bill to permit five
percent of ADDI funds to be used for
administrative provision. However, this
language was struck from the legislation
before enactment. Section 92.602
identifies eligible costs under ADDI
including staff and overhead costs
directly related to carrying out an ADDI
project, which are eligible project
related soft costs under
§ 92.602(b)(3)(iv).
Comment: ADDI should be funded as
a standalone program instead of a setaside within the HOME program. One
commenter made this suggestion.
HUD Response. Congress wrote the
ADDI legislation to be a component of
the HOME Program. The American
Dream Downpayment Act amended the
HOME statute (subtitle E of Title II of
the Cranston-Gonzalez National
Affordable Housing Act (42 U.S.C.
12821)) to create ADDI. The
implementation of ADDI was facilitated
because ADDI is a set-aside within the
HOME Program.
C. Recaptured/Repaid Funds Due to
Foreclosure
Several commenters on the ADDI rule
expressed concern about HOME
recapture and repayment requirements,
which are applicable to ADDI under
§ 92.616. HUD addressed the concerns
of these commenters by publishing the
November 22, 2004, rule.
Comment: Validation is sought as to
whether 24 CFR 92.254(a)(5) requires
the participating jurisdiction to submit
for HUD approval the resale and
recapture provisions of the ADDI
program before a participating
jurisdiction may implement the
program.
HUD Response. The HOME
regulations at § 92.254(a)(5) require
HOME participating jurisdictions to
establish resale or recapture
requirements that comply with the
provisions of that section of the HOME
rule and to set forth the requirements in
their consolidated plans. In addition,
§ 91.220(g)(2)(ii) and § 91.320(g)(2)(ii)
direct local participating jurisdictions
and states, respectively, that will use
HOME funds to assist homebuyers, to
state the guidelines for resale or
recapture as required in § 92.254. HUD
reads § 92.254(a)(5) to include both
HOME and ADDI funds used to assist
homebuyers. Therefore, it is not
necessary for a participating jurisdiction
to separately submit for HUD approval
the resale and recapture provisions it
will use for the ADDI program unless
the provisions used for ADDI projects
differ from the provisions previously set
forth in the consolidated plan for HOME
homebuyer projects.
PO 00000
Frm 00004
Fmt 4701
Sfmt 4700
D. Manufactured Homes
Comment: Maintaining the current
action plan language regarding
manufactured homes is contrary to
current federal and state policy. Two
commenters wrote that the language
requiring targeted outreach to residents
and tenants of public and manufactured
housing creates negative and inaccurate
connotations for manufactured housing
that are contrary to current policy. One
of the commenters wrote that this
language strongly implies that
jurisdictions must have targeted plans to
displace persons from manufactured
homes.
HUD Response. The language added
to the consolidated plan regulations at
24 CFR part 91 is the statutory
requirement. Specifically, the language
added to the action plan provisions for
local HOME participating jurisdictions
at § 91.220 and for states at § 91.320
requires a recipient of ADDI funds to
include in its action plan a plan for
conducting targeted outreach to
residents and tenants of manufactured
housing. Because the definition of single
family housing in the ADDI statute and
rule includes manufactured housing and
a manufactured housing lot, the
consolidated plan requirement
regarding outreach to residents and
tenants of manufactured housing has
been read by commenters as
contradicting the eligibility of
manufactured housing as ADDI eligible
single-family housing. However, tenants
of the manufactured housing qualify as
first-time homebuyers. In addition,
ownership of manufactured housing
that is not permanently affixed does not
disqualify the family as a first-time
homebuyer. In order to clarify the
language in the interim rule regarding
participating jurisdictions’
responsibilities providing outreach to
residents and tenants of manufactured
housing, HUD is revising the definition
of first-time homebuyer in the ADDI
regulations that more closely tracks the
statutory definition of single family
housing. Specifically, the definition of
first-time homebuyer now states that an
individual shall not be excluded from
consideration as a first-time homebuyer
on the basis that the individual owns or
owned, as a principal residence during
the three-year period prior to assistance
with ADDI funds, a dwelling unit whose
structure is not permanently affixed to
a permanent foundation in accordance
with local or other applicable
regulations or not in compliance with
state, local, or model building codes, or
other applicable codes, and cannot be
brought into compliance with such
E:\FR\FM\04APR4.SGM
04APR4
Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Rules and Regulations
codes for less than the cost of
constructing a permanent structure.
Comment: The definition of single
family housing should be revised to use
the exact statutory language pertaining
to manufactured housing. Two
commenters wrote that the statutory
language provides that manufactured
housing owned as a cooperative or
subject to a leasehold interest is an
eligible activity under ADDI. The
commenters urged that this be clarified
in the final rule.
HUD Response. HUD agrees that
additional language is needed clarifying
that the purchase of manufactured
homes is an eligible activity. HUD has
added language to § 92.602(a) stating
that ADDI funds may be used to
purchase a manufactured housing unit,
manufactured housing lots, and that the
manufactured housing unit must, at the
time of project completion, be
connected to permanent utility hookups and be located on land that is
owned by the manufactured housing
owner, owned as a cooperative, or is
subject to a leasehold interest with a
term equal to at least the term of the
mortgage financing on the unit or the
period of affordability (whichever is
greater).
ycherry on PROD1PC64 with RULES4
E. Nonprofit Downpayment Assistance
Programs
Comment: The interim rule unfairly
excludes certain nonprofit organizations
from participation in ADDI. Two
commenters objected to the limitation
on subrecipients and contractors
contained in the interim rule. The
interim rule prohibits a participating
jurisdiction from providing ADDI funds
to an entity or organization that
provides downpayment assistance, if
the activities of that entity are financed
by contributions, service fees, or other
payments from the sellers of housing,
whether or not made in conjunction
with the sale of specific housing
acquired with ADDI funds. The
commenters wrote that this limitation
goes beyond the statutory prohibition
and unfairly excludes certain nonprofit
organizations from participating in
ADDI, because the commenters believe
the statute can be interpreted to permit
an entity to run two programs, one
program with seller-provided funds and
another—the ADDI program—without
seller funds. In addition, the
commenters objected to the rationale in
the preamble to the interim rule, which
provided that seller-financed
downpayment assistance artificially
inflated the fees charged to homebuyers
in excess of the amount necessary to
compensate sellers for their payment of
VerDate Aug<31>2005
18:33 Apr 03, 2007
Jkt 211001
certain closing charges or contributions
to the cost of the downpayment.
HUD Response. The ADDI statute
prohibits participating jurisdictions
from using ADDI to provide funding to
an entity or organization that provides
downpayment assistance if the activities
of that entity or organization are funded
in whole or in part, directly or
indirectly, by contributions, service
fees, or other payments from the sellers
of housing. The ADDI regulations at
§ 92.602(f) copy the statutory language
and adds the following phrase:
‘‘whether or not made in conjunction
with the sale of specific housing
acquired with ADDI funds.’’ HUD
purposefully added this language to
better articulate the statutory
prohibition against organizations that
receive funds from sellers of housing.
The prohibition applies to the entire
organization, not just to specific
programs of the organization.
The statement in the preamble about
seller-funded downpayment programs is
supported by a recent study. ‘‘An
Examination of Downpayment Gift
Programs Administered by Non-profit
Organizations’’ (March 2005), prepared
for HUD by Concentrance Consulting
Group, found strong evidence that the
cost of downpayment assistance added
to the sales price, increased the loan
amount, and eliminated any borrower
equity in the property. This study can
be found at: https://www.hud.gov/offices/
hsg/comp/rpts/dpassist/dpa2.pdf.
F. Other Comments
Comment: The language relating to
the usage of ADDI funds for new
construction financing and the
definition of ‘‘single family home’’
should be made more clear. One
commenter requested that HUD clarify
that, although ADDI funds cannot be
used for hard or soft costs related to new
construction, ADDI funds may be used
for the acquisition and financing of new
construction. Two commenters
requested a clarification on the
definition of single family housing and
whether that definition includes both
newly constructed and existing homes.
One commenter suggested the rule
should state that downpayment funds
can only be used in association with the
purchase or repair of existing homes.
The commenter interpreted the interim
rule to prohibit the use of ADDI funds
for newly constructed homes.
HUD Response. The ADDI statute and
§ 92.602(a) of the ADDI regulations
clearly state that the only eligible
activities are downpayment assistance
towards the purchase of single family
housing by low-income families who are
first-time homebuyers and rehabilitation
PO 00000
Frm 00005
Fmt 4701
Sfmt 4700
16681
that is completed in conjunction with
the home purchase assisted with ADDI
funds. Single family housing includes
housing that is newly constructed.
Section 92.601(b)(4) prohibits the use of
ADDI funds for the development costs
of new construction of housing or for
rental assistance. Since ADDI funds can
only be used for downpayment
assistance towards the purchase of
single family housing and for
rehabilitation of the ADDI-assisted
housing, ADDI funds can be used to
assist low-income first-time homebuyers
to purchase newly constructed housing,
but not to develop or finance new
construction.
Comment: The definition of first-time
homebuyer should include a financial
cap on ownership of other real estate.
One commenter wrote that under the
interim rule’s definition of a first-time
homebuyer, the first-time homebuyer
could feasibly own other types of real
estate prior to purchasing a first home,
such as industrial, agricultural,
commercial, and rental housing which
did not include the buyer’s residence.
The commenter wrote that if HUD
intends to allow for this kind of
additional property ownership, the
appraised value of such allowable
property be capped at $300,000.
HUD Response. The purpose of the
ADDI program is to assist low-income
first-time homebuyers with
downpayment assistance to purchase
modest single family housing. An
individual who has owned housing—
whether or not it is the principal
residence—within the three-year period
before purchase of a home with ADDI
assistance is not a first-time homebuyer,
unless that person is a displaced
homemaker or single parent as defined
in the rule. If the participating
jurisdiction is using the definition of
‘‘annual income’’ in § 5.609, the assets
of the individual must be considered in
determining whether the person is lowincome.
Comment: The definition of lowincome family at 24 CFR 92.2 should be
waived for high-cost localities. One
commenter wrote that HUD should
allow a waiver of the definition of lowincome families for higher cost areas
where there may be a shortage of
affordable housing for purchase by
persons at 80 percent of area median
income or below.
HUD Response. HUD disagrees with
the commenter’s suggestion that HUD
waive the definition of low-income
families in high cost areas. The
definition of low-income families is
statutorily based (42 U.S.C. 12704(10))
and cannot be waived. Moreover,
allowing participating jurisdictions in
E:\FR\FM\04APR4.SGM
04APR4
ycherry on PROD1PC64 with RULES4
16682
Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Rules and Regulations
high cost areas in which there may be
a shortage of affordable housing for lowincome families to serve families with a
higher income is contrary to the purpose
of ADDI and will not resolve the
affordable housing shortage for lowincome families in that area.
Comment: Eligible ADDI costs should
include pre-purchase housing
inspections and housing counseling,
regardless of ultimate ADDI assistance.
One commenter wrote that pre-purchase
housing inspections should be allowed
as an eligible soft cost. The commenter
wrote that in the event the purchase
falls through due to the inspection
uncovering problems that cancel the
sale, HUD should allow participating
jurisdictions to pay for those
inspections with HOME administrative
funds. The commenter also wrote that
lead-based paint stabilization and
clearance testing be included as an
acceptable ADDI rehabilitation or soft
cost, respectively. Another commenter
wrote that HUD should recognize as an
eligible ADDI cost the provision of prepurchase services, such as housing
counseling, to potential buyers who are
ADDI-eligible, whether or not those
eligible buyers are ultimately assisted
with ADDI funds. Another commenter
suggested that ADDI funds received by
housing counseling organizations be
chargeable as project costs even when
the individual receiving the assistance
is not immediately able to qualify for
mortgage financing or receives such
financing without ADDI assistance. The
commenter also wrote that HUD should
give ADDI funds directly to housing
counseling agencies rather than filtering
the funds through participating
jurisdictions and urged that the 25
percent match associated with FY 2003
ADDI funds be waived in the case of
awards to housing counseling
organizations.
HUD Response. The ADDI statute and
§ 92.602(a) of the ADDI regulations
identify eligible activities as
downpayment assistance and home
repairs. Section 92.602(b) identifies
eligible project costs of ADDI projects.
Included in eligible project costs are
acquisition costs, rehabilitation costs,
and related soft costs. Pre-purchase
inspections and housing counseling are
considered eligible soft costs, provided
the eligible low-income, first-time
homebuyer purchases single-family
housing with ADDI assistance. If the
purchase falls through and the sale is
cancelled, there is no eligible ADDI
project, and therefore, there are no
eligible project soft costs. In this case,
participating jurisdictions may use
HOME administrative funds to pay for
related soft costs expended on the
VerDate Aug<31>2005
18:33 Apr 03, 2007
Jkt 211001
cancelled ADDI project. Likewise, lead
paint clearance testing is an eligible
ADDI project related soft cost and lead
paint stabilization is an eligible ADDI
rehabilitation cost provided an eligible
low-income, first-time homebuyer
purchases the subject single-family
housing with ADDI assistance.
HUD agrees that housing counseling
is a crucial component of a successful
homeownership program. However, the
chief purpose of ADDI is to assist lowincome families to achieve
homeownership. HUD currently
administers a housing counseling
program through the Federal Housing
Administration (FHA) that could assist
persons who will not purchase single
family housing with ADDI assistance.
ADDI only authorizes HUD to ‘‘award
grants to participating jurisdictions to
assist low-income families to achieve
homeownership. * * *’’ ‘‘Participating
jurisdiction’’ is defined in the ADDI
statute as a State or unit of general local
government. Accordingly, housing
counseling entities that are not
participating jurisdictions are not
eligible direct recipients of ADDI funds.
The ADDI statute does not require
participating jurisdictions to match
ADDI funds. However, because FY 2003
ADDI funds are governed by the FY
2003 HOME appropriation act, not the
ADDI statute, participating jurisdictions
are required to match their FY 2003
ADDI funds. HUD cannot waive the
statutory match requirement for these
funds.
Comment: Clarification requested
regarding 20 percent cap on
rehabilitation. One commenter asked for
clarification about the actual
percentages the homebuyer may receive
for rehabilitation. The commenter asked
if, for example, a homebuyer is
receiving $4,000 in downpayment
assistance, whether the homebuyer is
limited to rehabilitation expenditures of
20 percent of the $4,000 assistance total
(in that case, $800), or can that
homebuyer actually receive $6,000 in
rehabilitation assistance (the maximum
allowable under § 92.602(e)) as long as
the participating jurisdiction’s total
entire ADDI rehabilitation amount does
not exceed 20 percent of the fiscal year
formula allocation.
HUD Response. According to ADDI
statute, not more than 20 percent of the
grant funds provided under the formula
allocation to a participating jurisdiction
may be used to provide assistance to
low-income, first-time homebuyers for
home repairs. The regulation at
§ 92.602(a)(2) states that ‘‘total
rehabilitation shall not exceed 20
percent of the participating
jurisdiction’s ADDI fiscal year formula
PO 00000
Frm 00006
Fmt 4701
Sfmt 4700
allocation.’’ Therefore, a homebuyer can
receive ADDI funds for downpayment
assistance and home repairs, subject to
the maximum amount of assistance set
forth at § 92.602(e)—the greater of 6
percent of the purchase price or
$10,000—as long as the participating
jurisdiction has not reached 20 percent
of its ADDI formula allocation for home
repairs. Thus, in the example the
commenter set forth above, the
homebuyer could receive up to $6,000
in rehabilitation assistance as long as
the participating jurisdiction’s entire
ADDI rehabilitation amount does not
exceed 20 percent of its fiscal year
formula allocation.
Comment: ADDI funds should be
disbursed in the same manner HOME
funds are disbursed. One commenter,
citing 24 CFR 92.502, wrote that certain
costs associated with downpayment
assistance will be charged against ADDI
funds which involves per-household
assistance caps. The commenter wrote
that ADDI costs will be assigned to
projects by HUD computers and those
computers cannot effectively discern
separate ADDI expenditures. The
commenter wrote that rather than
assigning ADDI funds to individual
projects, HUD should disburse ADDI
funds in the same manner as HOME
funds, since local jurisdictions are better
suited to decide how funds should be
distributed.
HUD Response. ADDI funds are
disbursed in the same manner as HOME
funds through HUD’s Integrated
Disbursement and Information System
(IDIS). However, ADDI funds cannot be
separated from HOME funds in IDIS,
and therefore, HUD has developed a
report that uses a number of project
identification factors to identify ADDI
projects. These reports may be useful to
participating jurisdictions to track ADDI
disbursements. However, participating
jurisdictions are free to maintain their
own records of ADDI project
disbursements. The sum of HOME and
ADDI disbursements in IDIS will match
a participating jurisdiction’s records.
Comment: HUD should accept the
median area purchase price developed
by the real estate industry in the
participating jurisdiction as the price for
single family housing as per 24 CFR
92.254(a)(2)(iii). One commenter made
this suggestion.
HUD Response. A participating
jurisdiction that receives ADDI funds
may use the Single Family Mortgage
Limits under section 203(b) of the
National Housing Act or it may
determine 95 percent of the median area
purchase price as set forth in 24 CFR
92.254(a)(2)(iii).
E:\FR\FM\04APR4.SGM
04APR4
Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Rules and Regulations
IV. Discussion of Public Comments on
the November 22, 2004, Interim Rule on
the HOME Program Homeownership
Affordability Requirements
The public comment period on the
November 22, 2004, interim rule closed
on January 21, 2005, and HUD received
seven public comments. Comments
were received from state and local
HOME participating jurisdictions, as
well as the national organizations
representing these state and local
agencies, and private citizens. This
section of the preamble presents a
summary of the significant issues raised
by the public comments and HUD’s
responses to those issues.
ycherry on PROD1PC64 with RULES4
A. General Comments
Five commenters expressed general
support for the interim rule. One
commenter expressed ‘‘strong support’’
for the interim rule. Commenters wrote
that they ‘‘appreciate the clarification of
the HOME affordability requirements
relating to homebuyer projects’’ and that
‘‘the interim rule goes a long way
towards addressing our concerns about
participating jurisdictions’ liability in
cases of foreclosure.’’ Another
commenter wrote that it appreciated the
renewed flexibility provided in the
interim rule.
The November 22, 2004, interim rule
made changes to the affordability
requirements in § 92.254. One
commenter wrote that it is supportive of
the language in the interim rule that
allows participating jurisdictions the
flexibility to invest additional HOME
funds in a HOME-assisted property in
order to prevent foreclosure or acquire
the HOME-assisted property at the
foreclosure sale.
B. Net Proceeds Limitation
The November 22, 2004, interim rule
limited recapture amounts in sales
(voluntary and involuntary) of HOMEassisted homebuyer projects during the
period of affordability to the net
proceeds of the sale. One commenter
wrote that HUD should ease the
repayment requirement for HOME rental
properties, homebuyer properties in
which participating jurisdictions
impose resale restrictions rather than
recapture restrictions, and
noncompliance other than foreclosure
for housing that is subject to recapture.
HUD Response. HUD is not expanding
the coverage of this rule to include the
commenter’s requests. However, HUD is
aware of issues involving troubled
HOME-assisted rental housing and is
taking steps to address the issues,
including using Technical Assistance
funds to deploy experts to analyze
specific projects and work out solutions.
VerDate Aug<31>2005
18:33 Apr 03, 2007
Jkt 211001
Homeownership housing that is
subject to resale restrictions must
continue to be affordable for the period
of affordability. This portion of the
rulemaking only addresses housing that
is subject to recapture, not housing
subject to resale restrictions. The
participating jurisdiction determines
which option—recapture or resale—it
will impose to ensure the housing meets
the affordability requirements for the
period. The participating jurisdiction’s
written agreement with the homebuyer
sets forth its remedies for
noncompliance. In addition, the rule
permits additional investment of HOME
funds to preserve previously assisted
HOME homeownership housing, both
housing subject to recapture and to
resale restrictions. No substantive
change is being made to the recapture
requirement; but, rather, HUD is
rewording the regulatory text for the
sake of clarity.
C. Additional Home Funds for
Preserving Affordability
The November 22, 2004, interim rule
added language to the HOME
regulations for the purpose of preserving
the affordability of housing that was
previously assisted with HOME funds
and subject to the requirements of
§ 92.254(a). The new paragraph (a)(9)
allows a participating jurisdiction to use
additional HOME funds to acquire
HOME-assisted homebuyer housing
through a purchase option, right of first
refusal, or other preemptive right before
foreclosure, or to acquire the housing at
the foreclosure sale, to undertake any
necessary rehabilitation, and to provide
assistance to another homebuyer. The
section also allows participating
jurisdictions to use HOME
administrative funds under § 92.207 for
this purpose.
Comment: The prohibition against
using HOME funds to acquire a unit that
has a HOME mortgage at a foreclosure
sale may be problematic for some
participating jurisdictions. One
commenter questioned why
participating jurisdictions are permitted
to use additional HOME funds to
preserve homebuyer housing for which
HOME funds were already used but not
when a jurisdiction forecloses on a
defaulted HOME loan. Another
commenter wrote that participating
jurisdictions with limited resources
would be unable to enforce affordability
requirements of the HOME loan
agreement because of the costs
associated with foreclosing on the
HOME loan and reselling the unit.
Another commenter wrote that HUD
needs to clarify the language in the
interim rule if its intent was to permit
PO 00000
Frm 00007
Fmt 4701
Sfmt 4700
16683
the participating jurisdiction to use
HOME administrative funds to acquire
HOME-assisted homebuyer housing
before foreclosure or at the foreclosure
sale when the mortgage being foreclosed
is a HOME loan.
HUD Response. In response to the
comments, HUD is broadening the
eligible uses of HOME funds to preserve
affordable homeownership housing
previously assisted with HOME funds in
the final rule. Also, as noted earlier in
the preamble, the HOME program’s
prohibitions have been amended to
make clear that funds may be used for
assistance to preserve affordability of
homeownership housing. Additionally,
§ 92.254(a)(9) has been reorganized to
more clearly explain that HOME funds
may be used to acquire housing in
default through a purchase option, right
of first refusal, or other preemptive right
before foreclosure or through
acquisition at a foreclosure sale, as well
as to assist another homebuyer in
purchasing the housing. Furthermore,
although HOME funds cannot be used to
repay a loan made with HOME funds,
HOME funds may be used to pay
foreclosure costs. HOME funds cannot
be used to repay a loan made with
HOME funds because, as stated in the
preamble to the interim rule, if a
participating jurisdiction forecloses on a
HOME loan, it receives the housing
without additional cost to the HOME
program. However, the rule now permits
the use of HOME funds to pay the
foreclosure costs (92.207(h)). The
regulation also permits HOME funds to
be used for any necessary rehabilitation
and for assistance to another homebuyer
and for the cost of owning/holding the
housing pending resale to another
homebuyer—regardless of whether the
housing was acquired due to default of
a HOME loan or loan superior to the
HOME loan.
Comment: The use of HOME
administrative funds to purchase a
HOME-assisted property facing
foreclosure may be problematic for some
participating jurisdictions. A
commenter expressed concern about the
provision in the interim rule that allows
participating jurisdictions to preserve
the affordability of HOME-assisted
homebuyer housing through the use of
additional HOME funds to acquire the
housing before foreclosure or at the
foreclosure sale. According to the
commenter, using HOME administrative
funds to acquire the housing would be
a burden to participating jurisdictions
with limited administrative funds. In
addition, the commenter wrote that the
use of administrative funds to acquire
the housing would not allow the
participating jurisdiction to sell the
E:\FR\FM\04APR4.SGM
04APR4
ycherry on PROD1PC64 with RULES4
16684
Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Rules and Regulations
affected property to an eligible
homebuyer wishing to assume the
existing HOME loan without having to
permanently lose the administrative
funds expended to foreclose and
possibly rehabilitate the home.
HUD Response. HUD is sympathetic
to the commenter’s concern and
understands that it may not be feasible
for a participating jurisdiction with
limited HOME resources to use its
administrative funds to preserve
affordability. However, for participating
jurisdictions with sufficient
administrative funds available for this
purpose, the regulatory language
provides participating jurisdictions
another option to preserve their
affordable housing portfolio.
Comment: HUD should ensure that
homebuyers purchasing homes already
assisted with HOME funds that were
acquired by the participating
jurisdiction as a result of
noncompliance can be assisted with
HOME funds as direct homebuyer
assistance. One commenter wrote that
the interim rule should allow
homebuyers purchasing housing
previously assisted with HOME funds
that was subsequently acquired by the
participating jurisdiction before
foreclosure or at the foreclosure sale to
be assisted with HOME funds as direct
homebuyer assistance, if they are
eligible for HOME assistance.
HUD Response. The HOME regulation
at § 92.214(a)(6) has long provided an
exception to the HOME prohibited
activities to permit HOME funds to be
used to provide assistance to a
homebuyer to acquire housing
previously assisted with HOME funds
during the period of affordability.
Section § 92.254(a)(9) also permits
HOME funds to be used to provide
direct homebuyer assistance to an
eligible homebuyer purchasing that
property that the participating
jurisdiction has acquired to preserve its
affordability. HUD has amended the
HOME prohibited activities to now
allow HOME funds to be used for
assistance to preserve affordability of
homeownership housing in accordance
with § 92.254(a)(9) to a project
previously assisted with HOME funds
during the proscribed period of
affordability. This clarification will help
to ensure the preservation of affordable
housing and ensure that homebuyers
purchasing homes already assisted with
HOME funds that were acquired by the
participating jurisdiction as a result of
noncompliance can be assisted with
HOME funds as direct homebuyer
assistance.
VerDate Aug<31>2005
18:33 Apr 03, 2007
Jkt 211001
IV. Findings and Certifications
Executive Order 12866, Regulatory
Planning and Review
The Office of Management and Budget
(OMB) reviewed this rule under
Executive Order 12866 (entitled
‘‘Regulatory Planning and Review’’).
OMB determined that this rule is a
‘‘significant regulatory action’’ as
defined in section 3(f) of the order
(although not an economically
significant regulatory action, as
provided under section 3(f)(1) of the
order). The docket file is available for
public inspection between the hours of
8 a.m. and 5 p.m. weekdays in the
Regulations Division, Office of General
Counsel, Department of Housing and
Urban Development, 451 Seventh Street,
SW., Room 10276, Washington, DC
20410–0500. Due to security measures
at the HUD Headquarters building,
please schedule an advance
appointment to review the docket file by
calling the Regulations Division at (202)
708–3055 (this is not a toll-free
number).
Environmental Impact
A Finding of No Significant Impact
with respect to the environment has
been made for this final rule in
accordance with HUD regulations at 24
CFR part 50, which implement section
102(2)(C) of the National Environmental
Policy Act of 1969 (42 U.S.C. 4332 et
seq.). This Finding of No Significant
Impact is available for public inspection
between the hours of 8 a.m. and 5 p.m.
weekdays in the Regulations Division,
Office of General Counsel, Department
of Housing and Urban Development,
451 Seventh Street, SW., Room 10276,
Washington, DC 20410–0500. Due to
security measures at the HUD
Headquarters building, please schedule
an appointment to review the finding by
calling the Regulations Division at (202)
708–3055 (this is not a toll-free
number).
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
(5 U.S.C. 601 et seq.) generally requires
an agency to conduct a regulatory
flexibility analysis of any rule subject to
notice and comment rulemaking
requirements, unless the agency certifies
that the rule will not have a significant
economic impact on a substantial
number of small entities. This rule
makes final two interim rules that
established regulations for the
downpayment assistance program under
the ADDI program and that revised and
clarified the HOME program
affordability requirements of the ADDI
downpayment assistance program,
PO 00000
Frm 00008
Fmt 4701
Sfmt 4700
respectively. This final rule is not
imposing any additional regulatory
requirements on participating
jurisdictions. The majority of
jurisdictions that are statutorily eligible
to receive HOME formula allocations are
relatively larger cities, counties, or
states; thus, the final rule will not
significantly affect a substantial number
of small entities. Additionally, the final
rule broadens the use of HOME funds to
help preserve affordable
homeownership housing. This
expansion of the eligible use of funds
actually benefits all participating
jurisdictions, regardless of size.
Accordingly, the undersigned certifies
that this final rule will not have a
significant economic impact on a
substantial number of small entities.
Executive Order 13132, Federalism
Executive Order 13132 (entitled
‘‘Federalism’’) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial direct compliance costs on
state and local governments and is not
required by statute, or the rule preempts
state law, unless the agency meets the
consultation and funding requirements
of section 6 of the order. This final rule
will not have federalism implications
and would not impose substantial direct
compliance costs on state and local
governments or preempt state law
within the meaning of the order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates
Reform Act of 1995 (2 U.S.C. 1531–
1538) (UMRA) establishes requirements
for federal agencies to assess the effects
of their regulatory actions on state,
local, and tribal governments, and on
the private sector. This final rule will
not impose any federal mandates on any
state, local, or tribal government, or on
the private sector, within the meaning of
UMRA.
Paperwork Reduction Act
Under section 3504(h) of the
Paperwork Reduction Act of 1995 (44
U.S.C. 3501–3520), 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 currently valid control
number. There are no information
collection requirements contained in
this final rule.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic
Assistance Number for the HOME
program is 14.239.
E:\FR\FM\04APR4.SGM
04APR4
Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Rules and Regulations
List of Subjects in 24 CFR Part 92
Administrative practice and
procedure, Grant programs—housing
and community development, Low and
moderate income housing,
Manufactured homes, Rent subsidies,
Reporting and recordkeeping
requirements.
I Accordingly, for the reasons described
in the preamble, HUD revises 24 CFR
part 92 as follows:
PART 92—HOME INVESTMENT
PARTNERSHIPS PROGRAM
1. The authority citation for 24 CFR
part 92 continues to read as follows:
I
Authority: 42 U.S.C. 3535d and 12701–
12839.
2. In § 92.2 revise the definition of
‘‘First-time homebuyer’’ to read as
follows:
I
§ 92.2
Definitions.
*
*
*
*
*
First-time homebuyer means an
individual and his or her spouse who
have not owned a home during the
three-year period prior to purchase of a
home with assistance under the
American Dream Downpayment
Initiative (ADDI) described in subpart M
of this part. The term first-time
homebuyer also includes an individual
who is a displaced homemaker or single
parent, as those terms are defined in this
section. An individual shall not be
excluded from consideration as a firsttime homebuyer on the basis that the
individual owns or owned, as a
principal residence during the threeyear period, a dwelling unit whose
structure is not permanently affixed to
a permanent foundation in accordance
with local or other applicable
regulations or is not in compliance with
State, local, or model building codes, or
other applicable codes, and cannot be
brought into compliance with the codes
for less than the cost of constructing a
permanent structure.
*
*
*
*
*
I 3. Section 92.207 is amended to add
a new paragraph (h) to read as follows:
§ 92.207 Eligible administrative and
planning costs.
ycherry on PROD1PC64 with RULES4
*
*
*
*
*
(h) Preserving affordable housing
already assisted with HOME funds.
Costs specified under § 92.254(a)(9) may
be charged as an administrative cost or
may be charged to the project as
provided in § 92.254(a)(9). In addition,
the foreclosure cost of a HOME-assisted
rental housing project with a HOME
loan in default is an eligible
administrative cost.
VerDate Aug<31>2005
18:33 Apr 03, 2007
Jkt 211001
4. Revise § 92.214(a)(6) to read as
follows:
I
§ 92.214
Prohibited activities.
*
*
*
*
*
(a) * * *
(6) Provide assistance (other than
tenant-based rental assistance,
assistance to a homebuyer to acquire
housing previously assisted with HOME
funds, or assistance to preserve
affordability of homeownership housing
in accordance with § 92.254(a)(9)) to a
project previously assisted with HOME
funds during the period of affordability
established by the particular jurisdiction
in the written agreement under § 92.504.
However, additional HOME funds may
be committed to a project for up to one
year after project completion (see
§ 92.502), but the amount of HOME
funds in the project may not exceed the
maximum per-unit subsidy amount
established under § 92.250.
*
*
*
*
*
I 5. In § 92.254 revise paragraphs (a)(1),
the second sentence of (a)(2)(ii),
(a)(5)(ii)(A) introductory text, and (a)(9)
to read as follows:
§ 92.254 Qualification as affordable
housing: Homeownership.
(a) * * *
(1) The housing must be single family
housing.
(2) * * *
(iii) * * * The participating
jurisdiction must set forth the price for
different types of single family housing
for the jurisdiction. * * *
(5) * * *
(ii) * * *
(A) The following options for
recapture requirements are acceptable to
HUD. The participating jurisdiction may
adopt, modify or develop its own
recapture requirements for HUD
approval. In establishing its recapture
requirements, the participating
jurisdiction is subject to the limitation
that when the recapture requirement is
triggered by a sale (voluntary or
involuntary) of the housing unit, the
amount recaptured cannot exceed the
net proceeds, if any. The net proceeds
are the sales price minus superior loan
repayment (other than HOME funds)
and any closing costs.
*
*
*
*
*
(9) Preserving affordability of housing
that was previously assisted with HOME
funds.
(i) To preserve the affordability of
HOME-assisted housing a participating
jurisdiction may use additional HOME
funds for the following costs:
(A) The cost to acquire the housing
through a purchase option, right of first
refusal, or other preemptive right before
PO 00000
Frm 00009
Fmt 4701
Sfmt 4700
16685
foreclosure, or at the foreclosure sale.
(The foreclosure costs to acquire
housing with a HOME loan in default
are eligible. However, HOME funds may
not be used to repay a loan made with
HOME funds.)
(B) The cost to undertake any
necessary rehabilitation for the housing
acquired.
(C) The cost of owning/holding the
housing pending resale to another
homebuyer.
(D) The cost to assist another
homebuyer in purchasing the housing.
(ii) When a participating jurisdiction
uses HOME funds to preserve the
affordability of such housing, the
additional investment must be treated as
an amendment to the original project.
The housing must be sold to a new
eligible homebuyer in accordance with
the requirements of § 92.254(a) within a
reasonable period of time.
(iii) The total amount of the original
and additional HOME assistance may
not exceed the maximum per unit
subsidy amount established under
§ 92.250. Alternatively to charging the
cost to the HOME program under
§ 92.206, the participating jurisdiction
may charge the cost to the HOME
program under § 92.207 as a reasonable
administrative cost of its HOME
program, so that the additional HOME
funds for the housing are not subject to
the maximum per-unit subsidy amount.
To the extent administrative funds are
used, they may be reimbursed, in whole
or in part, when the housing is sold to
a new eligible homebuyer.
*
*
*
*
*
I 6. Section 92.602 is amended to add
a new paragraph (a)(3) to read as
follows:
§ 92.602
Eligible activities.
(a) * * *
(3) Manufactured housing. ADDI
funds may be used to purchase a
manufactured housing unit and
purchase a manufactured housing lot.
The manufactured housing unit must, at
the time of project completion, be
connected to permanent utility hookups and be located on land that is
owned by the manufactured housing
owner, owned as a cooperative, or is
subject to a leasehold interest with a
term equal to at least the term of the
mortgage financing on the unit or the
period of affordability (whichever is
greater).
*
*
*
*
*
Dated: March 23, 2007.
Roy A. Bernardi,
Deputy Secretary.
[FR Doc. E7–5960 Filed 4–3–07; 8:45 am]
BILLING CODE 4210–67–P
E:\FR\FM\04APR4.SGM
04APR4
Agencies
[Federal Register Volume 72, Number 64 (Wednesday, April 4, 2007)]
[Rules and Regulations]
[Pages 16678-16685]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-5960]
[[Page 16677]]
-----------------------------------------------------------------------
Part V
Department of Housing and Urban Development
-----------------------------------------------------------------------
24 CFR Part 92
HOME Investment Partnership Program; American Dream Downpayment
Initiative and Amendments to Homeownership Affordability; Final Rule
Federal Register / Vol. 72, No. 64 / Wednesday, April 4, 2007 / Rules
and Regulations
[[Page 16678]]
-----------------------------------------------------------------------
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 92
[Docket No. FR-4832-F-02]
RIN 2501-AC93
HOME Investment Partnerships Program; American Dream Downpayment
Initiative and Amendments to Homeownership Affordability
AGENCY: Office of the Secretary, HUD.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This rule follows publication of, and considers the public
comments on, two earlier HUD rules. First, this rule makes final the
March 30, 2004, interim rule establishing regulations for a downpayment
assistance component under the HOME Investment Partnerships Program
(HOME), referred to as the American Dream Downpayment Initiative
(ADDI). Through the ADDI, HUD makes formula grants to participating
jurisdictions under the HOME Program for the purpose of assisting low-
income families to achieve homeownership. In addition, this rule also
makes final HUD's November 22, 2004, interim rule, which revised and
clarified the HOME Program homeownership affordability requirements of
the HOME Investment Partnerships Program. In response to the public
comments received on both interim rules, this final rule clarifies that
the purchase of manufactured homes is an ADDI eligible activity, and
broadens and clarifies the use of HOME funds to help preserve
affordable housing previously assisted with HOME funds.
DATES: Effective Date: May 4, 2007.
FOR FURTHER INFORMATION CONTACT: Virginia Sardone, Director, Program
Policy Division, Office of Affordable Housing Programs, Department of
Housing and Urban Development, 451 Seventh Street, SW., Room 7164,
Washington, DC 20410-7000; telephone (202) 708-2470. (This is not a
toll-free number.) A telecommunications device for hearing- and speech-
impaired persons (TTY) is available at (800) 877-8339 (Federal
Information Relay Service).
SUPPLEMENTARY INFORMATION:
I. Background
A. The HOME Program
The HOME Investment Partnerships Program (HOME Program) is
authorized under Title II of the Cranston-Gonzalez National Affordable
Housing Act (42 U.S.C. 12704 et seq.) (NAHA). Through the HOME 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 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 multiyear
housing strategies through acquisition, rehabilitation, and new
construction of housing, and through tenant-based rental assistance.
Participating jurisdictions may provide assistance in a number of
eligible forms, including grants, loans, advances, equity investments,
interest subsidies, and other forms of assistance that HUD approves.
HUD's regulations for the HOME Program are located at 24 CFR part 92.
B. The March 30, 2004, Interim Rule Implementing the American Dream
Downpayment Initiative
The American Dream Downpayment Act (Pub. L. 108-186, approved
December 16, 2003) (ADDI statute) amended NAHA to establish a
downpayment assistance component under the HOME program, referred to as
the American Dream Downpayment Initiative (ADDI). Specifically, the
ADDI statute established a separate formula under the HOME Program by
which HUD allocates funds to states that are participating
jurisdictions under the HOME Program and to participating jurisdictions
within those states for the purpose of making downpayment assistance to
low-income families who are first-time homebuyers for the purchase of
single family housing that will serve as the family's principal
residence. The ADDI statute revised section 271 of NAHA (12 U.S.C.
12881) to establish specific statutory requirements for administration
of ADDI, including the allocation of funds.
With respect to allocation of funds, the ADDI statute established a
formula that is based primarily on the need for assistance to
homebuyers as measured by the percentage of low-income households
residing in rental housing within the participating jurisdiction. This
formula governs the allocation of ADDI funds. Among other requirements,
the ADDI statute also established the definitions applicable to ADDI,
authorized the use of ADDI funds for certain rehabilitation costs
completed in conjunction with ADDI downpayment assistance, established
new Consolidated Plan requirements, and prescribed other requirements
regarding the allocation and use of ADDI funds. Through the statutory
requirement that participating jurisdictions have a plan for conducting
targeted outreach to public housing tenants and to families receiving
rental assistance from public housing agencies, the ADDI statute
envisioned that among the low-income families who will move from rental
to homeownership are those families who are currently public housing
residents or who are receiving rental assistance. ADDI provides a much-
needed resource to participating jurisdictions to assist low-income
families achieve the dream of homeownership.
On March 30, 2004 (69 FR 16758), HUD published an interim rule that
established regulations at 24 CFR part 92 for ADDI. The interim rule
codified the statutory formula (located at 42 U.S.C. 12821) for
allocation of ADDI funds to HOME participating jurisdictions,
identified eligible activities and costs under ADDI, and established
other applicable requirements.
C. The November 22, 2004, Interim Rule Revising the HOME Program
Homeownership Affordability Requirements
Section 215(b) of NAHA establishes affordability requirements for
HOME-assisted homeownership housing. These requirements apply to both
the initial sale to a HOME-assisted homebuyer and to any subsequent
resale by that homebuyer during the applicable period of affordability.
Specifically, the statute provides that participating jurisdictions
must impose restrictions that either require that (1) the HOME-assisted
housing be resold to another low-income homebuyer at an affordable
price; or (2) the HOME-assisted housing may be resold to any homebuyer
regardless of income, but the subsidy to the original homebuyer must be
recaptured unless the net proceeds of the sale are insufficient.
On November 22, 2004 (69 FR 68050), HUD published an interim rule
that amended the regulations at 24 CFR part 92 for homeownership
housing under the HOME Program. The interim rule revised the
affordability requirements for homeownership housing assisted under the
HOME program. Specifically, the interim rule limited the amount of the
HOME investment subject to recapture after the sale of a HOME-assisted
homebuyer project during the period of affordability to the net
proceeds of the sale. In addition, the rule created a provision to
allow participating jurisdictions to preserve HOME-assisted homebuyer
housing as
[[Page 16679]]
affordable housing by investing additional HOME funds to acquire the
housing before foreclosure or at a foreclosure sale.
II. This Final Rule: Differences Between the March 30, 2004, ADDI
Interim Rule, the November 22, 2004, Affordability Requirements Interim
Rule, and This Final Rule
This final rule follows publication of the March 30, 2004, and the
November 22, 2004, interim rules and takes into consideration the
public comments received on the interim rules. After careful
consideration of the public comments, HUD has made the following
changes to the interim rules.
1. Definition of first time homebuyer; clarifying language
regarding manufactured housing as an eligible activity. HUD is amending
the definition of first time homebuyer in the HOME Investment
Partnerships program definitions to include those individuals who own
dwelling units not permanently affixed to a foundation (inadvertently
omitted from the March 30, 2004, regulation); and amending the ADDI
regulations to include statutory language on the purchase of
manufactured housing as an ADDI eligible activity. Specifically,
language has been included stating that individuals shall not be
excluded from consideration as a first-time homebuyer on the basis that
the individual owns or owned, as a principal residence during the
three-year period prior to assistance with ADDI funds, a dwelling unit
whose structure is not permanently affixed to a permanent foundation in
accordance with local or other applicable regulations or not in
compliance with state, local, or model building codes, or other
applicable codes, and cannot be brought into compliance with such codes
for less than the cost of constructing a permanent structure. Also,
although the regulatory definition of ``housing'' includes manufactured
housing and manufactured housing lots, the ADDI regulations now state
that ADDI funds may be used to purchase manufactured housing units and
manufactured housing lots; the manufactured housing must be connected
to permanent utility hook-ups; and the land on which the manufactured
housing is located must be owned by the manufactured housing owner,
owned as cooperative, or subject to a leasehold interest with a term,
at minimum, equal to the term of the mortgage financing on the unit or
the period of affordability, whichever is greater.
2. HOME funds for the preservation of affordable housing. HUD has
amended the HOME program's eligible administrative and planning costs
to now include as eligible the preservation of affordable homeownership
housing previously assisted with HOME funds. Also, the HOME program's
prohibitions were amended to make clear that funds may be used for
assistance to preserve affordability of homeownership housing.
Additionally, Sec. 92.254(a)(9) has been reorganized to more clearly
explain that HOME funds may be used to acquire housing in default
through a purchase option, right of first refusal, or other preemptive
right before foreclosure or through acquisition at a foreclosure sale,
as well as to assist another homebuyer in purchasing the housing.
Furthermore, although HOME funds cannot be used to repay a loan made
with HOME funds, HOME funds may be used to pay foreclosure costs. The
regulations were also amended to clarify that the investment of
additional HOME funds to preserve affordability is considered an
amendment of the original project rather than a new project.
3. HOME fund recaptures. HUD has amended the final rule to clarify
that HOME fund recaptures cannot exceed net proceeds, if there are in
fact net proceeds. No substantive change is being made to the recapture
requirement; but, rather, HUD is rewording the regulatory text for the
sake of clarity.
III. Discussion of Public Comments on the March 30, 2004, Interim Rule
Establishing ADDI Regulations
The public comment period on the ADDI interim rule closed on June
1, 2004, and HUD received 15 public comments. Comments were received
from trade and professional organizations representing the realtor,
homebuilder, and manufactured home industries; state and local
community development agencies (as well as the national organizations
representing these state and local agencies); private citizens; and
non-profit downpayment assistance organizations. This section of the
preamble presents a summary of the significant issues raised by the
public comments and HUD's responses to those issues.
A. General Comments
Six commenters expressed general support for the ADDI interim rule.
The commenters wrote that ``this program will help reduce home buying
costs and allow people to achieve homeownership'' and that ADDI is
``focused on providing additional resources to HOME participating
jurisdictions for homeownership activities.'' One commenter wrote that
it was pleased that HUD included displaced homemakers and single parent
households among those eligible to benefit from ADDI, and that the
inclusion of condominiums and cooperative units within the definition
of single family housing was a positive step.
The primary area of concern that commenters mentioned was the
inability to use ADDI funds for ADDI administrative costs. Several
commenters were concerned that even though the regulation permits HOME
funds to be used for ADDI's administration and planning, lack of
additional funds for ADDI administration will make oversight and
execution of the ADDI program extremely difficult. Another area of
concern related to the requirement that participating jurisdictions
repay HOME/ADDI funds on homes that go into foreclosure.
Additional comments involved perceived negative connotations of
manufactured housing, questions about eligible new construction costs,
questions about the definition of first time homebuyer, and concerns
that nonprofit homebuyer assistance organizations may not be permitted
to participate in the ADDI. A breakdown of the comments by subject area
follows.
B. Use of HOME Administrative Funds for ADDI Administrative Costs; ADDI
Funding
The March 30, 2004, interim rule amended Sec. 92.207 to make clear
that a participating jurisdiction may expend HOME funds for payment of
ADDI administrative expenses. The expended amount cannot exceed ten
percent of the fiscal year HOME basic formula. ADDI funds cannot be
used for administration costs of the ADDI program.
Comment: Not providing for additional funding for the ADDI program
is unduly burdensome to participating jurisdictions. One commenter
wrote that the intent of the ADDI program is to provide funding for a
new homebuyer initiative rather than supplement funding for already
existing programs. According to the commenter, new initiatives require
new administrative costs; thus, additional funding is required in order
to sufficiently get the ADDI program up and running. Another commenter
wrote that a 10 percent allocation of HOME funds for both HOME and ADDI
administrative costs is inadequate to meet program costs. An additional
commenter wrote that HUD should add a participating jurisdiction's ADDI
allocation to its HOME allocation to
[[Page 16680]]
calculate its ten percent program administration limit. One commenter
asked HUD to amend the rule to allow all participating jurisdictions to
expend up to 10 percent of their ADDI allocations on administrative
costs.
HUD Response. ADDI is a downpayment assistance program under the
HOME Program. Most participating jurisdictions already fund homebuyer
projects with their HOME Program funds. Many of these projects are part
of homebuyer programs that provide downpayment assistance to low-income
homebuyers. Consequently, many participating jurisdictions will choose
to implement ADDI as part of their existing homebuyer programs. HUD
agrees that it may be burdensome to some participating jurisdictions to
implement ADDI without additional funding for program administration.
However, the ADDI statute does not provide additional funds for ADDI
program administration from ADDI funds.
Comment: Congress intended to allow for the expenditure of ADDI
funds as administrative expenses. One commenter wrote that Congress'
silence on an administrative fee in the final statutory language for
the ADDI program allows HUD the discretion to include a jurisdiction's
FY 2004 and subsequent ADDI allocation into its HOME allocation for
purposes of calculating an administrative fee. Another commenter wrote
that Congress considered including administrative funds for ADDI and
that the Senate Banking, Housing and Urban Affairs Committee amended
the original Senate bill, S. 811, during its mark-up of the bill to
include a five percent administrative provision for ADDI. A third
commenter wrote that the ADDI statute should be interpreted to
authorize the same level of administrative funding for ADDI activities
as is already available for all other HOME activities, including those
that provide homeownership assistance. Another commenter wrote that it
interprets 24 CFR 92.602 of the HOME regulation as allowing a
participating jurisdiction to use ADDI funds to finance ADDI project
delivery costs.
HUD Response. HUD disagrees that Congress' silence on the
eligibility of administrative costs in the final statutory language for
the ADDI program allows HUD the discretion to include a jurisdiction's
FY 2004 and subsequent ADDI allocations into its HOME allocations for
purposes of calculating an administrative fee. As pointed out by a
commenter, Congress considered including administrative funds for ADDI
and the Senate Banking, Housing and Urban Affairs Committee amended the
original Senate bill, S. 811, during its mark-up of the bill to permit
five percent of ADDI funds to be used for administrative provision.
However, this language was struck from the legislation before
enactment. Section 92.602 identifies eligible costs under ADDI
including staff and overhead costs directly related to carrying out an
ADDI project, which are eligible project related soft costs under Sec.
92.602(b)(3)(iv).
Comment: ADDI should be funded as a standalone program instead of a
set-aside within the HOME program. One commenter made this suggestion.
HUD Response. Congress wrote the ADDI legislation to be a component
of the HOME Program. The American Dream Downpayment Act amended the
HOME statute (subtitle E of Title II of the Cranston-Gonzalez National
Affordable Housing Act (42 U.S.C. 12821)) to create ADDI. The
implementation of ADDI was facilitated because ADDI is a set-aside
within the HOME Program.
C. Recaptured/Repaid Funds Due to Foreclosure
Several commenters on the ADDI rule expressed concern about HOME
recapture and repayment requirements, which are applicable to ADDI
under Sec. 92.616. HUD addressed the concerns of these commenters by
publishing the November 22, 2004, rule.
Comment: Validation is sought as to whether 24 CFR 92.254(a)(5)
requires the participating jurisdiction to submit for HUD approval the
resale and recapture provisions of the ADDI program before a
participating jurisdiction may implement the program.
HUD Response. The HOME regulations at Sec. 92.254(a)(5) require
HOME participating jurisdictions to establish resale or recapture
requirements that comply with the provisions of that section of the
HOME rule and to set forth the requirements in their consolidated
plans. In addition, Sec. 91.220(g)(2)(ii) and Sec. 91.320(g)(2)(ii)
direct local participating jurisdictions and states, respectively, that
will use HOME funds to assist homebuyers, to state the guidelines for
resale or recapture as required in Sec. 92.254. HUD reads Sec.
92.254(a)(5) to include both HOME and ADDI funds used to assist
homebuyers. Therefore, it is not necessary for a participating
jurisdiction to separately submit for HUD approval the resale and
recapture provisions it will use for the ADDI program unless the
provisions used for ADDI projects differ from the provisions previously
set forth in the consolidated plan for HOME homebuyer projects.
D. Manufactured Homes
Comment: Maintaining the current action plan language regarding
manufactured homes is contrary to current federal and state policy. Two
commenters wrote that the language requiring targeted outreach to
residents and tenants of public and manufactured housing creates
negative and inaccurate connotations for manufactured housing that are
contrary to current policy. One of the commenters wrote that this
language strongly implies that jurisdictions must have targeted plans
to displace persons from manufactured homes.
HUD Response. The language added to the consolidated plan
regulations at 24 CFR part 91 is the statutory requirement.
Specifically, the language added to the action plan provisions for
local HOME participating jurisdictions at Sec. 91.220 and for states
at Sec. 91.320 requires a recipient of ADDI funds to include in its
action plan a plan for conducting targeted outreach to residents and
tenants of manufactured housing. Because the definition of single
family housing in the ADDI statute and rule includes manufactured
housing and a manufactured housing lot, the consolidated plan
requirement regarding outreach to residents and tenants of manufactured
housing has been read by commenters as contradicting the eligibility of
manufactured housing as ADDI eligible single-family housing. However,
tenants of the manufactured housing qualify as first-time homebuyers.
In addition, ownership of manufactured housing that is not permanently
affixed does not disqualify the family as a first-time homebuyer. In
order to clarify the language in the interim rule regarding
participating jurisdictions' responsibilities providing outreach to
residents and tenants of manufactured housing, HUD is revising the
definition of first-time homebuyer in the ADDI regulations that more
closely tracks the statutory definition of single family housing.
Specifically, the definition of first-time homebuyer now states that an
individual shall not be excluded from consideration as a first-time
homebuyer on the basis that the individual owns or owned, as a
principal residence during the three-year period prior to assistance
with ADDI funds, a dwelling unit whose structure is not permanently
affixed to a permanent foundation in accordance with local or other
applicable regulations or not in compliance with state, local, or model
building codes, or other applicable codes, and cannot be brought into
compliance with such
[[Page 16681]]
codes for less than the cost of constructing a permanent structure.
Comment: The definition of single family housing should be revised
to use the exact statutory language pertaining to manufactured housing.
Two commenters wrote that the statutory language provides that
manufactured housing owned as a cooperative or subject to a leasehold
interest is an eligible activity under ADDI. The commenters urged that
this be clarified in the final rule.
HUD Response. HUD agrees that additional language is needed
clarifying that the purchase of manufactured homes is an eligible
activity. HUD has added language to Sec. 92.602(a) stating that ADDI
funds may be used to purchase a manufactured housing unit, manufactured
housing lots, and that the manufactured housing unit must, at the time
of project completion, be connected to permanent utility hook-ups and
be located on land that is owned by the manufactured housing owner,
owned as a cooperative, or is subject to a leasehold interest with a
term equal to at least the term of the mortgage financing on the unit
or the period of affordability (whichever is greater).
E. Nonprofit Downpayment Assistance Programs
Comment: The interim rule unfairly excludes certain nonprofit
organizations from participation in ADDI. Two commenters objected to
the limitation on subrecipients and contractors contained in the
interim rule. The interim rule prohibits a participating jurisdiction
from providing ADDI funds to an entity or organization that provides
downpayment assistance, if the activities of that entity are financed
by contributions, service fees, or other payments from the sellers of
housing, whether or not made in conjunction with the sale of specific
housing acquired with ADDI funds. The commenters wrote that this
limitation goes beyond the statutory prohibition and unfairly excludes
certain nonprofit organizations from participating in ADDI, because the
commenters believe the statute can be interpreted to permit an entity
to run two programs, one program with seller-provided funds and
another--the ADDI program--without seller funds. In addition, the
commenters objected to the rationale in the preamble to the interim
rule, which provided that seller-financed downpayment assistance
artificially inflated the fees charged to homebuyers in excess of the
amount necessary to compensate sellers for their payment of certain
closing charges or contributions to the cost of the downpayment.
HUD Response. The ADDI statute prohibits participating
jurisdictions from using ADDI to provide funding to an entity or
organization that provides downpayment assistance if the activities of
that entity or organization are funded in whole or in part, directly or
indirectly, by contributions, service fees, or other payments from the
sellers of housing. The ADDI regulations at Sec. 92.602(f) copy the
statutory language and adds the following phrase: ``whether or not made
in conjunction with the sale of specific housing acquired with ADDI
funds.'' HUD purposefully added this language to better articulate the
statutory prohibition against organizations that receive funds from
sellers of housing. The prohibition applies to the entire organization,
not just to specific programs of the organization.
The statement in the preamble about seller-funded downpayment
programs is supported by a recent study. ``An Examination of
Downpayment Gift Programs Administered by Non-profit Organizations''
(March 2005), prepared for HUD by Concentrance Consulting Group, found
strong evidence that the cost of downpayment assistance added to the
sales price, increased the loan amount, and eliminated any borrower
equity in the property. This study can be found at: https://www.hud.gov/
offices/hsg/comp/rpts/dpassist/dpa2.pdf.
F. Other Comments
Comment: The language relating to the usage of ADDI funds for new
construction financing and the definition of ``single family home''
should be made more clear. One commenter requested that HUD clarify
that, although ADDI funds cannot be used for hard or soft costs related
to new construction, ADDI funds may be used for the acquisition and
financing of new construction. Two commenters requested a clarification
on the definition of single family housing and whether that definition
includes both newly constructed and existing homes. One commenter
suggested the rule should state that downpayment funds can only be used
in association with the purchase or repair of existing homes. The
commenter interpreted the interim rule to prohibit the use of ADDI
funds for newly constructed homes.
HUD Response. The ADDI statute and Sec. 92.602(a) of the ADDI
regulations clearly state that the only eligible activities are
downpayment assistance towards the purchase of single family housing by
low-income families who are first-time homebuyers and rehabilitation
that is completed in conjunction with the home purchase assisted with
ADDI funds. Single family housing includes housing that is newly
constructed. Section 92.601(b)(4) prohibits the use of ADDI funds for
the development costs of new construction of housing or for rental
assistance. Since ADDI funds can only be used for downpayment
assistance towards the purchase of single family housing and for
rehabilitation of the ADDI-assisted housing, ADDI funds can be used to
assist low-income first-time homebuyers to purchase newly constructed
housing, but not to develop or finance new construction.
Comment: The definition of first-time homebuyer should include a
financial cap on ownership of other real estate. One commenter wrote
that under the interim rule's definition of a first-time homebuyer, the
first-time homebuyer could feasibly own other types of real estate
prior to purchasing a first home, such as industrial, agricultural,
commercial, and rental housing which did not include the buyer's
residence. The commenter wrote that if HUD intends to allow for this
kind of additional property ownership, the appraised value of such
allowable property be capped at $300,000.
HUD Response. The purpose of the ADDI program is to assist low-
income first-time homebuyers with downpayment assistance to purchase
modest single family housing. An individual who has owned housing--
whether or not it is the principal residence--within the three-year
period before purchase of a home with ADDI assistance is not a first-
time homebuyer, unless that person is a displaced homemaker or single
parent as defined in the rule. If the participating jurisdiction is
using the definition of ``annual income'' in Sec. 5.609, the assets of
the individual must be considered in determining whether the person is
low-income.
Comment: The definition of low-income family at 24 CFR 92.2 should
be waived for high-cost localities. One commenter wrote that HUD should
allow a waiver of the definition of low-income families for higher cost
areas where there may be a shortage of affordable housing for purchase
by persons at 80 percent of area median income or below.
HUD Response. HUD disagrees with the commenter's suggestion that
HUD waive the definition of low-income families in high cost areas. The
definition of low-income families is statutorily based (42 U.S.C.
12704(10)) and cannot be waived. Moreover, allowing participating
jurisdictions in
[[Page 16682]]
high cost areas in which there may be a shortage of affordable housing
for low-income families to serve families with a higher income is
contrary to the purpose of ADDI and will not resolve the affordable
housing shortage for low-income families in that area.
Comment: Eligible ADDI costs should include pre-purchase housing
inspections and housing counseling, regardless of ultimate ADDI
assistance. One commenter wrote that pre-purchase housing inspections
should be allowed as an eligible soft cost. The commenter wrote that in
the event the purchase falls through due to the inspection uncovering
problems that cancel the sale, HUD should allow participating
jurisdictions to pay for those inspections with HOME administrative
funds. The commenter also wrote that lead-based paint stabilization and
clearance testing be included as an acceptable ADDI rehabilitation or
soft cost, respectively. Another commenter wrote that HUD should
recognize as an eligible ADDI cost the provision of pre-purchase
services, such as housing counseling, to potential buyers who are ADDI-
eligible, whether or not those eligible buyers are ultimately assisted
with ADDI funds. Another commenter suggested that ADDI funds received
by housing counseling organizations be chargeable as project costs even
when the individual receiving the assistance is not immediately able to
qualify for mortgage financing or receives such financing without ADDI
assistance. The commenter also wrote that HUD should give ADDI funds
directly to housing counseling agencies rather than filtering the funds
through participating jurisdictions and urged that the 25 percent match
associated with FY 2003 ADDI funds be waived in the case of awards to
housing counseling organizations.
HUD Response. The ADDI statute and Sec. 92.602(a) of the ADDI
regulations identify eligible activities as downpayment assistance and
home repairs. Section 92.602(b) identifies eligible project costs of
ADDI projects. Included in eligible project costs are acquisition
costs, rehabilitation costs, and related soft costs. Pre-purchase
inspections and housing counseling are considered eligible soft costs,
provided the eligible low-income, first-time homebuyer purchases
single-family housing with ADDI assistance. If the purchase falls
through and the sale is cancelled, there is no eligible ADDI project,
and therefore, there are no eligible project soft costs. In this case,
participating jurisdictions may use HOME administrative funds to pay
for related soft costs expended on the cancelled ADDI project.
Likewise, lead paint clearance testing is an eligible ADDI project
related soft cost and lead paint stabilization is an eligible ADDI
rehabilitation cost provided an eligible low-income, first-time
homebuyer purchases the subject single-family housing with ADDI
assistance.
HUD agrees that housing counseling is a crucial component of a
successful homeownership program. However, the chief purpose of ADDI is
to assist low-income families to achieve homeownership. HUD currently
administers a housing counseling program through the Federal Housing
Administration (FHA) that could assist persons who will not purchase
single family housing with ADDI assistance. ADDI only authorizes HUD to
``award grants to participating jurisdictions to assist low-income
families to achieve homeownership. * * *'' ``Participating
jurisdiction'' is defined in the ADDI statute as a State or unit of
general local government. Accordingly, housing counseling entities that
are not participating jurisdictions are not eligible direct recipients
of ADDI funds. The ADDI statute does not require participating
jurisdictions to match ADDI funds. However, because FY 2003 ADDI funds
are governed by the FY 2003 HOME appropriation act, not the ADDI
statute, participating jurisdictions are required to match their FY
2003 ADDI funds. HUD cannot waive the statutory match requirement for
these funds.
Comment: Clarification requested regarding 20 percent cap on
rehabilitation. One commenter asked for clarification about the actual
percentages the homebuyer may receive for rehabilitation. The commenter
asked if, for example, a homebuyer is receiving $4,000 in downpayment
assistance, whether the homebuyer is limited to rehabilitation
expenditures of 20 percent of the $4,000 assistance total (in that
case, $800), or can that homebuyer actually receive $6,000 in
rehabilitation assistance (the maximum allowable under Sec. 92.602(e))
as long as the participating jurisdiction's total entire ADDI
rehabilitation amount does not exceed 20 percent of the fiscal year
formula allocation.
HUD Response. According to ADDI statute, not more than 20 percent
of the grant funds provided under the formula allocation to a
participating jurisdiction may be used to provide assistance to low-
income, first-time homebuyers for home repairs. The regulation at Sec.
92.602(a)(2) states that ``total rehabilitation shall not exceed 20
percent of the participating jurisdiction's ADDI fiscal year formula
allocation.'' Therefore, a homebuyer can receive ADDI funds for
downpayment assistance and home repairs, subject to the maximum amount
of assistance set forth at Sec. 92.602(e)--the greater of 6 percent of
the purchase price or $10,000--as long as the participating
jurisdiction has not reached 20 percent of its ADDI formula allocation
for home repairs. Thus, in the example the commenter set forth above,
the homebuyer could receive up to $6,000 in rehabilitation assistance
as long as the participating jurisdiction's entire ADDI rehabilitation
amount does not exceed 20 percent of its fiscal year formula
allocation.
Comment: ADDI funds should be disbursed in the same manner HOME
funds are disbursed. One commenter, citing 24 CFR 92.502, wrote that
certain costs associated with downpayment assistance will be charged
against ADDI funds which involves per-household assistance caps. The
commenter wrote that ADDI costs will be assigned to projects by HUD
computers and those computers cannot effectively discern separate ADDI
expenditures. The commenter wrote that rather than assigning ADDI funds
to individual projects, HUD should disburse ADDI funds in the same
manner as HOME funds, since local jurisdictions are better suited to
decide how funds should be distributed.
HUD Response. ADDI funds are disbursed in the same manner as HOME
funds through HUD's Integrated Disbursement and Information System
(IDIS). However, ADDI funds cannot be separated from HOME funds in
IDIS, and therefore, HUD has developed a report that uses a number of
project identification factors to identify ADDI projects. These reports
may be useful to participating jurisdictions to track ADDI
disbursements. However, participating jurisdictions are free to
maintain their own records of ADDI project disbursements. The sum of
HOME and ADDI disbursements in IDIS will match a participating
jurisdiction's records.
Comment: HUD should accept the median area purchase price developed
by the real estate industry in the participating jurisdiction as the
price for single family housing as per 24 CFR 92.254(a)(2)(iii). One
commenter made this suggestion.
HUD Response. A participating jurisdiction that receives ADDI funds
may use the Single Family Mortgage Limits under section 203(b) of the
National Housing Act or it may determine 95 percent of the median area
purchase price as set forth in 24 CFR 92.254(a)(2)(iii).
[[Page 16683]]
IV. Discussion of Public Comments on the November 22, 2004, Interim
Rule on the HOME Program Homeownership Affordability Requirements
The public comment period on the November 22, 2004, interim rule
closed on January 21, 2005, and HUD received seven public comments.
Comments were received from state and local HOME participating
jurisdictions, as well as the national organizations representing these
state and local agencies, and private citizens. This section of the
preamble presents a summary of the significant issues raised by the
public comments and HUD's responses to those issues.
A. General Comments
Five commenters expressed general support for the interim rule. One
commenter expressed ``strong support'' for the interim rule. Commenters
wrote that they ``appreciate the clarification of the HOME
affordability requirements relating to homebuyer projects'' and that
``the interim rule goes a long way towards addressing our concerns
about participating jurisdictions' liability in cases of foreclosure.''
Another commenter wrote that it appreciated the renewed flexibility
provided in the interim rule.
The November 22, 2004, interim rule made changes to the
affordability requirements in Sec. 92.254. One commenter wrote that it
is supportive of the language in the interim rule that allows
participating jurisdictions the flexibility to invest additional HOME
funds in a HOME-assisted property in order to prevent foreclosure or
acquire the HOME-assisted property at the foreclosure sale.
B. Net Proceeds Limitation
The November 22, 2004, interim rule limited recapture amounts in
sales (voluntary and involuntary) of HOME-assisted homebuyer projects
during the period of affordability to the net proceeds of the sale. One
commenter wrote that HUD should ease the repayment requirement for HOME
rental properties, homebuyer properties in which participating
jurisdictions impose resale restrictions rather than recapture
restrictions, and noncompliance other than foreclosure for housing that
is subject to recapture.
HUD Response. HUD is not expanding the coverage of this rule to
include the commenter's requests. However, HUD is aware of issues
involving troubled HOME-assisted rental housing and is taking steps to
address the issues, including using Technical Assistance funds to
deploy experts to analyze specific projects and work out solutions.
Homeownership housing that is subject to resale restrictions must
continue to be affordable for the period of affordability. This portion
of the rulemaking only addresses housing that is subject to recapture,
not housing subject to resale restrictions. The participating
jurisdiction determines which option--recapture or resale--it will
impose to ensure the housing meets the affordability requirements for
the period. The participating jurisdiction's written agreement with the
homebuyer sets forth its remedies for noncompliance. In addition, the
rule permits additional investment of HOME funds to preserve previously
assisted HOME homeownership housing, both housing subject to recapture
and to resale restrictions. No substantive change is being made to the
recapture requirement; but, rather, HUD is rewording the regulatory
text for the sake of clarity.
C. Additional Home Funds for Preserving Affordability
The November 22, 2004, interim rule added language to the HOME
regulations for the purpose of preserving the affordability of housing
that was previously assisted with HOME funds and subject to the
requirements of Sec. 92.254(a). The new paragraph (a)(9) allows a
participating jurisdiction to use additional HOME funds to acquire
HOME-assisted homebuyer housing through a purchase option, right of
first refusal, or other preemptive right before foreclosure, or to
acquire the housing at the foreclosure sale, to undertake any necessary
rehabilitation, and to provide assistance to another homebuyer. The
section also allows participating jurisdictions to use HOME
administrative funds under Sec. 92.207 for this purpose.
Comment: The prohibition against using HOME funds to acquire a unit
that has a HOME mortgage at a foreclosure sale may be problematic for
some participating jurisdictions. One commenter questioned why
participating jurisdictions are permitted to use additional HOME funds
to preserve homebuyer housing for which HOME funds were already used
but not when a jurisdiction forecloses on a defaulted HOME loan.
Another commenter wrote that participating jurisdictions with limited
resources would be unable to enforce affordability requirements of the
HOME loan agreement because of the costs associated with foreclosing on
the HOME loan and reselling the unit. Another commenter wrote that HUD
needs to clarify the language in the interim rule if its intent was to
permit the participating jurisdiction to use HOME administrative funds
to acquire HOME-assisted homebuyer housing before foreclosure or at the
foreclosure sale when the mortgage being foreclosed is a HOME loan.
HUD Response. In response to the comments, HUD is broadening the
eligible uses of HOME funds to preserve affordable homeownership
housing previously assisted with HOME funds in the final rule. Also, as
noted earlier in the preamble, the HOME program's prohibitions have
been amended to make clear that funds may be used for assistance to
preserve affordability of homeownership housing. Additionally, Sec.
92.254(a)(9) has been reorganized to more clearly explain that HOME
funds may be used to acquire housing in default through a purchase
option, right of first refusal, or other preemptive right before
foreclosure or through acquisition at a foreclosure sale, as well as to
assist another homebuyer in purchasing the housing. Furthermore,
although HOME funds cannot be used to repay a loan made with HOME
funds, HOME funds may be used to pay foreclosure costs. HOME funds
cannot be used to repay a loan made with HOME funds because, as stated
in the preamble to the interim rule, if a participating jurisdiction
forecloses on a HOME loan, it receives the housing without additional
cost to the HOME program. However, the rule now permits the use of HOME
funds to pay the foreclosure costs (92.207(h)). The regulation also
permits HOME funds to be used for any necessary rehabilitation and for
assistance to another homebuyer and for the cost of owning/holding the
housing pending resale to another homebuyer--regardless of whether the
housing was acquired due to default of a HOME loan or loan superior to
the HOME loan.
Comment: The use of HOME administrative funds to purchase a HOME-
assisted property facing foreclosure may be problematic for some
participating jurisdictions. A commenter expressed concern about the
provision in the interim rule that allows participating jurisdictions
to preserve the affordability of HOME-assisted homebuyer housing
through the use of additional HOME funds to acquire the housing before
foreclosure or at the foreclosure sale. According to the commenter,
using HOME administrative funds to acquire the housing would be a
burden to participating jurisdictions with limited administrative
funds. In addition, the commenter wrote that the use of administrative
funds to acquire the housing would not allow the participating
jurisdiction to sell the
[[Page 16684]]
affected property to an eligible homebuyer wishing to assume the
existing HOME loan without having to permanently lose the
administrative funds expended to foreclose and possibly rehabilitate
the home.
HUD Response. HUD is sympathetic to the commenter's concern and
understands that it may not be feasible for a participating
jurisdiction with limited HOME resources to use its administrative
funds to preserve affordability. However, for participating
jurisdictions with sufficient administrative funds available for this
purpose, the regulatory language provides participating jurisdictions
another option to preserve their affordable housing portfolio.
Comment: HUD should ensure that homebuyers purchasing homes already
assisted with HOME funds that were acquired by the participating
jurisdiction as a result of noncompliance can be assisted with HOME
funds as direct homebuyer assistance. One commenter wrote that the
interim rule should allow homebuyers purchasing housing previously
assisted with HOME funds that was subsequently acquired by the
participating jurisdiction before foreclosure or at the foreclosure
sale to be assisted with HOME funds as direct homebuyer assistance, if
they are eligible for HOME assistance.
HUD Response. The HOME regulation at Sec. 92.214(a)(6) has long
provided an exception to the HOME prohibited activities to permit HOME
funds to be used to provide assistance to a homebuyer to acquire
housing previously assisted with HOME funds during the period of
affordability. Section Sec. 92.254(a)(9) also permits HOME funds to be
used to provide direct homebuyer assistance to an eligible homebuyer
purchasing that property that the participating jurisdiction has
acquired to preserve its affordability. HUD has amended the HOME
prohibited activities to now allow HOME funds to be used for assistance
to preserve affordability of homeownership housing in accordance with
Sec. 92.254(a)(9) to a project previously assisted with HOME funds
during the proscribed period of affordability. This clarification will
help to ensure the preservation of affordable housing and ensure that
homebuyers purchasing homes already assisted with HOME funds that were
acquired by the participating jurisdiction as a result of noncompliance
can be assisted with HOME funds as direct homebuyer assistance.
IV. Findings and Certifications
Executive Order 12866, Regulatory Planning and Review
The Office of Management and Budget (OMB) reviewed this rule under
Executive Order 12866 (entitled ``Regulatory Planning and Review'').
OMB determined that this rule is a ``significant regulatory action'' as
defined in section 3(f) of the order (although not an economically
significant regulatory action, as provided under section 3(f)(1) of the
order). The docket file is available for public inspection between the
hours of 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office
of General Counsel, Department of Housing and Urban Development, 451
Seventh Street, SW., Room 10276, Washington, DC 20410-0500. Due to
security measures at the HUD Headquarters building, please schedule an
advance appointment to review the docket file by calling the
Regulations Division at (202) 708-3055 (this is not a toll-free
number).
Environmental Impact
A Finding of No Significant Impact with respect to the environment
has been made for this final rule in accordance with HUD regulations at
24 CFR part 50, which implement section 102(2)(C) of the National
Environmental Policy Act of 1969 (42 U.S.C. 4332 et seq.). This Finding
of No Significant Impact is available for public inspection between the
hours of 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office
of General Counsel, Department of Housing and Urban Development, 451
Seventh Street, SW., Room 10276, Washington, DC 20410-0500. Due to
security measures at the HUD Headquarters building, please schedule an
appointment to review the finding by calling the Regulations Division
at (202) 708-3055 (this is not a toll-free number).
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.)
generally requires an agency to conduct a regulatory flexibility
analysis of any rule subject to notice and comment rulemaking
requirements, unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
This rule makes final two interim rules that established regulations
for the downpayment assistance program under the ADDI program and that
revised and clarified the HOME program affordability requirements of
the ADDI downpayment assistance program, respectively. This final rule
is not imposing any additional regulatory requirements on participating
jurisdictions. The majority of jurisdictions that are statutorily
eligible to receive HOME formula allocations are relatively larger
cities, counties, or states; thus, the final rule will not
significantly affect a substantial number of small entities.
Additionally, the final rule broadens the use of HOME funds to help
preserve affordable homeownership housing. This expansion of the
eligible use of funds actually benefits all participating
jurisdictions, regardless of size. Accordingly, the undersigned
certifies that this final rule will not have a significant economic
impact on a substantial number of small entities.
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial direct compliance costs on state and local
governments and is not required by statute, or the rule preempts state
law, unless the agency meets the consultation and funding requirements
of section 6 of the order. This final rule will not have federalism
implications and would not impose substantial direct compliance costs
on state and local governments or preempt state law within the meaning
of the order.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) (UMRA) establishes requirements for federal agencies to
assess the effects of their regulatory actions on state, local, and
tribal governments, and on the private sector. This final rule will not
impose any federal mandates on any state, local, or tribal government,
or on the private sector, within the meaning of UMRA.
Paperwork Reduction Act
Under section 3504(h) of the Paperwork Reduction Act of 1995 (44
U.S.C. 3501-3520), 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 currently valid control number. There are no
information collection requirements contained in this final rule.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance Number for the HOME
program is 14.239.
[[Page 16685]]
List of Subjects in 24 CFR Part 92
Administrative practice and procedure, Grant programs--housing and
community development, Low and moderate income housing, Manufactured
homes, Rent subsidies, Reporting and recordkeeping requirements.
0
Accordingly, for the reasons described in the preamble, HUD revises 24
CFR part 92 as follows:
PART 92--HOME INVESTMENT PARTNERSHIPS PROGRAM
0
1. The authority citation for 24 CFR part 92 continues to read as
follows:
Authority: 42 U.S.C. 3535d and 12701-12839.
0
2. In Sec. 92.2 revise the definition of ``First-time homebuyer'' to
read as follows:
Sec. 92.2 Definitions.
* * * * *
First-time homebuyer means an individual and his or her spouse who
have not owned a home during the three-year period prior to purchase of
a home with assistance under the American Dream Downpayment Initiative
(ADDI) described in subpart M of this part. The term first-time
homebuyer also includes an individual who is a displaced homemaker or
single parent, as those terms are defined in this section. An
individual shall not be excluded from consideration as a first-time
homebuyer on the basis that the individual owns or owned, as a
principal residence during the three-year period, a dwelling unit whose
structure is not permanently affixed to a permanent foundation in
accordance with local or other applicable regulations or is not in
compliance with State, local, or model building codes, or other
applicable codes, and cannot be brought into compliance with the codes
for less than the cost of constructing a permanent structure.
* * * * *
0
3. Section 92.207 is amended to add a new paragraph (h) to read as
follows:
Sec. 92.207 Eligible administrative and planning costs.
* * * * *
(h) Preserving affordable housing already assisted with HOME funds.
Costs specified under Sec. 92.254(a)(9) may be charged as an
administrative cost or may be charged to the project as provided in
Sec. 92.254(a)(9). In addition, the foreclosure cost of a HOME-
assisted rental housing project with a HOME loan in default is an
eligible administrative cost.
0
4. Revise Sec. 92.214(a)(6) to read as follows:
Sec. 92.214 Prohibited activities.
* * * * *
(a) * * *
(6) Provide assistance (other than tenant-based rental assistance,
assistance to a homebuyer to acquire housing previously assisted with
HOME funds, or assistance to preserve affordability of homeownership
housing in accordance with Sec. 92.254(a)(9)) to a project previously
assisted with HOME funds during the period of affordability established
by the particular jurisdiction in the written agreement under Sec.
92.504. However, additional HOME funds may be committed to a project
for up to one year after project completion (see Sec. 92.502), but the
amount of HOME funds in the project may not exceed the maximum per-unit
subsidy amount established under Sec. 92.250.
* * * * *
0
5. In Sec. 92.254 revise paragraphs (a)(1), the second sentence of
(a)(2)(ii), (a)(5)(ii)(A) introductory text, and (a)(9) to read as
follows:
Sec. 92.254 Qualification as affordable housing: Homeownership.
(a) * * *
(1) The housing must be single family housing.
(2) * * *
(iii) * * * The participating jurisdiction must set forth the price
for different types of single family housing for the jurisdiction. * *
*
(5) * * *
(ii) * * *
(A) The following options for recapture requirements are acceptable
to HUD. The participating jurisdiction may adopt, modify or develop its
own recapture requirements for HUD approval. In establishing its
recapture requirements, the participating jurisdiction is subject to
the limitation that when the recapture requirement is triggered by a
sale (voluntary or involuntary) of the housing unit, the amount
recaptured cannot exceed the net proceeds, if any. The net proceeds are
the sales price minus superior loan repayment (other than HOME funds)
and any closing costs.
* * * * *
(9) Preserving affordability of housing that was previously
assisted with HOME funds.
(i) To preserve the affordability of HOME-assisted housing a
participating jurisdiction may use additional HOME funds for the
following costs:
(A) The cost to acquire the housing through a purchase option,
right of first refusal, or other preemptive right before foreclosure,
or at the foreclosure sale. (The foreclosure costs to acquire housing
with a HOME loan in default are eligible. However, HOME funds may not
be used to repay a loan made with HOME funds.)
(B) The cost to undertake any necessary rehabilitation for the
housing acquired.
(C) The cost of owning/holding the housing pending resale to
another homebuyer.
(D) The cost to assist another homebuyer in purchasing the housing.
(ii) When a participating jurisdiction uses HOME funds to preserve
the affordability of such housing, the additional investment must be
treated as an amendment to the original project. The housing must be
sold to a new eligible homebuyer in accordance with the requirements of
Sec. 92.254(a) within a reasonable period of time.
(iii) The total amount of the original and additional HOME
assistance may not exceed the maximum per unit subsidy amount
established under Sec. 92.250. Alternatively to charging the cost to
the HOME program under Sec. 92.206, the participating jurisdiction may
charge the cost to the HOME program under Sec. 92.207 as a reasonable
administrative cost of its HOME program, so that the additional HOME
funds for the housing are not subject to the maximum per-unit subsidy
amount. To the extent administrative funds are used, they may be
reimbursed, in whole or in part, when the housing is sold to a new
eligible homebuyer.
* * * * *
0
6. Section 92.602 is amended to add a new paragraph (a)(3) to read as
follows:
Sec. 92.602 Eligible activities.
(a) * * *
(3) Manufactured housing. ADDI funds may be used to purchase a
manufactured housing unit and purchase a manufactured housing lot. The
manufactured housing unit must, at the time of project completion, be
connected to permanent utility hook-ups and be located on land that is
owned by the manufactured housing owner, owned as a cooperative, or is
subject to a leasehold interest with a term equal to at least the term
of the mortgage financing on the unit or the period of affordability
(whichever is greater).
* * * * *
Dated: March 23, 2007.
Roy A. Bernardi,
Deputy Secretary.
[FR Doc. E7-5960 Filed 4-3-07; 8:45 am]
BILLING CODE 4210-67-P