Notice of Formula Allocations and Program Requirements for Neighborhood Stabilization Program Formula Grants, 64322-64348 [2010-26292]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 75, Number 201 (Tuesday, October 19, 2010)]
[Notices]
[Pages 64322-64348]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-26292]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5447-N-01]


Notice of Formula Allocations and Program Requirements for 
Neighborhood Stabilization Program Formula Grants

AGENCY: Office of the Secretary, HUD.

ACTION: Notice of allocation method, waivers granted, alternative 
requirements applied, and statutory program requirements.

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SUMMARY: This notice advises the public of the allocation formula and 
allocation amounts, the list of grantees, alternative requirements, and 
the waivers of regulations granted to grantees under Section 2301(b) of 
the Housing and Economic Recovery Act of 2008 (Pub. L. 110-289, 
approved July 30, 2008) (HERA), as amended, and an additional 
allocation of funds provided under Section 1497 of the Wall Street 
Reform and Consumer Protection Act of 2010 (Pub. L. 111-203, approved 
July 21, 2010) (Dodd-Frank Act) for additional assistance in accordance 
with the second undesignated paragraph under the heading `Community 
Planning and Development--Community Development Fund' in Title XII of 
Division A of the American Recovery and Reinvestment Act of 2009 (Pub. 
L. 111-5, approved February 17, 2009) (Recovery Act), as amended, for 
the purpose of assisting in the redevelopment of abandoned and 
foreclosed homes. Except where provided for otherwise, these amounts 
are distributed based on funding formulas for such amounts established 
by the Secretary in accordance with HERA.
    The additional allocation represents the third round of 
Neighborhood Stabilization Program funding and is referred to 
throughout this notice as NSP3. HERA provided a first round of formula 
funding to States and units of general local government, and is 
referred to herein as NSP1. The Recovery Act provided a second round of 
funds awarded by competition and is referred to herein as NSP2. The 
three rounds of funding are collectively referred to as NSP. As 
described in the Supplementary Information section of this notice, HUD 
is authorized by statute to specify alternative requirements and make 
regulatory waivers for this purpose. This notice also notes statutory 
issues affecting program design and implementation.

    Note:  This notice is intended to provide unified program 
requirements for grantees of the two formula NSP grant programs, 
NSP1 and NSP3. The allocation and application information under 
Section I.A and Section II.B below is only applicable to NSP3 
grants. For NSP1, HUD awarded grants to a total of 309 grantees 
including the 55 states and territories and selected local 
governments to stabilize communities hardest hit by foreclosures and 
delinquencies. For the allocation formula and application process 
for NSP1, please see the October 6, 2008 Federal Register Notice (73 
FR 58330), as amended by the June 19, 2009 ``Bridge'' Notice (74 FR 
29223), and Appendix A attached hereto. For NSP2, HUD awarded a 
combined total $1.93 billion in NSP2 grants to 56 grantees 
nationwide on January 14, 2010. Funds under NSP2 were distributed by 
competition under criteria described in the May 4, 2009 Notice of 
Funding Availability. Where requirements differ between the rounds 
of funding, it is so noted.


DATES: Effective Date: October 19, 2010.

FOR FURTHER INFORMATION CONTACT: Stanley Gimont, Director, Office of 
Block Grant Assistance, Department of Housing and Urban Development, 
451 Seventh Street, SW., Room 7286, Washington, DC 20410, telephone 
number 202-708-3587. Persons with hearing or speech impairments may 
access this number via TTY by calling the Federal Information Relay 
Service at 800-877-8339. FAX inquiries may be sent to Mr. Gimont at 
202-401-2044. (Except for the ``800'' number, these telephone numbers 
are not toll-free.)

SUPPLEMENTARY INFORMATION: 

Program Background and Purpose

    Recipients will use the funds awarded under this notice to 
stabilize neighborhoods whose viability has been, and continues to be, 
damaged by the economic effects of properties that have been foreclosed 
upon and abandoned. In 2008, Congress appropriated funds for 
neighborhood stabilization under HERA. In 2009, Congress appropriated 
additional neighborhood stabilization funds under the Recovery Act. In 
2010, Congress appropriated a third round of neighborhood stabilization 
funds in the Dodd-Frank Act.
    When referring to a provision of the first appropriations statute, 
this notice will refer to HERA; when referring to a provision of the 
second appropriations statute, this notice will refer to the Recovery 
Act; and when referring to the third appropriations statute this notice 
will refer to the Dodd-Frank Act. When referring to the grants, 
grantees, assisted activities, and implementation rules under the Dodd-
Frank Act, this notice will use the term ``NSP3.'' When referring to 
the grants, grantees, assisted activities, and implementation rules 
under the Recovery Act, this notice will use the term ``NSP2''. When 
referring to the grants, grantees, assisted activities, and 
implementation rules under HERA, this notice will use the term 
``NSP1.'' Collectively, the grants, grantees, assisted activities, and 
implementation rules under these three rounds of funding is referred to 
as NSP. NSP is a component of the Community Development Block Grant 
(CDBG) program (authorized under Housing and Community Development Act 
of 1974, as amended (42 U.S.C. 5301 et seq.) (HCD Act)).

[[Page 64323]]

Program Principles

    Programs under NSP should aim to integrate the following 
principles:
     Retain CDBG distinctive requirements. Congress gave HUD 
broad waiver and alternative requirement authority, which HUD used in 
designing NSP program requirements. However, distinctive 
characteristics of the CDBG program including the objectives of the HCD 
Act, financial accountability, local citizen participation and 
information, grantee selection of activities within broad Federal 
policy parameters, and income targeting of beneficiaries were retained. 
All of these elements are required in NSP1, NSP2, and NSP3.
     Target and reconnect neighborhoods. Invest funds in 
programs and projects that will revitalize targeted neighborhood(s) and 
reconnect those targeted neighborhoods with the economy, housing 
market, and social networks of the community and metropolitan area as a 
whole.
     Rapidly arrest decline. Support NSP uses and activities 
that will rapidly arrest the decline of a targeted neighborhood(s) that 
has been negatively affected by abandoned or foreclosed properties.
     Assure compliance with the NSP ``deep targeting'' 
requirement. No less than 25 percent of the funds shall be used to 
house individuals and families whose incomes do not exceed 50 percent 
of area median income.
     Ensure longest feasible continued affordability. Invest in 
affordable housing that will remain desirable and affordable for the 
longest feasible period.
     Support projects that optimize economic activity, and the 
number of jobs created or retained or that will provide other long-term 
economic benefits.
     Build inclusive and sustainable communities free from 
discrimination.
     Coordinate planning and resources. Integrate neighborhood 
stabilization programs with other Federal policy priorities and 
investments, including energy conservation and efficiency, sustainable 
and transit-oriented development, integrated metropolitan area-wide 
planning and coordination, improvements in public education, and access 
to healthcare.
     Leverage resources and remove destabilizing influences. 
Augment neighborhood stabilization programs with other Federal, public 
and private resources. Eliminate destabilizing influences, such as 
blighted homes, that can prevent programs from producing results.
     Set goals. Set aggressive, but achievable, goals for 
outputs and outcomes.
     Ensure accountability. Ensure accountability for all 
programs, keep citizens actively informed, and provide all required NSP 
reporting elements.

Objectives and Outcomes

    1. Objectives. The primary objective of the CDBG program is the 
development of viable urban communities, by providing decent housing, a 
suitable living environment, and economic opportunity, principally for 
persons of low- and moderate-income. NSP grantees must strive to meet 
this objective in neighborhoods that are in decline (or further 
decline) due to the negative effects of a high number and percentage of 
homes that have been foreclosed upon. The first goal is to arrest the 
decline. Then the grantee must stabilize the neighborhood and position 
it for a sustainable role in a revitalized community.
    2. Outcomes. Measurable NSP short term program outcomes may 
include, but are not limited to:
     Arresting decline in home values based on average sales 
price in targeted neighborhoods, and
     Reduction or elimination of vacant and abandoned 
residential property in targeted neighborhoods.
    The long term outcomes may include, but are not limited to:
     Increased sales of residential property in targeted 
neighborhoods, and
     Increased median market values of real estate in targeted 
neighborhoods.

Authority To Provide Alternative Requirements and Grant Regulatory 
Waivers

    The Dodd-Frank Act states that, except where provided for 
otherwise, assistance shall be provided in accordance with the same 
provisions applicable under the NSP2 authorization. In turn, the 
Recovery Act provides that assistance shall be made available as 
authorized under HERA. The Recovery Act authorizes the Secretary to 
specify waivers and alternative requirements for any provision of any 
statute or regulation in connection with the obligation by the 
Secretary or the use of funds except for requirements related to fair 
housing, nondiscrimination, labor standards, and the environment 
(including lead-based paint), upon a finding that such a waiver is 
necessary to expedite or facilitate the use of such funds.
    The Secretary finds that the following alternative requirements are 
necessary to expedite the use of these funds for their required 
purposes.
    Except as described in this notice, statutory and regulatory 
provisions governing the CDBG program, including those at 24 CFR part 
570 subpart I for states, and those at 24 CFR part 570 subparts A, C, 
D, J, K, and O for CDBG entitlement communities, as appropriate, shall 
apply to the use of these funds. The State of Hawaii will be allocated 
funds and will be subject to part 570, subpart I, as modified by this 
notice. Other sections of the notice provide further details of the 
changes, the majority of which deal with adjustments necessitated by 
statutory provisions, simplify program rules to expedite 
administration, or relate to the ability of state grantees to act 
directly instead of solely through distribution to local governments. 
Additional guidance and technical assistance will be available at 
https://www.hud.gov/nspta.

Table of Contents

I. Allocations
    A. Formula: NSP3 Allocation
    B. Formula: Reallocation
II. Alternative Requirements and Regulatory Waivers
    A. Definitions for Purposes of the CDBG Neighborhood 
Stabilization Program
    B. NSP3 Pre-Grant Process
    1. General
    2. Contents of an NSP Action Plan Substantial amendment or 
abbreviated plan
    3. Continued affordability
    4. Citizen participation alternative requirement
    5. Joint requests
    6. Effect of existing cooperation agreements governing joint 
programs and urban counties
    C. Reimbursement for Pre-Award Costs
    D. Grantee Capacity and Grant Conditions
    E. Income Eligibility Requirement Changes
    F. State Distribution to Entitlement Communities and Indian 
Tribes
    G. State's Direct Action
    H. Eligibility and Allowable Costs
    I. Rehabilitation Standards
    J. Sale of Homes
    K. Acquisition and Relocation
    L. Note on Eminent Domain
    M. Timeliness of Use and Expenditure of NSP Funds
    N. Alternative Requirement for Program Income (Revenue) 
Generated by Activities Assisted With Grant Funds
    O. Reporting
    P. FHA First Look
    Q. Purchase Discount
    R. Removal of Annual Requirements
    S. Affirmatively Furthering Fair Housing
    T. Certifications
    U. Additional NSP3 Requirements-- Preferences for Rental Housing 
and Local Hiring
    V. Note on Statutory Limitation on Distribution of Funds
    W. Information Collection Approval Note
    X. Duration of Funding

[[Page 64324]]

I. Allocations

    A. Formula: Allocation. Grants awarded under NSP1 were allocated to 
States and local governments according to the formula described in 
Attachment A. The Dodd-Frank Act makes available an additional $1 
billion that is generally to be construed as CDBG program funds (NSP3) 
for the communities and in the amounts listed in Attachment B to this 
notice.
    B. Formula: Reallocation.
    1.a. Failure to Apply (NSP3). To expedite the use of NSP3 funds, 
the Department is specifying alternative requirements to 42 U.S.C. 
5306(c). If a unit of general local government receiving an allocation 
of NSP3 funds under this notice (as designated in Attachment B) fails 
to submit a substantially complete application for its grant allocation 
by March 1, 2011, or submits an application for less than the total 
allocation amount, HUD will notify the jurisdiction of the cancellation 
of all or part of its allocation amount and proceed to reallocate the 
funds to the state in which the jurisdiction is located.
    b. If a state or insular area receiving an allocation of funds 
under this notice fails to submit a substantially complete application 
for its allocation by March 1, 2011, or submits an application for less 
than the total allocation amount, HUD will notify the state or insular 
area of the reduction in its allocation amount and proceed to 
reallocate the funds to the 10 highest-need states based on original 
rankings of need.
    2.a. Failure to Meet 18-Month Obligation Deadline (NSP1). 
Consistent with the August 23, 2010 Notice of NSP Reallocation Process 
Changes (Docket No. FR-5435-N-01), HUD will block each grantee's 
ability to obligate NSP1 grant funds in the Disaster Recovery Grant 
Reporting System (DRGR) on the first business day after the statutory 
18-month deadline for use of funds. HUD will notify the grantee of this 
action by electronic mail. Grantees will not be able to obligate grant 
funds after the deadline without requesting and receiving permission 
from HUD, and HUD determines that the grantee is not high risk 
consistent with this notice. The grantee will still be able to expend 
grant funds obligated before the deadline. Receipt and use of any 
program income will also be unaffected.
    b. Grantees that fail to obligate an amount equal to or greater 
than its initial grant amount may submit information to HUD, for up to 
30 days following its 18-month deadline, documenting any additional 
obligation of funds not already recorded in the DRGR system and 
demonstrating to HUD that the obligation occurred on or before the 18-
month deadline. Before the 18-month deadline, each grantee should also 
review its recorded obligations and notify HUD within 30 days following 
the deadline of any necessary adjustments to the amount and the reason 
for such an adjustment. For example, the grantee has become aware that 
an obligation amount that was previously recorded for an acquisition 
will not proceed, therefore a downward adjustment is necessary.
    c. After the deadline, if a grantee needs to decrease or increase 
the amount of grant funds obligated to an activity, it must first ask 
HUD to remove the DRGR block on changing the amount obligated. If the 
amount of decrease is more than 15 percent of the obligation for any 
activity, the grantee must submit to HUD a written request that clearly 
demonstrates with compelling information that factors beyond the 
grantee's reasonable control caused the need to adjust after the 
deadline. If HUD agrees to grant the request, it will restore the 
grantee's ability to obligate grant funds in DRGR. If HUD does not 
grant the request, the grantee must either complete the activity as 
originally obligated or the amount previously obligated for that 
activity will be recaptured. HUD may also remove the obligations block 
following risk assessment of the grantee or a review of some or all of 
a grantee's obligation documentation.
    d. Before HUD determines the appropriate corrective action or 
recaptures grant funds, HUD will review the submitted information, 
consider the grantee's capacity as described in 24 CFR 570.905 and 24 
CFR 570.493, and the grantee's continuing need for the funds.
    e. Following the review and consistent with the procedures 
described in 24 CFR 570.900(b), HUD will proceed to notify the grantee 
of the selected corrective action it is required to undertake.
    f. HUD will recapture and reallocate up to $19.6 million from any 
state grantee with unused NSP1 grant funds. Additional corrective 
actions may be taken related to any amount of unused funds greater than 
$19.6 million.
    g. HUD will reallocate recaptured NSP1 grant funds in accordance 
with the reallocation formula described in a separate reallocation 
notice. A grantee receiving a reallocation must apply for the grant in 
accordance with the NSP1 Notice or this notice, as applicable. A 
nonentitlement grantee that is not required to submit a consolidated 
plan to HUD under the CDBG program will prepare an abbreviated plan. 
The substance of an abbreviated plan must include all the required 
elements that entitlement communities provide as part of an NSP Action 
Plan substantial amendment as described under Section II.B.2 of the 
NSP1 Notice or this Notice, as applicable.
    h. Each grantee must meet the statutory requirement to expend 25 
percent of its grant amount for activities that will provide housing 
for households whose income is at or under 50 percent of area median 
income. This cannot occur unless the funds are first obligated to 
activities for this purpose, or program income is received and used for 
eligible activities. Therefore, if a grantee fails to obligate or 
record program income use of at least 25 percent of its original grant 
amount for activities that will provide housing for households whose 
income is at or under 50 percent of area median income, HUD may issue a 
concern or a finding of noncompliance. Consistent with the procedures 
described in 24 CFR 570.900(b), HUD will require as a corrective action 
that the grantee either adjust its remaining NSP1 planned activities to 
ensure that 25 percent of the original NSP1 formula grant amount and 
program income supports activities providing housing to households with 
incomes at or under 50 percent of area median income, or make a firm 
commitment to provide such housing with nonfederal funds in an amount 
sufficient to offset any deficiency to comply with the requirement 
before the expenditure deadline for the NSP1 grant.
    i. The NSP1 Notice allows each grantee to use up to 10 percent of 
its NSP1 grant for general administration and planning activities. If 
HUD recaptures funds from a grant, this percentage limitation will 
still apply to the remaining grant funds, reducing the amount available 
for administration activities.
    3. Failure to Meet Expenditure Deadline for NSP3.
    NSP3 grantees must expend 50 percent of their grants within 2 years 
and 100 percent of their grants within 3 years. HUD will recapture and 
reallocate the amount of funds not expended by those deadlines or 
provide for other corrective action(s) or sanction. Further guidance 
will be issued prior to the deadline.

II. Alternative Requirements and Regulatory Waivers

    This section of the notice briefly provides a justification for 
alternative requirements, where additional explanation is necessary, 
and describes

[[Page 64325]]

the necessary basis for each regulatory waiver. This section also 
highlights some of the statutory requirements applicable to the grants. 
This background narrative is followed by the NSP requirements. While 
program requirements across the three rounds of NSP funding are 
similar, certain requirements differ in accordance to statutory 
provisions.
    Each grantee eligible for an NSP grant that already receives annual 
CDBG allocations has carried out needs hearings, has a consolidated 
plan, an annual action plan, a citizen participation plan, a monitoring 
plan, an analysis of impediments to fair housing choice, and has made 
CDBG certifications. The consolidated plan already discusses housing 
needs related to up to four major grant programs: CDBG, HOME, Emergency 
Shelter Grants (ESG), and Housing Opportunities for Persons with AIDS 
(HOPWA). A grantee's annual action plan describes the activities 
budgeted under each of those annual programs.
    HUD is treating a state and entitlement grantee's use of its NSP 
grant to be a substantial amendment to its current approved 
consolidated plan and 2010 annual action plan. The NSP grant is a 
special CDBG allocation to address the problem of abandoned and 
foreclosed homes. Treating NSP3 as a substantial amendment will 
expedite the distribution of NSP3 funds, while ensuring citizen 
participation on the specific use of the funds. HUD is waiving the 
consolidated plan regulations on the certification of consistency with 
the consolidated plan to the extent necessary to mean NSP funds will be 
used to meet the congressionally identified needs of abandoned and 
foreclosed homes in the targeted areas set forth in the grantee's 
substantial amendment. In addition, HUD is waiving the consolidated 
plan regulations to the extent necessary to adjust reporting to fit the 
requirements of HERA and the use of DRGR.
    Non-entitlement local government grantees receiving NSP3 funds that 
are not required to submit a consolidated plan to HUD under the CDBG 
program will prepare an abbreviated plan. The substance of an 
abbreviated plan must include all the required elements that 
entitlement communities provide as part of an NSP Action Plan 
substantial amendment as described under Section II.B.2.
    The waivers, alternative requirements, and statutory changes apply 
only to the grant funds appropriated under NSP and not to the use of 
regular formula allocations of CDBG, even if they are used in 
conjunction with NSP funds for a project. They provide expedited 
program implementation and implement statutory requirements unique to 
the covered NSP appropriations.

A. Definitions for Purposes of the Neighborhood Stabilization Program

Background

    Certain terms are used in HERA that are not used in the regular 
CDBG program, or the terms are used differently in HERA and the HCD 
Act. In the interest of clarity of administration, HUD is defining 
these terms in this notice for all grantees, including states. For the 
same reason, HUD is also defining eligible fund uses for all grantees, 
including states. States may define other program terms under the 
authority of 24 CFR 570.481(a), and will be given maximum feasible 
deference in accordance with 24 CFR 570.480(c) in matters related to 
the administration of their NSP programs.

Requirement

    Abandoned. A home or residential property is abandoned if either 
(a) mortgage, tribal leasehold, or tax payments are at least 90 days 
delinquent, or (b) a code enforcement inspection has determined that 
the property is not habitable and the owner has taken no corrective 
actions within 90 days of notification of the deficiencies, or (c) the 
property is subject to a court-ordered receivership or nuisance 
abatement related to abandonment pursuant to state or local law or 
otherwise meets a state definition of an abandoned home or residential 
property.
    Blighted structure. A structure is blighted when it exhibits 
objectively determinable signs of deterioration sufficient to 
constitute a threat to human health, safety, and public welfare.
    CDBG funds. CDBG funds means, in addition to the definition at 24 
CFR 570.3, grant funds distributed under this notice.
    Current market appraised value. The current market appraised value 
means the value of a foreclosed upon home or residential property that 
is established through an appraisal made in conformity with either: (1) 
The appraisal requirements of the URA at 49 CFR 24.103, or (2) the 
Uniform Standards of Professional Appraisal Practice (USPAP), or (3) 
the appraisal requirements of the Federal Housing Administration (FHA) 
or a government sponsored enterprise (GSE); and the appraisal must be 
completed or updated within 60 days of a final offer made for the 
property by a grantee, subrecipient, developer, or individual 
homebuyer. However, if the anticipated value of the proposed 
acquisition is estimated at $25,000 or less, the current market 
appraised value of the property may be established by a valuation of 
the property that is based on a review of available data and is made by 
a person the grantee determines is qualified to make the valuation.
    Date of Notice of Foreclosure. For purposes of the NSP tenant 
protection provisions described at Section K, the date of notice of 
foreclosure shall be deemed to be the date on which complete title to a 
property is transferred to a successor entity or person as a result of 
an order of a court or pursuant to provisions in a mortgage, deed of 
trust, or security deed. If none of these events occur in the 
acquisition of a foreclosed property (e.g. in a short sale), in order 
to ensure fair and equitable treatment of bona fide tenants and 
consistency with the NSP definition of foreclosed, the date of notice 
of foreclosure shall be deemed to be the date on which the property is 
acquired for the NSP-assisted project. Note: This definition does not 
affect or otherwise alter the definition of ``foreclosed'' as provided 
in this notice.
    Foreclosed. A home or residential property has been foreclosed upon 
if any of the following conditions apply: (a) The property's current 
delinquency status is at least 60 days delinquent under the Mortgage 
Bankers of America delinquency calculation and the owner has been 
notified; (b) the property owner is 90 days or more delinquent on tax 
payments; (c) under state, local, or tribal law, foreclosure 
proceedings have been initiated or completed; or (d) foreclosure 
proceedings have been completed and title has been transferred to an 
intermediary aggregator or servicer that is not an NSP grantee, 
contractor, subrecipient, developer, or end user.
    Land bank. A land bank is a governmental or nongovernmental 
nonprofit entity established, at least in part, to assemble, 
temporarily manage, and dispose of vacant land for the purpose of 
stabilizing neighborhoods and encouraging re-use or redevelopment of 
urban property. For the purposes of NSP, a land bank will operate in a 
specific, defined geographic area. It will purchase properties that 
have been foreclosed upon and maintain, assemble, facilitate 
redevelopment of, market, and dispose of the land-banked properties. If 
the land bank is a governmental entity, it may also maintain foreclosed 
property that it does not own, provided it charges the owner of the 
property the full cost

[[Page 64326]]

of the service or places a lien on the property for the full cost of 
the service.
    Subrecipient. Subrecipient shall have the same meaning as at the 
first sentence of 24 CFR 570.500(c). This includes any nonprofit 
organization (including a unit of general local government) that a 
state awards funds to.
    Use (for the purposes of HERA section 2301(c)(1)). Funds are used 
when they are obligated by a state, unit of general local government, 
or any subrecipient thereof, for a specific NSP activity; for example, 
for acquisition of a specific property. Funds are obligated for an 
activity when orders are placed, contracts are awarded, services are 
received, and similar transactions have occurred that require payment 
by the state, unit of general local government, or subrecipient during 
the same or a future period. Note that funds are not obligated for an 
activity when subawards (e.g., grants to subrecipients or to units of 
local government) are made.
    Vicinity. For the purposes of NSP3, HUD defines ``vicinity'' as 
each neighborhood identified by the NSP3 grantee as being the areas of 
greatest need.

B. NSP3 Pre-Grant Process

Background

    With this notice, HUD is establishing the NSP3 allocation formula, 
including reallocation provisions, and announcing the distribution of 
funds. CDBG grantees receiving NSP3 allocations may immediately begin 
to prepare and submit action plan substantial amendments for NSP3 
funds, in accordance with this notice. (Insular areas should follow the 
requirements for entitlement communities.) Non-entitlement local 
government grantees will follow entitlement requirements except for the 
submission of an abbreviated plan rather than a substantial amendment 
or as otherwise explained in this notice.
    To receive NSP3 funding, each grantee listed in Attachment B must 
submit an action plan substantial amendment or abbreviated plan to HUD 
in accordance with this notice by March 1, 2011.
    HUD encourages each grantee to carry out its NSP activities in the 
context of a comprehensive plan for the community's vision of how it 
can make its neighborhoods not only more stable, but also more 
sustainable, inclusive, competitive, and integrated into the overall 
metropolitan fabric, including access to transit, affordable housing, 
employers, and services. HUD also encourages grantees to incorporate 
green and sustainable development practices, such as the examples in 
Attachment C.
    HUD encourages each local jurisdiction receiving an allocation to 
carefully consider its administrative capacity to use the funds within 
the statutory deadline.
    Jurisdictions may cooperate to carry out their grant programs 
through a joint request to HUD. HUD is providing regulatory waivers and 
alternative requirements to allow joint requests among units of general 
local government and to allow joint requests between units of general 
local government and a state. Any two or more contiguous units of 
general local government that are in the same metropolitan area and 
that are eligible to receive an NSP grant may instead make a joint 
request to HUD to implement a joint NSP program. A jurisdiction need 
not have a joint agreement with an urban county under the regular CDBG 
entitlement program to request a joint program for NSP funding. 
Similarly, any community eligible to receive an NSP grant may instead 
make a request for a joint NSP program with its state. An NSP joint 
request under a cooperation agreement results in a single combined 
grant and a single action plan substantial amendment. Potential 
requestors should contact HUD as soon as possible (as far as possible 
in advance of publishing a proposed NSP substantial amendment) for 
technical guidance. The requestors will specify which jurisdiction will 
receive the funds and administer the combined grant on behalf of the 
requestors; in the case of a joint request between a local government 
jurisdiction and a state, the state will administer the combined grant. 
(Grantees choosing this option should consider the Consolidated Plan 
and citizen participation implications of this approach. The lead 
entity's substantial amendment or abbreviated plan will cover any 
participating members. The citizen participation process must include 
citizens of all jurisdictions participating in the joint NSP program, 
not just those of the lead entity.)
    Given the rule of construction in HERA that NSP funds generally are 
construed as CDBG program funds, subject to CDBG program requirements, 
HUD generally is treating NSP3 funds as a special allocation of Fiscal 
Year (FY) 2010 CDBG funding. This has important consequences for local 
governments presently participating in an existing urban county 
program, and for metropolitan cities that have joint agreements with 
urban counties. HUD will consider any existing cooperation agreements 
between a local government and an urban county governing FY2010 CDBG 
funding (for purposes of either an urban county or a joint program) to 
automatically cover NSP funding as well. These cooperation agreements 
will continue to apply to the use of NSP funds for the duration of the 
NSP grant, just as cooperation agreements covering regular CDBG 
Entitlement program funds continue to apply to any use of the funds 
appropriated during the 3-year period covered by the agreements. For 
example, a local government presently has a cooperation agreement 
covering a joint program or participation in an urban county for 
Federal FYs 2009, 2010 and 2011. The local government may choose to 
discontinue its participation with the county at the end of the 
applicable qualification period for purposes of regular CDBG 
entitlement funding. However, the county will still be responsible for 
any NSP3 projects funded in that community, and for any NSP3 funding 
the local government receives from the county, until those funds are 
expended and the funded activities are completed.
    A third method of cooperating is also available. A jurisdiction may 
choose to apply for its entire grant, and then enter into a 
subrecipient agreement with another jurisdiction or nonprofit entity to 
administer the grant. In this manner, for example, all of the grantees 
operating in a single metropolitan area could designate the same land-
bank entity (or the state housing finance agency) as a subrecipient for 
some or all of their NSP activities.
    Each NSP3 grantee will have until March 1, 2011, to complete and 
submit a substantial amendment to its annual action plan or an 
abbreviated plan. A grantee that wishes to submit its action plan 
amendment to HUD electronically in the DRGR system rather than by paper 
may do so by contacting its local field office for the DRGR submission 
directions. Paper submissions to HUD also will be allowed, although 
each grantee must set up its action plan in DRGR prior to the deadline 
for the first required performance report after receiving a grant.
    HUD encourages grantees, during development of their action plan 
amendments or abbreviated plans, to contact HUD field offices for 
guidance in complying with these requirements, or if they have any 
questions regarding meeting grant requirements.
    Normally, in the CDBG program, a grantee takes at least 30 days 
soliciting comment from its citizens before it submits an annual action 
plan to HUD, which then has 45 days to accept or reject the plan. To 
expedite the process and to ensure that the NSP grants are

[[Page 64327]]

awarded in a timely manner, while preserving reasonable citizen 
participation, HUD is waiving the requirement that the grantee follow 
its citizen participation plan for this substantial amendment. HUD is 
shortening the minimum time for citizen comments and requiring the 
substantial amendment or abbreviated plan to be posted on the grantee's 
official Web site as the materials are developed, published, and 
submitted to HUD.
    A grantee will be deemed by HUD to have received its NSP grant at 
the time HUD signs its NSP grant agreement (or amendment thereof, in 
the case of a state that later receives reallocated grant funds).
    Grantees are cautioned that, despite the expedited application and 
plan process, they are still responsible for ensuring that all citizens 
have equal access to information about the programs. Among other 
things, this means that each grantee must ensure that program 
information is available in the appropriate languages for the 
geographic area served by the jurisdiction. This will be a particular 
issue for states that make grants covering regular CDBG entitlement 
areas (or to entitlement grantees). Because regular State CDBG funds 
are not used in entitlement areas, State CDBG staffs may not be aware 
of limited English proficient (LEP) speaking populations in those 
metropolitan jurisdictions.
    HUD will review each grantee submission for completeness and 
consistency with the requirements of this notice and will disapprove 
incomplete and inconsistent action plan amendments or abbreviated 
plans. HUD will allow revision and resubmission of a disapproved 
amendment or abbreviated plan in accordance with 24 CFR 91.500(d) so 
long as any such resubmission is received by HUD 45 days or less 
following the date of first disapproval.
    In combination, the notice alternative requirements provide the 
following expedited steps for NSP grants:
     Proposed action plan amendment or abbreviated plan 
published via the usual methods and on the Internet for no less than 15 
calendar days of public comment;
     Final action plan amendment or abbreviated plan posted on 
the Internet and submitted to HUD by March 1, 2011 (grant application 
includes Standard Form 424 (SF-424) and certifications);
     HUD expedites review;
     HUD accepts the plan and prepares a cover letter, grant 
agreement, and grant conditions;
     Grant agreement signed by HUD and immediately transmitted 
to the grantee;
     Grantee signs and returns the grant agreements;
     HUD establishes the line of credit and the grantee 
requests and receives DRGR access (if it does not already have access);
     After completing the environmental review(s) pursuant to 
24 CFR part 58 and, as applicable, receiving from HUD or the state an 
approved Request for Release of Funds and certification, the grantee 
may draw down funds from the line of credit.
    In consideration of the shortened comment period, it is essential 
that grantees ensure that affected parties have sufficient notice of 
the opportunity to comment. The action plan substantial amendment or 
abbreviated plan and citizen participation alternative requirement will 
permit an expedited grant-making process, but one that still provides 
for public notice, appraisal, examination, and comment on the 
activities proposed for the use of NSP3 grant funds.

    Note:  HUD believes an adequate and acceptable substantial 
amendment or abbreviated plan should be no longer than 25 pages. A 
plan should provide sufficient detail for citizens and HUD 
reviewers. Internet address links can be provided to longer elements 
that may change, such as detailed rehabilitation standards.

Requirement

    1. General. Except as described in this notice, statutory and 
regulatory provisions governing the CDBG program for states and 
entitlement communities, as applicable, shall apply to the use of these 
funds. Except as described in this notice, non-entitlement local 
government grantees receiving a grant directly from HUD shall follow 
statutory and regulatory provisions governing the CDBG program for 
entitlement communities.
    2. Contents of an NSP Action Plan substantial amendment or 
abbreviated plan. The elements in the NSP substantial amendment to the 
Annual Action Plan or an abbreviated plan required for the CDBG program 
under part 91 are:
    a. General information about needs, distribution, use of funds, and 
definitions:
    i. Each grantee must use the HUD Foreclosure Need Web site as 
linked to from https://www.hud.gov/nsp to submit to HUD the locations of 
its NSP3 areas of greatest need. On this site, HUD provides estimates 
of foreclosure need and a foreclosure related needs scores at the 
Census Tract level. The score rank need from 1 to 20, with 20 being 
census tracts with the HUD-estimated greatest need.
    ii. The neighborhood or neighborhoods identified by the NSP3 
grantee as being the areas of greatest need must have an individual or 
average combined index score for the grantee's identified target 
geography that is not less than the lesser of 17 or the twentieth 
percentile most needy score in an individual state. For example, if a 
state's twentieth percentile most needy census tract is 18, the 
requirement will be a minimum need of 17. If, however, a state's 
twentieth percentile most needy census tract is 15, the requirement 
will be a minimum need of 15. HUD will provide the minimum threshold 
for each state at its Web site https://www.hud.gov/nsp. If more than one 
neighborhood is identified in the Action Plan, HUD will average the 
neighborhood NSP3 scores, weighting the scores by the estimated number 
of housing units in each identified neighborhood.
    iii. A narrative describing how the distribution and uses of the 
grantee's NSP funds will meet the requirements of Section 2301(c)(2) of 
HERA, as amended by the Recovery Act and the Dodd-Frank Act;
    iv. For the purposes of the NSP3, the narratives will include:
    (A) A definition of ``blighted structure'' in the context of state 
or local law;
    (B) A definition of ``affordable rents;''
    (C) A description of how the grantee will ensure continued 
affordability for NSP-assisted housing; and
    (D) A description of housing rehabilitation standards that will 
apply to NSP-assisted activities.
    b. Information by activity describing how the grantee will use the 
funds, identifying:
    i. The eligible use of funds under NSP3;
    ii. The eligible CDBG activity or activities;
    iii. The areas of greatest need addressed by the activity or 
activities;
    vi. The expected benefit to income-qualified persons or households 
or areas;
    v. Appropriate performance measures for the activity (e.g., units 
of housing to be acquired, rehabilitated, or demolished for the income 
levels represented in DRGR, which are currently 50 percent of area 
median income and below, 51 to 80 percent, and 81 to 120 percent);
    vi. Amount of funds budgeted for the activity;

[[Page 64328]]

    vii. The name and location of the entity that will carry out the 
activity; and
    viii. The expected start and end dates of the activity.
    c. A brief description of the general terms under which assistance 
will be provided, including:
    i. Range of interest rates (if any);
    ii. Duration or term of assistance;
    iii. Tenure of beneficiaries (e.g., renters or homeowners); and
    vi. If the activity produces housing, how the design of the 
activity will ensure continued affordability;
    v. How the grantee shall, to the maximum extent feasible, provide 
for the hiring of employees who reside in the vicinity of NSP3 projects 
or contract with small businesses that are owned and operated by 
persons residing in the vicinity of such project, including information 
on existing local ordinances that address these requirements;
    vi. The procedures used to create preferences for the development 
of affordable rental housing developed with NSP3 funds; and
    vii. Whether the funds used for the activity are to count toward 
the requirement to provide benefit to low-income persons (earning 50 
percent or less of area median income).
    d. The action plan narrative should specifically address how the 
grantee's program design will address the local housing market 
conditions.
    e. Information on how to contact grantee program administrators, so 
that citizens and other interested parties know whom to contact for 
additional information.
    3. Continued affordability. Grantees shall ensure, to the maximum 
extent practicable and for the longest feasible term, that the sale, 
rental, or redevelopment of abandoned and foreclosed-upon homes and 
residential properties under this section remain affordable to 
individuals or families whose incomes do not exceed 120 percent of area 
median income or, for units originally assisted with funds under the 
requirements of section 2301(f)(3)(A)(ii) of HERA, as amended, remain 
affordable to individuals and families whose incomes do not exceed 50 
percent of area median income.
    a. In its NSP action plan substantial amendment, a grantee will 
define ``affordable rents'' and the continued affordability standards 
and enforcement mechanisms that it will apply for each (or all) of its 
NSP activities. HUD will consider any grantee adopting the HOME program 
standards at 24 CFR 92.252(a), (c), (e), and (f), and 92.254, to be in 
minimal compliance with this standard and expects any other standards 
proposed and applied by a grantee to be enforceable and longer in 
duration. (Note that HERA's continued affordability standard is longer 
than that required of subrecipients and participating units of general 
local government under 24 CFR 570.503 and 570.501(b).)
    b. The grantee must require each NSP-assisted homebuyer to receive 
and complete at least 8 hours of homebuyer counseling from a HUD-
approved housing counseling agency before obtaining a mortgage loan. If 
the grantee is unable to meet this requirement for a good cause (e.g., 
there are no HUD-approved housing counseling agencies within the 
grantee's jurisdiction, or there are no HUD-approved housing counseling 
agencies within the grantee's jurisdiction that engage in homebuyer 
counseling), the grantee may submit a request for an exception to this 
requirement to the responsible HUD field office, and the HUD field 
office has the authority to grant an exception for good cause. The 
grantee must ensure that the homebuyer obtains a mortgage loan from a 
lender who agrees to comply with the bank regulators' guidance for non-
traditional mortgages (see, Statement on Subprime Mortgage Lending 
issued by the Office of the Comptroller of the Currency, Board of 
Governors of the Federal Reserve System, Federal Deposit Insurance 
Corporation, Department of the Treasury, and National Credit Union 
Administration, available at https://www.fdic.gov/regulations/laws/rules/5000-5160.html). Grantees must design NSP programs to comply with 
this requirement and must document compliance in the records, for each 
homebuyer. Grantees are cautioned against providing or permitting 
homebuyers to obtain subprime mortgages for whom such mortgages are 
inappropriate, including homebuyers who qualify for traditional 
mortgage loans.
    4. Citizen participation alternative requirement. HUD is providing 
an alternative requirement to 42 U.S.C. 5304(a)(2) and (3), to expedite 
distribution of grant funds and to provide for expedited citizen 
participation for the NSP substantial amendment. Provisions of 24 CFR 
91.105(k), 91.115(i), 570.302 and 570.486, with respect to following 
the citizen participation plan, are waived to the extent necessary to 
allow implementation of the requirements below.
    a. Initial Allocation. To receive its grant allocation, a grantee 
must submit to HUD for approval an NSP3 application by March 1, 2011. 
This submission will include a signed SF-424, signed certifications, 
and a substantial action plan amendment or abbreviated plan meeting the 
requirements of paragraph b below. (24 CFR 91.505 is waived to the 
extent necessary to require submission of the substantial amendment to 
HUD for approval in accordance with this notice.)
    Reallocation. To receive an NSP reallocation, a grantee must submit 
to HUD for approval an NSP application by the deadline indicated in a 
reallocation announcement. This submission will include a signed 
standard Federal form SF-424, signed certifications, and a substantial 
action plan amendment or abbreviated plan meeting the requirements of 
paragraph B.3.b below. (24 CFR 91.505 is waived to the extent necessary 
to require submission of the substantial amendment to HUD for approval 
in accordance with this notice.)
    b. Each grantee must prepare and submit its annual Action Plan 
amendment or abbreviated plan to HUD in accordance with the 
consolidated plan procedures under the CDBG program as modified by this 
notice, or HUD will reallocate the funds allocated for that grantee. 
HUD is providing alternative requirements to 42 U.S.C. 5304(a)(2) and 
waiving 24 CFR 91.105(c)(2), 91.105(k), 91.115(c)(2), and 91.115(i) to 
the extent necessary to allow the grantee to provide no fewer than 15 
calendar days for citizen comment (rather than 30 days) for its initial 
NSP submission and any subsequent substantial NSP action plan 
amendment, and to require that, at the time of submission to HUD, each 
grantee post its approved action plan amendment and any subsequent NSP 
amendments on its official Web site along with a summary of citizen 
comments received within the 15-day comment period. After HUD processes 
and approves the plan amendment and both HUD and the grantee have 
signed the grant agreement, HUD will establish the grantee's line of 
credit in the amount of funds included in the Action Plan amendment, up 
to the allocation amount.
    5. Joint requests. To expedite the use of funds, HUD is providing 
an alternative requirement to 42 U.S.C. 5304(i) and is waiving 24 CFR 
570.308 to the extent necessary to allow for additional joint programs 
described below.
    a. Unit of General Local Government Joint Agreements. Two or more 
contiguous jurisdictions that are eligible to receive a NSP allocation 
and are located in the same metropolitan area

[[Page 64329]]

may enter into joint agreements. All members to the joint agreement 
must be eligible to receive NSP1 or NSP3 funds, and one unit of general 
local government must be designated as the lead entity. The lead entity 
must execute the NSP grant agreement with HUD. Consistent with 24 CFR 
570.308, the lead entity must assume responsibility for administering 
the NSP grant on behalf of all members, in compliance with applicable 
program requirements. The lead entity's substantial amendment to the 
action plan or abbreviated plan will include all participating 
communities.
    b. Joint agreements with a state. Any jurisdiction that is eligible 
to receive an NSP allocation may enter into a joint agreement with its 
state. The state shall be the lead entity and must assume 
responsibility for administering the NSP grant on behalf of the local 
government, in compliance with applicable program requirements. The 
substantial amendment to the state's action plan will include any 
participating unit of general local government.
    c. Local jurisdictions receiving reallocation funds may enter into 
joint agreements in accordance with paragraph B.5.a. or b., regardless 
of whether the local jurisdiction had a joint agreement for the 
original NSP allocation.
    6. Effect of existing cooperation agreements governing joint 
programs and urban counties for NSP3 (see NSP1 Notice for parallel 
language for NSP1 grantees). Any cooperation agreement between a unit 
of general local government and a county, concerning either a joint 
program or participation in an urban county under 24 CFR 570.307 or 
570.308, and governing CDBG funds appropriated for Federal FY 2010, 
will be considered to incorporate and apply to NSP3 funding. Any such 
cooperation agreements will continue to apply to the use of NSP3 funds 
until the NSP3 funds are expended and the NSP3 grant is closed out. 
Grantees should note that certain provisions in existing cooperation 
agreements that govern CDBG funding may be inconsistent with parts of 
HERA, the Recovery Act, the Dodd-Frank Act or this notice. For 
instance, set minimum and/or maximum allocation amounts may conflict 
with priority distributions to areas of greatest need identified in the 
grantee's action plan substantial amendment. Conforming amendments 
should be made to existing cooperation agreements, as necessary, to 
comply with NSP statutory requirements and this notice.

C. Reimbursement for Pre-Award Costs

Background

    NSP grantees will need to move forward rapidly to prepare the NSP 
substantial amendment or abbreviated plan and to undertake other 
administrative actions, including environmental reviews, as soon as 
allocations are known. Therefore, HUD is granting permission to states 
and jurisdictions receiving a direct allocation of NSP funds to incur 
pre-award costs as if each was a new grantee preparing to receive its 
first allocation of CDBG funds.

Requirement

    HUD is waiving 24 CFR 570.200(h) to the extent necessary to grant 
permission to jurisdictions receiving a direct NSP allocation under 
this notice to incur pre-award costs as if each was a new grantee 
preparing to receive its first allocation of CDBG funds. Similarly, in 
accordance with OMB Circular A-87, Attachment B, paragraph 31, HUD is 
allowing states to incur pre-award costs as if each was a new grantee 
preparing to receive its first allocation of CDBG funds. NSP grantees 
will be allowed to incur costs necessary to develop the NSP substantial 
action plan amendment and undertake other administrative actions 
necessary to receive its first grant, prior to the costs being included 
in the final plan, provided that the other conditions of 24 CFR 
570.200(h) are met. (For units of general local government applying to 
the state (including entitlements not receiving a direct NSP allocation 
under this notice), 24 CFR 570.489(b) applies unmodified. Units of 
general local government receiving direct NSP allocations may incur 
pre-award costs as would an entitlement community.)

D. Grantee Capacity and Grant Conditions

Background

    In the October 6, 2008 Notice, HUD encouraged each local 
jurisdiction receiving an allocation to carefully consider its 
administrative capacity to use the funds within the statutory deadline. 
To support this consideration, HUD will provide each grantee a self-
assessment tool that grantees may find useful in better understanding 
their capacity to undertake and manage NSP activities. This is 
essentially the same self-assessment tool that is used for NSP 
Technical Assistance purposes and it will allow HUD to more rapidly 
identify capacity gaps and technical assistance needs and to provide 
appropriate technical assistance. Although HUD suggests that every NSP 
grantee complete and submit the self-assessment with its substantial 
amendment or abbreviated plan, HUD will require some grantees to 
complete and submit such a self-assessment as a special condition of 
receiving funding.

Requirement

    For NSP grantees that HUD determines are high risk in accordance 
with 24 CFR 85.12(a), HUD will apply additional grant conditions in 
accordance with 24 CFR 85.12(b).

E. Income Eligibility Requirement Changes

Background

    The NSP program includes two low- and moderate-income requirements 
at HERA section 2301(f)(3)(A) that supersede existing CDBG income 
qualification requirements. Under the heading ``Low and Moderate Income 
Requirement,'' HERA states that:

all of the funds appropriated or otherwise made available under this 
section shall be used with respect to individuals and families whose 
income does not exceed 120 percent of area median income.

    This provision does two main things. First, for the purposes of 
NSP, it effectively supersedes the overall benefit provisions of the 
HCD Act and the CDBG regulations, which allow up to 30 percent of a 
grant to be used for activities that meet a national objective other 
than low- and moderate-income benefit. Thus, NSP allows the use of only 
the low- and moderate-income benefit national objective. Activities may 
not qualify under NSP using the ``prevent or eliminate slums and 
blight'' or ``address urgent community development needs'' objectives.
    Second, this provision also redefines and supersedes the definition 
of ``low- and moderate-income,'' effectively allowing households whose 
incomes exceed 80 percent of area median income but do not exceed 120 
percent of area median income to qualify as if their incomes did not 
exceed the published low- and moderate-income levels of the regular 
CDBG program. To prevent confusion, HUD will refer to this new income 
group as ``middle income,'' and keep the regular CDBG definitions of 
``low-income'' and ``moderate income'' in use. Further, HUD will 
characterize aggregated households whose incomes do not exceed 120 
percent of median income as ``low-, moderate-, and middle-income 
households,'' abbreviated as LMMH. For the purposes of NSP only, an 
activity may meet the HERA low- and moderate-income national objective 
if the assisted activity:

[[Page 64330]]

     Provides or improves permanent residential structures that 
will be occupied by a household whose income is at or below 120 percent 
of area median income (abbreviated as LMMH);
     Serves an area in which at least 51 percent of the 
residents have incomes at or below 120 percent of area median income 
(LMMA); or
     Serves a limited clientele whose incomes are at or below 
120 percent of area median income (LMMC).
    HUD will use the parenthetical terms above to refer to NSP national 
objectives in program implementation, to avoid confusion with the 
regular HCD Act definitions.
    Land banks are not allowed in the regular CDBG program because of 
the very high risk that the delay between acquiring property and 
meeting a national objective can be excessively long, attenuating the 
intended CDBG program benefits by delaying benefit far beyond the 
annual or even the 5-year consolidated plan cycles. In the regular CDBG 
program (and in NSP other than in an eligible land-bank use), a 
property acquisition activity is dependent on the subsequent re-use of 
the property meeting a national objective in order to demonstrate 
program compliance. Given this, the HERA direction that assistance to 
land banks is an eligible use of NSP funds requires an alternative 
requirement and policy clarification.
    For grantees choosing to assist land banks or demolition of 
structures with NSP funds, the change to the income qualification level 
for low-, moderate- and middle-income areas will likely include most of 
the neighborhoods where property stabilization is required. If an 
assisted land bank is not merely acquiring properties, but is also 
working in an area in which other activities are being carried out that 
are intended to arrest neighborhood decline, such as maintenance, 
demolition, and facilitating redevelopment of the properties, HUD will, 
for NSP-assisted activities only, accept that the acquisition and 
management activities of the land bank may provide sufficient benefit 
to an area generally (as described in 24 CFR 570.208(a)(1) and 
570.483(b)(1)) to meet a national objective (LMMA) prior to final 
disposition of the banked property. HUD notes that the grantee must 
determine the actual service area benefiting from a land bank's 
activities, in accordance with the regulations.
    However, HUD does not believe the benefits of just holding property 
are sufficient to stabilize most neighborhoods or that this is the best 
use of limited NSP funds absent a re-use plan. Therefore, HUD requires 
that a land bank may not hold a property for more than 10 years without 
obligating the property for a specific, eligible redevelopment of that 
property in accordance with NSP requirements.
    Note that if a state provides funds to an entitlement community, 
the entitlement community must apply the area median income levels 
applicable to its regular CDBG program geography and not the ``balance 
of state'' levels.
    Other than the change in the applicable low- and moderate-income 
qualification level from 80 percent to 120 percent and this notice's 
change to the calculation at 570.483(b)(3), the area benefit, housing, 
and limited clientele benefit requirements at 24 CFR 570.208(a) and 
570.483(b) remain unchanged, as does the required documentation.
    The other NSP low- and moderate-income related provision, as 
modified by the Dodd-Frank Act, states that:

``not less than 25 percent of the funds appropriated or otherwise 
made available under this section shall be used to house individuals 
or families whose incomes do not exceed 50 percent of area median 
income.''

    The Dodd-Frank Act struck language in HERA that specified that 
funds meeting the 25 percent requirement must be used specifically for 
the purchase and redevelopment of abandoned and foreclosed homes or 
residential properties. This means that, as of the effective date of 
the Dodd-Frank Act, any NSP eligible activity used to house individuals 
or families at or below 50 percent area medium income may be used to 
satisfy this requirement (i.e., vacant properties that are not 
abandoned or foreclosed may be used to meet the requirement as well as 
eligible commercial properties that are reused to house individuals and 
families at or below 50% AMI). However, NSP1 and NSP2 funds already 
obligated or expended prior July 21, 2010, do not retroactively satisfy 
this requirement.
    HUD advises grantees to take note of this threshold as they design 
NSP activities. This provision does not have a parallel in the regular 
CDBG program. Grantees must document that an amount equal to at least 
25 percent of a grantee's NSP grant (initial allocation plus any 
program income) has been budgeted in the initial approved action plan 
substantial amendment or abbreviated plan for activities that will 
provide housing for income-qualified individuals or families. Prior to 
and at grant closeout, HUD will review grantees for compliance with 
this provision by determining whether at least 25 percent of grant 
funds have been expended for housing for individual households whose 
incomes do not exceed 50 percent of area median income.
    HUD is providing a waiver and alternative requirement to allow 
grantees to determine low- and moderate income benefit on a unit basis 
to allow greater support of mixed income housing than the structure 
basis required by 24 CFR 570.483(b)(3). (Under the cited regulation, 
the general rule is that at least 51 percent of the residents of an 
assisted structure must be income eligible.) Under the unit approach, 
one or more of the units in a structure must house income-eligible 
families, but the remainder of the units may be market rate, so long as 
the proportion of assistance provided compared to the overall project 
budget is no more than the proportion of units that will be occupied by 
income-eligible households compared to the number of units in the 
overall project. Under the unit approach, the number of income-eligible 
units is proportional to the amount of assistance provided. Note that 
this approach may only be used if the units are generally comparable in 
size and finishes. Based on HUD experience, this approach is generally 
more compatible with large-scale development of mixed-income housing 
than the structure approach under which a dollar of CDBG assistance to 
a structure means that 51 percent of the units must meet income 
requirements.
    For the purposes of NSP, adopting the unit basis continues to 
benefit individuals and families whose income does not exceed 120 
percent of area median income by limiting the proportion of the funding 
to the proportion of units that are being assisted with NSP funds. This 
approach also helps to avoid displacing existing over-income tenants in 
a building being treated with NSP. Finally, it promotes the type of 
mixed-income developments that experience shows to be more successful 
both economically and socially. Therefore, the waiver and alternative 
requirements allow the grantee a choice. The grantee may measure 
benefit within a housing development project (1) according to the 
existing CDBG requirements, (2) according to the HOME program 
requirements at 24 CFR 92.205(d) or (3) according to the modified CDBG 
alternative requirements specified in this notice, which extend the 
CDBG exception noted above. The grantee must select and use just one 
method for each project.

[[Page 64331]]

Requirements

    1. Overall benefit supersession and alternative requirement. The 
requirements at 42 U.S.C. 5301(c), 42 U.S.C. 5304(b)(3)(A), 24 CFR 
570.484 (for states), and 24 CFR 570.200(a)(3) that 70 percent of funds 
are for activities that benefit low- and moderate-income persons are 
superseded and replaced by section 2301(f)(3)(A) of HERA. One hundred 
percent of NSP funds must be used to benefit individuals and households 
whose income does not exceed 120 percent of area median income. NSP 
shall refer to such households as ``low-, moderate-, and middle-
income.''