Housing Trust Fund, 66978-67009 [2010-27069]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 75, Number 209 (Friday, October 29, 2010)]
[Proposed Rules]
[Pages 66978-67009]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-27069]



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Part III





Department of Housing and Urban Development





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24 CFR Parts 91 and 92



Housing Trust Fund; Proposed Rule

Federal Register / Vol. 75 , No. 209 / Friday, October 29, 2010 / 
Proposed Rules

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 91 and 92

[Docket No. FR-5246-P-02]
RIN 2506-AC30


Housing Trust Fund

AGENCY: Office of the Assistant Secretary for Community Planning and 
Development, HUD.

ACTION: Proposed rule.

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SUMMARY: The Housing and Economic Recovery Act of 2008 establishes a 
Housing Trust Fund (HTF) to be administered by HUD. The purpose of the 
HTF is to provide grants to State governments to increase and preserve 
the supply of rental housing for extremely low- and very low-income 
families, including homeless families, and to increase homeownership 
for extremely low- and very low-income families. This proposed rule 
submits, for public comment, the regulations that will govern the HTF.

DATES: Comment due date: December 28, 2010.

ADDRESSES: Interested persons are invited to submit comments regarding 
this rule to the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 7th Street, SW., Room 
10276, Washington, DC 20410-0500. Communications must refer to the 
above docket number and title. There are two methods for submitting 
public comments. All submissions must refer to the above docket number 
and title.
     Submission of Comments by Mail. Comments may be submitted 
by mail to the Regulations Division, Office of General Counsel, 
Department of Housing and Urban Development, 451 7th Street, SW., Room 
10276, Washington, DC 20410-0001.
     Electronic Submission of Comments. Interested persons may 
submit comments electronically through the Federal eRulemaking Portal 
at https://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
https://www.regulations.gov Web site can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note: To receive consideration as public comments, comments must 
be submitted through one of the two methods specified above. Again, 
all submissions must refer to the docket number and title of the 
rule.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an advance appointment to review the public comments must be 
scheduled by calling the Regulations Division at 202-708-3055 (this is 
not a toll-free number). Individuals with speech or hearing impairments 
may access this number through TTY by calling the Federal Information 
Relay Service at 800-877-8339. Copies of all comments submitted are 
available for inspection and downloading at https://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Marcia Sigal, Office of Community 
Planning and Development, Department of Housing and Urban Development, 
451 7th Street, SW., Room 7162, Washington, DC 20410; telephone number 
202-402-3002 (this is not a toll-free number). Persons with hearing or 
speech impairments may access this number through TTY by calling the 
toll-free Federal Information Relay Service at 800-877-8389.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Housing and Economic Recovery Act of 2008 (Pub. L. 110-289, 
approved July 30, 2008) (HERA) was major housing legislation enacted to 
reform and improve the regulation of Fannie Mae and Freddie Mac, the 
government-sponsored enterprises (GSEs), strengthen neighborhoods 
hardest hit by the foreclosure crisis, enhance mortgage protection and 
disclosures, and maintain the availability of affordable home loans. 
The reform of the GSEs is provided in the Federal Housing Finance 
Regulatory Reform Act of 2008, which is found in Division A, Title I of 
HERA. Section 1131 of the GSE-reform portion of HERA amended the 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992 
(12 U.S.C. 4501 et seq.) (FHEFSSA) to add a new section 1337 entitled 
``Affordable Housing Allocations'' and a new section 1338 entitled 
``Housing Trust Fund.''
    Section 1337 of FHEFSSA provides for the HTF to be funded with 
amounts allocated by Fannie Mae and Freddie Mac. Proceeds equal to 4.2 
basis points (.042%) of the GSEs' new mortgage purchases were to be 
partially diverted to fund the HTF. However, because the GSEs 
experienced significant declines in their respective capital reserves 
in 2008, under the authority granted to the Federal Housing Finance 
Agency (FHFA), the GSE's oversight agency, by Section 1367 of FHEFSSA, 
Fannie Mae and Freddie Mac were placed in conservatorship in September 
2008. Under Section 1337 of FHEFSSA, the Director of the FHFA has the 
authority to suspend Fannie Mae's and Freddie Mac's contributions to 
the HTF if such contributions were to have an adverse impact on the 
financial stability of the GSEs. Shortly after being placed in 
conservatorship, the GSEs were instructed by the FHFA to suspend such 
contributions. However, Section 1338 of FHEFSSA provides that the HTF 
may be funded with amounts appropriated, transferred, or credited to 
the HTF under other provisions of law. Accordingly, HUD is proceeding 
with regulatory implementation of the HTF in anticipation of future 
funding through sources other than GSE proceeds.
    Congress authorized the HTF with the stated purpose of: (1) 
Increasing and preserving the supply of rental housing for extremely 
low-income (ELI) families with incomes between 0 and 30 percent of area 
median income and very low-income (VLI) families with incomes between 
30 and 50 percent of area median income, including homeless families, 
and (2) increasing homeownership for ELI and VLI families. HUD's 
periodic reports to Congress on worst-case needs for affordable rental 
housing document that shortages of affordable rental housing for ELI 
and VLI families have grown increasingly more severe. A household 
defined as experiencing worst-case housing needs means that the 
household has an income at or below 50 percent of the area median 
income, receives no housing assistance, and has a severe rent burden 
(paying more than half of its income for rent) and/or lives in severely 
inadequate conditions (e.g., incomplete plumbing).
    As of 2007, the combined number of ELI and VLI renters with worst-
case housing needs was 5.9 million, or 37 percent of all ELI and VLI 
renters (15.9 million). Furthermore, 51 percent of ELI and VLI renters 
who lack housing assistance have worst-case housing needs. When the 
2007 data are broken down further, worst-case needs

[[Page 66979]]

occurred to 47 percent of all ELI renters and 73 percent of ELI renters 
lacking housing assistance. By comparison, 24 percent of all VLI 
renters and 28 percent of VLI renters lacking housing assistance have 
worst-case housing needs. ELI renters are particularly burdened with 
severe housing problems.
    There is a shortage of low-cost rental units, as builders and 
housing providers are unable to construct, finance, and operate a 
sufficient supply of rental housing affordable to ELI and VLI 
households. The result is that in 2007, for every 100 ELI renters 
nationwide, only 44 rental units were both affordable and available for 
rent or currently occupied by households in this income range. HUD 
notes that more than half of the 3.8 million ELI renters who occupied 
affordable units in 2007 were able to do so only because they reported 
receiving government rental assistance, such as from the public 
housing, project-based Section 8 or Section 202/811 programs, and the 
housing choice voucher program. Other units that would have been 
affordable may have been occupied by higher-income households. For 
every 100 VLI and ELI renters, on average, there were only 74 
affordable units available. The HTF will provide funds to produce 
additional units affordable to ELI and VLI households with the greatest 
need, thus increasing the supply and reducing the most critical 
component of the existing shortage.

Housing Trust Fund--Formula Allocation

    Section 1338 of FHEFSSA directs HUD to establish, through 
regulation, the formula for distribution of amounts made available for 
the HTF. The statute specifies that only certain factors are to be part 
of the formula, and assigns priority to certain factors. HUD's proposed 
formula for the allocation of HTF funds was submitted for public 
comment in a proposed rule published on December 4, 2009 (74 FR 63938). 
The allocation formula will be renumbered and published with the final 
program rule in Sec. Sec.  92.710-92.714.

Housing Trust Fund--Administration of the Fund

    In addition to the statutory direction to establish by regulation a 
formula for the allocation of HTF funds, section 1338 of FHEFSSA 
directs HUD to establish and manage the HTF, the purpose of which is to 
provide grants to States for use to: (1) Increase and preserve the 
supply of rental housing for ELI and VLI families, including homeless 
families; and (2) increase homeownership for ELI and VLI families. 
Section 1338 of FHEFSSA also directs HUD to establish regulations to 
administer the HTF, and this rule proposes the regulations that will 
govern the HTF.

II. This Proposed Rule

New 24 CFR Part 92 Subpart N

    HUD proposes to codify the HTF regulations in a new subpart N of 24 
CFR part 92. Part 92 contains the regulations for HUD's HOME Investment 
Partnerships program (HOME program). Established by the National 
Affordable Housing Act of 1992, the HOME program is the largest Federal 
block grant program that produces affordable housing for VLI 
households. The HOME program is similar in most aspects to the proposed 
HTF. Each year, the HOME program allocates approximately $2 billion to 
States and more than 600 localities nationwide. Since it inception in 
1992, the HOME program has produced approximately one million units of 
affordable rental and homeownership units. Both programs provide 
funding through a formula allocation for rental housing production and 
homeownership. The HOME program provides formula grants that 
communities use, often in partnership with local nonprofit groups, to 
fund a wide range of activities that build, buy, and/or rehabilitate 
affordable housing units for rent or homeownership. The HTF will 
operate in substantially the same manner, with formula grants to States 
used to develop affordable housing units for rent or homeownership. In 
addition, the grant activities in both programs require the same 
grantee administration and HUD oversight functions.
    While the HTF provides new resources targeted to producing 
affordable housing primarily for ELI households, an entirely new or 
different set of program regulations is not necessary in order to 
implement the statutory requirements of the HTF. Many of the program 
requirements applicable to the HOME program are applicable to the HTF. 
Further, each State is a participating jurisdiction in the HOME 
program, and all States and their designated housing entities will be 
the HTF grantees. Accordingly, it is HUD's position that codifying the 
HTF regulations in part 92 is a logical step that will enable HUD to: 
(1) Provide a coordinated ``menu'' of production programs that State 
and local governments can use to address the affordable housing needs 
of low-, very low- and extremely low-income households, including those 
with special needs, in their communities, and (2) simplify and 
streamline program requirements for grantees, and avoid making grantees 
create new or separate structures to administer HTF funds. 
Additionally, HUD believes that many grantees will use HTF funds in 
combination with HOME program funds to develop mixed-income housing, 
and many of the applicable requirements are the same for both programs 
(e.g., administrative requirements; monitoring, site and neighborhood 
standards; and affirmative marketing). This approach is expected to 
expedite the expenditure of HTF funds and deliver more affordable 
housing sooner to households and communities.
    HUD is specifically soliciting input from HTF grantees and 
interested parties on HUD's proposed coordination of HOME program and 
HTF regulations, as well as on additional or alternative ways to better 
coordinate and use HTF funds with funding from other Federal, State, 
local programs, or private sources typically used to produce mixed-
income affordable housing developments.
    The Department is embarking on a number of initiatives to 
incorporate and promote energy efficiency, transit-oriented 
development, and other sustainability features in the development of 
units and projects assisted with HUD funds. These efforts will help 
reduce the impact of the property on the environment and promote a 
healthier environment for building occupants, as well as reduce the 
costs of utilities to help make these units affordable. In addition, 
facilitating the inclusion of affordable housing for ELI and VLI 
households in transit-oriented development will help ensure that 
affordable housing is located in areas that are within walking distance 
of transit facilities and more easily accessible to essential area 
destinations such as jobs, and educational, retail, and health 
services. The HTF implements the Department's commitment to further 
sustainable affordable housing available for ELI households, by 
requiring energy and water-efficiency features in all HTF-assisted 
units. In addition, the proposed rule includes specific funding 
commitment definitions that address the need to commit HTF funds early 
in the development process of a Transit-Oriented Development (TOD) 
project.
    HUD's efforts to promote energy-efficient homes directly reflect 
the Department's energy goal contained in its Fiscal Year (FY) 2010-15 
Strategic Plan to ``promote energy-efficient buildings and location-
efficient communities that are healthy, affordable, and diverse.'' The 
proposed

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energy and water efficiency requirements for the HTF are similar to 
those of several HUD energy-efficiency and green initiatives, such as 
the ``Green'' Community Housing Development Organization Notice Of 
Funding Availability (HOME Competitive Reallocation of CHDO Funds to 
Provide for Energy Efficient and Environmentally Friendly Housing for 
Low-Income Families), the Self-Help Homeownership Opportunity Program 
(SHOP) NOFA, and the Neighborhood Stabilization Program (NSP)-2 NOFA.
    Fostering the development of sustainable, transit-oriented, mixed-
use communities with HTF funds is consistent with the Livability 
Principles established by the Partnership for Sustainable Communities, 
an interagency collaboration between HUD, the Department of 
Transportation (DOT), and the Environmental Protection Agency (EPA). 
This partnership aims to coordinate Federal housing, transportation, 
and other infrastructure investments to provide communities with the 
resources they need to build more livable and sustainable communities, 
promote equitable development, and improve access to affordable 
housing. Each of the three agencies is responsible for incorporating 
the Livability Principles into its policies and programs, to the 
maximum extent feasible.
    Energy-efficiency and transit-oriented development definitions and 
property standards for the HTF can be found in Sections 92.702 and 
92.741-92.745, respectively. The following sections highlight key 
provisions of the HTF regulations established in accordance with 
section 1338 of FHEFSSA.
General Provisions
    Sections 92.701-92.703 of new subpart N sets forth the general 
provisions applicable to the HTF.
    Section 92.701 provides an overview of the statutory basis for the 
HTF, and identifies which subparts of part 92 are applicable to the 
HTF. To the extent that other sections or subparts of part 92 are 
applicable to the HTF, Sec.  92.701 provides that references to 
``HOME'' mean ``HTF'' and that references to ``participating 
jurisdictions'' mean ``HTF grantees.''
Definitions
    Section 92.702 incorporates terms defined in the HOME program 
regulations (24 CFR 92.2) and defines terms that are specifically 
applicable to the HTF. Key definitions applicable to the HTF include 
the following:
    Commitment. The definition of ``commitment'' implements the 
statutory requirement that HTF funds must be used or committed within 2 
years of the formula allocation (grant award). Grantees must commit 
funds to a specific project pursuant to legally binding agreements that 
meet the requirements of written agreements in Sec.  92.774. To 
facilitate TOD projects, the definition of ``commitment'' permits a 
unit of general local government to acquire the land for a TOD project 
in advance of having specific project plans. The definition of transit-
oriented commitment would allow the acquisition of property without the 
requirement of having a specific project. The unit of general local 
government has 36 months from the date of acquisition of the property 
for a TOD project to commit additional funds to a specific project on 
the property. To discourage the use of this provision for acquisition 
of property for any purpose other than the development of HTF-assisted 
units as part of transit-oriented development, the local government 
where the development is to take place is required to hold title to the 
property. If no commitment to a specific HTF-assisted project occurs 
within 36 months from date of the acquisition of the property, the 
amount of HTF funds used to pay for the property, or the current value 
of the property, whichever is greater, must be repaid to the grantee's 
HTF account. The amount repaid will be prorated in proportion to the 
amount of HTF funds to total funds used to purchase the land.
    Energy Efficiency. Several definitions are included in this rule 
that will help facilitate the development of energy-efficient 
residential units, including definitions of ENERGY STAR-Qualified New 
Homes and WaterSense-labeled products.
    Grantee. The statute allows a State or State-designated entity to 
receive the HTF formula allocations. Each State may decide which agency 
within the State will be the HTF grantee. For example, in many States, 
there are multiple State agencies, as well as a State housing finance 
agency, that administer housing programs.
    Recipient. An HTF recipient means an entity that receives HTF funds 
solely as a developer or owner of HTF-assisted housing. Section 
1338(c)(9) of FHEFSSA requires an eligible recipient of a grant from a 
State's HTF formula allocation to have demonstrated experience and 
capacity to conduct an eligible activity, as evidenced by its ability 
to: (i) Own, construct, rehabilitate, manage, or operate an affordable 
multifamily rental housing development; (ii) design, construct, 
rehabilitate, or market affordable housing for homeownership; or (iii) 
provide forms of assistance, such as down payments, closing costs, or 
interest-rate buy-downs for purchasers.
    Section 1338(c)(9) of FHEFSSA also requires an eligible recipient 
to demonstrate the ability and financial capacity to undertake, comply, 
and manage the eligible activity; demonstrate its familiarity with the 
requirements of any other Federal, State, or local housing program that 
will be used in conjunction with such grant amounts to ensure 
compliance with all applicable requirements and regulations of such 
programs; and make such assurances to the grantee that it will comply 
with the HTF requirements. These conditions of eligibility imposed on 
recipients are incorporated in the definition of ``recipient'' found in 
Sec.  92.702.
    State. The term ``State'' means any State of the United States, the 
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth 
of the Northern Mariana Islands, Guam, the Virgin Islands, and American 
Samoa. (See 1338 (a)(1) of FHEFSSA.)
    State-Designated Entity. The statute permits a State to use a 
``State-designated entity'' to receive its formula allocation. 
Permissible designees for the HTF State-designated entity are: A State 
housing finance agency, a Tribally designated housing entity (as such 
term is defined in section 4 of the Native American Housing Assistance 
and Self-Determination Act of 1997 (25 U.S.C. 4103)), or any other 
qualified instrumentality of the State. (See 1338(c)(2) of FHEFSSA.)
    Subgrantee. An HTF grantee may choose to distribute HTF funds 
through one or more subgrantees. A subgrantee may be a State agency or 
a unit of general local government. All local governments that are HTF 
subgrantees must have an approved consolidated plan under 24 CFR part 
91.
Allocation Formula
Reallocations
    Section 92.714 describes the conditions under which HUD will 
reallocate HTF funds. Consistent with the statute, funds will be 
reallocated by formula in the following fiscal year. (See section 
1338(c)(10) and (d) of FHEFSSA.)
Participation and Submission Requirements; Distribution of Assistance
    Section 92.720 requires the State to notify HUD of its intent to 
participate in the HTF program and to have a consolidated plan that 
contains its HTF allocation plan required by FHEFSSA. (See section 
1338(c)(8) of FHEFSSA.)

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Allocation Plan
    Section 1338(c)(5)(A) of FHEFSSA provides that for a grantee to 
receive an HTF grant, the grantee must submit an HTF allocation plan, 
which must: (1) Describe the distribution of the grant; (2) be based on 
priority housing needs, as determined by the grantee in accordance with 
the HTF regulations; (3) comply with the statutory requirements 
regarding activities eligible for HTF funding; and (4) include 
performance goals that comply with HUD's HTF regulations. HUD has 
chosen to implement the requirement for an HTF allocation plan by 
amending its regulations in 24 CFR part 91 to include these 
requirements in the consolidated plans of grantees and, where 
applicable, subgrantees. The decision to include the HTF allocation 
plan in the consolidated plan is consistent with the statutory 
requirement in section 105(a) of the Cranston-Gonzalez National 
Affordable Housing Act (12 U.S.C. 12705) that HUD may only provide 
assistance directly to a jurisdiction if the jurisdiction submits a 
comprehensive housing affordability strategy (the basic framework of 
the consolidated plan) to HUD and the strategy is approved by HUD.
    Sections 91.220 and 91.320 of the consolidated plan regulation are 
amended to reflect the HTF allocation plan requirements.
    In addition, section 1338(c)(5)(B) of FHEFSSA directs each State, 
in establishing its HTF allocation plan, to: (1) Notify the public of 
the establishment of the plan; (2) provide an opportunity for public 
comments regarding the plan, (3) consider any public comments received 
on the plan, and (4) make the completed plan available to the public. 
Section 1338(c)(8)(B) of FHEFSSA requires grantees to comply with the 
requirements of laws related to public participation, including laws 
related to consolidated plans. Rather than establish new citizen 
participation requirements, Sec.  92.720 directs States to include the 
HTF allocation plan in the consolidated plan and follow the citizen 
participation requirements found in the consolidated plan regulations 
in 24 CFR part 91.
    Section 1338(c)(5)(C) of FHEFSSA also provides that a State's 
allocation plan must disclose the requirements that the State will 
impose on eligible recipients that apply for grants under the State's 
formula allocation. Section 1338(c)(5)(C) provides that such 
requirements must include: (1) A description of the eligible activities 
to be conducted using such assistance; and (2) a certification from the 
eligible recipient that any housing units assisted will comply with HTF 
requirements under this section. The statutory requirements are 
implemented in Sec. Sec.  91.220 and 91.320.
    In the case of HTF-assisted rental housing projects, the plan must 
provide priority to projects that have Federal, State, or local 
project-based rental assistance so that rents are affordable to ELI 
families, and take into consideration the duration of the HTF-assisted 
units' affordability period. (See 1338 (g)(2)(D) of FHEFSSA.) The HTF 
allocation plan must consider the merits of the application in meeting 
the priority housing needs of the State. The rule provides flexibility 
to allow each grantee to include incentives and priorities in its HTF 
allocation plan that are appropriate to the communities where housing 
developed with HTF funds will be located. For example, incentives to 
promote green building, the use of renewable building materials, or 
sustainable development, as defined by the grantee, may be included in 
its HTF allocation plan.
    HUD specifically requests comments on how it may provide incentives 
to encourage the use of HTF funds to develop housing affordable to ELI 
households that is also accessible to transit and employment centers. 
HUD is also seeking comments on what program structure or features will 
encourage or assist States in allocating HTF funding in accordance with 
metropolitan and regional land use and transportation plans. Similarly, 
HUD is interested in hearing about how it can provide incentives to HTF 
grantees and recipients to incorporate ``green building'' and 
``sustainability'' features in the development of HTF-assisted 
projects, such as the use of renewable building materials or other 
techniques that reduce the impact of the property or site on the 
environment and promote a healthier environment for building occupants. 
In addition, HUD specifically requests comments on how it could include 
standards or minimum requirements in the HTF regulations for specific 
``green building'' or sustainable development features.
Distribution of Assistance: HTF Grantees, Subgrantees, and Recipients
    Section 92.725 describes the way HTF funds will flow to the 
communities and recipients, as well as the participation and submission 
requirements for grantees receiving an HTF allocation. For each year 
that funds are made available for the HTF, a formula grant will be 
provided to each State. The State or State-designated entity is 
responsible for distributing HTF funds throughout the State according 
to its assessment of the priority housing needs, as identified in the 
State's approved consolidated plan, and in accordance with any 
priorities that may be established by HUD in allocating grants to the 
States in accordance with the formula. HUD will issue notices in the 
future as necessary to communicate policy priorities for the HTF.
    FHEFSSA allows a State to choose to be the HTF grantee (to receive 
and administer its grant) or to choose a qualified State-designated 
entity to be the HTF grantee. In addition, the HTF grantee may choose 
to directly fund projects (in accordance with the grantee's HTF 
allocation plan in its consolidated plan), or a grantee may choose one 
or more subgrantees (to administer the HTF funds and fund projects). A 
subgrantee may be a State agency or a unit of general local government 
that has submitted a consolidated plan under 24 CFR part 91. The 
subgrantee must include an HTF allocation plan in its consolidated plan 
(see 24 CFR 91.220(l)(4)) and must select projects by eligible 
recipients in accordance with its HTF allocation plan.
    Eligible recipients of HTF funds must meet statutorily prescribed 
criteria, as promulgated through this rulemaking. An HTF recipient 
means an organization, agency, or other entity (including a for-profit 
entity or a nonprofit entity) that receives HTF assistance from a 
grantee to be an owner or developer of an HTF-assisted project. In 
order to qualify as an eligible recipient, the entity must demonstrate 
its ability and financial capacity to manage the eligible activity in 
compliance with all applicable HTF requirements. In addition, the 
entity must demonstrate familiarity with the requirements of other 
Federal, State, or local housing programs that may be used in 
conjunction with HTF funds to ensure compliance with all applicable 
requirements and regulations of such programs. An eligible HTF 
recipient must have demonstrated experience in housing construction or 
rehabilitation of rental housing or housing for homeownership; if it is 
to be the owner, it must demonstrate experience in the management and 
operation of affordable multifamily rental housing.
Income Targeting
    Based on tabulations of American Housing Survey data, HUD estimates 
that during 2007, there were about 9.2 million ELI renter households 
nationwide, but only about 4.2 million units with rents affordable and 
available to this income group. As a result, 64.5

[[Page 66982]]

percent of ELI renters were severely rent-burdened (paid more than 50 
percent of their income for rent) or lived in severely inadequate 
housing. HUD notes that more than half (51 percent) of the 3.8 million 
ELI renters who occupied affordable units in 2007 were able to do so 
only because they reported receiving government rental assistance, such 
as from the public housing, project-based Section 8 or Section 202/811 
program, and the housing choice voucher program.
    By contrast, of the 6.7 million renters with incomes between 30 and 
50 percent of area median income (VLI renters), only 23.6 percent had 
severe rent burdens in 2007. Furthermore, there were about 7.8 million 
units with rents affordable and available to VLI renters, and about one 
million of these units were assisted.
    FHEFSSA requires that not less than 80 percent of the HTF grant 
shall be used to produce rental housing \1\ and, of this amount, 
section 1338(c)(7)(A) of FHEFSSA requires that not less than 75 percent 
shall be used for the benefit only of ELI families or families with 
incomes at or below the poverty line (as such term is defined in 
section 673 of the Omnibus Budget Reconciliation Act of 1981 (42 U.S.C. 
9902), including any revision required by such section), whichever is 
the greater, applicable to a family of the size involved, and not more 
than 25 percent be used for the benefit only of VLI families.
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    \1\ The establishment of a minimum of 80 percent of HTF funds to 
be used for rental housing is derived by reading two provisions of 
the statute. Section 1338(c)(10) provides that of the aggregate 
amount allocated to a State or State-designated entity under section 
1338, not more than 10 percent shall be used for activities under 
section 1338(c)(7)(B), which are the homeownership activities. 
Therefore, under section 1338, not more than 10 percent of funds can 
be used for homeownership, leaving 90 percent available for the 
production, preservation, and rehabilitation of rental housing. 
Section 1338(c)(10)(D)(iii) limits the amount that a State or State-
designated entity may use for administrative costs for carrying out 
the HTF program, to a maximum of 10 percent. Therefore, the minimum 
amount available for activities under section 1338(c)(7)(A) (rental 
housing production) is 80 percent.
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    Under the rulemaking authority of section 1338(g) of FHEFFSA, which 
provides that ``The Secretary shall issue regulations to carry out this 
section [section 1338],'' the Secretary has the discretion to elaborate 
upon, clarify, define and, in some instances, add to the statutory 
program requirements and criteria. With respect to the allocation of 
funds for ELI families or families with incomes below the poverty line, 
the Secretary has the discretion to direct grantees, in any given year, 
to use more than 75 percent of the HTF funds for the benefit only of 
ELI families or families with incomes at or below the poverty line, 
whichever is greater. For the first year in which HTF funds are made 
available, the rule provides that of the amount made available for 
rental and homeownership housing, grantees are to expend 100 percent of 
HTF funds to provide rental and homeownership housing for ELI 
households. The Secretary shall publish subsequent income targeting 
requirements when HUD's allocation amounts to States are published. 
Sections 92.736 and 92.737 set forth the income targeting requirements, 
as required by section 1338(c)(7) of FHEFSSA, for HTF-assisted rental 
units and homeownership units, respectively.
    HUD recognizes that subsidizing the development and operations of 
rental units targeted to ELI households can be extremely challenging. 
The resources available to develop rental units targeted to ELI 
households are scarce, and the financing mechanisms that are often 
required to develop financially viable and sustainable projects with 
units targeted to ELI households are complex and dependent on multiple 
sources of both public and private funding. In implementing the HTF, 
HUD's goal is to provide resources and a program structure that will 
help States and local governments, as well as private and nonprofit 
developers to develop energy-efficient rental housing that is 
affordable to ELI households. Toward that end, Section 8 project-based 
vouchers may be made available through appropriations. If Section 8 
project-based vouchers are made available, HTF grantees will allocate 
the vouchers concurrently with HTF funding to specific projects. These 
Section 8 project-based vouchers will be administered in accordance 
with the rules applicable to that program. The vouchers will help pay 
for the operating costs of units constructed with HTF funds. However, 
an HTF-assisted unit that has a Section 8 project-based voucher 
attached to it may not also receive HTF operating cost assistance.
    HUD is interested in hearing from developers of affordable rental 
housing for ELI families about the ways to reduce the cost of 
subsidizing this housing. What specific measures can the Department 
undertake to help reduce the cost of producing rental units targeted to 
ELI families? Similarly, what approaches will help to reduce operating 
costs and reduce the need for ongoing operating subsidies? For example, 
to what extent do energy-efficiency measures reduce the costs of 
operations of these units--for both the tenants and project owners? To 
what extent do tax abatements significantly reduce operating costs? If 
HTF funds are used to pay for the entire development cost of these 
rental units, would the absence of debt significantly impact the 
financial viability of HTF-assisted units?
    If grantees choose to undertake homeownership activities for ELI 
households, HUD expects that grantees will ensure that the underwriting 
for these units and homebuyer counseling address the precarious 
financial conditions that ELI households usually experience. Shared 
equity models and other types of homeownership program designs, such as 
lease purchase models, may be more appropriate for HTF-assisted 
homeownership activities. The Department is seeking comments from the 
public about appropriate and effective approaches for homeownership 
programs for ELI households. What specific measures can the Department 
undertake to help reduce the cost of homeownership targeted to ELI 
families? Similarly, what approaches will help to reduce operating 
costs for ELI homeowners? For example, to what extent do energy-
efficiency measures reduce the costs of operations of these units?
Eligible and Prohibited Activities
    Sections 92.730-92.735 reflect the statutory requirements that 
govern eligible and prohibited activities, eligible project costs, and 
planning and administrative costs. Allowable and prohibited fees are 
also addressed in these sections.
Eligible Activities
    Section 92.730 describes the HTF-eligible activities. Section 
1338(c)(7) of FHEFSSA provides that HTF funds may be used for 
assistance for the production, preservation, rehabilitation, and 
operating costs of rental housing. The Department views the HTF as 
primarily a production program meant to add units to the supply of 
affordable housing for ELI and VLI households. While the statute allows 
HTF funds to be used for operating costs, it does not provide a limit. 
In order to achieve the goal of using HTF funds primarily for the 
production of new affordable units, the Department proposes to limit 
the amount of HTF funds that may be used for operating cost assistance 
to 20 percent of each annual grant. In establishing this limit, the 
Department assumes that HTF funds will be combined with other sources 
to produce and preserve affordable units, mostly in mixed-income 
projects. The Department also considered various analyses with 
different scenarios, including different operating cost assistance caps 
and

[[Page 66983]]

different local development practices. HUD anticipates that project-
based vouchers will be made available to subsidize operating costs in 
HTF-assisted units. However, if vouchers or other forms of project-
based assistance are not available for the HTF-assisted unit, it may be 
necessary to use HTF funds for operating cost assistance. This limit 
would make sufficient funds available to pay for operating cost 
assistance if needed, while ensuring that additional affordable units 
continue to be produced with HTF funds. The 20 percent limit applies to 
each annual grant. Therefore, grantees will have discretion in how they 
allocate funds to each project's development and operating costs. 
Grantees may apply the 20 percent limit to all projects or adjust it 
accordingly, as long as no more than 20 percent of each annual grant is 
used for operating cost assistance.
    Analyses of the use of HTF funds for both development and operating 
subsidy show that the use of HTF funds for operating cost assistance 
could very quickly consume each State's formula allocation and would 
deter the use of HTF funds for production of additional units, as well 
as preservation and rehabilitation of units, targeted to ELI 
households--the primary purpose of the HTF. If Section 8 Project-Based 
Vouchers are made available to HTF projects for HTF-assisted units, 
limiting the amount of HTF funds available for operating cost 
assistance will not hinder implementation of the HTF.
    Nonetheless, HUD is seeking comments regarding how imposing this or 
any restriction on the use of HTF funds for operating cost assistance 
might enhance or hinder the ability of a grantee to maximize the number 
of units affordable to ELI families produced, by new construction or 
acquisition, with HTF funds.
    Section 1338(c)(7)(B) provides that the production, preservation, 
and rehabilitation of housing for homeownership, including forms of 
down payment assistance, closing cost assistance, and assistance for 
interest rate buy-downs, are eligible activities. HTF funds may be used 
only for units that will be the principal residence of eligible 
families who are first-time homebuyers.
    Section 1338(c)(10)(A) of FHEFSSA provides that not more than 10 
percent of the annual grant may be used for homeownership activities. 
If a grantee chooses to implement a homeownership program with HTF 
funds, the regulations require the grantee to perform due diligence and 
underwriting analysis such that the affordability of the homeownership 
units is sustainable for ELI households. In light of the distressed 
housing market conditions in many jurisdictions, program techniques 
such as shared equity, lease-purchase, and first options to re-purchase 
HTF-assisted homeownership units in default might be practical features 
to include in HTF homeownership programs.
Forms of Assistance
    Section 92.730(b) provides that HTF funds may be invested as equity 
investments, interest-bearing loans or advances, non-interest-bearing 
loans or advances, interest subsidies, deferred payment loans, grants, 
or other forms of assistance that HUD may determine to be consistent 
with the goals and objectives of the HTF.
    Section 92.730(c) requires that only the actual cost of development 
and operation of HTF units can be charged to the program, and describes 
the methods for allocating costs and determining HTF units in multiunit 
projects. An HTF-assisted unit that has a Section 8 project-based 
voucher attached to it may not also receive HTF operating cost 
assistance.
Terminated Project
    Section 92.730(d) provides that an HTF-assisted project that is 
terminated before completion, either voluntarily or otherwise, 
constitutes an ineligible activity, and any HTF funds invested in the 
project must be repaid to the grantee's HTF account.
Prohibited Activities
    Prohibited activities are set forth in Sec.  92.735. Section 
1338(c)(10)(D) of FHEFSSA provides that HTF funds may not be used for: 
Political activities; advocacy; lobbying, whether directly or through 
other parties; counseling services; travel expenses; and preparing or 
providing advice on tax returns. The prohibited use of funds for 
political activities includes influencing the selection, nomination, 
election, or appointment of one or more candidates to any Federal, 
State, or local office as codified in section 501 of the Internal 
Revenue Code of 1986 (26 U.S.C. 501). This statutory section further 
provides that, subject to the exception in section 1338(c)(10)(D)(iii), 
HTF funds may not be used for administrative, outreach, or other costs 
of the grantee, or any other recipient of such grant amounts. The 
statutory exception to this prohibition is that a grantee may use up to 
10 percent of the State's HTF grant for administrative costs of 
carrying out its program(s) using the HTF, including homeownership 
counseling.
Eligible Project Costs
    Section 92.731 sets forth the eligible project costs, which include 
development hard costs, refinancing costs in conjunction with 
rehabilitation, acquisition of standard projects, development related 
soft costs, architectural and engineering fees, project audit costs, 
staff overhead related to the development of the units, settlement 
costs, impact fees, the cost to address and meet environmental and 
historic preservation property standards, operating costs, relocation 
costs, repayment of construction or other loans, and certain types of 
costs for construction undertaken before HTF funds were committed to 
the project.
    Operating cost assistance, as defined in Sec.  92.731(e), may 
include the cost of utilities, insurance, taxes, and scheduled payments 
to a replacement reserve. The eligible amount of HTF funds per unit for 
operating costs is determined based on the deficit remaining after the 
monthly rent payment for the HTF-assisted unit is applied to the HTF-
assisted unit's share of monthly operating costs. The written agreement 
between the grantee and the recipient must set forth the maximum amount 
of the operating assistance to be provided to the HTF-assisted rental 
project. The grantee may provide operating cost assistance necessary 
for the project for up to 2 years from one HTF grant. However, the 
written agreement may provide for renewal of operating cost assistance 
during the period of affordability of the project, subject to funding 
availability.
Administration and Planning Costs
    As noted earlier, the administrative costs allowed in the HTF 
program cannot exceed 10 percent of the annual grant. Similar to the 
HOME program requirements at Sec.  92.207, eligible administrative and 
planning costs are found in Sec.  92.732.
HTF and Public Housing
    Section 1338(c)(7)(A) of FHEFSSA provides that HTF assistance may 
be used for the production, preservation, and rehabilitation of 
housing, including housing identified in section 1335(a)(1)(B) of 
FHEFSSA (12 U.S.C. 4565(a)(1)(B)). (Note: The statute incorrectly 
references section 1335(a)(2)(B)). The programs identified in that 
section include housing projects subsidized under the project-based and 
tenant-based rental assistance programs under section 8 of the United 
States Housing Act of 1937 (1937 Act); the program under section 236 of 
the National Housing Act; the below-market

[[Page 66984]]

interest rate mortgage program under section 221(d)(4) of the National 
Housing Act (note: Section 1335(a)(1)(B) of FHEFSSA incorrectly 
references the below-market interest rate mortgage program; the correct 
statutory reference is section 221(d)(3)/(d)(5) of the National Housing 
Act.); the supportive housing for the elderly program under section 202 
of the Housing Act of 1959; the supportive housing program for persons 
with disabilities under section 811 of the Cranston-Gonzalez National 
Affordable Housing Act; the permanent supportive housing projects 
subsidized under programs under Title IV of the McKinney-Vento Homeless 
Assistance Act (42 U.S.C. 11361 et seq.); the rural rental housing 
program under section 515 of the Housing Act of 1949; the low-income 
housing tax credit under section 42 of the Internal Revenue Code of 
1986, as amended; and comparable State and local affordable housing 
programs. Although this list is not necessarily exhaustive, it is HUD's 
determination that the HTF funds are not eligible to be used in 
existing public housing units. Moreover, the 1937 Act provides annual 
formula funding for public housing. Accordingly, Sec.  92.734 prohibits 
the use of HTF funds for public housing.
Prohibited Activities and Fees
    The section on prohibited activities and fees mirrors the HOME 
program regulation at Sec.  92.214, except that the HTF section is 
expanded to expressly cover political activities, advocacy, and 
lobbying, which are ineligible under FHEFSSA.
Program Requirements
Site and Neighborhood Standards
    Section 92.726 applies the site and neighborhood standards for the 
HOME program, at Sec.  92.202, to the HTF. If Section 8 project-based 
vouchers are made available, the Section 8 requirements related to site 
and neighborhood standards will apply to an HTF-assisted unit that has 
a Section 8 project-based voucher attached to it.
Income Determinations
    Section 92.727 defines ``annual income'' and describes the process 
for determining the annual income of tenants and homebuyers for 
eligibility in HTF-assisted housing. Income from all family members 
must be included when determining income eligibility. As in the HOME 
program, grantees may use the definition of annual income in 24 CFR 
5.609 (Section 8 program definitions) or the Internal Revenue Service 
(IRS) definition of annual income from IRS Form 1040. Section 92.727(e) 
provides that a State must follow HUD's regulations in 24 CFR 5.617 
when making income determinations for persons with disabilities who are 
tenants in HTF-assisted rental housing. For homebuyers, the grantee 
must determine annual income by examining source documentation for the 
entire household, or obtain written statements verifying incomes from 
the household or administrators of government programs from which the 
household receives assistance.
Project Requirements
    Sections 92.740-92.750 establish requirements applicable to HTF-
assisted housing projects.
Maximum Per-Unit Subsidy
    Section 92.740(a) establishes maximum per-unit subsidy, 
underwriting, and subsidy layering requirements. The grantee must 
establish maximum limitations on the amount of HTF funds the grantee 
may invest on a per-unit basis.
Underwriting and Subsidy Layering
    Section 92.740(b) requires the grantee to perform subsidy layering 
analysis before committing HTF funds to a project. The grantee must 
determine that costs are reasonable, examine the sources and uses of 
funds, and ensure that the amounts available and their use are 
necessary to provide quality affordable rental or homeownership housing 
for ELI households for the affordability period (30 years). 
Furthermore, developers or owners of HTF-assisted projects may not 
receive undue returns on their investments.
Property Standards
    As described below, the HTF requires energy and water efficiency 
features in all HTF-assisted units. Each grantee can include incentives 
and priorities in its HTF allocation plan to further promote 
sustainable development that is appropriate to the communities where 
housing developed with HTF funds will be located.
    Applicable property standards are established at Sec. Sec.  92.741 
through 92.745. This rule requires, at minimum, that all HTF-assisted 
units that are newly constructed or undergoing gut rehabilitation must 
be certified that they meet the guidelines for ENERGY STAR-Qualified 
New Homes (for residential buildings up to 3 stories) or exceed, by 20 
percent, the energy efficiency requirements of the American Society of 
Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) 
Standard 90.1-2007, Appendix G: Performance Rating Method (for 
residential buildings over 3 stories), as defined in Sec.  92.741. A 
Home Energy Rater (HER) must inspect the units to certify that the 
units meet the ENERGY STAR guidelines. HUD is aware that Home Energy 
Raters may not be available in all places; therefore, the requirement 
for ENERGY STAR certification will become effective 6 months from the 
effective date of this rule. ENERGY STAR-labeled products must be 
installed when older obsolete products are replaced as part of the 
rehabilitation work for HTF-assisted units, as applicable in Sec.  
92.742. All water-usage products installed in HTF-assisted units must 
also be certified to meet the WaterSense requirements, in accordance 
with Sec.  92.741 and Sec.  92.742.
    The specific property standards addressed by Sec. Sec.  92.741 
through 92.745 are as follows: Sec.  92.741 contains the property 
standards for new construction and gut rehabilitation, Sec.  92.742 
establishes the standards for housing undergoing other rehabilitation, 
Sec.  92.743 contains the property standards for existing housing that 
is acquired with HTF funds, Sec.  92.744 establishes property standards 
for manufactured housing, and Sec.  92.745 establishes ongoing property 
standards for rental housing during the period of affordability.
    HUD requests comments from interested parties on how additional 
minimum property standards may be imposed to increase the efficiency 
and reduce the operating costs of HTF-assisted units.
Qualification as Affordable Housing
    Sections 92.746 and 92.748 establish an affordability period of not 
less than 30 years for rental housing and homeownership units assisted 
with HTF funds. As stated earlier, the Department expects that HTF 
funds will be combined with the other sources of private funding and 
financing typically used for the development of affordable housing, 
such as Low-Income Housing Tax Credits (LIHTCs). The affordability 
period for HTF-assisted units is designed to work in conjunction with 
the 30-year affordability period for LIHTC projects. Grantees may also 
establish longer affordability periods in their HTF allocation plans.
    Section 92.746(b) establishes the maximum rent (including 
utilities) for HTF-assisted units at 30 percent of the annual income of 
a family whose income equals 30 percent of the area median income, or 
30 percent of the poverty line, whichever is greater. It is necessary 
to establish fixed rents for underwriting purposes and required subsidy 
layering analyses. HUD

[[Page 66985]]

recognizes that some ELI tenants living in HTF-assisted units may be 
rent-burdened if required to pay HTF rents. As stated earlier in this 
preamble, Section 8 Project-Based Vouchers may be made available to 
HTF-assisted units; these vouchers alleviate cost burdens for ELI 
tenants. When project-based assistance from other HUD programs is 
provided to HTF units, the rents are based on the rent requirements of 
that program.
    Section 92.746(e) requires that HTF project owners verify the 
initial and continued eligibility of tenants living in HTF-assisted 
rental units and establishes the methods by which HTF project owners 
must verify tenant income. Furthermore, this section specifies that 
when Section 8 Project-Based Vouchers or any other Federal rental 
assistance programs are used in conjunction with an HTF-assisted rental 
unit, the income verification rules and procedures of those programs 
will apply instead of the requirements set forth in this subsection.
    Section 92.747 establishes tenant protection, lease, and selection 
requirements, and incorporates the requirements of section 1338(c)(8) 
of FHEFSSA.
    Section 92.748(d) establishes the HTF requirements for homebuyers. 
HTF assistance to homebuyers may be provided only to first-time 
homebuyers and must be for the principal residence of the homebuyer. 
Before purchasing the housing, in accordance with section 
1338(c)(7)(B)(iv) of FHEFSSA, the homebuyer must have completed 
homeownership counseling from an organization that meets the 
requirements of section 1132 of the Federal Housing Regulatory Reform 
Act of 2008.
    Section 92.748(f) establishes the resale requirements, as required 
by section 1338(c)(7)(B)(iii), for homeownership units assisted by the 
HTF. Upon resale, each HTF-assisted homeownership unit must be sold to 
an income-eligible family. Each grantee that has an HTF homeownership 
program must include resale restriction policies in its HTF allocation 
plan. HTF grantees may adopt their HOME program resale restriction 
policies, modified for income-eligible households. The grantee may also 
include purchase options and right of first refusal to purchase the 
HTF-assisted units upon foreclosure, in order to preserve 
affordability.
    Section 92.749 defines the modest housing requirements in section 
1338(c)(7)(B)(ii) of FHEFSSA for HTF-assisted homeownership units. For 
newly constructed housing, the value of the housing may not exceed 95 
percent of the median purchase price for single-family housing in the 
area. HUD intends to provide these purchase limits for each area or the 
grantee can determine 95 percent of the area median purchase price in 
accordance with the methodology set forth in Sec.  92.749(e).
    In the event of foreclosure of HTF-assisted rental or homeownership 
units, or transfer of deed in lieu of foreclosure, the affordability 
period required by Sec. Sec.  92.746 and 92.748 is terminated. In order 
to preserve the affordability of the housing, the grantee may include 
purchase options in the HTF written agreement, such as ``right of first 
refusal'' to purchase the HTF-assisted units in default. The 
termination of the affordability restrictions on the project does not 
terminate the grantee's repayment obligation under Sec.  92.773.
Faith-Based Organizations
    Section 92.750 provides for the eligibility of faith-based 
organizations to apply for and use HTF funds under the same 
requirements as other recipients.
Other Federal Requirements
    Sections 92.760-92.764 set forth the other Federal requirements 
that are applicable to the use of HTF funds, including 
nondiscrimination requirements. For example, the rule requires the 
grantee to establish affirmative marketing requirements, as required in 
the HOME program, and grantees must comply with Federal lead-based 
paint and relocation requirements. These sections also include the 
funding accountability and transparency requirements of the Federal 
Funding Accountability and Transparency Act of 2006 (31 U.S.C. 6101 
note), which must be met in accordance with section 1338(i) of FHEFSSA.
Program Administration
    Sections 92.770-92.779 establish the conditions and requirements by 
which States are to administer their HTF funds. Section 92.770 
describes two HTF accounts that make up the HTF: The HTF Treasury 
account, which is for HTF funds allocated or reallocated to a grantee 
under the HTF formula, and the HTF local account, which is for deposits 
of HTF funds disbursed from the HTF Treasury account, any program 
income, and any repayments required to be made. Section 92.771 provides 
that allocation and reallocation of HTF funds will be made available 
pursuant to an HTF grant agreement.
    Section 92.772 establishes the requirements applicable to program 
disbursement and the establishment of the information system consistent 
with section 1338(e) of FHEFSSA. This statutory section provides that 
(1) HUD must require each grantee to develop and maintain a system to 
ensure that each recipient of assistance use HTF funds in accordance 
with the statute, the regulations, and any requirements or conditions 
under which HTF funds were provided; and (2) establish minimum 
requirements for agreements between the grantee and recipients. This 
statutory section further provides that the minimum requirements must 
include: (1) Appropriate periodic financial and project reporting, 
record retention, and audit requirements for the duration of the 
assistance to the recipient, to ensure compliance with the limitations 
and requirements of the statute and regulations; and (2) any other 
requirements that the Secretary determines are necessary to ensure 
appropriate administration and compliance. These statutory requirements 
are reflected in Sec. Sec.  92.776-92.779.
    Specifically, Sec.  92.774(b) requires that before disbursing any 
HTF funds to any entity, the grantee must enter into a written 
agreement with that entity. The written agreement must ensure 
compliance with the requirements of this subpart. Requirements for the 
HTF written agreement and required provisions are specified in Sec.  
92.774(c). Where HOME program funds are used together with HTF funds, a 
single written agreement meeting the requirements of both Sec.  92.504 
and this subpart may be used to enforce requirements for both programs.
    Section 1338(g)(2) of FHEFSSA requires that HUD ensure that the use 
of HTF grants by States or State-designated entities is audited not 
less than annually to ensure compliance with statutory and HUD's 
regulatory requirements. Section 1338(g)(2) also authorizes HUD to 
audit, provide for an audit, or otherwise verify a grantee's activities 
to ensure compliance with all HTF requirements. Section 1338(g)(2) 
further provides that any financial statement submitted by a grantee or 
recipient to HUD shall be reviewed by an independent certified public 
accountant in accordance with Statements on Standards for Accounting 
and Review Services, issued by the American Institute of Certified 
Public Accountants. These requirements are reflected in Sec.  92.776.
Performance Review and Sanctions Review of Subgrantees and Recipients
    Grantees will report on their progress and performance in meeting 
the requirements of the HTF in HUD's Integrated Disbursement & 
Information

[[Page 66986]]

System (IDIS) and the consolidated plan. For example, grantees will 
report on the incomes of HTF beneficiaries in IDIS, and will also 
demonstrate compliance with the deadlines for the commitment and 
expenditure of funds by data entered into IDIS. As stated earlier, this 
proposed rule would add the annual HTF allocation plan as a subsection 
to the strategic plan and annual action plan. Performance benchmarks 
will be established in the HTF allocation plan in conjunction with the 
strategic and annual plans, and subsequent reporting on performance 
will be reported to the public and HUD through the submissions and 
reports associated with those plans.
    Section 1338(e)(2)(B) of FHEFSSA is directed to the misuse of funds 
and provides that if HUD determines, after reasonable notice and 
opportunity for hearing, that a grantee has failed to comply 
substantially with any provision of the HTF statutory requirements or 
HUD's regulatory requirements, and until HUD is satisfied that there is 
no longer any such failure to comply, HUD shall: (1) Reduce the amount 
of assistance to the grantee by an amount equal to the amount of grant 
amounts that were not used; (2) require the grantee to repay HUD any 
amount of the grant that was not used; (3) limit the availability of 
assistance to the grantee to activities or recipients not affected by 
such failure to comply; or (4) terminate any assistance under this 
section to the grantee. These statutory requirements are reflected in 
Sec.  92.782.
    Section 1338(e)(1)(B) provides that if any recipient of assistance 
of HTF funds is determined to have used any such amounts in a manner 
that is materially in violation of the HTF statutory requirements, 
HUD's HTF regulatory requirements, or any requirements or conditions 
under which such amounts were provided, the grantee shall require, 
within 12 months after the determination of the misuse, that the 
recipient must reimburse the grantee for the misused amounts and return 
to the grantee any such amounts that remain unused or uncommitted for 
use. Section 1338(e)(1)(B) provides that if a grantee makes this 
determination, the grantee must first provide notification of the 
determination to HUD for review and concurrence. This statutory section 
authorizes HUD to reverse the determination if it disagrees. These 
statutory requirements are reflected in Sec.  92.783.

Consolidated Plan Revisions

    As noted earlier in this preamble, this rule also makes conforming 
changes to the consolidated plan regulations at 24 Part 91 to require 
information related to the HTF to be included in strategic and 5-year 
State or local government strategic and annual action plans.

III. 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''). 
This proposed rule was determined to be a ``significant regulatory 
action,'' as defined in section 3(f) of the Order but not economically 
significant, as provided in section 3(f)(1) of the Order. The reasons 
for the determination are as follows:
    As discussed above in this preamble, HERA charged HUD to establish 
through regulation, the formula for the distribution of HTF grants to 
States, and to follow that rule with one that implements the 
programmatic requirements for the HTF. Consistent with that statutory 
direction, on December 4, 2009 (74 FR 63938), HUD published a proposed 
rule submitting for public comment the proposed formula for allocating 
HTF funds. As the first rule to be issued in the rulemaking process for 
the HTF, the formula allocation constituted, on behalf of the entire 
HTF rulemaking, an economically significant regulatory action under 
Executive Order 12866. The preamble to the December 2009 rule 
summarized the economic impacts of the HTF program, as proposed to be 
implemented through the formula issued for public comment on December 
4, 2009. (For a discussion of the economic impact, please see 74 FR 
63940-63941.) HUD's full economic analysis for the allocation rule is 
available for inspection on HUD's Web site at https://www.huduser.org/portal/publications/pubasst/riaforhtf.html.
    This proposed rule follows the December 4, 2009, allocation formula 
rule by submitting for public comment the program requirements that 
will govern the HTF. The economic impacts of the rulemakings 
implementing the HTF are largely limited to the procedures governing 
the allocation and distribution of grant funds set forth in the 
December 4, 2009, proposed rule. This proposed rule does not revise the 
HTF allocation formula or otherwise affect the allocation of HTF funds. 
To the extent that this proposed rule has an economic impact, it 
derives from the December 2009 allocation formula proposed rule. That 
economic assessment may be revised to account for any new impacts 
resulting from changes made at the final rule stage.