HOME Investment Partnerships Program: Improving Performance and Accountability; and Updating Property Standards, 78344-78382 [2011-31778]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 76, Number 242 (Friday, December 16, 2011)]
[Proposed Rules]
[Pages 78344-78382]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31778]



[[Page 78343]]

Vol. 76

Friday,

No. 242

December 16, 2011

Part II





Department of Housing and Urban Development





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24 CFR Parts 91 and 92





 HOME Investment Partnerships Program: Improving Performance and 
Accountability; and Updating Property Standards; Proposed Rule

Federal Register / Vol. 76 , No. 242 / Friday, December 16, 2011 / 
Proposed Rules

[[Page 78344]]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 91 and 92

[Docket No. FR-5563-P-01]
RIN 2501-AC94


HOME Investment Partnerships Program: Improving Performance and 
Accountability; and Updating Property Standards

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

ACTION: Proposed rule.

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SUMMARY: HUD's HOME Investment Partnerships Program (HOME program or 
HOME) provides formula grants to states and units of local government 
to fund a wide range of activities directed to producing or maintaining 
affordable housing, both homes and rental housing. This proposed rule 
would amend the HOME regulations to address many of the operational 
challenges facing participating jurisdictions, particularly challenges 
related to recent housing market conditions and the alignment of 
federal housing programs. The proposed rule would also clarify certain 
existing regulatory requirements and establish new requirements 
designed to enhance accountability by States and units of local 
government in the use of HOME funds, strengthen performance standards 
and require more timely housing production. The proposed rule would 
also update property standards applicable to housing assisted by HOME 
funds.

DATES: Comment Due Date: February 14, 2012

ADDRESSES: Interested persons are invited to submit comments regarding 
this proposed 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.
    1. 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 20410-0500.
    2. 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 appointment to review the public comments must be 
scheduled in advance 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 via TTY by calling the 
Federal Relay Service at (800) 877-8339. Copies of all comments 
submitted are available for inspection and downloading at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Virginia Sardone, Deputy Director, 
Office of Affordable Housing Programs, Office of Community Planning and 
Development, Department of Housing and Urban Development, 451 7th 
Street SW., Room 7164, Washington, DC 20410; telephone number (202) 
708-2684 (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 Relay Service at (800) 877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background--The HOME Program

    The HOME program was authorized by Title II of the Cranston-
Gonzalez National Affordable Housing Act (42 U.S.C. 12721 et seq.), 
known as NAHA, and has been in operation for 20 years. The HOME program 
provides grants to states and local jurisdictions (collectively, 
participating jurisdictions) used, often in partnership with local 
nonprofit groups, to fund a wide range of activities that build, buy, 
and/or rehabilitate affordable housing for rent or homeownership or to 
fund direct rental assistance to low-income people. HOME program funds 
are awarded annually as formula grants to participating jurisdictions. 
HUD establishes a HOME Investment Trust Fund for each grantee, 
providing a line of credit that the jurisdiction may draw upon as 
needed. The participating jurisdictions are allowed to use their HOME 
funds as grants, direct loans, loan guarantees, or other forms of 
credit enhancement, or as rental assistance or security deposits.
    The HOME program is the largest federal block grant to States and 
local governments that is designed exclusively to create affordable 
housing for low-income households. Each year, the program allocates 
approximately $1 to $2 billion among the states and hundreds of 
localities nationwide. The program was designed to reinforce several 
important values and principles of community development. First, the 
HOME program's flexibility empowers people and communities to design 
and implement strategies tailored to their own needs and priorities. 
Second, the HOME program's emphasis on consolidated planning expands 
and strengthens partnerships among all levels of government and the 
relationship with the private sector in the development of affordable 
housing. Third, the HOME program's technical assistance activities and 
set-aside for qualified community-based nonprofit housing groups helps 
to build the capacity of these partners. Fourth, the HOME program's 
requirement that participating jurisdictions match 25 cents of every 
dollar in program funds helps to mobilize community resources in 
support of affordable housing.
    The regulations for the HOME program are codified in 24 CFR part 92 
and were last substantively revised by final rule issued on September 
16, 1996 (61 FR 48750). In the 15 years since the promulgation of the 
1996 final rule, many HOME participating jurisdictions have adopted 
more complex program designs. They have encountered new challenges in 
administering their programs and in managing their growing portfolios 
of older HOME projects. These challenges include reduced availability 
of states or local funding sources, reduced private lending, changes in 
housing property standards, and energy codes and reductions in states 
and local government workforces throughout the Nation. These challenges 
have been magnified by current housing and credit market conditions. 
Since establishment of the HOME program, HUD has monitored 
participating

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jurisdictions' use of HOME funds and measured participating 
jurisdictions' performance. Through such monitoring and audits by HUD's 
Office of Inspector General (OIG), HUD has identified and corrected 
compliance problems and has gained a fuller understanding of regulatory 
provisions that need to be strengthened or clarified to help avoid 
noncompliance and maximize effectiveness.
    HUD has invested significant time and resources in helping 
participating jurisdictions correct financial and physical problems 
that threaten the viability of some HOME-assisted rental projects in 
their portfolios. HUD has determined that participating jurisdictions 
need additional tools and flexibility to effectively address troubled 
projects. Over the last several years, HUD has developed numerous 
publicly available reports that measure the performance and 
effectiveness of each participating jurisdiction. HUD's review of these 
reports has identified performance and reporting problems among 
participating jurisdictions that cannot be addressed effectively under 
the current regulations.
    Accordingly, through this rule, HUD proposes regulatory changes to 
address many of the operational challenges facing participating 
jurisdictions, improve understanding of HOME program requirements, 
update property standards to which housing funded by HOME funds must 
adhere, and strengthen participating jurisdictions' accountability for 
both compliance with program requirements and performance.

II. This Proposed Rule

A. Changes to HUD's Consolidated Plan Regulations

Action Plan Amendments (Sec. Sec.  91.220, 91.320)
    This proposed rule would make several changes to the action plan 
sections of HUD's Consolidated Plan regulations in 24 CFR part 91, as 
well as those in HUD's HOME program regulations in 24 CFR part 92.
    Sections 91.220(l)(i) and (ii) of the Consolidated Plan regulations 
and Sec. Sec.  92.205(b) and 92.254(a)(5) of the HOME program 
regulations would be revised to clarify that HUD's approval (or failure 
to disapprove) a consolidated plan does not automatically approve forms 
of investment of HOME funds other than those described in Sec.  
92.205(b), or of resale or recapture guidelines submitted by the 
participating jurisdiction. Because the HOME regulations at Sec.  
92.205(b)(1) require that HUD determine that other forms of investment 
proposed by a participating jurisdiction be consistent with the 
purposes of 24 CFR part 92, the other forms of investment must be 
approved in writing by HUD separate from the consolidated plan approval 
letter. The consistency of other forms of investment with HOME program 
purposes is not indirectly established simply by HUD's approval of a 
consolidated plan that proposes such other forms of investment.
    This proposed rule also amends Sec.  91.220 to provide 
participating jurisdictions with some flexibility in determining the 
maximum purchase price for single family housing assisted with HOME 
funds for homebuyer assistance or rehabilitation of owner-occupied 
single family housing. Section 215(b) of NAHA requires that the value 
of homeownership units assisted with HOME funds not exceed 95 percent 
of the area median purchase price for single family housing, as 
determined by HUD. HUD's current regulations at Sec.  92.254(a)(2)(iii) 
permits participating jurisdictions to use the single family mortgage 
limits of the Federal Housing Administration (FHA) that are established 
under section 203(b) of the National Housing Act (12 U.S.C. 1709(b)) to 
determine the area median purchase price. The proposed rule would 
provide that a participating jurisdiction that opts not to use the HUD-
issued 95 percent of median purchase price for the purpose of 
determining ``modest housing'' for homebuyer assistance or 
rehabilitation of owner-occupied single family properties may instead 
calculate a limit based upon recent sales within the jurisdiction. The 
current regulations at 24 CFR 92.254(a)(2)(ii) require these 
participating jurisdictions to submit the limit and supporting sales 
price documentation to HUD. However, the regulations do not specify 
that this information be submitted as part of the consolidated plan 
annual action plan, making it possible for the participating 
jurisdiction to submit new limits at any point in its program year. HUD 
has concluded that it is most appropriate for this calculation to be 
just prior to the start of, and for the resulting value limit to be 
made applicable to, a participating jurisdiction's program year. 
Consequently, HUD proposes to amend Sec. Sec.  91.220(l)(2)(iv) and 
91.320(k)(2)(iv) to require such a participating jurisdiction to 
include in its action plan its calculation of 95 percent of the median 
area purchase, in accordance with the criteria and formula provided in 
Sec.  92.254(a)(2)(iii).
    The proposed rule would require participating jurisdictions to 
include more information about the expenditure of HOME program funds in 
their action plans. The inclusion of more information about the 
participating jurisdiction's planned expenditure of HOME funds not only 
assists HUD in its monitoring of the jurisdiction's expenditure of 
taxpayers' funds, but allows the citizens of the jurisdiction to weigh 
in with their views on the proposed expenditures as part of citizens' 
participation in the development and review of the consolidated plan. 
For example, the participating jurisdiction would be required under 
Sec. Sec.  91.220(l)(2)(v) and 91.320(k)(2)(v) to describe the 
applicants that are eligible to apply for the HOME program, as well as 
the jurisdiction's process for soliciting and funding applications or 
proposals. Sections 91.220(l)(2)(vi) and 91.320(k)(2)(vi) of the 
proposed rule would also permit the participating jurisdiction to limit 
the beneficiaries or give preferences in its programs to a particular 
segment of the low-income population.
    Participating jurisdictions have asked if they could limit rental 
projects to artists or nurses, or if they could limit a homebuyer 
program to persons in a specific occupation (e.g., artists, police 
officers, or teachers). Under HUD's authority to determine appropriate 
categories of persons to be targeted for housing assistance under the 
HOME program, the proposed rule would expressly permit these 
limitations. However, a participating jurisdiction would not be 
permitted to limit participation in a HOME-funded program or occupancy 
in a HOME-assisted project solely to its own employees of the 
jurisdiction because doing so would create at least the appearance of a 
conflict of interest and would require that the participating 
jurisdiction seek an exception to the conflict-of-interest provisions 
pursuant to 24 CFR 92.356(d) for every potential beneficiary. A rental 
project could be limited to a particular subpopulation only if the 
jurisdiction described the limitation or preference in its action plan, 
and specifically authorized the project owner to limit tenant selection 
in its written agreement with the owner, in accordance with the 
proposed revisions at Sec.  92.253(d). A limitation or preference must 
not violate such nondiscrimination laws as the Fair Housing Act (42 
U.S.C. 3601-19), title VI of the Civil Rights Act of 1964 (42 U.S.C. 
2000d--2000d-4) (Nondiscrimination in Federally Assisted Programs), the 
Age Discrimination Act (42 U.S.C. 6101-6107), section 504 of the 
Rehabilitation

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Act of 1973 (29 U.S.C. 794), and the Americans with Disabilities Act 
(42 U.S.C. 12101 et seq.), and the implementing regulations of these 
statutes.

B. Changes to the HOME Program Regulations

1. Definitions (Sec.  92.2)
    For the convenience in use of the HOME program regulations, HUD 
proposes to add cross-references for the definitions of ``public 
housing,'' ``Community Development Block Grant (CDBG) program,'' and 
``Consolidated Plan'' in Sec.  92.2. These terms are used in the HOME 
regulations, and HUD determined that it would be helpful to readers to 
include cross-references to where these terms are defined in HUD 
regulations.
    Commitment. HUD proposes to make several changes to the definition 
of ``commitment'' in Sec.  92.2. This term is currently defined to 
mean, generally, that a participating jurisdiction has executed a 
legally binding agreement with a state recipient, a subrecipient, or a 
contractor to use a specific amount of HOME funds for a specified use 
or for a specified local project.
    First, a revision is proposed to include an agreement with a state 
recipient, a subrecipient, or a contractor to use a specific amount of 
HOME funds to provide downpayment assistance. Participating 
jurisdictions commonly fund such entities to produce affordable 
housing, provide downpayment assistance, or administer a tenant-based 
rental assistance program, but the regulation did not expressly include 
them in the definition of ``commitment.''
    Second, the definition of commitment is being revised to remove 
references to reserving funds to community housing development 
organizations (CHDOs), so that such reservations, which are not 
project-specific, would no longer be considered a commitment under the 
HOME regulation. This change is discussed further below with other 
proposed changes affecting funding for CHDOs under subpart G of the 
HOME program regulations.
    HUD has encountered situations in which participating jurisdictions 
have produced agreements without dated signatures as evidence of a 
commitment before the 24-month deadline. The HOME statute and 
regulations require HOME funds to be committed within 24 months after 
the last day of the month in which HUD notifies the participating 
jurisdiction of HUD's execution of the HOME Investment Partnership 
Agreement. The lack of a dated signature calls into question when the 
commitment was made, therefore making it difficult to determine whether 
the funds have been committed within the 24-month deadline. 
Accordingly, the definition of ``commitment'' is proposed to be amended 
to require that the signature of each party to the agreement must be 
dated. The definition is also proposed to be amended to include a 
cross-reference to the requirements for written agreements in Sec.  
92.504(c), which will help ensure that the agreements evidencing 
commitment meet the standards for written agreements as provided in 
Sec.  92.504(c).
    HUD further proposes to revise the definition of ``commitment'' to 
expressly exclude: (1) An agreement between a participating 
jurisdiction and a subrecipient that the participating jurisdiction 
controls, e.g., an agency whose officials or employees are officials or 
employees of the participating jurisdiction, and (2) an agreement 
between the jurisdiction that is the lead member of the consortium and 
local government that is a member of the consortium. The existing 
definition provides that a commitment is a legally binding agreement 
between the participating jurisdiction and another entity to provide 
funds to undertake specified HOME activities. In both of these 
instances, the participating jurisdiction is essentially entering into 
an agreement not with a separate entity, but with an entity that is 
part of the participating jurisdiction, such that a legally binding 
agreement with another entity is not created.
    Community housing development organization. The definition of 
``community housing development organization'' (CHDO) in Sec.  92.2 
would be amended to add a reference to the Internal Revenue Service 
(IRS) regulations that implement section 501(c)(4) of the Internal 
Revenue Code, which was inadvertently omitted from the regulation.
    The CHDO definition is also proposed to be revised to clarify the 
relationship between the CHDO and the organization that may create the 
CHDO. New paragraph (3)(iv) of the definition would clarify that if a 
for-profit entity creates or sponsors a nonprofit entity that seeks 
designation as a CHDO, the officers and employees of the for-profit 
entity would be prohibited from serving as officers or employees of the 
CHDO, and the nonprofit entity would be prohibited from using the 
office space of the for-profit entity. This requirement would add to 
the existing regulatory provisions that are intended to prevent the 
nonprofit entity from being influenced by the profit motive of the for-
profit entity.
    The proposed rule would also revise paragraph (5) of the definition 
to clarify that the CHDO must be separate from and not under the 
control of a governmental entity, in keeping with the statutory 
requirement that a CHDO maintain accountability to the low-income 
community it serves through its governing board make-up and otherwise. 
A governmental entity would still be permitted to create a CHDO, but it 
would not be permitted to control the CHDO by providing its employees 
to the CHDO as staff or officers.
    Paragraph (9) of the existing definition of CHDO at Sec.  92.2 
permits a nonprofit organization to meet the demonstrated capacity 
requirement for CHDO designation if the organization has engaged a 
consultant who will carry out activities while also training key CHDO 
staff. This provision was intended to facilitate capacity building of 
community-based nonprofit organizations transitioning into the role of 
housing developer. HUD is concerned that some CHDOs have continued to 
rely on the use of expert consultants for core development experience 
and have not developed the internal capacity to function effectively in 
the developer role. This proposed rule would revise paragraph (9) of 
the definition to strengthen the requirement that CHDOs must have paid 
employee staff with housing development experience in order to be 
designated as a CHDO. Nonprofit organizations would no longer be able 
to meet the demonstrated capacity requirement through the use of 
consultants and through a plan for staff to be trained by the 
consultants.
    The proposed rule would also provide that the demonstrated capacity 
requirement cannot be met through the use of volunteers. The continued 
use of consultants or volunteers to fill occasional skill gaps or 
undertake activities that are required only on a periodic basis (e.g., 
project underwriting) continues to be appropriate, but cannot be the 
basis of a determination that a CHDO has demonstrated capacity to 
develop affordable housing.
    Homeownership. The proposed rule would rearrange existing 
provisions in the definition of ``homeownership'' in Sec.  92.2 for 
improved organization of the definition. In addition, the revised 
definition would provide that a right to possession under a contract 
for deed, installment contract, or land sales contract (pursuant to 
which the deed is not given until the final payment is made) is not 
homeownership. These mechanisms, which are common in

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certain areas of the country, are financing arrangements through which 
interested homebuyers enter into a payment arrangement directly with 
the seller. In most cases, there is no language in the contract 
protecting the homebuyer in the event of a late or missed payment. 
Whereas mortgage principal payments increase the homeowner's equity in 
the property over time, and the title is transferred to the homebuyer 
at the closing, payments made under a land sales contract arrangement 
typically do not constitute equity, and the title is not required to be 
transferred to the homebuyer until the very last payment has been made. 
Even in states that have statutes recognizing the equitable interest of 
the homebuyer, the protections given to homebuyers under these 
financing mechanisms are not equal to those given to homebuyers who 
receive title to the housing and finance the purchase through a 
mortgage. For these reasons, land sales contracts are not considered to 
be an eligible form of homeownership under the HOME program. HUD 
encourages the use of HOME funds to assist low-income households who 
have entered into a contract for deed to obtain equitable title to the 
property.
    The definition of ``homeownership'' would also be revised to make 
explicit that mutual or cooperative housing that receives assistance 
through a Low-Income Housing Tax Credit (LIHTC) program is not 
considered homeownership housing under the HOME program because a 
project receiving LIHTC is a rental project.
    Housing. HUD proposes to amend the definition of ``housing'' in 
Sec.  92.2 to exclude all student housing. The current regulations 
exclude only student dormitories. However, the use of HOME funds for 
student housing in any configuration, is inconsistent with the 
statutory purposes of the program. The focus of the HOME program is 
affordable housing for low-income households, and student housing, 
regardless of the configuration, does not constitute affordable housing 
for low-income households as contemplated by the HOME statute. In 
addition, the proposed rule would amend the definition to clarify that 
dormitories, including those for farmworkers, do not constitute 
housing.
    With respect to what constitutes housing under the HOME program, 
HUD has encountered cases where participating jurisdictions have 
proposed to use HOME funds for buildings considered to be housing by 
the participating jurisdiction, but that do not constitute housing 
under the HOME program. Examples of such uses are hospice buildings, 
nursing homes, foster homes, halfway houses, and residential treatment 
facilities. HUD emphasizes that the mere fact that a building 
physically resembles housing or that a person lives in a building for 
some period of time does not qualify that building as housing for HOME 
program purposes. The use of HOME funds is statutorily limited to 
permanent and transitional housing. No HOME funds may be used for any 
activity that does not qualify as permanent or transitional housing. 
One indication that the building is a facility, not housing, is the 
lack of a lease for the residents. All HOME-assisted rental housing 
units must have leases for the tenants that provide the HOME tenant 
protections outlined in Sec.  92.253(a).
    Low-income families and very low-income families. HUD proposes to 
revise the definition of ``low-income families'' and ``very low-income 
families'' in Sec.  92.2 to exclude students from qualifying as a low-
income or very low-income family. Specifically, the regulation would be 
revised to be consistent with recent statutory changes to the Housing 
Choice Voucher program, which prohibit voucher assistance to 
individuals who are enrolled in an institution of higher learning from 
qualifying as a low-income family if the individual is under 24 years 
of age, is not a military veteran, is unmarried, does not have a 
dependent child, and is not otherwise individually low-income or does 
not have parents who are low-income.\1\ This statutory change was made 
to the Housing Choice Voucher program in response to incidents of 
college students who were obtaining federal housing assistance but did 
not meet the low-income eligibility requirements, and were therefore 
depriving eligible families from receiving voucher assistance. 
Adoption, in the HOME program, of the exclusion of assistance to 
students would achieve the same goals as those for which the 
prohibition was put in place in the Housing Choice Voucher program. 
Accordingly, in the HOME program, students would be prohibited from 
renting HOME-assisted rental units, receiving HOME tenant-based rental 
assistance, or otherwise participating in the HOME program independent 
of their families.
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    \1\ HUD's Housing Choice Voucher Program regulations were 
amended by final rule published on December 30, 2005 (70 FR 57743, 
as subsequently amended on August 21, 2008 at 73 FR 49333), which 
implemented this prohibition assistance, and which is codified at 24 
CFR 5.612.
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    Project completion. HUD proposes to amend the definition of 
``project completion'' in Sec.  92.2 to clarify the conditions that 
must be met for projects to be considered completed. This change is 
made in response to questions from participating jurisdictions 
regarding the point at which they can complete a project in the 
Integrated Disbursement and Information System (IDIS), the HOME data 
system. For example, the rule will make clear that a rental project may 
be designated as completed in IDIS once construction or rehabilitation 
is completed, but before all units are occupied.
    Program income. HUD proposes to amend the definition of ``program 
income'' in Sec.  92.2 to clarify that program income does not include 
gross income from the use, rental, or sale of real property received by 
the project owner, developer, or sponsor, unless the funds are paid by 
the project owner, developer, or sponsor to the participating 
jurisdiction, subrecipient, or state recipient. The existing 
regulations provide that program includes ``gross income from the use 
or rental of real property, owned by the participating jurisdiction, 
state recipient, or a subrecipient, that was acquired, rehabilitated, 
or constructed, with HOME funds or matching contributions, less costs 
incidental to generation of the income. However, gross income does not 
constitute program income in the case of the use, rental, or sale of 
real property when the gross income is that received by the project 
owner, developer, or sponsor. Owners, developers, and sponsors of 
housing are not the participating jurisdiction, a state recipient, or a 
subrecipient administering all or a portion of the participating 
jurisdiction's HOME program. Consequently, gross income received by 
these entities is not program income by the terms of the existing 
definition.
    Reconstruction. The definition of ``reconstruction'' at Sec.  92.2 
is proposed to be amended, based on difficulties encountered by 
participating jurisdictions attempting to rebuild housing after 
disasters. The current regulations state that housing can be rebuilt 
under the reconstruction category only if the housing was standing on 
the site at the time of project commitment. In the case of disasters or 
fires, the housing may no longer be standing on the site at the time 
when the opportunity for project commitment arises. Consequently, the 
current regulations require such reconstructed units to be classified 
as new construction, resulting in longer periods of affordability for 
rental projects and the imposition of resale or recapture provisions on 
displaced owner-occupants.

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    HUD proposes to provide an exception to the reconstruction 
requirement that the housing must be standing on a site at the time of 
project commitment. The exception would permit housing that was 
destroyed or severely damaged and subsequently demolished to be rebuilt 
on the same lot under the reconstruction category, if the HOME funds 
are committed within 12 months of the date of destruction or damage. 
The one-year period for committing HOME funds to reconstruct a 
destroyed property by a disaster will provide sufficient flexibility to 
respond effectively to most natural disasters or fires. This period 
could be extended by waiver for good cause if the circumstances or 
scale of a particular disaster make the proposed time frames 
infeasible.
    Single room occupancy. The definition of ``single room occupancy 
(SRO)'' housing in Sec.  92.2 is proposed to be revised. The HOME 
regulations provide participating jurisdictions with flexibility with 
respect to classifying a property as a SRO project or a group home, 
depending on the physical configuration of the project. Classifying a 
project as a SRO results in larger potential subsidies and higher gross 
rent than could be obtained under a group home designation, because the 
SRO contains more than one unit and a group home is only one unit. 
However, some participating jurisdictions fail to take their own zoning 
and building code classifications into account when making this 
determination for HOME. This rule proposes to require that a project 
could be designated as an SRO for HOME purposes only if a project 
having the characteristics of an SRO would be consistent with the 
participating jurisdiction's applicable building and zoning code 
classifications.
    Subrecipient. HUD proposes to make minor revisions to the 
definition of ``subrecipient'' in Sec.  92.2. Participating 
jurisdictions have stated that the roles of subrecipients and 
developers in the HOME program are not always clearly distinguished. 
Language is therefore proposed to be added to the definition of 
``subrecipient'' that would state that HOME subrecipients receive funds 
to carry out programs (e.g., downpayment assistance programs, owner-
occupied rehabilitation programs, etc.), not to undertake specific 
projects.
2. Program Requirements
a. Jointly Funded Projects of Contiguous Jurisdictions (Sec.  92.201)
    Section 218(a) of the NAHA (42 U.S.C. 12748(a)) prohibits a 
participating jurisdiction from investing HOME funds in projects 
outside its boundaries, except for projects located in a contiguous 
jurisdiction that are joint projects that serve the residents of both 
jurisdictions. HUD has found that participating jurisdictions would be 
aided by HUD elaborating on what it means to jointly fund a project. 
HUD therefore proposes to revise Sec.  92.201 to provide that a jointly 
funded project is one in which both jurisdictions make a financial 
contribution to the project. A financial contribution would be 
permitted to take the form of a grant, loan, or relief of a significant 
tax or fee (such as waiver of impact fees, property taxes, or other 
taxes or fees customarily imposed on projects within the jurisdiction) 
and must contribute to the feasibility of the project.
b. Site and Neighborhood Standards (Sec.  92.202)
    This proposed rule includes a conforming change that would update 
the citation in Sec.  92.202 to the site and neighborhoods regulations, 
which were moved to 24 CFR 983.57(e)(2) and (3).
c. Income Determinations (Sec.  92.203)
    HUD proposes several changes related to the calculation of the 
annual income of a family or household for the purpose of determining 
the family's or household's eligibility for HOME assistance. HUD 
proposes to revise Sec.  92.203(a)(1)(i) and (a)(2) to require that, 
when performing income determinations for potential HOME beneficiaries 
using source documentation, the participating jurisdiction must examine 
at least 3 months of earning documentation (e.g., wage statements, 
interest statements, unemployment compensation). This change would 
codify the existing standard that is already outlined in the Technical 
Guide for Determining Income and Allowances for the HOME Program. This 
guide allows participating jurisdictions to calculate income 
eligibility by examining earnings over a 3-month period or 12-month 
period. While participating jurisdictions would continue to be allowed 
to select an earnings examination period of more than 3 months, HUD 
proposes to codify the 3-month standard as the minimum earnings 
examination period that participating jurisdictions must utilize. A 
minimum examination period of 3 months should be sufficient to 
accurately reflect the income eligibility of applicants for HOME units.
    HUD proposes to revise Sec.  92.203(b)(2) to eliminate the option 
currently available to participating jurisdictions to use the 
definition of ``annual income'' that is based on income reported on the 
Census long form. (See Form D-61B of the U.S. Census Bureau.) This 
option was rarely used by participating jurisdictions because the other 
definitions permitted by the regulations--the 24 CFR part 5 ``annual 
income'' definition and the Internal Revenue Service (IRS) ``adjusted 
gross income'' definition- are broadly used in other housing programs. 
Further, unlike the other definitions of annual income permitted under 
the HOME regulations, there is not adequate, accessible guidance 
available from the U.S. Census Bureau regarding how a wide range of 
situations that arise for HOME-assisted households should be treated. 
Participating jurisdictions would continue to have the option of using 
either the income definition in HUD's regulations at 24 CFR part 5 
(often referred to as the Section 8 definition) or the definition of 
adjusted gross income of the IRS.
    HUD is also proposing to revise the definition of annual income 
that is based on the IRS definition of ``adjusted gross income.'' This 
definition of annual income would be redesignated as Sec.  92.203(b)(2) 
and revised to require that federal government cost-of-living 
allowances that are not included in adjusted gross income (e.g., for a 
federal civilian employee or a federal court employee who is stationed 
in Alaska, Hawaii, or outside the United States) be added to the 
adjusted gross income of applicants for HOME assistance for the purpose 
of determining income eligibility. Currently, these employees receive 
substantial cost-of-living allowances that may not be subject to 
federal tax and may not be included in adjusted gross income. The 
result is that when participating jurisdictions in these areas use the 
adjusted gross income definition for their HOME programs, individuals 
who receive these special federal cost of living allowances may earn an 
actual income in excess of HUD's income limits and still qualify for 
HOME assistance, while other potential applicants for HOME assistance 
who have lower actual incomes are not qualified to participate in the 
program because their incomes exceed the maximum income limits for 
HOME. This proposed change would ensure that HOME assistance is 
targeted to households that are actually low-income and eliminate the 
potential for disparate treatment of federal and nonfederal workers in 
these areas.
    HUD proposes to revise Sec.  92.203(c) to clarify that a 
participating jurisdiction must designate and implement only one 
definition of income for each HOME-

[[Page 78349]]

assisted program (e.g., downpayment assistance program, rental housing 
program) that it administers. For example, a participating jurisdiction 
may designate the IRS-adjusted gross income definition as the 
definition for its downpayment assistance program. The participating 
jurisdiction would be required to use that definition to determine the 
income-eligibility of each applicant for that program, to ensure 
equitable treatment of all applicants. The designation of the IRS 
adjusted gross income definition for its downpayment assistance program 
would not preclude the participating jurisdiction from designating a 
different income definition for another of its HOME-funded programs 
(e.g., the participating jurisdiction could designate the Part 5 annual 
income definition for its rental housing or tenant-based rental 
assistance program). The revision would help to ensure that all 
applicants for a local HOME-funded program are treated equally.
    HUD proposes to revise Sec.  92.203(d)(1) to clarify the 
applicability of annual income determination requirements to households 
that include nonrelated individuals. The existing regulatory provision 
requires that the determination of annual income include income from 
``all family members.'' Participating jurisdictions have asked HUD how 
to handle the income determinations for households that are composed of 
nonrelated individuals or related individuals and one or more 
nonrelated individuals. HUD therefore proposes to update Sec.  
92.203(d)(1) to provide that the determination of annual income 
includes ``all persons in the household.''
d. Eligible Activities: General (Sec.  92.205)
    HUD is proposing to revise several provisions of Sec.  92.205.
    The proposed rule would add language to paragraph (a)(1) to clarify 
that activities and costs are eligible for HOME funding only if the 
housing meets the property standards in Sec.  92.251 upon project 
completion.
    Paragraph (a)(2) of Sec.  92.205 would be revised to specify that 
the acquisition of vacant land or demolition with HOME funds may be 
undertaken only with respect to a particular affordable housing project 
for which construction can reasonably be expected to start within the 
time frames established in paragraph (2) of the definition of 
``commitment'' in Sec.  92.2. Referring to these time frames for 
commencement of construction in the paragraph establishing the 
acquisition of land or demolition of existing structures to facilitate 
development on land as eligible project costs will improve the clarity 
of the regulation and emphasize that HOME funds may not be used to 
acquire property or demolish structures on land for which there is not 
an immediate planned HOME-eligible use.
    HUD is aware of some situations in which a participating 
jurisdiction determined, after completion of a HOME rental project, 
that the presence of a live-in manager would improve living conditions 
in a project or benefit tenants in service-enriched housing. In most 
rental projects, not all the units in the project are designated as 
HOME-assisted, so designating a non-HOME unit as a manager's unit is a 
simple matter. However, the existing HOME regulations do not 
contemplate a situation in which a participating jurisdiction has 
designated all the units in a project as HOME-assisted and subsequently 
determines that there is a need for a live-in manager. To address such 
situations, HUD proposes to revise paragraph (d) of Sec.  92.205, which 
addresses cost allocation and the designation of HOME-assisted units in 
multi-unit projects, to provide that after project completion, the 
number of HOME-assisted units in a project may be reduced only in 
accordance with the new regulatory provisions on troubled projects in 
Sec.  92.210. However, this paragraph, as revised, would permit, in a 
project consisting of all HOME units, one unit to be converted to an 
on-site manager's unit if the participating jurisdiction determines the 
conversion will contribute to the stability of the housing or 
effectiveness of the housing program and that, notwithstanding the loss 
of one HOME-assisted unit, the costs charged to the HOME program do not 
exceed the actual costs of the HOME-assisted units, and the total HOME 
investment to the project would not exceed the maximum per-unit HOME 
subsidy limit established in Sec.  92.250(a) for the number of HOME-
assisted units.
    Costs paid with HOME funds are eligible only if they result in a 
completed HOME project that meets all applicable HOME requirements 
(e.g., affordability provisions, income targeting, property standards, 
etc.). When HOME funds are expended for projects that are not 
completed, for whatever reason, the project is considered terminated 
before completion and the participating jurisdiction must repay the 
HOME funds. HUD proposes to add language to paragraph (e) of Sec.  
92.205 regarding terminated projects to better highlight the 
relationship of the repayment requirements of Sec.  92.503 to 
terminated projects in Sec.  92.205(e).
    In addition, the proposed changes to Sec.  92.205(e) would also 
provide that projects that are not completed within 4 years from the 
date of project commitment are deemed terminated and that the 
participating jurisdiction must repay the funds. When committing HOME 
funds to a project, the participating jurisdiction must have a 
reasonable expectation that construction on the project will begin 
within 12 months. Since large, multi-phase projects are usually funded 
as several separate projects for HOME purposes, most HOME projects 
should be completed within 4 years after the date of commitment. HUD's 
experience is that construction on large multi-unit properties 
typically is completed within 2 to 3 years, barring unusual 
circumstances. In the event that a project is not completed within 
these time frames, the participating jurisdiction may request a 12-
month extension of the completion deadline by submitting information 
about the status of the project, steps being taken to overcome any 
obstacles to completion, proof of adequate funding to complete the 
project, and a schedule with milestones for completion of the project 
for HUD's review and approval.
e. Eligible Project Costs and Eligible Administrative and Planning 
Costs (Sec.  92.206)
    HUD proposes to revise Sec.  92.206(a) to replace the term 
``housing'' with the term ``project'' in several sections of the HOME 
program regulations. While NAHA uses ``housing'' throughout, HUD, 
participating jurisdictions, and other HOME program practitioners 
generally use the term ``project'' or ``HOME-assisted project.''
    HUD also proposes to revise Sec.  92.206(b)(1) to emphasize that it 
is rehabilitation, rather than refinancing, which is the primary 
activity that makes refinancing an eligible cost under the HOME 
program. This rule adds language to Sec.  92.206(b)(1) to condition 
refinancing as an eligible cost to projects in which the cost of the 
actual rehabilitation is greater than the amount of debt that is 
refinanced with HOME funds.
    HUD proposes to amend Sec.  92.206(b)(2) to allow that the 
eligibility of costs of refinancing existing debt under paragraph 
(b)(2), as well as the requirement for participating jurisdictions to 
adopt accompanying refinancing guidelines, are intended to cover all 
rental housing--multifamily and single family. The existing language 
referenced only multifamily housing, necessitating a waiver of the 
regulation in one instance when a participating

[[Page 78350]]

jurisdiction wanted to provide HOME funds to refinance single family 
rental housing as part of a rehabilitation project.
    HUD proposes to revise Sec.  92.206(d)(1) to permit HOME funds to 
be used to pay for architectural and engineering costs and other 
related professional services that were incurred within 18 months of 
the date that HOME funds were committed to the project, provided that 
the HOME written agreement with the project owner authorizes such use 
of funds. Participating jurisdictions frequently have requested 
clarification on the eligibility of soft costs incurred prior to 
commitment of HOME funds. Permitting predevelopment costs incurred 
before commitment of HOME funds will provide increased flexibility to 
participating jurisdictions and affordable housing developers planning 
a project that is intended to eventually receive HOME financing. The 
revision would also permit participating jurisdictions to reimburse 
these costs for projects that are already under construction when it 
becomes clear that HOME financing is necessary to complete the project. 
In addition, HUD revises Sec.  92.206(d)(3) to make clear that energy 
audits are an eligible project-related soft cost. Note that the 
environmental review requirements must be met before HOME funds are 
committed to the project. Pursuant to HUD's regulations in 24 CFR 
58.22, in instances where a developer applies for HOME funds after 
construction has begun, construction activities must cease and may not 
resume until environmental clearance is obtained. The change would not 
permit HOME funds to reimburse developers for acquisition or 
construction costs incurred before HOME funds were committed to the 
project. HUD is proposing that the reimbursement of soft costs be 
limited to costs incurred during the 18-month period before commitment 
of HOME funds to a project, to ensure that the costs are associated 
with HOME funds and not previously planned activities on the site.
    HUD proposes to amend Sec.  92.206(d)(3) to provide that eligible 
costs of a project audit include the cost of certification of costs 
performed by a certified public accountant.
    HUD proposes to amend Sec. Sec.  92.206(d)(6) and 92.207(b), both 
of which address staff and overhead costs, to prohibit participating 
jurisdictions, state recipients, and subrecipients from charging their 
administrative costs to low-income beneficiaries. HUD has encountered 
cases in which low-income families are being charged construction 
management fees, loan processing fees, loan servicing fees, and 
underwriting fees. For example, participating jurisdictions have been 
found to be charging construction management fees as high as several 
thousand dollars per unit to low-income homeowners participating in 
owner-occupied rehabilitation programs. These fees are sometimes added 
to amortizing loans, increasing the monthly payment of low-income 
beneficiaries. Such costs are administrative costs of the participating 
jurisdiction, state recipient, or subrecipient and can be charged as 
either program administrative costs or project-related soft costs, 
without the costs being passed on to low-income beneficiaries. It is 
inappropriate to pass such program administration costs along to low-
income beneficiaries, and this change would prohibit the practice.
    Note, however, that participating jurisdictions, state recipients, 
and subrecipients would not be prohibited from charging reasonable and 
customary fees commonly charged to a loan applicant in unassisted real 
estate transactions, such as the cost of credit reports and appraisals 
fees that are customarily charged by a lender as part of a home 
purchase and paid to third parties performing services on behalf of the 
lender. Program participants, including project owners, would still be 
permitted to charge nominal application fees to applicants for 
assistance, pursuant to Sec.  92.214(b).
f. Eligible Community Housing Development Organization CHDO Operating 
Expense and Capacity Building Costs (Sec.  92.208)
    Under Sec.  92.208, as currently codified, a participating 
jurisdiction may use up to 5 percent of its fiscal year HOME allocation 
for operating expenses of CHDOs. HUD is proposing to add language to 
Sec.  92.208 to clarify that CHDO operating funds are separate from and 
not intended to supplant CHDO set-aside funds provided under Sec.  
92.300(a). HUD has found that some participating jurisdictions have 
awarded operating funds, which the regulation states are to cover 
general operating costs such as office rents and utilities, staff 
salaries, and insurance, to CHDOs to pay for project-related soft costs 
such as architectural or engineering costs or in lieu of developer's 
fees. Such costs are eligible to be paid with CHDO set-aside funds.
g. Tenant-Based Rental Assistance: Eligible Costs and Requirements 
(Sec.  92.209)
    HUD proposes several amendments to the tenant-based rental 
assistance provisions of Sec.  92.209. Language would be added to Sec.  
92.209(a) to expressly state that payment of utility deposits is an 
eligible HOME cost in conjunction with the provision of HOME tenant-
based rental assistance or security deposit assistance. HOME funds 
would not be permitted to be used for programs that provide only 
utility deposit assistance, since such assistance does not constitute 
tenant-based rental assistance. This prohibition is consistent with 
longstanding HUD policy, but the current regulation does not state that 
utility deposits in connection with rental assistance or security 
deposit assistance are eligible costs.
    HUD proposes to add language to Sec.  92.209(c) to clarify that a 
participating jurisdiction's tenant selection policies and criteria 
must be based on local housing needs and priorities consistent with the 
participating jurisdiction's consolidated plan. This is consistent with 
the requirement in Sec.  91.325(d)(1) that a participating jurisdiction 
that plans to use HOME funds for tenant-based rental assistance must 
certify that the tenant-based rental assistance is an essential part of 
its consolidated plan.
    HUD proposes to revise Sec.  92.209(c)(2) to add provisions on 
using HOME funds to target tenant-based assistance to special needs 
populations and to persons with disabilities. The rule would clarify 
that a participating jurisdiction may establish a preference for 
individuals with special needs (e.g., homeless persons or elderly 
persons) or persons with disabilities. In accordance with the existing 
provision in Sec.  92.209(c)(2)(ii), the participating jurisdiction may 
provide a preference for a specific category of individuals with 
disabilities (e.g., persons with HIV/AIDS or chronic mental illness) if 
the specific category is identified in the participating jurisdiction's 
consolidated plan as having unmet need and the preference is needed to 
narrow the gap in benefits and services received by such persons. This 
proposed rule would add a provision at Sec.  92.209(c)(2)(i) to specify 
that participation may be limited to persons with a specific disability 
if doing so is necessary to provide housing, aid, benefit, or services 
that are as effective as those provided to others, in accordance with 
the provisions in 24 CFR 8.4(b)(1)(iv). A participating jurisdiction 
may not require participation in medical or disability-related services 
as a condition of receiving or continuing to receive HOME-funded 
tenant-based rental assistance.
    HUD is also proposing to add new paragraphs (c)(2)(iii) and (iv) to 
Sec.  92.209

[[Page 78351]]

to specifically address the use of HOME tenant-based rental assistance 
in self-sufficiency and homeownership programs. (Existing paragraph 
(c)(2)(iii) would be redesignated paragraph (c)(2)(v) and revised as 
discussed below.) Program policy relating to these types of programs 
has been part of HUD's administrative guidance on the program for many 
years, and the proposed provision would not depart from that 
administrative guidance.
    A participating jurisdiction may use HOME tenant-based rental 
assistance to administer a self-sufficiency program in which the family 
is required to participate as a condition of selection for tenant-based 
rental assistance. Participating jurisdictions may not require persons 
with disabilities to participate in medical or disability-related 
services as a part of a self-sufficiency program under which HOME funds 
are provided for tenant-based rental assistance. The family's failure 
to continue participation in the self-sufficiency program would not be 
permitted as a basis for terminating the assistance, but renewal of the 
assistance would be permitted to be conditioned on participation in the 
program. Most tenant-based rental assistance contracts have a 2-year 
term. However, shorter terms can be established.
    The new paragraphs to be added would provide that the participating 
jurisdiction may select tenants to participate in a lease-purchase 
homebuyer program. The HOME tenant-based rental assistance payment 
would not be permitted to be used to accumulate a downpayment or 
closing costs for the purchase. The HOME tenant-based rental assistance 
payment must be used for the monthly rental payment. However, all or a 
portion of the homebuyer-tenant's own monthly contribution toward rent 
could be set aside for this purpose.
    An additional provision would be added to redesignated Sec.  
92.209(c)(2)(v), to specifically prohibit the exclusion of persons who 
are given preferences for HOME assistance from participating in any 
other program of the jurisdiction.
    Section 92.209(g) would be revised to make explicit that all 
tenants must have a lease and that the lease must comply with the 
requirements that are already cross-referenced in the existing 
provision.
    Section Sec.  92.209(h) would be revised to replace the existing 
description of one alternative for establishing the amount of rent for 
a unit with a cross- reference to the regulations in 24 CFR part 982, 
which govern the Section 8 Housing Choice Voucher program.
    Finally, a technical change would be made to Sec.  92.209(l) to 
clarify that the provision applies whenever Section 8 assistance 
becomes available, rather than just when it becomes available ``to a 
participating jurisdiction.''
h. Troubled HOME-Assisted Rental Housing Projects (Sec.  92.210)
    HUD proposes to add a new Sec.  92.210 to the HOME regulations to 
establish provisions that would be applicable to the efforts of 
participating jurisdictions to preserve HOME-assisted housing projects 
that have become financially unviable and, as a result, are at risk of 
failure or foreclosure. HUD has provided expert work-out technical 
assistance to a number of participating jurisdictions with projects 
that became troubled due to excessive debt, unsustainably high 
operating costs, poor physical conditions, or weak market conditions, 
and that were then able to avert foreclosure and were returned to 
financial viability. These workouts involved restructuring of private 
debt, investment of additional owner equity, and altering the terms of 
existing HOME financing. Some cases also often required HUD to grant 
waivers to permit the investment of additional HOME funds during the 
period of affordability or to permit HOME funds to be used to 
capitalize operating reserves. These changes resulted in the number of 
HOME-assisted units in a project being preserved. HUD can foresee 
circumstances where, to preserve financial viability of a project, it 
may be necessary to reduce the number of HOME-assisted units in 
projects in which more than the minimum number of units required under 
Sec.  92.205(d) were designated as HOME-assisted or to reduce a period 
of affordability that exceeded the minimum period required pursuant to 
Sec.  92.252(e).
    New Sec.  92.210 would provide participating jurisdictions with 
flexibility to assist in averting foreclosures and would enable HUD to 
approve these actions without the process required to grant waivers, 
which can be time-consuming. However, new Sec.  92.210 would limit 
total investment in the project to the maximum per-unit subsidy in 
Sec.  92.250(a), and would provide HUD with the option of requiring an 
extension of the period of affordability as a condition of permitting 
the investment of additional HOME funds in the project. New Sec.  
92.210 would also permit a reduction in the number of HOME-assisted 
units, but only if the project contains more than the minimum number of 
units required to be designated as HOME-assisted units under Sec.  
92.205(d). HUD does not anticipate that it would delegate authority to 
enter into the required memoranda of agreement or to grant the required 
approval outside of HUD Headquarters.
i. HOME Funds and Public Housing (Sec.  92.213)
    HUD is proposing to add a new Sec.  92.213 to the HOME regulations 
to address the use of HOME funds with public housing funds. The use of 
HOME funds in public housing projects, and, in particular, the use of 
HOME funds in HOPE VI projects is an area that would benefit from 
further regulatory elaboration, given that HOME funds and public 
housing funds are each governed by separate statutes.
    NAHA prohibits the use of HOME funds to provide assistance 
authorized under section 9 of the United States Housing Act of 1937 
(Public Housing Capital and Operating Funds). This prohibition is 
reflected in paragraph (a) of Sec.  92.213, which prohibits the use of 
HOME funds for public housing modernization or operating assistance. 
This provision also prohibits a HOME-assisted unit from receiving 
Operating Fund or Capital Fund assistance under Section 9 during the 
period of affordability. With respect to the development of new public 
housing, paragraph (a) also makes clear that HOME funds cannot be used 
for public housing units, whether funded under section 9 or another 
source.
    Paragraph (b) of Sec.  92.213 establishes an exception to this 
prohibition that permits the use of HOME funds to develop a unit that 
receives funds for development under section 24 (HOPE VI), so long as 
no Capital Funds are used to develop the unit.\2\ In projects receiving 
HOME, HOPE VI, and Capital funds for development of public housing 
units, this separation of HOME- and HOPE VI-funded public housing units 
from units receiving Capital Funds under section 9 must be accomplished 
through the cost allocation process for multi-unit HOME projects that 
is established at Sec.  92.205(d). Participating jurisdictions should 
note that, when HOME funds are used in a public housing unit, the HOME 
rent requirements of Sec.  92.252(a) and (b) apply. Consequently, the 
gross rent (tenant contribution and operating subsidy) for any public 
housing unit

[[Page 78352]]

that receives HOME funds that is occupied by a household with an income 
above 50 percent of area median income may not exceed the High HOME 
rent established under Sec.  92.252(a).
---------------------------------------------------------------------------

    \2\ The exception to the prohibition on use of HOME funds to 
develop a unit that receives funds under section 24 of the U.S. 
Housing Act of 1937 (the section that authorizes the HOPE VI 
programs) was addressed in a 2002 legal opinion by HUD's Office of 
General Counsel and such opinion is part of the docket file for this 
rulemaking, which can be found at https://www.regulations.gov.
---------------------------------------------------------------------------

    The use of HOME funds in a project triggers the requirements of 
Sec.  92.353(e) (Residential anti-displacement and relocation 
assistance plan), particularly the requirement for one-for-one 
replacement of lower-income dwelling units. These requirements, 
commonly referred to as 104(d) (section 104(d) of the Housing and 
Community Development Act), are applicable to HOME-funded projects that 
involve demolition, but not to HOPE VI projects. Consequently, the use 
of HOME funds in a HOPE VI project may trigger the 104(d) requirements 
for an entire phase of the project or for all phases of the project.
    Paragraph (c) of Sec.  92.213 makes clear that HOME funds may be 
used to develop or rehabilitate affordable housing units that are not 
public housing units in projects that also contain public housing units 
funded by Section 9, HOPE VI, or other funds. Again, the units must be 
separated through the cost allocation process required under Sec.  
92.205(d). In such projects, the HOME and public housing units would 
have separate waiting lists and rent structures. Note, however, that 
the residential anti-displacement and relocation assistance plan 
requirements of Sec.  92.353(e) are applicable to the entire project.
    Under the proposed provision, HOME funds would be permitted to be 
used in a project that also contains public housing units if the HOME 
funds are not used in the public housing units.
j. Prohibited Activities and Fees (Sec.  92.214)
    HUD is proposing several revisions to Sec.  92.214(b), including 
restructuring paragraph (b) into two distinct subparagraphs, in order 
to strengthen and clarify the prohibition against participating 
jurisdictions and other program participants from charging fees to 
cover their administrative costs, especially fees charged directly to 
low-income program beneficiaries. HUD has found participating 
jurisdictions, state recipients, and subrecipients charging 
construction management, homebuyer counseling, origination, and similar 
fees to low-income families seeking HOME assistance, often amounting to 
several thousand dollars per family. The proposed rule would clarify at 
Sec.  92.214(b)(1) that these practices are prohibited and would 
require participating jurisdictions to extend the prohibition to 
recipients, subrecipients, and program participants.
    HUD also proposes to eliminate the prohibition against 
participating jurisdictions charging fees to cover the cost of their 
ongoing monitoring and physical inspection of HOME-projects during 
their period of affordability. The rule would add a new subparagraph at 
Sec.  92.214(b)(1)(i), creating an exception to the prohibition on 
participating jurisdictions charging fees to cover administrative costs 
to permit participating jurisdictions to charge owners of rental 
projects a reasonable annual fee for compliance monitoring during the 
period of affordability. HUD recognizes that the cost of ongoing 
monitoring of HOME-assisted rental projects is not insignificant and 
that many participating jurisdictions with substantial portfolios of 
HOME-assisted rental projects must find other sources of funding to 
cover some of these administrative costs. HUD is proposing to permit 
participating jurisdictions to charge annual monitoring fees to owners 
of rental housing projects to which a commitment of HOME funds is made 
on or after the effective date of a final rule. Imposition of such 
monitoring fees is standard industry practice in other programs that 
require ongoing inspections, including in LIHTC prog