Notice of Neighborhood Stabilization Program; Closeout Requirements and Recapture, 70799-70805 [2012-28642]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 77, Number 228 (Tuesday, November 27, 2012)]
[Notices]
[Pages 70799-70805]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-28642]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5660-N-01]


Notice of Neighborhood Stabilization Program; Closeout 
Requirements and Recapture

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

ACTION: Notice.

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SUMMARY: This notice describes closeout requirements that apply to and 
additional regulations waived for grantees receiving grants under the 
three rounds of funding under the Neighborhood Stabilization Program.

DATES: Effective Date: November 27, 2012.

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

SUPPLEMENTARY INFORMATION:

Program Background and Purpose

    The Neighborhood Stabilization Program (or NSP) was established by 
the Housing and Economic Recovery Act of 2008 (HERA) (Pub. L. 110-289, 
approved July 30, 2008), specifically Division B, Title III of HERA, 
for the purpose of stabilizing communities that have suffered from 
foreclosures and abandonment. As established by HERA, NSP provided 
grants to all states and selected local governments on a formula basis.
    The American Recovery and Reinvestment Act of 2009 (Recovery Act) 
(Pub. L. 111-5, approved February 17, 2009) authorized additional NSP 
grants to be awarded to states, local governments, nonprofits and a 
consortium of nonprofit entities, but on a competitive basis. The 
Recovery Act also authorized funding for national and local technical 
assistance providers to support NSP grantees.
    The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act) (Pub. L. 111-203, approved July 21, 2010) authorized a 
third round of Neighborhood Stabilization grants to all states and 
select governments on a formula basis.
    The purpose of the funds awarded under the three rounds of NSP is 
to target the stabilization of neighborhoods negatively affected by 
properties that have been foreclosed upon and abandoned. The notice, 
Notice of Formula Allocations and Program Requirements for Neighborhood 
Stabilization Program Formula Grants, published October 19, 2010 (75 FR 
64322) (``Unified NSP Notice'') provides further background for these 
programs, the program principles, and the objectives and outcomes of 
the NSP program. In addition, the Notice of Fund Availability (NOFA) 
for the Neighborhood Stabilization Program 2 under the American 
Recovery and Reinvestment Act, 2009, 74 FR 21377 (May 7, 2009), as 
amended by subsequent notices (``NSP2 NOFA''), includes requirements 
specific to the competitive round of funding under the Recovery Act.
    The primary purpose of this notice is to revise requirements set 
forth in the Unified NSP Notice to provide the grant closeout framework 
for all three rounds of NSP by minimally adjusting the Community 
Development Block Grant (CDBG) closeout requirements (24 CFR 570.509). 
Following publication of this notice, HUD will update issued CDBG 
closeout guidance (CPD Notice 12-0004) to incorporate specific 
operating instructions for closeout of NSP grants. These instructions 
will create an NSP closeout process that is nearly identical to the 
CDBG closeout process and place both sets of instructions in a single 
document. This approach takes advantage of NSP grantee (and HUD field 
staff) familiarity with the CDBG closeout procedures because, by the 
time of grant closeout, almost every NSP grantee will have completed 
closeout of a CDBG Recovery Act grant.
    Since this notice applies to grantees receiving grants under the 
three rounds of funding under the Neighborhood Stabilization Program, 
the terms NSP1, NSP2 or NSP3 are used to describe each of the three 
funding rounds. When referring to the grants, grantees, assisted 
activities, and implementation rules under HERA, this notice will use 
the term ``NSP1.'' When referring to the

[[Page 70800]]

grants, grantees, assisted activities, and implementation rules under 
the Recovery Act, this notice will use the term ``NSP2.'' When 
referring to the grants, grantees, assisted activities, and 
implementation rules under the Dodd-Frank Act, this notice will use the 
term ``NSP3.'' Collectively, the grants, grantees, assisted activities, 
and implementation rules under these three rounds of funding are 
referred to as NSP.
    NSP is a component of the CDBG program, authorized under Housing 
and Community Development Act of 1974 (HCD Act) (42 U.S.C. 5301 et 
seq.).

Authority To Provide Alternative Requirements and Grant Regulatory 
Waivers

    HERA appropriated $3.92 billion for emergency assistance for 
redevelopment of abandoned and foreclosed homes and residential 
properties, and provides under a rule of construction that, unless HERA 
states otherwise, the grants are to be CDBG funds. HERA, the Recovery 
Act, and the Frank-Dodd Act authorize the Secretary of HUD to specify 
alternative requirements to any provision under Title I of the HCD Act 
except for requirements related to fair housing, nondiscrimination, 
labor standards, and the environment (including lead-based paint). The 
alternative requirements must be in accordance with the terms of 
section 2301 of HERA and for the sole purpose of expediting for NSP1, 
or facilitating for NSP2 and NSP3, the use of grant funds. The CDBG 
requirements will apply to NSP except where this or other published 
notices supersede or amend such requirements.
    This Notice specifies a new alternative requirement to a statutory 
requirement by extending the requirement that NSP program income be 
used for NSP purposes not only under the grant agreement, but after 
grant closeout. Except as described in this notice and previous notices 
governing NSP, statutory and regulatory provisions governing the CDBG 
program, including those at 24 CFR part 570 subpart I for states or, 
for CDBG entitlement communities, including those at 24 CFR part 570 
subparts A, C, D, J, K, and O, as appropriate, apply to the use of 
these funds. The State of Hawaii was allocated funds and will be 
subject to part 570, subpart I, as modified by this notice.

I. Alternative Requirements and Regulatory Waivers

A. Closeout Requirements

1. General Grant Closeout Requirements
Background
    This part of the Notice provides instructions on the closeout of 
all NSP grants. The procedures describe the grantee's continuing 
obligations with respect to program income, long-term affordability, 
and land-banked properties. This Notice provides an alternative 
requirement for section 104(j) of the HCD Act of 1974 and a waiver of 
24 CFR 570.509 to the extent necessary to allow an NSP grantee to 
continue to use NSP program income on hand at the time of grant 
closeout with HUD in accordance with NSP program requirements, 
including this notice, instead of for community development activities 
in accordance with CDBG regulations. All NSP program income on hand at 
the time of closeout must meet program requirements as specified, 
including meeting a national objective.
Requirement
    A new Section Y is added to the Unified NSP Notice that reads:

Y. NSP Grant Closeout Procedures

    An alternative requirement is provided for section 104(j) of 
Title I of the HCD Act and provisions of 24 CFR 570.509 are waived 
to provide that the CDBG closeout requirements apply as modified for 
NSP1, NSP2, and NSP3 grants as described below (The modifications 
adjust for the use of DRGR and the difference in the program 
names.):
    (a) Criteria for closeout. An NSP grant will be closed out when 
HUD determines, in consultation with the grantee, that the following 
criteria have been met:
    (1) All costs to be paid with NSP funds have been incurred, with 
the exception of closeout costs (e.g., audit costs) and costs 
resulting from contingent liabilities described in the closeout 
agreement pursuant to paragraph (c) of this section. Contingent 
liabilities include, but are not limited to, third-party claims 
against the grantee, as well as related administrative costs.
    (2) With respect to activities (such as rehabilitation of 
privately owned properties) which are financed by means of escrow 
accounts, loan guarantees, or similar mechanisms, the work to be 
assisted with NSP funds (but excluding program income) has actually 
been completed.
    (3) That not less than 25 percent of the grantee's NSP grant 
(initial allocation plus any program income) was expended to house 
individuals or families whose incomes do not exceed 50 percent of 
area median income.
    (4) Other responsibilities of the grantee under the grant 
agreement and applicable laws and regulations appear to have been 
carried out satisfactorily or there is no further Federal interest 
in keeping the grant agreement open for the purpose of securing 
performance.
    (b) Closeout actions. (1) Within 90 calendar days of the date it 
is determined that the criteria for closeout have been met, the 
grantee shall submit to HUD the final quarterly report in the 
Disaster Recovery Grant Reporting (DRGR) system. If an acceptable 
report is not submitted in a timely manner, an audit of the 
grantee's grant activities may be conducted by HUD.
    (2) Based on the information provided in the final performance 
report and other relevant information, HUD, in consultation with the 
grantee, will prepare a closeout agreement in accordance with 
paragraph (c) of this section.
    (3) HUD will cancel any unused portion of the awarded grant, as 
shown in DRGR and the signed grant closeout agreement. Any unused 
grant funds disbursed from the U.S. Treasury which are in the 
possession of the grantee shall be refunded to HUD.
    (4) Any costs paid with NSP funds which were not audited 
previously shall be subject to coverage in the grantee's next single 
audit performed in accordance with the regulations in 24 CFR part 84 
or 85. The grantee may be required to repay HUD any disallowed costs 
based on the results of the audit, or on additional HUD reviews 
provided for in the closeout agreement.
    (c) Closeout agreement. Any obligations remaining as of the date 
of the closeout shall be covered by the terms of a closeout 
agreement. The agreement shall be prepared by the HUD field office 
in consultation with the grantee. The agreement shall identify the 
grant being closed out, and include provisions with respect to the 
following:
    (1) Identification of any closeout costs or contingent 
liabilities subject to payment with NSP funds (excluding program 
income) after the closeout agreement is signed;
    (2) Identification of any unused grant funds to be canceled by 
HUD;
    (3) Identification of the amount of program assets, including:
    (i) Any program income on deposit in financial institutions at 
the time the closeout agreement is signed and of any program income 
currently held by subrecipients or consortium members;
    (ii) A list of real property subject to NSP continuing 
affordability requirements;
    (iii) A list of real property held in an NSP-assisted land bank;
    (iv) If the grantee has assisted a land-bank, a plan detailing 
how the land bank will meet the 10-year maximum land holding 
requirement of Section II.E.2.d of the Unified NSP Notice and 
Appendix I, Section E.2.d of the NSP2 NOFA; and
    (v) A management plan on the attached template describing how 
the grantee will enforce the NSP continuing affordability 
requirements, including the responsible organization for this 
function.
    (4) Description of the grantee's responsibility after closeout 
for:
    (i) Compliance with all NSP program requirements, certifications 
and assurances in using program income on deposit at the time the 
closeout agreement is signed and in using any other remaining NSP 
funds available for closeout costs and contingent liabilities;

[[Page 70801]]

    (ii) Use of real property assisted with NSP funds in accordance 
with the principles described in 24 CFR 570.505 and, for properties 
held in land banks, the requirement to obligate or otherwise commit 
a property for a specific eligible use in accordance with CDBG 
requirements;
    (iii) Compliance with requirements governing NSP program income 
received subsequent to grant closeout, as described in 24 CFR 
570.504(b)(4)-(5) and this Notice, and
    (iv) Ensuring that flood insurance coverage for affected 
property owners is maintained for the mandatory period;
    (5) Other provisions appropriate to any special circumstances of 
the grant closeout, in modification of or in addition to the 
obligations in paragraphs (c)(1) through (4) of this section. The 
agreement shall authorize monitoring by HUD, and shall provide that 
findings of noncompliance may be taken into account by HUD, as 
unsatisfactory performance of the grantee, in the consideration of 
any future grant award under the NSP, CDBG, or HOME Investment 
Partnerships (HOME) programs.
2. Additional Grant Closeout Requirements
Background
    HERA does not address grant closeout. HERA directs through a rule 
of construction that unless HERA sets forth a different requirement, 
NSP funds shall be treated as CDBG funds. Therefore, the CDBG 
requirements apply to grant closeout. CDBG requirements address program 
income earned after grant closeout by a grantee with a continuing CDBG 
grant. NSP grants are generating program income and are likely to do so 
for several more years. In accordance with paragraph II.N of the 
Unified NSP Notice and Appendix I, paragraph N of the NSP2 NOFA, 
grantees must use program income for NSP eligible activities. After 
closeout, the HCD Act, at section 104(j), provides:

    ``Notwithstanding any other provision of law, any unit of 
general local government may retain any program income that is 
realized from any grant made by the Secretary, or any amount 
distributed by a State, under section 106 if (1) such income was 
realized after the initial disbursement of the funds received by 
such unit of general local government under such section; and (2) 
such unit of general local government has agreed that it will 
utilize the program income for eligible community development 
activities in accordance with the provisions of this title; except 
that the Secretary may, by regulation, exclude from consideration as 
program income any amounts determined to be so small that compliance 
with this subsection creates an unreasonable administrative burden 
on the unit of general local government.''

    Given that demonstrated need for neighborhood stabilization exceeds 
available NSP funding, HUD has concluded that grantees should continue 
neighborhood stabilization activities with NSP program income after 
closeout to the extent sufficient program income is received annually 
to support viable projects. This notice therefore provides a continuing 
alternative requirement for section 104(j) that, after grant closeout, 
a CDBG grantee must use NSP program income in accordance with all NSP 
requirements with some exceptions. (1) In instances in which the annual 
NSP program income does not exceed $25,000, the funds shall be used for 
general administrative costs related to ensuring continued 
affordability of NSP units or added to the grantee's CDBG program 
income receipts and the CDBG requirements at 570.500(a)(4) shall apply, 
which may exclude such amounts from the definition of program income if 
combined earnings (NSP plus CDBG) are less than $25,000; and (2) in 
instances in which a grantee's annual NSP program income exceeds 
$25,000 and does not exceed $250,000, the requirement of paragraph 
II.E.2.e of the Unified NSP Notice, and Appendix I, paragraph E.2.e of 
the NSP2 NOFA, shall not apply.
    Paragraph II.E.2.e and paragraph E.2.e restate the NSP statutory 
requirement that ``not less than 25 percent of the funds appropriated 
or otherwise made available * * * shall be used to house individuals or 
families whose incomes do not exceed 50 percent of area median 
income.'' HUD believes that in applying this requirement to program 
income received after closeout, grantees need to receive sufficient 
annual program income to be able to comply. Using NSP1 grantee data, 
HUD analyzed the average cost to produce one unit of affordable housing 
assisted with NSP funds. The cost analysis considered costs associated 
with NSP eligible activities such as rehabilitation and new 
construction. HUD reasoned that Congress chose the percentage to be set 
aside in consideration of the large amount of funds that grantees 
received under their original grant. In other words, Congress did not 
intend to require NSP grantees to spend all of their NSP funds to house 
individuals or families whose incomes do not exceed 50 percent of area 
median income. With regard to program income, HUD notes that there are 
a number of grantees that are projected to generate only small amounts 
of program income after grant closeout. Thus, to maintain consistency 
with the manner in which Congress intended for the 25 percent set aside 
to be applied, HUD has determined that a minimum of $250,000 in annual 
program income may be necessary to comply with the requirement to spend 
25 percent of any program income generated after grant closeout to 
house for individuals or families at or below 50 percent of area medium 
income and to produce at least one unit of affordable housing without 
significant burden.
    The NSP continuation provisions apply to program income generated 
from the use of NSP funds by a CDBG entitlement or State grantee for 
the duration of the grantee's participation in the CDBG program in any 
year in which NSP funds exceed the thresholds above. Minimum annual 
reporting requirements will continue, initially in DRGR and later 
joined to the grantee's CDBG reporting in the Integrated Disbursement 
and Information System (IDIS).
    After closeout, if a former NSP grantee wishes to use funds for 
acquisition of property into a land bank, HUD will hold that property 
subject to the same deadline as all other land-banked properties: the 
property will have ten years from the date the NSP grant closeout 
agreement is fully executed to meet an eligible redevelopment of that 
property in accordance with NSP requirements.
    For NSP2, State and entitlement grantees that are consortium lead 
entities or a consortium member administering NSP2 funds subject to a 
consortium funding agreement, must comply with program income and land 
bank rules as described above. A local government that was not an 
entitlement grantee would be subject to the same requirements as 24 CFR 
570.489(e)(3)(ii)(B). Non-profit grantees or members of consortia are 
not subject to ongoing NSP or CDBG program requirements with the 
exception of requirements imposed by HUD concerning the reporting of 
activities using miscellaneous revenue from the NSP program for 5 years 
and that any land bank properties be disposed of for a specific use 
supporting neighborhood stabilization within 10 years after grant 
closeout.
Revised Requirements
    A new Section Z. is added to the Unified NSP Notice that reads:

Z. Closeout Procedures for Program Income, Land Banks, and Long-Term 
Affordability

Background

    Program Income. NSP program income on hand at the time of 
closeout or received after closeout shall, subject to the de minimis 
exception provided for in Section Y, continue to be used in 
accordance with NSP requirements. The additional flexibility created 
by the legislation for the creation of financing mechanisms, 
development of new

[[Page 70802]]

housing, operation of land banks, and service of families up to 120 
percent of Area Median Income (AMI), will remain in place.
    However, HUD notes that continued acquisition of new land bank 
property after closeout with NSP program income could undermine the 
urgency of finding uses for the properties already acquired. 
Grantees will be required to allocate 25 percent of program income 
to housing for families with less than 50 percent of Area Median 
Income when the amount of annual program income received by a 
grantee is sufficient to make application of this requirement 
reasonable. After grant closeout, former NSP grantees that are CDBG 
entitlements or State governments will report at least annually as 
provided for by HUD, initially in DRGR and later in an enhanced 
IDIS, on the receipt and use of program income, and the disposition 
of land banked properties. These grantees must also include NSP 
program income in the CDBG Action Plan or substantial amendment in 
accordance with CDBG requirements. All former NSP grantees, 
including nonprofits and non-entitlement units of general local 
government receiving funds directly from HUD, must report at least 
annually in a form acceptable to the Secretary regarding enforcement 
of any NSP continuing affordability restrictions. Reporting will 
continue over the course of the minimum period of affordability set 
forth in HOME program standards at 24 CFR 92.252 (e) and 
92.254(a)(4).
    Finally, most program income will be received by entitlement 
cities and counties, and by states, which have systems and 
procedures to manage NSP revenues, which are treated in most 
respects like CDBG revenues. However, non-profit consortium members 
in NSP2 grant consortia that receive revenues generated by NSP 
projects will not have access to the state and municipal CDBG 
tracking systems. Further, the CDBG regulation and Office of 
Management and Budget (OMB) circular implemented at 24 CFR 84.24(e) 
do not require that non-profit grantees continue to treat revenues 
generated from use of NSP funds and received after grant closeout as 
federal funds unless HUD regulations or the terms and conditions of 
the award provide otherwise. Thus, for grantees that are not direct 
formula CDBG grantees (non-profits and non-entitlement local 
governments, including those that are part of a consortium), HUD is 
requiring that revenues generated by projects funded before closeout 
but received within 5 years after grant closeout must be used for 
NSP eligible activities and meet NSP benefit requirements, but no 
other federal requirements would apply. With the exception of income 
earned from the sale of NSP-assisted real property or loans, any 
income earned by such post-closeout use of funds would not be 
governed by any NSP requirements and would be miscellaneous 
revenues, although HUD encourages such grantees to apply NSP 
principles to subsequent uses of the funds.
    Disposition of Land Bank Property. The HERA created a use of 
funds which did not exist in the Community Development Block Grant 
program: land banks. HUD implemented this use in association with 
two CDBG eligible activities: acquisition of real property and 
disposition of real property. This tool has been used by a number of 
grantees, in all parts of the country but primarily in the upper 
Midwest, to hold property acquired with NSP funds that has no 
immediate demand in the housing market. Given the non-recurring 
nature on NSP funds, HUD set a limit of ten years for n NSP-acquired 
property to remain in a land bank without ``obligating the property 
for a specific, eligible redevelopment of that property in 
accordance with NSP requirements.''
    In this Notice, HUD is adjusting the land bank disposition 
requirement in two ways. First, HUD is setting the start date of the 
10-year period before which land held in a land bank must be 
obligated or committed for a specific use as the date of the 
closeout agreement. Second, HUD is re-stating the existing 
requirement for NSP-assisted properties held in a land bank to: 
``obligat[e]or otherwise commit[] the property for a specific use 
supporting neighborhood stabilization.''
    Long Term Affordability of Housing. The NSP authorization law, 
HERA, at section 2301(f)(3)(B), directs:
    The Secretary shall, by rule or order, ensure, to the maximum 
extent practicable and for the longest feasible term, that the sale, 
rental, and redevelopment of abandoned and foreclosed upon homes 
under this section remain affordable to individuals and families * * 
*.
    NSP implements this direction by requiring each grantee to 
address in its submission how it will ensure continued 
affordability, and define affordable rents, standards, and 
enforcement mechanisms. Long-term affordability enforcement for 
homeownership activities, owing to the mostly automatic operation of 
the resale/recapture mechanisms, will ensure grantees are notified 
when a property is disposed of within the term of affordability. 
Grantees and HUD will require policies and procedures for tracking 
the re-use of funds recovered through these mechanisms.
    Despite the difficulties of implementation, NSP rules do require 
grantees to have a system for securing the long-term affordability 
of NSP-assisted units. In many cases, this is implemented in 
developer or subrecipient agreements or in recorded property 
restrictions. Grantees must meet the requirement and HUD will 
monitor to verify compliance. To ensure some accountability for 
long-term affordability, this Notice requires that each NSP grantee 
regularly update a HUD-provided online registry of covered NSP 
properties throughout the affordability period for each property. 
HUD will also cover grantee review and tracking of the NSP property 
inventory in the standard CDBG risk analysis and monitoring 
protocols. At minimum, grantees must use the HOME program 
affordability periods as defined in 24 CFR 92.252 and 92.254. HUD 
expects former NSP grantees to continue to enforce affordability 
restrictions after grant closeout.

Requirements

    1. Program Income. Gross revenues received by NSP grantees after 
closeout will be governed by the following requirements:
    a. In general, annual funds received in excess of $25,000 shall 
be used in accordance with all NSP requirements for eligible NSP 
properties, uses and activities, including new construction, 
financing mechanisms, and management and disposition of land bank 
property.
    b. If annual NSP program income does not exceed $25,000, the 
funds shall be used for general administrative costs related to 
ensuring continued affordability of NSP units or added to the 
grantee's CDBG program income receipts and the CDBG requirements at 
24 CFR 570.500(a)(4) shall apply, which may exclude such amounts 
from the definition of program income.
    c. Program income may provide benefit to individuals and 
families with incomes up to 120 percent of AMI as permitted in NSP 
under Section II.E;
    d. If a grantee's annual NSP program income exceeds $250,000, 25 
percent of the program income shall be used to house individuals or 
families below 50 percent of AMI; in instances in which a grantee's 
annual NSP program income does not exceed $250,000, the requirements 
of paragraph II.E.2.e does not apply.
    e. NSP2 grantees that are not CDBG entitlement communities or 
States must use post-closeout revenues generated from NSP-assisted 
activities funded before closeout for NSP purposes. If the grantee 
does not have another ongoing grant received directly from HUD at 
the time of closeout, then in accordance with 24 CFR 570.504(b)(5), 
income received after closeout from the disposition of real property 
or from loans outstanding at the time of closeout shall not be 
governed by NSP or CDBG rules, except that such income shall be used 
for activities that meet one of the national objectives in 24 CFR 
570.208 and the eligibility requirements described in section 105 of 
the HCD Act. The provisions of 24 CFR 570.504(b)(5) are waived to 
limit its application to income received within 5 years of grant 
closeout. Any income received 5 years after grant closeout, as well 
as program income from funds outlaid after the date of the closeout 
agreement may be used without restriction. Such grantees are 
encouraged to use such funds in accordance with the principles 
above.
    f. States may continue to act directly to implement NSP 
activities post-closeout.
    g. HUD will provide direction to grantees by the date of 
closeout on procedures for reporting and tracking NSP program income 
revenues. Tracking will continue in DRGR until IDIS enhancements to 
allow NSP property registry and program income tracking are 
developed and released.

2. Disposition of Landbank Properties
    a. Grantees must not hold NSP-assisted properties in land banks for 
more than ten years. HUD will calculate this period beginning with the 
date of execution of the grant closeout agreement. HUD will provide 
direction to grantees by the date of closeout on procedures for 
reporting and tracking property held in land banks.

[[Page 70803]]

    b. After grant closeout, landbank properties must be obligated or 
otherwise committed for a specific use that supports neighborhood 
stabilization. Properties in a landbank, or otherwise held by the 
grantee, will be considered obligated for redevelopment if the property 
is:
    (1) Owned by a local government or non-profit entity and identified 
under a Consolidated Plan approved by HUD for use as a CDBG-eligible 
public improvement such as parks, open space, or flood control;
    (2) Owned by a community land trust to create affordable housing;
    (3) Transferred to and committed for any other use in the grantee's 
CDBG program, included in an annual Action Plan, subject to all CDBG 
regulations and no longer part of the NSP program;
    (4) Designated for affordable housing in accordance with HERA and 
under development by an eligible development entity which has control 
of the site and has expended predevelopment costs; or
    (5) Included in a redevelopment plan that has been approved by the 
local governing body.
    c. Any NSP assisted properties remaining in the land bank ten years 
after the date of grant closeout shall revert entirely to the CDBG 
program and must be immediately used to meet a national objective or 
disposed of in accordance with CDBG use of real property requirements 
at 24 CFR 570.505.
3. Long-Term Affordability
    a. Grantees must ensure that, when a house is sold, the 
affordability requirements are met as provided in their NSP action plan 
substantial amendment or NSP2 NOFA application. Generally this will be 
through following the Resale or Recapture provisions of the HOME 
regulations at 24 CFR 92.254(a)(5). Property that serves owner-
occupants may assure compliance with the continued affordability period 
by recording with the sale documents in the form of a lien on the 
mortgage loan and/or a covenant on the deed.
    b. At a minimum, each property that serves rental household will 
meet the requirements of the HOME program, at 24 CFR 92.252(a), (c), 
(e), and (f). This will require active oversight by the grantee to 
monitor the project for compliance. It is permissible to use program 
income to pay for such costs. If there is no program income, grantees 
may charge the project a small fee as part of their agreements with 
property owners based on documented costs to accomplish this 
monitoring, but only if the development has sufficient income after 
paying operating expenses.
    c. HUD will establish reporting capability to maintain a property 
registry including information on all NSP properties still subject to 
continued affordability requirements at the time of grant closeout. 
Grantees must report as provided in the closeout agreement so long as 
program requirements apply to the unit or it fulfills the affordability 
requirement.
4. Non-Compliance
    In the closeout agreement, HUD will include a provision allowing 
the Department access to records and the ability to apply the 
corrective and remedial actions in 24 CFR 570.910 for grantees that do 
not fully satisfy this requirement.

B. Recapture Provisions

Background
    Section 2301(c)(1) of HERA required NSP1 grantees to use their 
funds within 18 months of receipt. In the Unified NSP Notice, 75 FR. 
64326, HUD defined the term ``use'' to mean ``obligate.'' The Unified 
NSP Notice also provided, at 75 Fed. Reg. 64323, that NSP1 grantees 
that failed to obligate their NSP1 funds within 18 months would be 
subject to corrective action or recapture of grant funds. States with 
unused funds would be subject to recapture of unobligated amounts up to 
$19.6 million because states were statutorily required to receive this 
amount regardless of their relative needs for funds. States received 
the $19.6 million base plus any need-based formula increment.
    NSP1 grantees are required by the formula allocation notice and the 
terms of their grant agreements to expend 100 percent of their grant 
funds within 48 months of award. NSP2 and NSP3 grantees are statutorily 
required to expend an amount of NSP funds equal to 50 percent of their 
grant (grant plus program income) within 24 months and an amount equal 
to 100 percent of their grant within 36 months from the date HUD signed 
their grant agreement. One of the sanctions for failure to expend NSP 
grant funds by the relevant deadline is recapture.
    HUD is providing that any NSP1 or NSP3 recaptured funds may be used 
in accordance with the provisions of section 106(c)(4) of the HCD Act 
(42 U.S.C. 5306(c)(4)) for the purpose of providing disaster relief. 
Although HUD had originally proposed to reallocate NSP1 funds for this 
purpose, in the subsequent Notice of Neighborhood Stabilization Program 
Reallocation Process Changes, dated August 23, 2010, HUD recognized 
that NSP1 recaptured funds are not required to be reallocated under the 
disaster relief provisions and could instead be reallocated by formula. 
Upon further reflection and based on the limited funds to be 
recaptured, HUD has determined that recaptured funds should be used for 
disaster relief and is amending the Unified Notice to clarify 
reallocation options.
Revised Requirement
    Section I.B.2.g. of the Unified NSP Notice at page 64324 is amended 
to read as follows:

    HUD may reallocate recaptured funds by formula or under the 
provisions of 42 U.S.C. 5306(c)(4).

    Section I.B.3 of the Unified NSP Notice at page 64324 is amended to 
read as follows:

    NSP3 grantees must expend 50 percent of their grants within 2 
years and 100 percent of their grants within 3 years. HUD will 
recapture and reallocate the amount of funds not expended by those 
deadlines or provide for other corrective action(s) or sanction. HUD 
may reallocate recaptured funds by formula or under the provisions 
of 42 U.S.C. 5306(c)(4).

II. Other Technical Corrections

A. Demolition Eligible Activities and Jobs National Objective

Background
    The Unified NSP Notice sets forth a table of eligible activities 
that are correlated with the statutory eligible uses of NSP. The table 
provides that ``24 CFR 570.201(d) Clearance for blighted structures 
only'' is a correlated activity for the demolition of blighted 
structures. HUD has recognized since publishing the last NSP Notice 
that acquisition and disposition are also eligible activities that are 
regularly correlated with using NSP funds for demolition. 24 CFR 
570.201(a), (b).
    The June 19, 2009 Notice of Allocations, Application Procedures, 
Regulatory Waivers Granted to and Alternative Requirements for 
Emergency Assistance for Redevelopment of Abandoned and Foreclosed 
Homes Grantees Under the Housing and Economic Recovery Act, 2008; 
Revisions to Neighborhood Stabilization Program (NSP) and Technical 
Corrections at 74 FR 29223 (``Bridge Notice'') clarified that job 
creation or retention was not an activity that could meet the HERA low- 
and moderate-income national objective. In this notice, HUD is revising 
its position to reflect market change and better support mixed use 
development to allow for NSP activities that create or maintain jobs 
for persons whose household

[[Page 70804]]

incomes are at or below 120 percent of median income (LMMJ).
Revised Requirement
    On page 64330 of the Unified Notice, and Appendix 1, section H.3.a 
of the NSP2 NOFA, modify the second full paragraph of the middle column 
to read:

    Other than the change in the applicable low- and moderate-income 
qualification level from 80 percent to 120 percent and this notice's 
change to the calculation at 570.483(b)(3), the area benefit, 
housing, jobs, and limited clientele benefit requirements at 24 CFR 
570.208(a) and 570.483(b) remain unchanged, as does the required 
documentation.

    On page 64333 of the Unified Notice, and Appendix 1, section H.3.a 
of the NSP2 NOFA, revise the table of NSP eligible uses and activities 
to read:

------------------------------------------------------------------------
                                     Correlated eligible activities from
         NSP-eligible uses            the CDBG entitlement regulations
------------------------------------------------------------------------
(A) Establish financing mechanisms   As part of an activity
 for purchase and redevelopment of   delivery cost for an eligible
 foreclosed upon homes and           activity as defined in 24 CFR
 residential properties, including   570.206.
 such mechanisms as soft-seconds,    Also, the eligible
 loan loss reserves, and shared-     activities listed below to the
 equity loans for low- and           extent financing mechanisms are
 moderate-income homebuyers.         used to carry them out.
------------------------------------------------------------------------
(B) Purchase and rehabilitate        24 CFR 570.201(a)
 homes and residential properties    Acquisition
 that have been abandoned or        (b) Disposition,
 foreclosed upon, in order to       (i) Relocation, and
 sell, rent, or redevelop such      (n) Direct homeownership assistance
 homes and properties.               (as modified below);
                                     24 CFR 570.202 eligible
                                     rehabilitation and preservation
                                     activities for homes and other
                                     residential properties.
                                     HUD notes that any of the
                                     activities listed above may include
                                     required homebuyer counseling as an
                                     activity delivery cost.
                                     24 CFR 570.203 Special
                                     economic development activities.
------------------------------------------------------------------------
(C) Establish and operate land       24 CFR 570.201(a)
 banks for homes and residential     Acquisition and (b) Disposition.
 properties that have been           HUD notes that any of the
 foreclosed upon.                    activities listed above may include
                                     required homebuyer counseling as an
                                     activity delivery cost.
------------------------------------------------------------------------
(D) Demolish blighted structures..   24 CFR 570.201(a)
                                     Acquisition, (b) Disposition, and
                                     (d) Clearance for blighted
                                     structures only.
------------------------------------------------------------------------
(E) Redevelop demolished or vacant   24 CFR 570.201(a)
 properties as housing*.             Acquisition,
                                    (b) Disposition,
                                    (c) Public facilities and
                                     improvements,
                                    (e) Public services for housing
                                     counseling, but only to the extent
                                     that counseling beneficiaries are
                                     limited to prospective purchasers
                                     or tenants of the redeveloped
                                     properties,
                                    (i) Relocation, and
                                    (n) Direct homeownership assistance
                                     (as modified below).
                                     24 CFR 570.202 Eligible
                                     rehabilitation and preservation
                                     activities for demolished or vacant
                                     properties.
                                     24 CFR 570.204 Community
                                     based development organizations.
                                     HUD notes that any of the
                                     activities listed above may include
                                     required homebuyer counseling as an
                                     activity delivery cost.
                                     NSP1 Only: 24 CFR 570.203
                                     Special economic development
                                     activities.
------------------------------------------------------------------------
* NSP1 funds used under eligible use (E) may be used for nonresidential
  purposes, while NSP2 and NSP3 funds must be used for housing.

B. Low-Income Set-Aside for NSP2

Background
    This notice is revising the NSP2 NOFA to explicitly require NSP2 
grantees to use an amount equal to 25 percent of program income before 
grant close-out for the purchase and redevelopment of abandoned or 
foreclosed homes or residential properties that will be used to house 
individuals or families whose incomes do not exceed 50 percent of area 
median income. Although this requirement was stated in Unified NSP 
Notice, there was some confusion among NSP2 grantees whether the 
requirement applied to their program income. The law requires that 25% 
of the original grant amount plus program income be used for families 
at 50% of AMI and below, so this language is intended to eliminate any 
confusion.
Revised Requirement
Appendix I, Section E.2.e of the NSP2 NOFA Is Revised to Read:

    Not less than 25 percent of any NSP grant (initial allocation 
plus any program income) shall be used to house individuals or 
families whose incomes do not exceed 50 percent of area median 
income. Each NSP2 grantee must spend an amount equal to 25 percent 
of any NSP program income in accordance with this requirement.

Duration of Funding

    The appropriation accounting provisions in 31 U.S.C. 1551-1557, 
added by section 1405 of the National Defense Authorization Act for 
Fiscal Year 1991 (Pub. L. 101-510), limit the availability of certain 
appropriations for expenditure. Such a limitation may not be waived. 
The appropriations acts for NSP1 and NSP3 grants direct that these 
funds be available until expended. However, HUD is imposing a shorter 
deadline on the expenditure of NSP funds in this notice.

Catalog of Federal Domestic Assistance

    The Catalog of Federal Domestic Assistance numbers for grants made 
under NSP1 are as follows: 14.218; 14.225; and 14.228.

Paperwork Reduction Act

    HUD has approval from OMB for information collection requirements 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520). OMB approval is under OMB control number 2506-0165. In

[[Page 70805]]

accordance with the Paperwork Reduction Act, HUD may not conduct or 
sponsor and a person is not required to respond to, a collection of 
information, unless the collection displays a valid control number.

Finding of No Significant Impact

    A Finding of No Significant Impact with respect to the environment 
has been made in accordance with HUD regulations at 24 CFR part 50, 
which implement section 102(2)(C) of the National Environmental Policy 
Act of 1969 (42 U.S.C. 4332(C)(2)). The Finding of No Significant 
Impact is available for public inspection between 8 a.m. and 5 p.m. 
weekdays in the Office of the Rules Docket Clerk, Office of General 
Counsel, Department of Housing and Urban Development, 451 Seventh 
Street SW., Room 10276, Washington, DC 20410-0500.

    Dated: November 16, 2012.
Mark Johnston,
Acting Assistant Secretary for Community Planning and Development.
[FR Doc. 2012-28642 Filed 11-26-12; 8:45 am]
BILLING CODE 4210-67-P