Request for Comments: National Standards for the Physical Inspection of Real Estate and Associated Protocols, Proposed Scoring Notice, 18268-18278 [2023-06339]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 88, Number 59 (Tuesday, March 28, 2023)]
[Proposed Rules]
[Pages 18268-18278]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06339]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5, 92, 93, 200, 574, 576, 578, 880, 882, 884, 886, 
888, 902, 982, 983, and 985

[Docket No. FR-6086-N-04]
RIN 2577-AD05


Request for Comments: National Standards for the Physical 
Inspection of Real Estate and Associated Protocols, Proposed Scoring 
Notice

AGENCY: Office of the Assistant Secretary for Housing--Federal Housing 
Commissioner, Office of the Assistant Secretary for Public and Indian 
Housing, U.S. Department of Housing and Urban Development, (HUD).

ACTION: Request for public comment.

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SUMMARY: This request for public comment serves as a complementary 
document to the Economic Growth Regulatory Relief and Consumer 
Protection Act: Implementation of National Standards for the Physical 
Inspection of Real Estate (NSPIRE) proposed rule. The proposed rule 
provided that HUD would publish in

[[Page 18269]]

the Federal Register the NSPIRE inspection standards and scoring 
methodology to assess the overall condition, health, and safety of 
properties and units assisted or insured by HUD. The NSPIRE Standards 
were published for public comment on June 17, 2022. HUD now seeks 
public review and comment on the proposed NSPIRE physical inspection 
scoring and ranking methodology to implement HUD's final NSPIRE rule 
for Public Housing and Multifamily Housing programs, including Section 
8 Project-Based Rental Assistance (PBRA) and other Multifamily assisted 
housing, Section 202/811 programs, and HUD-insured Multifamily as 
described in the NSPIRE proposed rule. The scoring methodology converts 
observed defects into a numerical score and sets a threshold for HUD to 
perform additional administrative oversight by establishing a level for 
when a property fails an inspection (less than 60 points) and when an 
enforcement referral is automatic or required (less than or equal to 30 
points). HUD will consider comments received in response to this 
request before publishing a final NSPIRE Scoring notice in the Federal 
Register.

DATES: Comment Due Date: April 27, 2023.

ADDRESSES: There are two methods for submitting public comments. All 
submissions must refer to the above docket number and title.
    1. Electronic Submission of Comments. Comments may be submitted 
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 comments immediately available 
to the public. Comments submitted electronically through the website 
can be viewed by other commenters and interested members of the public. 
Commenters should follow instructions provided on that website to 
submit comments electronically.
    2. Submission of Comments by Mail. Comments may also 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. Due to security measures at all 
Federal agencies, however, submission of comments by mail often results 
in delayed delivery. To ensure timely receipt, HUD recommends that 
comments be mailed at least 2 weeks in advance of the public comment 
deadline.
    Note: To receive consideration as public comments, comments must be 
submitted using one of the two methods specified above.
    Public Inspection of Comments. HUD will make all properly submitted 
comments and communications available for public inspection and copying 
during regular business hours at the above address. Due to security 
measures at the HUD Headquarters building, you must schedule an 
appointment in advance to review the public comments by calling the 
Regulations Division at 202-708-3055 (this is not a toll-free number). 
HUD welcomes and is prepared to receive calls from individuals who are 
deaf or hard of hearing, as well as individuals with speech or 
communication disabilities. To learn more about how to make an 
accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs. Copies of all comments 
submitted are available for inspection and downloading at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Tara J. Radosevich, Real Estate 
Assessment Center, Office of Public and Indian Housing, Department of 
Housing and Urban Development, 550 12th Street SW, Suite 100, 
Washington, DC 20410-4000, telephone number 612-370-3009 (this is not a 
toll-free number), email [email protected]. HUD welcomes and is 
prepared to receive calls from individuals who are deaf or hard of 
hearing, as well as individuals with speech or communication 
disabilities. To learn more about how to make an accessible telephone 
call, please visit: https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Current Standards and Scoring

    There are currently two assessment methodologies used by HUD to 
ascertain the quality and health and safety of HUD-assisted and insured 
properties and units: (1) Pass/Fail, used for the Housing Quality 
Standards (HQS) for the Housing Choice Voucher (HCV) and Project-based 
Voucher (PBV) programs; and (2) a zero to 100-point (0-100) scale used 
for properties inspected under the Uniform Physical Condition Standards 
(UPCS) for public housing and properties managed by HUD's Office of 
Multifamily Housing Programs.\1\
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    \1\ ``Uniform Physical Condition Standards and Physical 
Inspection Requirements for Certain HUD Housing,'' Final Rule, 63 FR 
46565 (Sept. 1, 1998).
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B. NSPIRE Proposed Rule and Timeline

    On January 13, 2021, HUD published the NSPIRE proposed rule \2\ to 
implement one of NSPIRE's core objectives--the formal alignment of 
expectations of housing quality and consolidation of inspection 
standards across HUD programs.
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    \2\ 86 FR 2582 (Jan. 13, 2021).
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    In the proposed rule, HUD stated its intent to publish updates to 
the NSPIRE standards and scoring methodology through future Federal 
Register notices at least once every three years with an opportunity 
for public comment. The draft NSPIRE Standards were published in the 
Federal Register on June 17, 2022.\3\ This notice provides an 
opportunity to comment on the draft NSPIRE scoring and ranking 
methodology. HUD expects to publish the NSPIRE final rule early this 
year. The final NSPIRE Scoring notice will be published after the 
NSPIRE final rule but before HUD's Real Estate Assessment Center (REAC) 
will commence inspections for scores of record for Multifamily 
programs, or scores to be included in a Public Housing Assessment 
System (PHAS) score for public housing. HUD will also publish an NSPIRE 
Administrative notice after the final rule that provides implementation 
guidance, including instructions for submitting requests for technical 
reviews, how to notify residents of inspection results and scores, and 
how to submit evidence that health and safety deficiencies identified 
in the NSPIRE inspection have been corrected, among other requirements.
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    \3\ 87 FR 36426 (June 17, 2022).
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C. HCV and PBV Scoring

    Consistent with existing practice and with the NSPIRE proposed 
rule, NSPIRE will retain a pass/fail indicator for the HCV and PBV 
programs and use a zero to 100-point scale for HUD programs previously 
inspected under UPCS. This Scoring notice does not apply to the HCV and 
PBV programs and does not revise the inspection frequencies established 
under the applicable program regulations. The individual NSPIRE 
Standards, which will be finalized in advance of the effective date of 
the rule for HCV and PBV programs, will include an indication of 
whether defects in the standard would result in an HCV fail for the 
unit or property.

[[Page 18270]]

D. Development of This NSPIRE Scoring Notice

    To develop a new scoring methodology, HUD reviewed its current 
scoring model under UPCS and solicited feedback from the public, 
including residents, housing industry groups, and housing professionals 
within and outside of HUD through the NSPIRE proposed rule.\4\ HUD also 
considered feedback on the UPCS inspection and scoring process received 
over time from industry, residents, advocacy groups, and Congress, and 
acknowledges concerns about consistency and subjectivity, including the 
disproportionate impact of certain defects based on item weighting and 
disproportionate impact of certain non-unit observed defects in smaller 
properties.
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    \4\ Public comments can be reviewed in the rulemaking docket at: 
https://www.regulations.gov/docket/HUD-2021-0005.
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    One major issue that many observers have cited over the years is 
that, in rare cases, a property can pass an inspection while scoring 
zero points on the Unit Inspectable Area under the UPCS scoring 
methodology. Properties with substandard unit conditions may appear 
safe and still have good ``curb appeal'' but have unsafe conditions in 
the units that persist because the score was not failing, or under 60 
points in a 100-point scale. REAC worked with a contractor to review 
potential scores of properties enrolled in the NSPIRE Demonstration, to 
compare scoring differences between UPCS and NSPIRE inspections, and to 
avoid statistical bias in designing a survey to establish a new scoring 
methodology. HUD also considered additional feedback collected during 
NSPIRE ``Get Ready Sessions'' held in 14 cities and through other 
mechanisms, collected through in-person Q&As and QR-code based survey 
questions. REAC has also continued to host an NSPIRE Demonstration 
website and email address for questions and comments.\5\
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    \5\ See HUD's NSPIRE Demonstration website at: https://www.hud.gov/program_offices/public_indian_housing/reac/nspire/demonstration.
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    As part of the contractor-designed survey, HUD also conducted a 
survey of over 60 experts in physical inspections, building codes, and 
public health and safety. The feedback was requested through a survey 
designed based on contingent valuation principles.\6\ Participants 
compared the relative risk of defects across severity levels and 
property locations. The survey findings helped guide the principles of 
the scoring methodology and establish which defects should most impact 
the score. Finally, HUD consulted experts in statistics and economics 
to consider how scores may change between the UPCS standards and the 
NSPIRE standard. The survey predetermined that certain areas (e.g., 
units) and severities (e.g., life-threatening) were considered worse 
than others, and participants responded by quantifying how much.
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    \6\ Contingent valuation is a survey-based economic technique 
for the valuation of non-market resources, often as a values-based 
or revealed preference response.
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    The survey results helped form many principles used in the NSPIRE 
scoring and sampling methodology:
     Defect Severity Level: Survey respondents largely agreed 
with the hierarchy of defect severity, that the differentiation at 
higher severity should be greater than at a lower severity, and that 
severe health and safety items should have the most impact on score. 
For example, the differentiation between the two lowest defect 
hierarchies (Low and Moderate) should be smaller than the 
differentiation between the two highest defect hierarchies (Severe and 
Life-Threatening (LT)).
     Defect Location: Survey respondents largely agreed that 
defect location should impact the relative value (importance) of 
defects in terms of scoring impact and that defects located in the unit 
should count more than defects located on the property grounds (e.g., 
site, or ``outside'' as defined in the NSPIRE rule). The survey-helped 
determine rates of change for both location and severity for defect 
valuations (in other words, how much the defect penalty increases as 
the severity increases), which were used as guideposts or benchmarks 
for reasonability to create the defect impact points.

II. The Proposed NSPIRE Scoring Model

A. Applicability of the NSPIRE Scoring Notice

    The NSPIRE Scoring notice will apply to all HUD housing currently 
inspected by REAC, including public housing and Multifamily Housing 
programs such as Project-based Rental Assistance, FHA Insured, and 
sections 202 and 811 as described in the NSPIRE proposed rule at Sec.  
5.701.\7\
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    \7\ 86 FR 2582 (Jan. 13, 2021).
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B. NSPIRE Scoring Format

    For properties previously subject to UPCS, HUD intends to continue 
setting the maximum score to 100 for a property with no deficiencies, 
and deducting points based on the scoring methodology, with any score 
under 60 considered a failing score. HUD will also supplement this 
score with letter grades to make clear to residents, public housing 
agencies (PHAs), property owners/agents (POAs), and other stakeholders 
how the numerical score relates to the condition of the property.

C. Scoring Methodology Generally

    The NSPIRE scoring methodology converts observed defects into a 
numerical score. It implements the proposed rule's intent to provide 
reliable evaluations of housing conditions and to protect residents. In 
evaluating the prior inspection standards and scoring, HUD identified a 
disproportionate emphasis around the appearance of items that are 
otherwise safe and functional and that the standards paid inadequate 
attention to the health and safety conditions within the built 
environment. HUD concluded that revised housing standards would need to 
focus on habitability and the residential use of the structures, and 
most importantly, the health and safety of residents. To best protect 
residents, the inspection must prioritize conditions that are most 
likely to impact residents in the places where they spend the most 
time, the units. Thus, standards which are categorized as more severe 
should have a greater impact on a property's score when deficiencies 
exist in the unit, and a property with observed health and safety 
defects in its units is more likely to fail an inspection than a 
comparable property with less severe defects.
    HUD therefore intends to score deficiencies based on two factors: 
severity and location. The categories of severity, as provided in the 
proposed NSPIRE Standards notice, are Life-Threatening (LT), Severe, 
Moderate, and Low. As described in the proposed NSPIRE Standards 
Notice, defect severity levels include the following characteristics:
     Life-Threatening (LT). The Life-Threatening category 
includes deficiencies that, if evident in the home or on the property, 
present a high risk of death, severe illness, or injury to a resident.
     Severe. The Severe category includes deficiencies that, if 
evident in the home or on the property, present a high risk of 
permanent disability, or serious injury or illness, to a resident. It 
also includes deficiencies that would seriously compromise the physical 
security or safety of a resident or their property.
     Moderate. The Moderate category includes deficiencies 
that, if evident in

[[Page 18271]]

the home or on the property, present a moderate risk of an adverse 
medical event requiring a healthcare visit; could cause temporary harm; 
or if left untreated, could cause or worsen a chronic condition that 
may have long-lasting adverse health effects. It also includes 
deficiencies that would compromise the physical security or safety of a 
resident or their property.
     Low. The Low category includes deficiencies critical to 
habitability but not presenting a substantive health or safety risk to 
a resident.
    The location categories provided in Sec.  5.703 of the NSPIRE 
proposed rule are the unit, inside, and outside. Under this proposed 
NSPIRE scoring methodology, in-unit deficiencies are weighted more 
heavily, meaning that properties with such deficiencies would be more 
likely to fail. HUD will weigh these factors using a Defect Impact 
Weight. Under the Defect Impact Weight methodology, the weight of the 
deduction for a given deficiency changes depending on both the location 
and the severity, such that a LT deficiency inside a unit will lead to 
the largest deduction and a Low deficiency observed outside the 
property will lead to the smallest deduction. To determine the point 
deduction of a given deficiency, HUD would determine the location and 
severity of the deficiency as described in Table 1. Defect Impact 
Weights by Inspectable Area.

                                         Table 1--Defect Impact Weights
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                                                                                Inspectable area *
                    Defect severity category                     -----------------------------------------------
                                                                      Outside         Inside           Unit
----------------------------------------------------------------------------------------------------------------
Life-Threatening (most severe)..................................            49.6            54.5            60.0
Severe..........................................................            12.2            13.4            14.8
Moderate........................................................             4.5             5.0             5.5
Low (least severe)..............................................             2.0             2.2             2.4
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* Defect impact weights are rounded to the tenths place.

    In Table 1, the sum of individual defects would be divided by the 
number of units inspected. If for example only one LT defect in a unit 
was observed during an inspection sample size of 10 units, and no other 
defects were observed, the total deduction from the score would be 6 
points (60.0 points divided by 10 units). HUD determined each of the 
values in Table 1 by determining relative severity values for each 
category. HUD initially considered that the value of an LT defect may 
be as twice a Severe, a Severe twice Moderate, etc., But based on the 
survey results, this is not an accurate statement--on average, most 
respondents agreed that we value the difference between a LT and Severe 
more than the difference between a Severe and Moderate.
    HUD proposes the rates of change by which Defect Impact Weights 
change depicted in Table 2 below:

 Table 2--Defect Severity Values and Rates of Change by Defect Severity
                                Category
------------------------------------------------------------------------
                                                      Severity rate of
     Defect severity category       Severity value        change *
------------------------------------------------------------------------
Life-Threatening (most severe)....            49.6  4.1 x Severe Non-
                                                     Life Threatening.
Severe............................            12.2  2.7 x Moderate.
Moderate..........................             4.5  2.3 x Low.
Low (least severe)................             2.0  N/A.
------------------------------------------------------------------------
* Severity rate of change is rounded to the tenths decimal place.

    LT deficiencies will deduct much more than Low deficiencies, 
consistent with HUD's goal of prioritizing the health and safety of 
residents.
    Defect Impact Weights would also change at constant rates across 
the three inspectable areas (Outside, Inside, and Unit), but by a 
smaller amount. From the proposed rule, these areas are:
    Outside of HUD housing (or ``outside areas'') refers to the 
building site, building exterior components, and any building systems 
located outside of the building or unit. Examples of ``outside'' 
components may include fencing, retaining walls, grounds, lighting, 
mailboxes, project signs, parking lots, detached garage or carport, 
driveways, play areas and equipment, refuse disposal, roads, storm 
drainage, non-dwelling buildings, and walkways.
    Inside means the common areas and building systems that can be 
generally found within the building interior and are not inside a unit. 
Examples of ``inside'' common areas may include, basements, interior or 
attached garages, enclosed carports, restrooms, closets, utility rooms, 
mechanical rooms, community rooms, day care rooms, halls, corridors, 
stairs, shared kitchens, laundry rooms, offices, enclosed porches, 
enclosed patios, enclosed balconies, and trash collection areas.
    Unit (or ``dwelling unit'') of HUD housing refers to the interior 
components of an individual unit. Examples of components included in 
the interior of a unit may include the balcony, bathroom, call-for-aid 
(if applicable), carbon monoxide devices, ceiling, doors, electrical 
systems, enclosed patio, floors, HVAC (where individual units are 
provided), kitchen, lighting, outlets, smoke detectors, stairs, 
switches, walls, water heater, and windows.
    Inspectable areas would increase point deductions by a factor of 
1.1 or 110 percent. For example, if you multiply a Low Defect Impact 
Weight located in the Outside Inspectable Area (2.0) by 1.1, the result 
is the Defect Impact Weight for a Low Defect located in the Inside 
Inspectable Area or 2.2. Similarly, if you multiply a Low Defect Impact 
Weight located in the Inside Inspectable Area (2.2) by 1.1, the result 
is the Defect Impact Weight for a Low Defect located in the Unit 
Inspectable Area or 2.4. This constant rate by which Defect Impact 
Weights change by inspectable area is depicted in Table 3 below for the 
Low Defect Severity Category (Note: The same rate of change by 
inspectable area applies to all Defect Severity Categories):

[[Page 18272]]



                     Table 3--Defect Severity Values and Rates of Change by Inspectable Area
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                                                                   Inspectable area
      Defect severity category      ----------------------------------------------------------------------------
                                          Outside                  Inside                        Unit
----------------------------------------------------------------------------------------------------------------
Low................................                2.0  2.2........................  2.4.
Rate of Change.....................                N/A  1.1 x Outside..............  1.1 x Inside.
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* Area rate of change is rounded to the tenths place.

D. Final Scoring Conversion

    Because the number of defects observed will be greater in 
properties where HUD inspects a larger number of units, the NSPIRE 
scoring methodology normalizes the total defect deduction value by 
dividing it by the total number of units inspected. To convert the 
Defect Deduction Value Per Unit to a 100-point score, the sum of the 
Defect Impact Weights is divided by the number of units inspected. The 
formula is represented below:

Total Defect Deduction Value All Areas/Unit Sample Size = Defect 
Deduction Value Per Unit

    To determine the final property score, the Defect Deduction Value 
Per Unit is then subtracted from 100:

100-(Defect Deduction Value Per Unit) = Final Score

    Note: Scores cannot go below zero, so if the calculation yields a 
result lower than 0, the score is set to 0.

E. Fail Thresholds

    As provided in the rule and Standards notice, all deficiencies 
identified through the NSPIRE inspection must be corrected within 
timeframes established in the rule and the NSPIRE Standard. In 
addition, under this proposed NSPIRE Scoring methodology, there are two 
situations in which a property will be considered to have failed 
inspection:
     Scores below 60. Consistent with existing policy and 
practice, the Property Threshold of Performance is defined as 
properties that achieve a score of 60 or above. Failure to achieve a 
score at or above 60 is considered a failing score, and properties that 
score under 60 are required to perform additional follow up and may be 
referred for administrative review under current regulations. These 
policies will be retained in the NSPIRE program.
     Unit Point Deduction 30 or above. Consistent with HUD's 
goal of maximizing the health and safety of a unit, HUD has determined 
that scores where deductions are disproportionately from Unit 
deficiencies should be considered failures even if, for example, the 
rest of the property is in pristine condition. Therefore, regardless of 
the overall property score, if 30 points or more were deducted due to 
Unit deficiencies, HUD would consider the property to have failed the 
inspection and would deem the result of the inspection to be a score of 
59.

III. Examples

Example 1: A Property Where HUD Inspects 10 Units as Part of Its 
Inspection Sample

    The following example demonstrates a 10-unit inspection in which 
the property passes the inspection with a score of 80. In this example, 
the following defects and the corresponding Defect Impact Weight 
categories were recorded by the inspector:

Table 4: Example #1--Defects Observed During an Inspection of 10 
Sampled Units

    An Inspector conducted an inspection of Property L and observed the 
following deficiencies in 10 units inspected under the NSPIRE Standard:

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                    Defect severity category                          Outside         Inside           Units
----------------------------------------------------------------------------------------------------------------
Life-Threatening................................................               0               0               2
Severe..........................................................               0               2               1
Moderate........................................................               0               3               0
Low.............................................................               1              10               0
                                                                 -----------------------------------------------
    Total by Inspectable Area...................................               1              15               3
----------------------------------------------------------------------------------------------------------------

    Under the NSPIRE scoring methodology, each of these defects would 
be multiplied by the corresponding Defect Impact Weights to establish 
the total property defect deduction value. The total property defect 
deduction value is calculated as follows in Table 5:

                                         Table 5--Example #1--Total Property Defect Deduction Value Calculation
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                 Defect severity category                       Outside             Inside             Unit G             Unit B        All other units
--------------------------------------------------------------------------------------------------------------------------------------------------------
Life-Threatening.........................................       0 x 49.6 = 0       0 x 54.5 = 0        1 x 60 = 60        1 x 60 = 60         0 x 60 = 0
Severe...................................................       0 x 12.2 = 0    2 x 13.4 = 26.8       0 x 14.8 = 0    1 x 14.8 = 14.8       0 x 14.8 = 0
Moderate.................................................        0 x 4.5 = 0       3 x 5 = 15.0        0 x 5.5 = 0        0 x 5.5 = 0        0 x 5.5 = 0
Low......................................................      1 x 2.0 = 2.0    10 x 2.2 = 22.0        0 x 2.4 = 0        0 x 2.4 = 0        0 x 2.4 = 0
Sum of Defect Deduction Value............................                2.0               63.8               60.0               74.8                0.0
                                                                                                --------------------------------------------------------
Inspectable Area Defect Deduction Value..................                2.0               63.8                           134.8
                                                          ----------------------------------------------------------------------------------------------
    Total Property Defect Deduction Value................                                    2.0 + 63.8 + 134.8 = 200.6
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 18273]]

    The defect deduction value per unit would be the sum of the Total 
Property Defect Deduction Value All Areas of 200.6 divided by the unit 
sample size of 10 for a value of 20 (values and calculations in 
parentheses):

Total Defect Deduction Value All Areas (200.6)/Unit Sample Size (10) = 
Defect Deduction Value Per Unit (20.06)

    The property's preliminary score on the 100-point scale would 
therefore be calculated as follows:

100-Defect Deduction Value Per Unit (20.06) = Preliminary Score (79.94)

    This score would then be rounded up to 80.

Example #2--The Unit Threshold of Acceptability Factor

    The following is another example which demonstrates a 10-unit 
inspection of property T that would receive a score above 60 but would 
fail the NSPIRE inspection based on Unit Point Deduction. In this 
example, the following defects and the corresponding Defect Impact 
Weight categories were recorded by the inspector:

                       Table 6--Example #2--Total Inspectable Area Defect Deduction Values
----------------------------------------------------------------------------------------------------------------
                Defect severity category                      Outside             Inside             Units
----------------------------------------------------------------------------------------------------------------
Life-Threatening.......................................       0 x 49.6 = 0       0 x 54.5 = 0       4 x 60 = 240
Severe.................................................       0 x 12.2 = 0    2 x 13.4 = 26.8    4 x 14.8 = 59.2
Moderate...............................................        0 x 4.5 = 0         3 x 5 = 15       2 x 5.5 = 11
Low....................................................          1 x 2 = 2      10 x 2.2 = 22        0 x 2.4 = 0
Sum of Defect Deduction Values (or Inspectable Area                    2.0               63.8              310.2
 Defect Deduction Values)..............................
                                                        --------------------------------------------------------
    Total Property Defect Deduction Value..............                 2.0 + 63.8 + 310.2 = 376.0
----------------------------------------------------------------------------------------------------------------

    Using the Unit Inspectable Area Defect Deduction Value of 310.2, 
the Unit Threshold of Performance would be calculated as follows 
(values and calculations in parentheses):

Total Unit Inspectable Area Defect Deduction (310.2)/Sample Size (10) = 
Final Unit Defect Deduction (31.02)

    Because the Final Unit Defect Deduction is over 30, the property 
would fail the inspection, even if the overall final score would be 
greater than 60.
    In this example, defects were observed in the Outside and Inside 
inspectable areas also, resulting in a Total Defect Deduction Value for 
All Areas = 376.0 which would be adjusted by the sample size of 10 
units as follows (values and calculations in parentheses):

Total Defect Deduction Value All Areas (376.0)/Unit Sample Size (10) = 
Defect Deduction Value Per Unit (37.6)

    The property's score factoring in the observed defects in all 
inspectable areas would be calculated as follows:

100-Total Defect Deduction Value All Areas Per Unit (37.6) = Final 
Score (62.4)

    In this example, the property's overall inspection results would be 
considered passing under UPCS scoring as the final score would be 
rounded down to 62, but under NSPIRE, the Unit Defect Deduction is 31.0 
(30 points or more were deducted due to Unit deficiencies) and thus 
results in an automatic adjustment to a failing score of 59.
    The table below provides a summary of the Property and Unit 
Thresholds of Performance and details the circumstances in which a 
property passes an inspection based on these thresholds.

   Table 7--Summary of Property and Unit Thresholds of Performance and
                           Inspection Outcomes
------------------------------------------------------------------------
        Inspection results             Property L          Property T
------------------------------------------------------------------------
Property Score >= 60.............  Yes...............  Yes.
Final Unit Defect Deduction <= 30  Yes...............  No.
Overall Inspection Result........  PASS..............  FAIL.
------------------------------------------------------------------------

IV. Administrative Details

A. Rounding

    Calculated scores will be rounded to the nearest whole number with 
one exception. For properties that score between 59 and 60, the score 
will be rounded down to 59. This reflects HUD's concern that properties 
must surpass these scoring thresholds to be considered at or above 
those scores which may dictate HUD's administrative, oversight, 
monitoring and enforcement approach for poorly scoring properties.

B. Inspection Report

    In the inspection report provided to property ownership and/or 
management, HUD will provide the overall score and indicate the 
numerical results for each of the two types of inspection evaluations 
that determine whether the property passes or fails the inspection:

 Property Threshold of Performance: Property Score on the zero 
to 100-point scale
 Unit Threshold of Performance Factor: Unit Inspectable Area 
Defect Deduction Value Per Unit

C. HUD's Use of NSPIRE Inspection Scores

    HUD uses property scores to support monitoring and enforcement of 
HUD's physical condition requirements. Property scores give HUD, the 
owner or PHA, and any other relevant parties an impression of the 
overall physical condition of the property. A high or low score does 
not change that a participant is required to repair all deficiencies 
identified in the inspection.
    HUD intends to continue using the zero to 100-point scale for 
purposes including (but not limited to):
     Frequency of Inspections: Properties that score higher are 
inspected less frequently;
     Enforcement: Properties that fail or score below certain 
thresholds may be subject to HUD enforcement actions, including 
referral to HUD's Departmental Enforcement Center (DEC);
     Public Housing Assessment System (PHAS) Designations: 
Average weighted inspection scores comprise forty (40) points of a 
public housing agency's PHAS designation;
     Participant Evaluation: Inspection scores are considered 
when determining whether a potential or existing HUD Multifamily 
business stakeholder may expand its involvement in HUD housing; and
     Risk Assessment: HUD's Offices of Multifamily Housing and 
Public

[[Page 18274]]

Housing use inspection scores and pass/fail designations to assess the 
risk of owners/agents and public housing agencies.

D. Non-Scored Defects and New Affirmative Requirements

    In recognition of its long-standing practice for not scoring smoke 
detector defects under the UPCS scoring methodology, HUD will not score 
smoke detector defects, but will continue to use an asterisk (*) to 
denote identified smoke detector defects. The asterisk will be appended 
to the numerical property score, and it is critical to note that these 
defects are classified as LT defects and must be corrected within 24-
hours even though these defects are not scored. HUD will also follow 
this policy for carbon monoxide devices. While not scored, these items 
are considered LT and must be remedied within the timelines established 
by HUD.
    Similarly, HUD recognizes that the NSPIRE Standards include new 
affirmative requirements defined generally as property attributes or 
requirements that must be met. The lack of these property attributes, 
which may include the quantity and location of these items (e.g., GFCI 
outlets) would constitute a defect and result in a deduction from the 
property's inspection score. HUD understands that it may take 
properties' ownership and management some time to comply with these new 
standards and as a result will not score new affirmative requirements, 
defined as those standards that were expressly not in the UPCS or in 
any way covered by those standards, in the first 12 months of NSPIRE 
inspections for the program.\8\ The list of new affirmative 
requirements will be included in the final NSPIRE rule. HUD currently 
expects that this list will include GFCI protected outlets within 6 
feet of a water source, guardrails for elevated walkways, a permanently 
installed heating source for certain climate zones, and a permanently 
mounted light fixture in the kitchen and each bathroom.
---------------------------------------------------------------------------

    \8\ The NSPIRE final rule will have different effective and 
compliance dates for different programs. The first 12 months for a 
given program will be based on the date inspections commence for 
that program.
---------------------------------------------------------------------------

    During this initial 12-month period, HUD will provide a score of 
record that will be used for administrative purposes including 
oversight and enforcement and a projected score if those new 
affirmative requirements were scored. Both scores will be provided on 
the inspection report received by property ownership and/or management.

E. Scoring Designations

    HUD will supplement the property's zero to 100-point score with the 
following designations that provide property ownership and/or 
management, residents, and other stakeholders with information 
important to understanding the overall inspection results. These 
designations include:
     Smoke Detectors: An asterisk next to the property's zero 
to 100-point score will indicate whether an inspector observed a smoke 
detector defect during an inspection.
     Carbon Monoxide Detectors: An alternate symbol 
designation, similar to an asterisk, will also be included next to the 
property's zero to 100-point score to indicate whether an inspector 
observed a carbon monoxide detector defect during an inspection.
     Presence of Certain Defect Severity Levels: HUD previously 
provided a letter designation (e.g., a, b, c) to indicate the presence 
of exigent health and safety defects; this will no longer be used under 
NSPIRE. HUD will instead provide a summary table of the defect 
observations by Defect Severity Category, e.g., Life-threatening, 
Severe, Moderate, Low. At the conclusion of the inspection, the PHA or 
Owner will receive a list of all health and safety items that must be 
corrected within 24 hours of the inspection.
     New Affirmative Requirements: In at least the first 12 
months after the effective date of the final NSPIRE Rule, a designation 
to be determined will also be included as part of the property's 
inspection results to indicate new affirmative requirements that were 
not scored. Standards that may need more calibration through field 
testing, such as a minimum temperature standard, may not be scored for 
more than a year. In at least the initial year of NSPIRE, HUD will also 
provide two scores; one that shows the potential score if all new 
affirmative requirements were scored, and the official score for that 
inspection.
     Letter Grades: HUD will assign a letter grade to each 
property inspection score. This will assist HUD, property ownership 
and/or management, residents, and the public to better understand the 
condition of the property and to guide administrative activities such 
as oversight, risk management, and enforcement. The letter grades will 
be attributed to the zero to 100-point property score based on the 
following scale in Table 8 below:

                Table 8--Letter Grades by Distribution of the Zero to 100-Point Inspection Score
----------------------------------------------------------------------------------------------------------------
             Property score                       Letter grade                          Meaning
----------------------------------------------------------------------------------------------------------------
>= 90 points............................  A                            The property is in good physical
                                                                        condition with the fewest number of
                                                                        concerning defects, which are also
                                                                        easily addressed.
>= 80 points, <90 points................  B                            The property is in good physical
                                                                        condition with comparatively more
                                                                        concerning defects, but these defects
                                                                        are also easily addressed.
>= 70 points, <80 points................  C                            The property is in an acceptable physical
                                                                        condition with a greater number of
                                                                        concerning defects. The property should
                                                                        be closely monitored to see if these
                                                                        issues are correctable or present larger
                                                                        concerns about resident health and
                                                                        safety and overall asset condition.
>= 60 points, <70 points................  D                            The property is in a very challenged and
                                                                        near failing physical condition, with a
                                                                        high prevalence of concerning health and
                                                                        safety defects that may not be easily
                                                                        addressed and/or reflect possible
                                                                        concerns about maintenance or overall
                                                                        asset condition. The property should be
                                                                        closely monitored to avoid it becoming a
                                                                        failed property.
>30 points, <60 points..................  E                            The property is in a failing physical
                                                                        condition, with a high prevalence of
                                                                        concerning health and safety defects
                                                                        that clearly reflect larger concerns
                                                                        with the maintenance and short-term
                                                                        condition of the asset. The property
                                                                        should be monitored regularly and may be
                                                                        reinspected more than annually to
                                                                        protect resident health and safety. If
                                                                        the property receives two successive
                                                                        scores in this range, HUD will consider
                                                                        administrative actions to protect
                                                                        residents as described in the final
                                                                        NSPIRE rule.

[[Page 18275]]

 
<= 30 points............................  F                            The property is in a failing physical
                                                                        condition, with an extremely high
                                                                        prevalence of concerning health and
                                                                        safety defects that clearly reflect
                                                                        larger concerns with the maintenance and
                                                                        short-term condition of the asset. The
                                                                        property should be monitored and
                                                                        inspected regularly to protect resident
                                                                        health and safety and, if necessary,
                                                                        actions should be taken to protect
                                                                        residents including, but not limited to
                                                                        relocation and/or changes in property
                                                                        ownership and/or management. These
                                                                        properties will be automatically
                                                                        referred to the DEC.
----------------------------------------------------------------------------------------------------------------

    Each of the above designations will be clearly summarized on the 
draft inspection report provided to property ownership and/or 
management shortly after the conclusion of an inspection. Regulations 
covering HUD's expected actions for scores of 30 or less, or two 
successive scores under 60, will be in the final NSPIRE rule.

F. Defect Remediation and Pass/Fail Status

    HUD will evaluate the extent to which property ownership and/or 
management complies with its requirements to submit documentation 
indicating certain more severe defects have been remediated or are at 
least in the process of being remediated (e.g., the property 
implemented an integrated pest management plan to address infestation). 
HUD will use its administrative authority in its regulations to compel 
compliance. More information will be provided in the NSPIRE 
Administrative notice.

G. Draft and Final Inspection Reports, Preliminary and Final Scores

    REAC will issue a draft inspection report with a preliminary score 
and a recordation of all defects including those that must be addressed 
within certain timeframes. HUD will issue a final inspection report 
with a final score and a recordation of all defects following the 
appeals process specified in the NSPIRE Administrative Procedures 
Notice. In the interest of protecting residents, HUD may take 
administrative actions based on the draft inspection report and 
preliminary inspection score. Both the draft and final reports will 
also provide summaries of the inspection results.

H. Unit Sampling

    HUD's inspection program and scoring methodology under NSPIRE 
relies on inspecting a statistically significant sample of units to 
achieve a 90 percent confidence level with a 6 percent margin of error 
for its inspections. HUD employed the same confidence level, and a 
similar margin of error, but capped the number of units inspected at 27 
units under UPCS. Under the NSPIRE scoring and sampling methodology, 
HUD intends to increase the maximum number of units to 32 units. This 
will help achieve consistency in inspection results across all sizes of 
properties.
---------------------------------------------------------------------------

    \9\ Cochran, William G., Sampling Techniques, New York: John 
Wiley & Sons, Inc., 1977.
---------------------------------------------------------------------------

    Under the UPCS scoring and sampling methodology, many inspections 
required that every residence building be inspected regardless of 
whether or not any unit within that building was subject to inspection. 
HUD is eliminating that requirement. Under the NSPIRE scoring and 
sampling methodology, building-level sampling will be driven by units. 
For any building that contains a unit in the inspection sample, the 
building will also be inspected. Under the NSPIRE scoring and sampling 
methodology, there are also no point values calculated and assigned to 
specific buildings or units, which further eliminates the need to 
inspect all residence buildings.
    Achieving a uniform confidence level is critical to the overall 
accuracy of HUD inspections and benefits residents and property 
ownership and/or management by reducing the number of re-inspections 
due to inspections that do not meet HUD's standards for accuracy. Under 
HUD's regulations (and as will be affirmed in the final NSPIRE rule) 
and HUD's contracts with owners and operators of HUD-assisted and 
insured housing, units should meet HUD's physical condition standards 
365 days a year.
    The results of the NSPIRE sampling methodology are provided in 
Table 9. It was developed to consider the desired confidence interval 
(90 percent), margin of error (6 percent), and expected defect 
population proportion. HUD calculated the sample size for every 
possible population of units by solving for the lowest possible minimum 
sample size in the following equation: \9\
[GRAPHIC] [TIFF OMITTED] TP28MR23.001


[[Page 18276]]


Where:

 [egr] = margin of error
     In this case, 6 percent
 z = z-score corresponding to confidence interval
     In this case, ~1.65 corresponds to 90 percent two-sided 
confidence interval
 p = expected defect population proportion
     In this case, HUD used a proportion of 3.97 percent 
\10\
 N = unit population
 s = minimum sample size

    [Note: For comparison purposes, the UPCS sampling methodology is 
also provided in Table 9, although the unit grouping does not fully 
align.]

V. Inspection Sample Sizes

   Table 9--Number of Units Sampled Under NSPIRE Scoring and Sampling
                   Methodology Based on Property Size
------------------------------------------------------------------------
                                                       UPCS      NSPIRE
                 Units in property                    sample     sample
------------------------------------------------------------------------
1.................................................          1          1
2.................................................          2          2
3.................................................          3          3
4.................................................          4          4
5.................................................          5          5
6.................................................          5          6
7.................................................          6          6
8.................................................          7          7
9.................................................          7          8
10................................................          8          8
11-12.............................................          8          9
13-14.............................................          9         10
15-16.............................................         10         11
17-18.............................................         11         12
19-21.............................................         12         13
22-24.............................................         13         14
25-27.............................................         14         15
28-30.............................................         14         16
31-35.............................................         15         17
36-39.............................................         16         18
40-45.............................................         17         19
46-51.............................................         18         20
52-59.............................................         18         21
60-67.............................................         19         22
68-78.............................................         20         23
79-92.............................................         21         24
93-110............................................      21-22         25
111-120...........................................      22-23         26
121-166...........................................      23-24         27
167-214...........................................      24-25         28
215-295...........................................         25         29
296-455...........................................      25-26         30
456-920...........................................         26         31
921+..............................................         27         32
------------------------------------------------------------------------

VI. Changes From UPCS
---------------------------------------------------------------------------

    \10\ Based on an analysis of historical UPCS data, this is the 
estimate of the percentage of units with more than 3 unique NSPIRE 
defects.
---------------------------------------------------------------------------

    HUD welcomes and appreciates all feedback on the scoring 
methodology detailed in this request for comments. HUD also seeks 
specific input on the following items that it considers will emphasize 
health and safety more clearly compared to the UPCS scoring 
methodology.

A. Removing Severity and Criticality Levels

    HUD's UPCS scoring methodology included two factors for how a 
specific defect would impact a property's score. The first factor of 
defect severity evaluated the relative magnitude of the defect. For 
example, a small scratch or indentation in a wall would mostly likely 
be a Level 1 defect (on a 1-3 scale). In contrast, a sizeable hole in a 
wall that likely presented structural issues would be a Level 3 defect.
    The second factor evaluating criticality (on a 1-5 scale) 
multiplied the value associated with the severity of the defect 
depending on how important the actual defect was to the residents' 
safety and quality of life. For example, an exigent health and safety 
defect such as a blocked egress would apply the maximum multiplier to 
the defect severity value. In this example, a blocked egress is both a 
Level 3 defect and a Criticality 5 defect, which would result in the 
maximum deduction of points.
    NSPIRE would replace both factors with a scoring methodology which 
deducts a certain point value by type and severity of defect depending 
on where that defect is observed during the inspection. For example: 
identifying a Severe defect would result in deducting more points from 
the overall inspection score if the defect were identified inside the 
unit than on the property's grounds, or outside.

B. Reducing the Number of Inspectable Areas From Five to Three

    HUD is reducing the number of inspectable areas from five to three. 
Under UPCS there were five inspectable areas: Units, Common Areas, 
Building Systems, Building Exterior, and Site. HUD undertook this 
change to better clarify where certain defects can be observed and to 
eliminate some unique situations under UPCS where an inspector could 
have more leeway in designating the inspectable area of a certain 
defect, which could greatly impact and potentially skew scoring. For 
example, a certain defect could be considered to be within the Building 
Exterior inspectable area or the Unit Inspectable Area, which could 
result in different scoring depending on the inspectable area where the 
inspector decided to record a defect.
    In the NSPIRE proposed rule at Sec.  5.703, HUD proposed three 
inspectable areas: Units, Inside, and Outside. The NSPIRE Standards 
notice and attached standards provide additional clarity about in which 
inspectable area certain defects should be observed and prescribe that 
those defects can only be recorded in that area.
    Table 10 below roughly illustrates how the inspectable areas under 
UPCS translate to NSPIRE; however, it is critical to understand that 
some inspectable items that may have been in a certain inspectable area 
under UPCS may not necessarily fall into the category represented in 
the table below due to how NSPIRE categorizes the location of these 
defects.

  Table 10--Comparison and Rough Translation of Inspectable Areas Under
    UPCS as Compared to NSPIRE (Most Common Distribution of Points by
 Inspectable Area Under UPCS Included in Parentheses, Where NSPIRE Does
         Not Distribute the 100 Points Across Inspectable Areas)
------------------------------------------------------------------------
 
------------------------------------------------------------------------
UPCS inspectable area                    NSPIRE inspectable area
------------------------------------------------------------------------
Unit (35 points)...............  Unit.                100 points.
------------------------------------------------------------------------
Common Areas (15 points).......  Inside.............
Building Systems (20 points)
------------------------------------------------------------------------

[[Page 18277]]

 
Building Exterior (15 points)..  Outside............
Site (15 points)
------------------------------------------------------------------------

C. Removing Item and Area-Based Limits and Scoring Weight Distribution 
Along With Point Caps

    Under the UPCS scoring methodology, the sampling methodology 
created a maximum number of points at multiple levels, including (but 
not limited to):
     Inspectable Area. As depicted in Table 10 above, under 
UPCS each inspectable area had a total point value. [Note: The total 
point value could shift slightly depending on the presence of certain 
inspectable items. For example, the Unit Inspectable Area could account 
for as many as 40 points.] Under NSPIRE, the 100-point score 
distribution is not divided among inspectable areas meaning an 
inspection could theoretically result in a zero (0) point score solely 
based on observations in units.
     Inspectable Item. Within each inspectable area, the UPCS 
scoring methodology would identify inspectable items (e.g., if a 
kitchen has 10 inspectable items such as a door, each of the ten items 
would have an item weight or account for 10 percent of the score in 
that location) that would result in a point cap for those items. Under 
NSPIRE, there are no inspectable items. Defects observed are assigned a 
Defect Impact Weight as described in Section IV of this Notice and the 
score is reduced accordingly by the defects observed.
     Buildings. Under UPCS, the number of buildings sampled 
would impact the total points available and the maximum number of 
points that could be lost under Building Systems and Building Exterior, 
meaning if 3 buildings were sampled, each building essentially 
contributed one-third of the points for the two building inspectable 
areas. Under NSPIRE there is no such point value assigned to sampled 
buildings.
     Units. Under UPCS, and like buildings, the number of units 
sampled would result in a maximum number of points that could be lost 
per unit. This meant that if 10 units were sampled, each unit 
contributed approximately 3.5 points towards the total score and that 
would also be the total amount of points that could be lost in a 
specific unit. Under NSPIRE, there is no such point value assigned to 
sampled units.
     Point Caps. Under UPCS, HUD established a point loss cap 
for single deficiencies by sub-area (e.g. building exterior, site, 
units) at set deductions, for example, no more than 7.5 points could be 
deducted for the site for that type of deficiency. Under NSPIRE, 
defect-specific point caps based on sub-areas are eliminated. 
Additionally, under UPCS, within a single ``sub-area'' (for instance, 
within one unit), even if there were multiple instances of the same 
deficiency type, there would only be one deduction for that deficiency 
type. For example, if multiple deficiencies for broken windows were 
recorded in one unit, only the most severe deficiency observed would be 
deducted for that unit. Under NSPIRE, HUD is proposing to allow for 
deductions multiple times for the same deficiency if that deficiency is 
identified in multiple distinct inspectable items. Deficiencies and 
resulting score deductions will depend on the specific NSPIRE standard 
and inspection protocol, which includes unique deficiency criteria that 
limit the number of observations to prevent excessive observations of 
deficiencies. For example, in the Pest Infestation standard, the number 
of rooms in a unit where evidence of infestation is observed does not 
matter; the deficiency will be cited and scored as a pest infestation 
in the unit. HUD seeks comment specifically on this change.
     Normalization. Under UPCS, almost all aspects of the 
scoring were normalized based on the number of buildings, units, or 
inspectable items. This created point caps for each of these areas as 
described above, but also adversely impacted smaller properties which 
could lose a much larger proportional share of points on Building 
Systems and Building Exterior even if a single defect was observed 
(e.g., if it was a single building property, the point value of the 
defects in the Building Systems and Building Exterior Areas would be 
divided by one).
    Consistent with the principles of the Economic Growth Act (Pub. L. 
115-74) and creating less burden on smaller and especially rural 
properties, NSPIRE limits normalization to the number of units only, 
with consideration of the sample size. This reflects the recognition 
that defects are likely to be observed more often in larger properties 
with more units; but certain defects regardless of where observed 
(e.g., on the property grounds) should not disproportionately impact a 
smaller property's score. Where there are fewer buildings and units 
assessed, deductions for site-based conditions under UPCS (e.g., 
overgrown vegetation, cracked sidewalks that are not a tripping hazard, 
erosion) were disproportionally weighted. This unit-only normalization 
also reflects that the NSPIRE scoring and sampling methodology focus on 
the condition of units more so than the condition of other inspectable 
areas such as Inside or Outside of the property.

D. Additional Considerations Before Finalizing NSPIRE Scoring

    As described in the Background section, HUD used the results of the 
NSPIRE Demonstration to evaluate its Standards and Scoring methodology. 
HUD will continue to test this scoring methodology in NSPIRE 
Demonstration inspections and compare score results to the properties' 
last UPCS inspection. The results of this exercise will be considered 
in addition to public comment on this notice. The results will be 
discussed in the final NSPIRE Scoring notice.

VII. NSPIRE and the Public Housing Assessment System (PHAS)

    For Public Housing properties subject to the Public Housing 
Assessment System, HUD will use the new NSPIRE scoring methodology and 
associated property inspection scores to calculate the PHAS Physical 
Condition Indicator component of PHAS once a PHA's entire portfolio has 
been inspected under NSPIRE. This indicator, also known as the Physical 
Assessment Sub-system (PASS) indicator, comprises 40 points of the 100-
point PHAS score. HUD will employ the same unit-weighted average score 
methodology under 24 CFR 902.22 to calculate the PASS indicator score 
for PHAs subject to PHAS in calendar year 2023 using

[[Page 18278]]

NSPIRE property inspection scores. Until all inspections are completed 
under NSPIRE, a PHA's physical condition indicator will continue to be 
based on the most recent UPCS scoring and unit-weighted average. HUD 
will provide additional guidance to PHAs that are currently under a 
Recovery Agreement that include goals to improve the physical condition 
in a separate notice.

Dominique Blom,
General Deputy Assistant Secretary for Public and Indian Housing.
[FR Doc. 2023-06339 Filed 3-27-23; 8:45 am]
BILLING CODE 4210-67-P