Arkansas Administrative Code
Agency 109 - Arkansas Development Finance Authority
Rule 109.00.09-001 - Neighborhood Stabilization Program (NSP)

This manual is not meant to be a substitute for NSP regulations, but as a supplement to them. It is not exhaustive regarding all considerations affecting the use of NSP funds. While careful consideration and due care has been used in developing the manual, NSP participants are encouraged to consult with NSP staff to ensure correct interpretation of policies and regulations. ADFA reserves the right to implement additional policies as needed.

NSP funds committed to the state of Arkansas will be allocated as promulgated in the State of Arkansas' 2009 Amendment to the Consolidated Plan. In addition, the state may spend up to ten percent (10%) of its NSP allocation and 10% of any program income for administrative and planning expenses.

ADFA anticipates that the amount of funds that will be applied for and approved will vary with the needs and capacity of local organizations in different areas of the state. ADFA is required to ensure that funds are used to address the areas of greatest need in terms of foreclosure. Therefore, ADFA will review and rank applications based on the Proposal Scoring Criteria, outlined in the Consolidated Plan Amendment for NSP and attached as Appendix I to this document. See also Section C "Application Selection Criteria" below.

In addition, ADFA is required to ensure that all NSP funding is obligated within 18 months following the execution of the NSP grant agreement with HUD, which occurred in March 20, 2009. Therefore, ADFA reserves the right to award funds to projects that are "ready to go'1 and to further adjust contracted amounts based upon actual performance and progress to obligate the funds within the initial 18 months of the grant agreement date or by September 20, 2010.

NSP funding is available statewide to entitlement cities, participating jurisdictions, ADFA-designated Community Housing Development Organizations ("CHDOs"), non-profit organizations, for-profit organizations, developers, units of local government provided the entity is in good standing with ADFA, the State of Arkansas, and the applicants' respective regulating agencies.

A letter of support from the chief elected official (CEO) of the applicable local jurisdiction must be provided with each application for NSP funds.

The eligible applicant is the entity responsible for the NSP application, project development, project implementation, and accountability for uses of all NSP funds. The eligible applicant must adhere to required compliance and monitoring of all NSP activities for the full applicable affordability period. ADFA will allocate NSP funds to the approved eligible applicant as outlined in the NSP Program Agreement.

NSP funds awarded in Arkansas will be allocated on the basis of established need, capacity of the applicant, and quality and content of complete applications received by ADFA by application deadline. As mandated by HERA NSP regulations, priority in Arkansas is given to the areas having the greatest instance of foreclosures. Since NSP funds are intended to stabilize neighborhoods, only applications for eligible activities in existing neighborhoods will be considered. The NSP is not intended and shall not be used for properties that are a part of new developments which were overbuilt as determined by ADFA. ADFA reserves the right in its sole and absolute discretion to determine the level of existing neighborhood destabilization when considering proposals.

The Proposal Scoring Criteria includes the following:

ADFA will receive proposals through Tuesday, September 1, 2009. ADFA staff will review, evaluate, score, and make recommendations for approval to ADFA's Board of Directors for consideration at its regularly scheduled meeting on Thursday, November 19, 2009. If additional information is required by staff, the applicant must submit the documentation within thirty (30) calendar days of application deadline.

ADFA will develop and execute NSP agreements, committing NSP funds to the selected applicants by Thursday, December 31, 2009. Dependent upon the level of demand and award of NSP funds, ADFA reserves the right to extend the referenced time lines or establish additional funding rounds as necessary.

Applicants may receive technical assistance by attending an informational training session prior to submitting an application. Sessions will address NSP and ADFA guidelines as well as application procedures. ADFA staff is also available to meet with applicants to provide technical assistance. Applicants must contact ADFA staff to establish a mutually convenient date, time, and venue.

Any changes to any material aspect of the application, proposed development, or proposed activities must be presented as an amendment to the initial application for NSP funds. The request for amendment will go through the normal review and approval process as outlined in the "NSP Application Process Path" of this manual.

ADFA will distribute NSP funds for the following eligible activities:

All NSP-funded activities must meet HERA's Low-Moderate-Middle Income (LMMI) National Objective, which means to primarily benefit LMMI households. LMMI households are defined as households whose incomes do not exceed 120% of area median income, adjusted for family size (measured as 2.4 times the current Section 8 income limit for households below 50% of area median income, adjusted for family size). All households assisted using NSP funds shall have incomes which do not exceed 120% of area median income, adjusted for family size.

NOTE that if funding is used in areas that are CDBG entitlement communities (e.g., Bentonville, Conway, Fayetteville, Fort Smith, Hot Springs, Jacksonville, Jonesboro, Little Rock, North Little Rock, Pine Bluff, Rogers, Springdale, Texarkana, and West Memphis), area median income limits issued for that area apply (as opposed to the statewide limit).

Documentation that the national objective has been met must be completed when the project is funded. The income of each household will be determined and documented using the Part 5 (Section 8) definition of income identified in HUD's "Technical Guide for Determining Income and Allowances for the HOME Program" published in January 2005. This guide can be found at the following link: http://www.hud.aov/officcs/epd/affordablehousine/librarv/modclguides/1780.cfm.

For 2-unit structures, at least one of the units must be occupied by a LMMI household. For multi-family rental structures of three or more units, a proportional share of the units must be occupied by LMMI households. (NOTE that this is different than the regular CDBG program requirements.) For example, if the total development cost is $1 m and NSP is providing $750,000, seventy-five percent (75%) of the units must be occupied by LMMI households.

NSP further requires that not less than twenty-five percent (25%) of the total NSP funds allocated to the State shall be utilized to provide permanent housing for households with incomes at or below fifty percent (50%) of the AMI.

Units of local government and nonprofit entities acting as subrecipients are allowed to incorporate eligible NSP administrative costs. Eligible administrative costs are costs associated with administering the grant that are NOT directly related to the project itself. For example, a portion of the salary of a staff person that will oversee the NSP-funded program (carry out budgeting, reporting, general oversight) is an administrative cost. Project specific costs such as appraisals, title searches, etc. are considered project costs.

The maximum amount that can be requested for administrative costs is ten percent (10%) of the final allocation amount. Applicants who choose to use a consultant must include the consultant fee, if any, in an amount not to exceed ten percent (10%) of the requested NSP allocation in the proposed development budget. Any amounts requested for project delivery costs may be in addition to the requested NSP allocation amount. The NSP allocation may not include both a consultant fee and a project delivery cost reimbursement.

All for-profit entities are considered developers and nonprofit entities acting as developers (carrying out acquisition and rehabilitation activities only as defined by HUD) are NOT allowed to receive funding for administrative costs but may include eligible project delivery costs and a reasonable developers' fee in the requested NSP allocation amount (as supported by a budget).

Following ADFA Board approval of the NSP application, the following processes will apply:

Per OMB Circular A-87, Attachment B, paragraph 31 and HUD NSP regulations, ADFA may incur pre-award costs as if Arkansas was a new grantee preparing to receive its first allocation of CDBG funds. The date of pre-award costs is the date of submission of the Consolidated Plan Amendment, which is December 1, 2008.

Therefore, predicated on that authority, ADFA will allow NSP funds to be used to reimburse eligible pre-award costs to entities approved for an award of NSP funds, contingent upon the pre-award costs being included and documented in the applicant's proposal and adherence to all applicable requirements such as environmental review and the Uniform Relocation Act (URA). If the entity is NOT approved for an award of NSP funds, no reimbursement for pre-award costs will be allowed. Examples of allowable pre-award costs include, but are not limited to, appraisal fees, costs of a market study, costs of feasibility studies, and preparation of rehabilitation cost estimates.

Note: The most stringent requirements of any source of funds will apply to the project.

It is imperative that funds allocated to participants be used as quickly as possible and in the most efficient manner. Therefore, seventy-five percent (75%) of total NSP funds allocated must be disbursed on the development within one year from the date of the notice to proceed to a development. If these performance standards arc not met, any unspent NSP funds may be recaptured and reallocated to fund other affordable housing developments.

For developments applying for both NSP funds and LJHTC, any allocation of NSP funds is contingent upon the successful reservation of LIHTC.

Applicants approved for funding that do not complete the required number of units will be considered in default of their NSP Agreement. ADFA will recapture allocated funds that have not been used in accordance with these performance standards and NSP regulatory commitment and disbursement requirements.These funds will be placed back into the pool of funds that are available to fund other eligible NSP activities.

If a non-profit organization is awarded funds for the acquisition and rehabilitation of residential property, the non-profit is considered a developer. However, in all other cases, a non-profit is considered a subrecipient. Subrecipients may be government entities or non-profits. Subrecipients are subject to comprehensive administrative and financial management requirements similar to ADFA, and ADFA is required to monitor the organizations for compliance.

Subrecipients that arc government agencies are subject to the requirements set forth in OMB Circular A-87 "Cost Principles for State and Local Governments," certain provisions of 24 CFR Part 85 "Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments," and A-133 "Audits of State and Local Governments and Nonprofit Organizations." Subrecipients that are nonprofit organizations are subject to OMB Circular A-122 "Cost Principles for Nonprofit Organizations," certain provisions of 24 CFR Part 84 "Grants and Agreements with Institutions of Higher Learning, Hospitals and Other Nonprofit Organizations," and A-133 "Audits of State and Local Governments and Nonprofit Organizations."

Subrecipients are required to comply with the requirements set forth in the subrecipient agreement signed by the ADFA and the subrecipient. As required by 24 CFR 570.501(b), ADFA will monitor subrecipients to ensure that NSP funds are being used in accordance with all program requirements and that subrecipients arc adequately performing as required under subrecipient agreements and procurement contracts. If performance problems arise, ADFA will take appropriate actions as described in 24 CFR 570.910.

See also Section I. Administrative and Project Delivery Costs.

http://www.hud.gov/offices/cpd/commiinitydevclopment/programs/nciahborhoodspg/docs/appraisal guidance.doc. The market appraised value of properties with an anticipated value of $25,000 or less may be established based on a review of available data and shall be made by a person knowledgeable of and with experience in property valuation that ADFA determines is qualified to make the valuation.

NSP requires that properties acquired using program funding be purchased at a discount of at least 1% from the current market appraised value of the home or property. ADFA will require documentation to ensure the discount requirement is met including the address, appraised value, purchase offer amount and discount amount for each property. The discount value calculation may take into account the likely carrying costs of the mortgagee if it were to NOT sell the property to the applicant. Carrying costs may include: taxes, insurance, maintenance, marketing, overhead and interest.

No acquisition of single-family dwellings will be allowed for property in excess of Federal Housing Administration (FHA) limits, currently set at $271,050.

Voluntary Transactions and Tenants

ALL NSP-assisted property acquisitions must be voluntary acquisitions. Taking of property through eminent domain proceedings is NOT allowed. The Uniform Relocation Act requires that notices are provided to property owners even those considered to be voluntary transactions. The notices can be found at: http://www.hud.gov/offices/cpd/library/relocation/nsp/index.cfm.

URA and Section 104(d) and 5305(a)(l 1) of Title I of the Housing and Community Development Act of 1974, as amended, and the implementing regulations at 24 CFR Part 570 .496(a) (the Barney Frank Amendment) govern the permanent displacement as well as temporary relocation of tenants in properties funded by NSP. For more information, refer to http://www.hud.gov/offices/cpd/library/relocation/nsp/indcx.cfm. In addition, ARRA includes additional provisions protecting the rights of property owners and "bona Fide" tenants. Refer to Section P below for more information.

Acquisition of a Property for Another Party

ADFA may not provide NSP funds to another party to finance an acquisition of tax foreclosed (or any other) properties from itself, other than to pay necessary and reasonable costs related to the appraisal and transfer of title. If NSP funds are used to pay such costs when the property owned by ADFA is conveyed to a sub-recipient, homebuyer, developer, or other jurisdiction, the property is NSP-assisted and subject to all program requirements, such as requirements for NSP-eligible use and benefit to income-qualified persons.

Resale of Property to Homebuyers

Bach awardee of NSP funds must maintain sufficient documentation on the acquisition and sale of each property to enable ADFA and HUD to determine compliance with the requirement to sell each property to homebuyers at an amount equal to or less than the cost to acquire and redevelop the property (not including holding costs).

Purchase of FHA-Foreciosed Properties

Per NSP regulations, HUD strongly urges every community to consider and include FHA-foreclosed properties in their NSP programs. The nature and location of many FHA-foreclosed properties make them compatible with the eligible uses of NSP funds, the geographic areas of greatest need, and the income eligibility thresholds and limits.

The following requirements apply to any foreclosed upon dwelling or residential real property that was acquired by the initial successor in interest pursuant to the foreclosure after February 17, 2009 and was occupied by a bona fide tenant at the time of foreclosure.

The initial successor in interest in a foreclosed upon dwelling or residential real property shall provide a notice to vacate to any bona fide tenant at least 90 days before the effective date of such notice. The initial successor in interest shall assume such interest subject to the rights of any bona fide tenant, as of the date of such notice of foreclosure:

To the extent feasible, ADFA will strongly encourage grantees to incorporate modern, green building, and energy-efficiency improvements in all NSP activities to provide for long-term affordability and increased sustainability and attractiveness of housing and neighborhoods.

NSP awardees and funded projects must adhere to all applicable other Federal requirements as outlined in 24 CFR part 570, HERA, ARRA, and NSP guidance from HUD. Key requirements are summarized below.

Equal Opportunity and Fair Housing

The state shall not exclude any organization or individual from participation under any program funded in whole or in part by NSP funds on the grounds of age, disability, race, creed, color, national origin, familial status, religion, or sex.

The following federal requirements as set forth in 24 CFR 5.105(a), Nondiscrimination and Equal Opportunity, are applicable to NSP projects:

In addition to the above requirements, all NSP participants must ensure that their Equal Opportunity and Fair Housing policies related to activities funded by NSP are consistent with the current Consolidated Plan adopted by their jurisdiction or the State Consolidated Plan.

Affirmative Marketing

Any entity applying for NSP funds must adopt affirmative marketing procedures and requirements for all NSP-assisted housing and submit the affirmative marketing plan with the NSP application. The affirmative marketing plan and requirements for NSP-assisted housing must be approved by ADFA prior to any NSP funds being committed to a development. Affirmative marketing requirements and procedures must include ALL of the following:

* Methods for informing the public, owners, and potential tenants about fair housing laws and the policies of the local program

* A description of what owners and/or the program administrator will do to affirmatively market housing assisted with NSP funds

* A description of what owners and/or the program administrator (e.g.., community development director) will do to inform persons not likely to apply for housing without special outreach

1 Section 3 requires that the employment and other economic opportunities generated by federal financial assistance for housing and community development programs shall, to the greatest extent feasible, be directed toward low and very low income persons, particularly those who are recipients of government assistance for housing.

* Maintenance of records to document actions taken to affirmatively market NSP-assisted units and to assess marketing effectiveness

* A description of how efforts will be assessed and what corrective actions will be taken when requirements are not met.

Environ mental Review

In implementing NSP, the environmental effects of each activity must be assessed in accordance with the provisions of the National Environment Policy Act of 1969 and HUD's regulations at 24CFRPart58.

ADFA, as the NSP grantee, and the units of local government funded by ADFA will be responsible for carrying out environmental reviews for approved projects/programs. ADFA will approve the release of funds (ROF) for local governments and must request the release of funds (RROF) from HUD for any developments carried out by other types of entities. NSP funds are approved as a conditional commitment until the environmental review process has been completed, with the option to proceed, modify or cancel the project based upon the results of the review. ADFA reserves the right to require a Phase I Environmental Study as part of the environmental review process.

Applicants/awardees of NSP funds may NOT execute contracts for purchase of properties that may be funded with NSP until receiving written authorization from ADFA to do so.

Flood Plains/Wetlands

NSP funds may generally not be invested in housing located in an area identified by the Federal Emergency Management Agency (FEMA) as having special flood hazards. ADFA discourages developments located in special flood hazard areas but, in some instances and with written permission from ADFA, houses located in a flood plain may be assisted. It is the responsibility of the applicant to evaluate any remedies to remove any properties from the flood plain and ensure the feasibility of the proposed plan. ADFA is willing to consider the proposed remedy and must approve the proposal in writing prior to approval of any NSP allocation. The community must be currently participating in the National Flood Insurance Program, and flood insurance must be obtained and maintained on the NSP-assisted property for the full period of affordability.

Lead-Based Paint Requirements

The Lead-Based Paint Regulations described in 24 CFR Part 35 require that lead hazard evaluation and reduction activities be carried out for all developments constructed before 1978 and receiving NSP assistance. Applications for rehabilitation funds for existing buildings constructed prior to 1978 must include a lead hazard evaluation, by appropriate lead-certified personnel. The application must also include detailed lead hazard reduction plan, in accordance with the regulations, and separately identify within the rehabilitation budget, the costs associated with reduction of lead hazards in accordance with the regulation and guidelines. All NSP fund allocations will be contingent upon the applicant agreeing to complete lead hazard reduction, evidenced by a clearance report performed by appropriate lead-certified personnel. In a development where NSP funds wil I be used on only a portion of the units, the lead-based paint requirements apply to ALL units and common areas in the development.

Labor Standards Davis-Bacon wage compliance and other federal laws and regulations pertaining to labor standards apply to all construction and rehabilitation contracts that are financed in whole or in part with NSP funds for residential property consisting of eight (8) or more NSP-assisted units. Davis-Bacon and related laws include the following:

* Davis-Bacon and Related Acts ( 40 USC 276a-276a-7)

* Contract Work Hours and Safety Standards Act (40 USC 327-333)

* Copeland (Anti-Kickback) Act (18 USC 874; 40 USC 276c)

* Fair Labor Standards Act of 1938, as amended (29 USC 203, et seq.)

The construction bids and contract for any NSP-assisted activity must contain the applicable wage provisions and labor standards. Davis-Bacon does not apply to projects using solely volunteer labor or to sweat equity projects. ADFA will monitor all developments subject to Davis-Bacon requirements to ensure compliance with all applicable regulations.

Debarment and Suspension

ADFA will require participants in lower-tier transactions covered by 24 CF.R 24 to certify that neither it nor its principals are presently debarred, suspended, proposed for debarment, declared ineligible or voluntarily excluded from any entity from a federally funded transaction. Any participant that remains on a debarred or suspended condition shall be prohibited from participation in the ADFA NSP as long as they are classified in this manner.

Note: ADFA reserves the right to require criminal background checks for all program participants as part of the application process. Please refer to ADFA's agency policy and requirements for information regarding this item (See ADFA's QAP and/or HOME Policy Manual).

Relocation

NSP funds are intended ONLY for use in purchasing/improving properties that have been abandoned and foreclosed. As such, most properties are expected to be vacant at the time of appraisal and offer to acquire. Should there be residents in any foreclosed property considered for NSP assistance, potential awardees must follow the residential anti-displacement and relocation plans in effect and outlined in the State's approved Consolidated Plan and all applicable Uniform Relocation Assistance and Real Property Acquisition Act (URA) of 1970 provisions. Applicable regulations can be found at 49 CFR Part 24.

Audit

ADFA requires that local government and non-profit recipients expending more than $500,000 in Federal awards in a given fiscal year have an audit conducted in accordance with Generally Accepted Accounting Principals (GAAP) and the Single Audit Act Amendments of 1996 (31 U.S.C. 7501-7507) and revised OMB Circular A-133, "Audits of States, Local Governments, and Non-Profit Organizations." An audit of NSP funds must be submitted to ADFA annually on or before June 30 each year.

Local governments and subrecipient entities are required to adhere to all applicable procurement requirements in the selection and award of contracts for goods and services. Therefore, all solicitation of bids for goods and services to be paid with NSP funds must be conducted openly and competitively in accordance with Arkansas State Procurement guidelines, as applicable.

Developers are not subject to procurement requirements, but costs must be considered reasonable to be eligible under the program.

All general contractors working on all NSP-funded developments must have an active license issued by the Arkansas Contractor's Licensing Board (the "State Licensing Board") as applicable and meet all requirements of contractors in the state of Arkansas, including securing Builder's Risk insurance. Contractors may not "share" a license. That is, ADFA will not allow one contractor to work from another contractor's license.

All ADFA NSP-funded projects must have a general contractor that is properly licensed by the Arkansas State Contractor's Licensing Board. Any questions regarding licensing issues and a list of licensed contractors may be directed to the State Licensing Board at the following address:

Arkansas Contractor's Licensing Board 4100 Richards Road

North Little Rock, AR 72117 (501)372-4661

Any contractor or subcontractor who has been debarred by any entity or had a contractor license suspended by any entity within the previous twelve (12) months will be prohibited from participating in the NSP. All general contractors working on all NSP-funded developments must obtain one of the following:

Inspections are required with all activities that are funded through the NSP. ADFA currently has inspectors that will be available as needed. Applicants must notify ADFA a minimum of 48 hours in advance to schedule inspections.

There are currently four (4) required inspections that are identified below:

Rental housing development inspections may be scheduled more frequently, as warranted. The ADFA inspector must attend any pre-construction meetings for NSP-funded developments. For rehabilitation projects, when a project is ready for a draw on funds, the properly must be inspected and/or approved to verify that the work has been satisfactorily completed. ADFA will only make payments on work that has been satisfactorily completed, inspected and approved by an ADFA inspector.

Applicants may fax or mail their payment request, with all of the required documentation, to ADFA using the following contact information:

Arkansas Development Finance Authority

Attn: NSP Program Department

P.O. Box 8023

Little Rock, AR 72203-8023

FAX (501) 682-5859

ADFA staff will coordinate with recipients of NSP funds and inspectors to schedule all inspections.

ADFA recognizes that changes in a development occur from time to time. It is important that NSP participants submit change orders on the proper ADFA form. All change orders must be approved by the ADFA staff prior to initiating work. No payment of NSP funds will be made on change orders that have not been approved by ADFA. Any changes to the original amounts of NSP assistance must be reflected by an Amended and Restated Mortgage and Promissory Note. Each Single-Family NSP Agreement will include provisions for possible funding of change orders on a limited basis.

ADFA allows up to ten percent (10%) of the NSP allocation for construction contingencies. A rehabilitation, reconstruction, or new construction activity, including contingencies, may not exceed the ADFA established per unit limits for the NSP.

ADFA will select and/or approve a closing entity to provide closing services for all NSP transactions using ADFA-approved documents. The services will be available and required in the county where the development is located. NSP staff will provide closing instructions for all NSP-funded transactions to the closing entity. ADFA will be responsible for payment of costs associated with closing the NSP portion of the transaction on both homebuyer and rental activities.

ADFA is required to submit quarterly performance reports to HUD no later than thirty (30) days following the end of each quarter, beginning 30 days after the completion of the first full calendar quarter after grant award (i.e., August 1, 2009) and continuing until all funds are expended and the program is closed out. Accordingly, all NSP awardees will be required to submit performance information to ADFA by established deadlines conducive for ADFA to meet its reporting requirements.

Performance information will include, but not be limited to, the following:

* Project name e Project activity

* Project location

* NSP Eligible use

* CDBG national objective

* Budgeted funds

* Expended funds

* Funding source e Total amount of any non-NSP funds

* Numbers of properties and housing units assisted

* Beginning and ending dates of activities

* Numbers of low, moderate, and middle-income persons or households benefiting

* Demographic data for households benefiting

In addition to this quarterly performance reporting, ADFA will report monthly on its NSP obligations and expenditures beginning 30 days after the end of the 15th month following receipt of funds, and continuing until reported total obligations are equal to or greater than the total NSP grant. After HUD has accepted a report from ADFA showing such obligation of funds, the monthly reporting requirement will end and quarterly reports will continue until all NSP funds (including program income) have been expended and those expenditures are included in a report to HUD.

To collect these data elements and to meet its reporting requirements, ADFA will use HUD's online DRGR system to report on its NSP funds to HUD. When it submits the report to HUD, ADFA will post a copy of the NSP DRGR report on a website for the public to review.

Reporting requirements are subject to change and additional specificity based on further guidance fromllUD.

All entities, government or private (as defined at 24 CFR 570.500(c)), that receive program income (as defined at 24 CFR 570.500(a)) directly generated by activities carried out with NSP funds must immediately remit any and all program income from NSP-assisted activities directly to ADFA, ADFA will disburse and use program income prior to requesting additional cash withdrawals from the U.S. Treasury,

During the period of affordability, ADFA will perform on-site compliance and monitoring inspections of all single-family and multi-family developments utilizing NSP funds to determine compliance with the applicable regulations and requirements outlined in this manual and NSP regulations.

ADFA will accept applications for projects up to the September 1, 2009 application deadline. Multiple NSP applications may be submitted for funding. ADFA will determine in its sole and absolute discretion if the applicant has the necessary capacity to complete any additional NSP applications submitted. Additional NSP applications submitted by eligible applicants will be approved only if the applicant exhibits the capacity to successfully complete all approved projects. ADFA will accept applications for rentals at a minimum of five (5) units, from entitlement communities, other units of local government, nonprofit organizations, or for-profit entities.

Eligible applicants may receive technical assistance by attending an information/training session prior to submitting an application. Sessions will address NSP Program and ADFA guidelines as well as application procedures. Applicant eligibility will be based on the designated responsible entity submitting the application. An eligible designated responsible entity is the entity responsible for project development, but may include all of its related affiliated entities.

Each eligible applicant must request at least one hundred thousand dollars ($100,000). The maximum amount that can be requested for a developer's fee is ten percent (10%) of the final allocation amount. The allocation is generally meant to be used as gap financing and is not intended to fund an entire development.

ADFA will accept applications in the NSP Rental Housing Program in the following eligible activity categories:

NSP Program funds may be used for certain development costs as dictated by 24 CFR Part 570 and outlined below:

ADFA caps the maximum subsidy for rental projects at $132,000 per unit or $158,400 per unit for properties listed on the National Register of Historic Places.

NSP allocations for rental housing activities will be in the form of a loan at 0% interest amortized over the period of affordability. The minimum affordability period may be extended at the owner's election.

All NSP Program funds must benefit households with incomes no greater than 120% of the area median income, adjusted for family size. Rents in all NSP-assistcd units must be set at "affordable rents," which are defined as follows:

o Low HOME Rent Limits: Tenant households with incomes < 50% of the AMI

o Tenant households with incomes between 50 and 60% of AMI: High HOME Rent Limits o Tenant households with incomes between 60 - 120% of AMI: HUD Fair Market Rent Limits

These rent limits and area median incomes are recalculated on an annual basis by HUD.

All NSP-assistcd projects must remain affordable to and occupied by LMMI households within the above listed rent limits for a period of time that varies in accordance with the level of NSP assistance. The table below provides the minimum period over which NSP-assistcd units must remain affordable.

Rent, occupancy, and affordability requirements will be enforced with AFDA-approved covenants, mortgages, or deed restrictions running with the property. Specifically, rental property owners/managers will be required lo document that the required percentage of units arc occupied by LMMI households over the period of affordability. Income must be determined at a minimum, when a NSP-funded unit is occupied by a new tenant household (i.e., at unit turnover).

Where NSP Program funds are used in conjunction with HOME Investment Partnerships ("HOME"), Low Income Housing Tax Credits ("UHTC"), United Slates Department of Agriculture ("USDA") Rural Development funds or other financing programs, the more stringent project and occupancy regulations will apply.

The following building design criteria must be included in all construction for all NSP-funded rental projects, in accordance with the Arkansas Department of Human Services' Arkansas Usability Standards in Housing: Guidance Manual for Constructing Inclusive Functional Dwellings (AUSH):

The standard loan terms and conditions for repayment of Rental Housing Program loans are to be evidenced by fully executed promissory notes. Promissory notes will be payable at a zero percent (0%) interest rate for a term coinciding with the NSP affordability period. Monthly or annual payments will become due and payable not later than one (1) year from the anticipated placed in service date shown on Schedule of Activities, included as Attachment B of the NSP Agreement.

Applications will receive additional points for leveraging NSP funds with other sources (i.e., private financing, HOME, USD A, etc.).

ADFA will accept applications for projects up to the September 1, 2009 application deadline. ADFA will loan NSP funds to the approved eligible applicant as outlined in the NSP Program Agreement. The homebuyer will be required to execute a Promissory Note, Mortgage, and Deed Restriction through an ADFA-approved closing entity.

Each eligible applicant must request at least one hundred thousand dollars ($100,000). Additional applications may be submitted if currently funded project expenditures of NSP funds are being expended in a timely manner and the applicant demonstrates the capacity to successfully complete multiple projects. The approval of multiple and/or additional NSP applications will be contingent upon availability of funds, quality of submitted application, and in ADFA's sole and absolute discretion.

NSP Program funds can be used to fund the following homeownership activities:

The geographic location of properties included in the application will be reviewed to ensure the applying entity has the necessary capacity to perform the proposed activities within the designated geographic location. Eligible properties must be foreclosed or abandoned as defined by ADFA in the Glossary of this manual and must result in single family residential units for sale to LMMI buyer households.

As described in Section III. General Requirements of NSP, ADFA requires that the purchase of all properties be at least one percent (1%) below the appraised value. All properties acquired using NSP funds shall be appraised in conformity with the appraisal requirements previously outlined, including the requirement that properties valued at $25,000 or more must be appraised in accordance with the Uniform Relocation Act (URA) at 49 CFR 24.103 by a licensed appraiser within sixty (60) days prior to a final offer to purchase the property.

Eligible properties must be modest in value. Therefore, no acquisition of single-family dwellings will be allowed for property in excess of Federal Housing Administration (FHA) limits, currently set at $271,050.

An eligible owner must have a household income at or below the middle-income limits as defined by HUD. A middle-income owner is defined as an owner whose annual gross household income does not exceed one hundred twenty percent (120%) of the median income for the area, adjusted for family size. Without exception, NSP funds cannot be used on projects where the income of the prospective homebuyer household is greater than one hundred and twenty percent (120%) of the area median income,

NSP allocations to units of local government or other entities for single-family development activities will he in the form of a loan at 0% interest.

Assistance to homebuyers will be provided as a forgivable loan at 0% interest, contingent upon NSP eligible homebuyer continuing to own, occupy as principal residence, and maintain the NSP-assisted home for the full applicable affordability period. ADFA will provide the legal documents that must be recorded for each property to enforce the loan/affordability period/recapture provisions.

The following requirements apply to NSP assistance to homebuyers:

o Buyers must obtain a first mortgage and not exceed front and back end ratios of 31% and

41%, respectively. o ADFA will cap the amount of direct NSP assistance to the purchaser to up to 20% of the purchase price not to exceed $25,000 excluding an interest rate buy down (up to .250

basis points).

NSP Program funds may be used only for eligible costs as defined at 24 CFR Part 570. NSP funds may be used to cover soft and hard costs associated with a project. These costs include the following:

NSP requires that properties acquired or acquired and rehabilitated/constructed with NSP funding be sold to eligible LMMI homebuyers at an amount equal to or less than the cost to acquire and redevelop the property by the funding recipient. This means that properties may not be sold at a profit. The cost may not include any holding costs incurred by the awardee. ADFA will enforce and monitor these requirements through its closing documentation procedures and additional monitoring.

The homebuyer must obtain a mortgage loan from a lender who agrees to comply with the bank regulators' guidance for non-traditional mortgages (see, Statement on Subprime Mortgage Lending issued by the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Department of the Treasury, and National Credit Union Administration, available at

http://www.fdic.gov/regulations/laws/rules/5000-5160.htrril). Awardees must document compliance with this requirement for each homebuyer.

The minimum applicable affordabiiity periods for single-family loans shall be as follows:

Homeownership assistance is provided as a forgivable loan at 0% interest, contingent upon eligible homebuyer continuing to own, occupy as principal residence, and maintain the NSP-assisted home for the full applicable affordabiiity period. If the buyer chooses lo sell the home, move, or fails to maintain the NSP-assisted home, the buyer shall repay to ADFA the pro rata amount of the NSP direct assistance that enabled the buyer to purchase the home for the unexpired term of affordabiiity. In the event the property is sold or otherwise transferred to any purchaser during the affordabiiity period, ADFA will recapture lhat amount of NSP funds unforgiven during the affordabiiity period from the net proceeds from the sale of the property. If net proceeds are not sufficient to recapture the full NSP investment or reduced amount per lien documents, ADFA will share the net proceeds. The three (3) eligible types of homeownership assistance are 1) downpayment and closing cost assistance, 2) mortgage reduction assistance, and 3) interest rate buy-down of the eligible homebuyer's first mortgage to a rate 250 basis points below current market (non-subprime) interest rates.

In all cases where NSP assistance is provided, a note will be executed and mortgage will be recorded in lavor of ADFA. ONLY ADFA-APPROVED LIEN DOCUMENTS WILL BE USED. NSP assistance may be in a junior position to private lender financing as long as the combined loan-to-value does not exceed one hundred percent (100%). Recipients and subrecipients must apply all rules consistently and fairly, regardless of the form of assistance.

All mortgage payments shall be paid by the homebuyer on a monthly basis to ADFA at the following address:

Arkansas Development Finance Authority c/o Accounting Department

P. O. Box 8052

Little Rock, AR 72201

ADFA will recapture that portion of NSP investment unforgiven by the elapsed affordabiiity period or recapture the maximum net proceeds from sale of property (whether recapture is effected through foreclosure or no foreclosure action). Net proceeds recovered will be used as follows:

Minimum property standards must be met at project completion when NSP funds are used for a project. ADFA has developed "rehabilitation standards" which will be provided to applicants.

At a minimum, the requirements that must be met for all rehabilitation and new construction projects are those set forth in the Section 8 Housing Quality Standards and the ADFA Construction Performance Manual Sections I and II,,those set by the International Code Council (ICC) (when applicable), and all applicable local, state, and federal requirements. Single-family units constructed (i.e., new construction and reconstruction) with NSP funds must adhere to Energy Star standards.

Rehabilitation projects funded with NSP funds must also meet all local codes, rehabilitation standards, zoning ordinances, the cost effective energy conservation and effectiveness standards ( 24 CFR Part 251), and the Arkansas Energy Code.

Single-family units constructed with NSP funds as part of the homebuyer program must be a minimum of 1,200 square feet heated and cooled with a minimum of three (3) bedrooms and two (2) bathrooms.

The following building design criteria must be included for all NSP-funded homebuyer projects, in accordance with the Arkansas Department of Human Services' Arkansas Usability Standards in Housing; Guidance Manual for Constructing Inclusive Functional Dwelling (AUSH):

Construction bids (rehabilitation and new construction projects) must be good for a minimum of 60 days from date received by ADFA.

http://wwwJiud.gOv/officcs/adm/hudc1ips/handbooks/cpdlT/l378.0/1378xl9CPDH.pdf

Yes, if it meets the requirements in 2-5 above.

No. Although the URA criteria for appraisals refer to qualifications for review appraisers, the NSP grantee is not required to have a review appraisal performed in connection with voluntary acquisitions under 49 CFR 24.101(b).

Yes, if the NSP grantee is procuring the services of an appraiser (or requires someone else to procure those services) or is relying on a lender's (the owner of the foreclosed upon property) appraisal that is determined by the NSP grantee to meet above requirements. No, if the appraisal is performed by otherwise qualified in-house appraisal staff, although it is still advisable in such cases.

Guidance on NSP-Eligible Acquisition & Rehabilitation Activities

This NSP Policy Guidance describes how to determine whether or not a property is eligible for acquisition and or rehabilitation with NSP funds.The following criteria will help determine eligibility: the NSP Notice published in the Federal Register on October 6, 2008 (statutory program requirements, waivers granted, and alternative requirements applied), timing parameters, acquisition protocols, a written agreement with any Third Party Entities (see page 3 for definition) prior to obligation of funds, and options for NSP acquisition assistance.

NSP Notice

The NSP Notice provides the criteria for acquiring and rehabilitating property under NSP. The Notice states that properties must have been abandoned, foreclosed upon, or vacant to qualify for NSP acquisition assistance (see Attachment). I n purchasing homes and residential properties that have been foreclosed upon with NSP assistance, such properties must be acquired out of foreclosure, meaning directly from the entities that obtained title to the properties through foreclosure (e.g., the lender or trustee for holders of obligations secured by mortgage liens). The acquisition of properties that have been abandoned with NSP assistance must occur while they are in abandonment status.

Timing Parameters

NSP acquisitions are not authorized to begin until the grantee has submitted an action plan amendment to HUD. For most NSP grantees, the earliest acquisition start date would be December 1, 2008, but for those grantees that submitted an action plan amendment prior to December 1, 2008, an earlier date could be acceptable. For subgrantees, subrecipients, and other "Third Party Entities" (see definition on page 3), other requirements must first be met, as described in the Matrix on page 4.

Acquisition Procedures

I n addition to submitting an action plan amendment, NSP grantees and Third Party Entities alike must comply with the environmental review, purchase discount and appraisal (if foreclosed) and other eligible-use criteria discussed in the Guidance on Eligible Uses prior to acquiring properties under NSP.

Agreements to Use NSP Funds

If the acquisition is performed by an "outside entity," the grantee must give permission or enter into an agreement with the outside entity prior to the acquisition in order to qualify for NSP assistance under Eligible Use B. Properties acquired out of foreclosure before these requirements have been met are no longer foreclosed or abandoned and therefore are only eligible for NSP assistance activities identified under Eligible UseE (if vacant).This agreement may take the form of a contract, written commitment, preliminary commitment or other form that clearly describes the responsibilities and the requirements of each party. Sec the Attachment for a more extensive discussion of agreements with Third Party Entities.

Options for NSP Acquisition Assistance

There are a variety of options that can be used to acquire property under NSP. HUD regulations distinguish eligible entities based on those identified in § 570.201(a), § 570.202(b), § 570.202(n) and § 570.204. Depending on which category your entity falls into there are different requirements that must be followed to ensure compliance with NSP regulations. Listed below is a chart that explains the revenue implications, selection criteria and OMB Circular requirements that apply for acquisitions under NSP. Detailed explanations follow on page 3.

C - Competitive

NC - Non-competitive

NA - Not applicable

GD - Grantee determination

CBDO - Community-Based Development Organization

Individual Beneficiary - a homeowner who will occupy an NSP home as a primary residence

See following page for more detailed discussion of terms and regulatory bases.

Definition of Third Party Entities

Third Party Entities include subrecipicnts, individuals, and other private entities such as for-profit developers, non-profit developers or other entities. How they are selected, generate revenue, and keep records, summarized in the Table above, is described more fully below.

Public Entity or Private Nonprofit as subrecipient - Non-profit organizations and public entities under §570.201(a) can be designated by the NSP grantee as subrecipicnts, without a procurement process (See § 570.500(c) for guidance). However, subrecipient agreements must conform to all the regulations under § 570.503. Any revenues exceeding costs captured from properties sold or leased are classified as program income and must be used for NSP-eligible activities. At their option, grantees may allow subrecipicnts to retain Program Income, subject to § 570.503 and 504.

Private Nonprofit, a For-profit organization, or an Individual as developer (not a subrecipient) -Non-profit organizations, For-profit organizations or individuals under § 570.202(b)(l) can be given assistance to acquire residential property for the purposes of rehabilitation, resale, or use. The sales price of properties sold to NSP income-eligible individuals cannot exceed total costs (acquisition, rehabilitation, and development costs). Therefore, entities treated as developers must work within these parameters to generate a profit.

If engaged in rehabilitation, or for acquisition prior to rehabilitation, entities treated as developers may be selected through a competitive procurement process or may be designated as grant recipients without a procurement process. See § 85.36 for procurement guidance. For rental projects or others not sold to individuals for use as a primary residence, revenues are not considered Program Income.

In addition, such entities are not subject to recordkeeping or audit requirements that do apply to subrecipients. This flexibility creates a burden on the grantee to underwrite all such transactions to avoid undue enrichment.

Community-Based Development Organizations (CBDO) - CBDOs arc governed by the regulations in § 570.204 and can be either nonprofit or for-profit entities. CBDOs can be treated as developers or subrecipicnts and would be subject to the same rules applied above depending on the grantee's determination of the relationship (whether the NSP grantee chooses to treat the CBDO as a developer or as a subrecipient).

Timeline Matrix

The following Matrix describes the recommended sequence of events for grantees carrying out NSP activities directly and for those grantees that carry out NSP activities in collaboration with Third Party Entities. These examples assume a simple transaction under Eligible Use B, in which property is acquired, rehabilitated, and sold, but the principles of these examples apply to all NSP assisted acquisitions and rehabilitation activities. The requirements under B can be undertaken in any order, but MUST be performed prior to a commitment of funds or a "choice-limiting action" as described in the Environmental regulations at 24 CFR Part 58 . HUD encourages grantees to undertake tiered reviews, which can generally be completed for a group of properties in advance of the other steps in the process. Starting early also reduces the potential for delays at State Historic Preservation Offices.

RECOMMENBEB SEQUENCE OF EVENTS FOR NSP ACQUISITION AND REHABILITATION

ATTACHMENT

DEFINITIONS AND EXPLANATIONS

NSP"Eligible Acquisition Property Types

From Housing and Economic Recovery Act, Sec. 2301 (c)(3) and (i)(3)):