HUD Publishes 2013 HOME Final Rule

HUD published a Final Rule in the Federal Register on July 24 to amend the Home Investment Partnerships (HOME) program regulations. The proposed rule had been issued in December 2011. The HOME program provides grant funding through formula allocation to states and local governments to strengthen public-private partnerships and increase the supply of affordable housing for low-income households. State and local government agencies that administer HOME programs, or participating jurisdictions (PJs), are required to match a portion of federal funds with non-federal resources. HOME funds are provided for transitional housing acquisition, rehabilitation, new construction, and tenant-based rental assistance.

                The recent amendments to the HOME regulations represent the most significant changes to the HOME program in 17 years. The changes have the overall goal of providing PJs and their partners with regulatory guidance to enhance the efficiency and effectiveness of the HOME program in the context of a more complex housing and community development environment. The key substantive changes in the regulation are intended to:

                Accelerate the timely production and occupancy of assisted housing. HOME projects must be completed within four years of commitment [24 CFR §92.205(e)(2)]. Also, HOME-assisted rental units must be occupied by income-eligible households within 18 months of project completion; if not, PJs must repay HOME funds for the vacant units. Note, for units that remain vacant six months following completion, the PJ must identify and develop an enhanced marketing plan and report this information to HUD [24 CFR §92.252].

                Strengthen the performance of PJs and their partners in producing and preserving affordable housing units. The property standards were updated to reference current national codes and to require that PJs establish standards that will sustain quality assisted housing for at least the affordability period.  Within the 2013 Final Rule, property standards requirements are reorganized by project type—new construction, rehabilitation, acquisition without rehabilitation, and manufactured housing [24 CFR §92.251].

                Also, PJs must identify and plan for major systems repairs. For rental rehabilitation projects with 26+ units, this must be done via a capital needs assessment. The PJ must require that the scope of rehabilitation work and replacement reserves deposits must be sufficient to ensure the useful life of essential building components throughout the period of affordability. For homeownership housing, major systems must have a useful life of at least five years upon project completion [24 CFR §92.251(b)(ii) and (viii)].

                And PJs must develop inspection policies and procedures, including: (1) initial inspections of properties to be rehabilitated or acquired to determine the necessary scope of work to bring each property up to applicable standards; and (2) progress and final inspections for all new construction and rehabilitation projects to ensure projects are constructed according to approved plans. HUD will issue guidance to identify for PJs the minimum required inspectable elements based on the Uniform Physical Conditions Standards [24 CFR §92.251(g)].

                With respect to the long-term viability of rental projects, during the affordability period, PJs must now examine the financial condition of projects with 10 or more HOME-assisted units at least annually, and must take action where feasible to correct problems that threaten a project’s financial viability  [24 CFR §92.504(d)(2)].

                Provide flexibility in program design and administration. The 2013 Final Rule provides flexibility to PJs by permitting new ways to design and administer local HOME programs for increased efficiency and effectiveness.  PJs may utilize a risk-based monitoring system and adjust the schedule of ongoing rental unit inspections as part of a risk-based monitoring system, but inspections must occur no less frequently than every three years. The first on-site inspection must occur within 12 months of project completion [24 CFR §92.504(d)].

                Also, PJs are permitted to charge certain fees: reasonable application fees, homebuyer counseling fees, and ongoing rental monitoring fees. The cost of inspections and income determinations for Tenant-Based Rental Assistance (TBRA) recipients may be charged as project soft costs  [24 CFR §92.214(b)(1) and §92.209(a)].

                Increase administrative transparency and accountability. The rule requires PJs to develop several new written policies and procedures, making local program requirements clearer to program participants and the public as a whole.  PJs must develop risk-based monitoring systems for all HOME-funded activities and projects, including on-site monitoring schedules and financial oversight protocols for rental properties  [24 CFR §92.504(a) and §92.504(d)(2)].

                In general, the provisions in the final rule will be applicable to projects for which HOME funds are committed on or after Aug. 23.