HUD Releases Final HOTMA Rule on Income Reviews and Asset Limits
HUD recently released its final rule for implementing the remaining Housing Opportunity Through Modernization Act (HOTMA) provisions. HOTMA was a bipartisan bill that sought to align and streamline public housing and multifamily programs.
The changes under HOTMA touch upon multiple areas, including standards for income determination, resident self-certification, and interim reexaminations. The new rules incentivize tenant earning and savings goals. Assisted tenants are allowed to accumulate significant savings under the new asset limit, and retirement accounts and educational savings accounts are excluded from that limit. As a result of the changes in the interim and annual reexamination rules, families can also keep more of their earned income before receiving a rent increase.
The new rules also reduce administrative burdens by streamlining the rules for determining household income and rent payments. For example, the new rules simplify allowed deductions. Seniors and people with disabilities have been allowed to deduct a certain level of medical expenses from their income. The new rule raises the standard deduction for everyone but then also raises the threshold above which public housing and Section 8 residents can deduct additional medical expenses. And residents will also be able to self-certify when their combined net family assets are $50,000 or less, eliminating a lot of paperwork for many households.
From when it was signed into law in 2016 by President Obama, HUD has taken steps to implement the new provisions. In 2019, HUD issued a proposed rule for implementing parts of HOTMA, but hadn’t moved forward with implementing the rule until recently. Specifically, in 2019, HUD issued a proposed rule to implement Sections 102, 103, and 104 of HOTMA. We’ll provide an overview of the changes this final rule will make for HUD multifamily housing properties.
Effective Dates and Implementation
HUD says all provisions for Multifamily Housing programs will become effective on Jan. 1, 2024. With some of the key rules for determining tenant income and assets not going into effect until January 2024, PHAs, HUD, and owners have time to get up to speed and make changes to their procedures in anticipation the implementation date.
Owners must implement the revised regulations for all tenant certifications of income effective Jan. 1, 2024, and after. HUD will make more implementation information available. HUD says the Offices of Multifamily Housing and Public and Indian Housing will publish a joint supplemental notice in Spring/Summer 2023 to provide comprehensive implementation instructions to multifamily owners and public housing agencies (PHAs).
Applicable Programs
Rental assistance programs administered by HUD’s Offices of Public and Indian Housing, Multifamily Housing, and Community Development and Planning (CPD), including the Housing Choice Voucher (HCV), Public Housing, Section 8 Project-Based Rental Assistance (PBRA), Section 202/811, HOPWA, HOME, and the Housing Trust Fund programs are all impacted in some way by this final rule.
OVERVIEW OF CHANGES
FOR HUD MULTIFAMILY HOUSING PROPERTIES
HUD’s final rule implements three sections of the bill (HOTMA Sections 102, 103, and 104), two of which apply to properties participating in HUD’s Multifamily Housing programs, including Project-Based Section 8, Section 202, and Section 811. Section 103 modifies the continued occupancy standards of Public Housing residents and does not apply to Multifamily Housing programs.
Section 102: Income Reviews
Section 102 addresses income reviews. HOTMA modifies the frequency of income reviews and the definitions of “income” and “assets.” Here are the highlights for changes applicable to HUD’s multifamily housing sites:
Fewer interim reexaminations. Interim reexaminations are conducted as a result of changes in family income, family composition, or circumstances impacting adjusted annual income that occur between reexaminations. The purpose of an interim reexamination is to determine the continued eligibility of the family and adjust the rent, if necessary. HOTMA creates a 10 percent adjusted income increase or decrease threshold for conducting interim reexaminations. And, in most cases, HOTMA requires that increases in earned income are not processed until the next annual reexamination. This change allows households to keep more of their earnings before receiving a rent increase and should lead to fewer interim reexaminations overall.
Streamlined verifications. HOTMA includes several provisions that will streamline the verification process for housing providers. HOTMA revises the required consent form that all adult household members sign, allowing them to sign the form only once instead of annually. Also, HOTMA allows PHAs to use income determinations made under other federal benefits programs for reexaminations. And an Enterprise Income Verification (EIV) review is not required at interim reexamination. HOTMA eliminates the requirement for PHAs to use EIV to verify tenant employment and income information during an interim reexamination, significantly reducing administrative burden.
Increased standard deduction for elderly/disabled households. HOTMA increases standard deductions for families with a head, co-head, or spouse who is elderly or a person with a disability to $525. This deduction and the dependent deduction will be adjusted for inflation on an annual basis.
Additional income exclusions. The rule codifies additional income and asset exclusions. For example, payments made to veterans in need of a regular aide and attendance are excluded from annual income.
Also, an exclusion applies when the payments to the family member are for the care of another member of the family living in the unit. The amounts paid directly to a member of an assisted family by a state Medicaid agency (including through a managed care entity) or other state or federal agency, or payments made by another entity authorized by the state Medicaid agency, state agency, or federal agency to make such payments on its behalf to enable a family member who has a disability and wishes to remain in the unit are excluded from income.
Distributions of principal from non-revocable trusts or a revocable trust outside the control of any member of the household, including special needs trusts are also excluded. For these trusts, the final rule excludes from income distributions of the principal or the property that was transferred into the trust. Distributions of income such as interest earned from the trust when the distributions are used to pay the cost of health and medical care expenses for a minor are also excluded.
Threshold for claiming medical/disability expenses increased. HOTMA increases the allowance for unreimbursed health and medical care expenses from 3 percent of annual income to 10 percent, phased-in over two years. Owners must deduct eligible expenses exceeding 5 percent of the family’s income for the first year, 7.5 percent for the second year, and 10 percent for the third year.
Higher threshold for imputing asset income. To incentivize families to build wealth without imputing income on those assets, HOTMA raises the imputed asset threshold from $5,000 to $50,000. This figure will be adjusted annually for inflation.
Hardship relief. HOTMA provides hardship relief for expense deductions, lessening the impact of the increased threshold for medical expenses. HOTMA permits PHAs to grant hardship relief to families unable to pay rent because of unanticipated medical/disability expenses and families who are no longer eligible for the childcare expense deduction.
Under HOTMA, a family may qualify for hardship exemptions for health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses if the family can demonstrate that the expenses increased, or the family’s financial hardship is a result of a change in circumstances as determined by the project owner. For these families, the deduction will be for expenses in excess of 5 percent of family income for up to 90 days. This may be extended for additional 90-day periods at the discretion of the owner, based on family circumstances. Owners may also terminate the hardship exemption if it’s determined that the family no longer needs the exemption.
With regard to childcare deduction hardship relief, owners may extend a deduction for unreimbursed childcare expenses for 90-days, with extensions for additional 90-day periods if the family can demonstrate that they are unable to pay their rent due to loss of the childcare expense deduction, and the childcare expense is still necessary even though the family member is no longer employed or furthering his or her education.
Section 104: Asset Limits
Section 104 establishes an asset limitation for families assisted under the Section 8 Project-Based Rental Assistance (PBRA) program while also implementing deductions and exceptions for certain investments, including retirement savings and modest increases in income. This section doesn’t apply to Section 202/8, 202/811 PRAC, 202/162 PAC, 811 PRA, or SPRAC programs.
Eligibility limitation based on assets. HOTMA imposes a $100,000 asset limit for eligibility and continued assistance. Owners have the option of delaying enforcement/termination for up to six months if the family is over the asset threshold at the time of annual reexamination.
Households are also ineligible for assistance if they own real property suitable for occupancy by the family as a residence. However, HUD notes that there are various circumstances where a property may not be suitable for occupancy. For example, a condemned property or commercial property that can’t legally be occupied as a residence under state and local law wouldn’t be considered an asset for purposes of the asset limitation. Also, for a household with a disabled member, there may be a disability-related need for additional bedrooms, proximity to accessible transportation, etc., which would exclude the real property from being considered an asset for asset limitation purposes.
The real property restriction also doesn’t apply if the household is unable to sell the property based on state and local laws of the jurisdiction where the property is located. It also doesn’t apply if a member of the family jointly owns real property with another non-household member who doesn’t reside with the family if the non-household member lives in the jointly owned property.
Exclusion of retirement and educational savings accounts. Retirement accounts and educational savings accounts won’t be considered a net family asset. However, any distribution of periodic payments from these retirement accounts will be considered income at the time the household receives them.
This change is intended to incentivize households to save for important life milestones and to provide significant administrative relief to owners by allowing them to stop verifying and calculating these assets altogether. As a result of this change, owners and managers won’t have to go through the process of determining whether a household has “access” to such accounts.
Self-certification of assets under $50,000. HOTMA allows self-certification of net assets if estimated to be at or below $50,000. This change will lower the administrative burden for owners recertifying income as owners don’t have to take additional steps to verify the accuracy of the household’s declaration.