President Obama Signs Housing Assistance Reform Bill into Law

On July 29, President Obama officially signed into law H.R. 3700, the Housing Opportunity Through Modernization Act (HOTMA). Although HOTMA touches on a variety of housing issues such as veteran’s assistance, rural housing, and mortgage insurance, the bulk of the legislation deals with reforms to the Section 8 Housing Choice Voucher program and Public Housing. The changes implemented by the new law won’t be effective until HUD publishes final regulations. The following are some of the changes to expect in the final regulations:

Income deductions. HOTMA changes how resident incomes are calculated and rents are determined in the Public Housing, Housing Choice Voucher, and Project-Based Rental Assistance programs. Previously, heads of households who were elderly or who had a disability could deduct medical expenses and certain disability assistance expenses above 3 percent of their income from their total income for purposes of determining rent. Now, HOTMA increases the threshold over which such households can deduct medical and care expenses from 3 percent to 10 percent.

Also, previously each household with a head of household who was elderly or had a disability received a standard annual income deduction of $400. HOTMA increases the standard deduction for such households from $400 to $525 and indexes the value of the standard deduction to inflation.

Rent setting. HOTMA requires that resident rents be based on prior year income, except when setting initial rents. Residents whose incomes increase in a given year will not have their rents adjusted until the next annual recertification. The law will also limit the frequency of interim income reviews.

PHAs will be required to recertify incomes and adjust rents when a household’s annual income decreases by 10 percent or more. The same 10 percent threshold will apply for families whose incomes increase, except the law excludes interim income reviews when the increase is from earnings.

Project-based vouchers. The law also makes a variety of improvements to the project-basing of Housing Choice Vouchers. Previously, public housing agencies could project-base up to 20 percent of their voucher budget authority. HOTMA will give agencies the flexibility to increase project-basing another 10 percent to serve households in areas where vouchers are difficult to use or to assist persons with disabilities, elderly people, people who were formerly homeless, and veterans.

HOTMA also allows PHAs to commit project-based vouchers for 20 years, up from the current 15 years, and give more flexibility to the number of units in any property that can be designated for project-based vouchers.

Inspections in Housing Choice Voucher program. HOTMA changes inspection protocols for apartments to be rented by voucher holders. Potential apartments could be occupied by voucher holders if the units have been inspected by the PHA, but the law also allows occupancy of units that have been inspected in the previous 24 months under a federal inspection standard that is at least as stringent as the voucher program’s Housing Quality Standards. HOTMA allows voucher rent payments and occupancy to begin if the unit does not pass the initial inspection due to non-life threatening conditions. The deficiencies from the failed inspection must be corrected within 30 days of initial occupancy for the landlord to continue receiving payments from the PHA.

Over-income tenants. HOTMA imposes limits on public housing assistance for households with incomes above 120 percent of area median income. When a household’s income is above 120 percent of area median income for two consecutive years, the PHA will be required to either terminate the household’s assistance within six months or charge the household rent equal to the higher of the fair market rent or the costs of operating and capital subsidies provided for that unit.