Section 8 Renewal Policy Guide Changes Posted for Comment

On Feb. 28, HUD’s Office of Multifamily Housing Programs posted the draft revised Section 8 Renewal Policy Guide for public comment. The Section 8 Renewal Policy Guide is HUD’s comprehensive guidance for renewing expiring Section 8 contracts. Like the recent changes to HUD Handbook 4350.3, the changes are set off with asterisks, and the eight-page transmittal lists all of the 90 proposed changes.

Public comments that identify the section number, page, and paragraph number are due April 30. If you want to send your input, you can email them to Section8RenewalGuide@hud.gov or mail them to the Department of Housing and Urban Development, Attn: Section 8 Renewal Guide, 451 7th Street, SW, Room 6134, Washington, DC 20410–0500.

Rent Comparability Studies

One of the major changes affects Chapter Nine of the Section 8 Renewal Policy Guide dealing with Rent Comparability Studies (RCS). When the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA) was enacted, Congress authorized the renewal of expiring contracts for project-based rental assistance issued under Section 8 of the United States Housing Act of 1937.

MAHRA requires that, to the extent possible, renewal rents be comparable to unsubsidized rents in the area where the project is located. Research by HUD has shown that market rent estimates as determined by an owner’s RCS are often higher than market rent estimates as determined by an RCS secured by HUD. In May 2012, the Department issued new guidance to require appraisers to provide additional justification if the gross rent potential in the RCS exceeded 110 percent of the Fair Market Rent (FMR) in rural areas or the Small Area Fair Market Rent (SAFMR) in urban areas.

There was significant feedback regarding this new guidance, citing policy and technical concerns. In light of these considerations, the Department suspended implementation of the guidance in order to more thoroughly consider how best to address HUD’s concerns regarding rent levels reflected in owners’ studies.

After further consideration, including consultation with HUD’s Office of Policy Development and Research (PD&R), HUD proposes to implement a revised benchmark against which owner RCS rents can be assessed. As a preliminary matter, HUD believes the most reliable benchmark is a market-based, rather than a FMR-based, measure. Further, HUD believes that the most comprehensive market-based benchmark would be median gross rents, as determined and published by the Census Bureau or some other comparable source. HUD considers these rents comprehensive because they are available for every Zip code in the country.

The new guidance would require a comparison of the rents in the RCS to a market-based benchmark such as median rent estimates published by the U.S. Census Bureau or other comparable source, and if RCS rents exceed 110 percent of the median rents for the Zip code area, HUD will order a third-party RCS and undertake a comparison of the RCS.

Other Notable Changes

Among the changes outlined in the eight-page transmittal, here are a few notable ones:

• A non-MAHRA contract can be terminated early if the owner agrees to renew under Options One, Two, or Three for 20 years plus the remaining balance on the terminated contract;
• The 2 percent contingency reserve for projects owned by nonprofits is eliminated, but nonprofit-owned properties with 100 percent Section 8 units are allowed to include a vacancy rate of 3 percent in the budget;
• Owners of Exception projects can submit zero budget-based rent adjustments without an RCS;
• For-profit owners can use Chapter 15 and renew under Option Two for purposes of Capital Repairs, but must use Option One and Chapter 15 if seeking a Transfer or a Transfer with Capital Repairs;
• A new note after Section 15-6(D)(1) allows “after rehab” rents to be effective at closing under certain circumstances; and
• A new Chapter 16, “Old Regulation” State Housing Finance Agency Projects, describes owner options when prepaying a state agency-financed loan on a project with an “old regulation” Section 8 contract.