Article | An NSPIREd Change? | Part 4 | NSPIRE Inspection Scoring

 Series Outline

As we announced HERE, in March, HUD has proposed a scoring methodology for NSPIRE and asked for comment from stakeholders. The comment period ended in late April, and we expect HUD to provide a final scoring method soon. Subsequently, HUD also released a calculator to support the scoring method and a tutorial video. Check these out HERE.

LIHTC Note: Based on past IRS interpretations of the applicability of HUD inspection standards to LIHTC properties, it is likely that the overall scoring will not apply to the LIHTC. Additionally, the threshold for certain scores that would require further monitoring is a procedural issue that applies only to HUD properties. However, any severity ranking of individual findings applies and will likely continue to be reported to the IRS by state LIHTC Agencies.

• Under UPCS, this was 1-3 (with 3 being the most severe).
• Replacing the above is likely the NSPIRE Defect Severity Categories assigned to each deficiency. These are 1-4 as follows: 1) life-threatening (LT), 2) severe, 3) moderate, and 4) low.

The NSPIRE scoring methodology converts observed defects into a numerical score. According to HUD, when it evaluated the prior UPCS and HQS inspection standards and scoring, it identified a disproportionate emphasis on the appearance of items that are otherwise safe and functional and that the standards didn't pay enough attention to health and safety conditions. HUD concluded that revised housing standards would need to focus on habitability and the residential use of the buildings, and most importantly, the health and safety of residents. To best protect residents, NSPIRE seeks to prioritize conditions that are most likely to impact residents in the places where they spend the most time, the units. Thus, standards that are categorized as more severe should have a greater impact on a property's score when deficiencies are found in a unit, and a property with observed health and safety defects in its units is more likely to fail an inspection than a comparable property with less severe defects.

Therefore, HUD intends to score deficiencies based on two factors: severity and location. The categories of severity, as provided in the proposed NSPIRE Standards Notice, are Life-Threatening (LT), Severe, Moderate, and Low. Defect severity levels include the following characteristics:

• Life-Threatening (LT) | The Life-Threatening category includes deficiencies that present a high risk of death, severe illness, or injury to a resident.
• Severe| The Severe category includes deficiencies that present a high risk of permanent disability, or serious injury or illness, to a resident. It also includes deficiencies that would seriously compromise the physical security or safety of a resident or their property.
• Moderate | The Moderate category includes deficiencies that present a moderate risk of an adverse medical event requiring a healthcare visit; could cause temporary harm; or if left untreated, could cause or worsen a chronic condition that may have long-lasting adverse health effects. It also includes deficiencies that would compromise the physical security or safety of a resident or their property.
• Low | The Low category includes deficiencies critical to habitability but not presenting a substantive health or safety risk to a resident.

The three location categories of the NSPIRE rule are the unit, inside, and outside. Under this proposed NSPIRE scoring methodology, in-unit deficiencies are weighted more heavily, meaning that properties with such deficiencies would be more likely to fail. HUD will weigh these factors using a Defect Impact Weight. Under the Defect Impact Weight methodology, the weight of the deduction for a given deficiency changes depending on both the location and the severity.

A "Life-Threatening (LT)" deficiency inside a unit will lead to the largest deduction and a "Low" deficiency observed on the outside of the property will lead to the smallest deduction.

To determine the point deduction of a given deficiency, HUD would determine the location and severity of the deficiency as described in Table 1 below. Finally, the sum of individual defects would be divided by the number of units inspected.

Example | 10 units were inspected and one Life-Threatening (LT) defect in a unit was observed. The total deduction from the score is 6 points (60.0 points from Table 1, divided by 10 units).

More Background: HUD determined each of the values in Table 1 by determining relative severity values for each category. HUD proposes the rates of change by which Defect Impact Weights change depicted in Table 2 below:

LT deficiencies will deduct much more than Low deficiencies, consistent with HUD's goal of prioritizing the health and safety of residents.

Defect Impact Weights will also change at constant rates across the three inspectable areas (Outside, Inside, and Unit), but by a smaller amount. From the proposed rule, these areas are:

• Outside | (also“outside areas”) refers to the building site, building exterior components, and any building systems located outside of the building or unit.
  • Examples of “outside” components may include fencing, retaining walls, grounds, lighting, mailboxes, project signs, parking lots, detached garages or carports, driveways, play areas and equipment, refuse disposal, roads, storm drainage, non-dwelling buildings, and walkways.
• Inside | means the common areas and building systems that can be generally found within the building interior and are not inside a unit.
  • Examples of “inside” common areas may include, basements, interior or attached garages, enclosed carports, restrooms, closets, utility rooms, mechanical rooms, community rooms, daycare rooms, halls, corridors, stairs, shared kitchens, laundry rooms, offices, enclosed porches, enclosed patios, enclosed balconies, and trash collection areas.
• Unit | (also “dwelling unit”) | refers to the interior components of an individual unit.
  • Examples of components included in the interior of a unit may include the balcony, bathroom, call-for-aid (if applicable), carbon monoxide devices, ceiling, doors, electrical systems, enclosed patio, floors, HVAC (where individual units are provided), kitchen, lighting, outlets, smoke detectors, stairs, switches, walls, water heater, and windows.

Inspectable areas increase point deductions by a factor of 1.1 or 110 percent. For example, if you multiply a Low Defect Impact Weight located in the Outside Inspectable Area (2.0 - from Table 1) by 1.1, the result is the Defect Impact Weight for a Low Defect located in the Inside Inspectable Area or 2.2. Similarly, if you multiply a Low Defect Impact Weight located in the Inside Inspectable Area (2.2 - from Table 1) by 1.1, the result is the Defect Impact Weight for a Low Defect located in the Unit Inspectable Area or 2.4. This constant rate by which Defect Impact Weights change by inspectable area is depicted in Table 3 below for the Low Defect Severity Category (Note: The same rate of change by inspectable area applies to all Defect Severity Categories):

Total Defect Deduction Value All Areas ÷ Unit Sample Size = Defect Deduction Value Per Unit

To determine the final property score, the Defect Deduction Value Per Unit is then subtracted from 100:

100 − (Defect Deduction Value Per Unit) = Final Score

Note: Scores cannot go below zero, so if the calculation yields a result lower than 0, the score is set to 0.

"Way to Fail" - Failing Scores

As provided in HUD NSPIRE Notices, all deficiencies identified through the NSPIRE inspection must be corrected within the timeframes established in the rule and the NSPIRE standard. In addition, under this proposed NSPIRE scoring methodology, there are two situations in which a property will be considered to have failed inspection:

"Way to Fail" #1 | Property Scores below 60.

The Property Threshold of Performance is defined as properties that achieve a score of 60 or above. Failure to achieve a score at or above 60 is considered a failing score, and properties that score under 60 are required to perform additional follow-up and may be referred for administrative review. This policy continues from UPCS in the NSPIRE program.

"Way to Fail" #2 | Unit Point Deduction 30 or above.

To maximize the health and safety of a unit, HUD has determined that scores, where deductions are largely from Unit deficiencies, should be considered failures even if the rest of the property is in good or great condition. Therefore, regardless of the overall property score, if 30 points or more were deducted due to Unit deficiencies, HUD would consider the property to have failed the inspection and would deem the result of the inspection to be a score of 59 and fail.

A Property Passes by Unit and Property Score
The following example demonstrates a 10-unit inspection. In this example, the following defects and the corresponding Defect Impact Weight categories were recorded by the inspector.

Outside: 1 "low" issue.

Inside: 2 "severe", 3 "moderate", and 10 "low" issues.

Units: Unit G had 1 "life-threatening" issue and Unit B had 1 "life-threatening" issue and 1 "severe" issue. All other units were without issue.

Conclusion | The property passes the inspection with a property score of 80 (which exceeds the required 60 and above) and a unit score of 13.5 (which is below 30).

 A Property Fails 

The following example demonstrates a 10-unit inspection.  In this example, the following defects and the corresponding Defect Impact Weight categories were recorded by the inspector.

Outside: one "low" issue.

Inside: two "severe", three "moderate", and ten "low" issues.

Units: Unit G had one "life-threatening" issue and Unit B had one "life-threatening" issue and one "severe" issue. All other units were without issue.

Conclusion | The property would have passed the property inspection with a score of 62, but failed because the unit score exceeds 30. 

Summary conclusion for this series. This series has established why the NSPIRE Model will apply to most affordable housing, including the LIHTC, and laid out the history and reasons behind NSPIRE. It explained how the three "3"s provide an outline of the NSPIRE process. It then provided a framework to assist in taking a deep dive into the many specific NSPIRE standards. Finally, the proposed scoring model was explained. As NSPIRE takes a major role in the life of affordable housing management, understanding the focus of the Model and its ongoing developments will be important.

NSPIRE, HOTMA, and other hot topics will be further discussed at a couple of popular events this fall! Check them out by clicking on the below images!

2023 Compliance Summit