Article | Review of Proposed HOME Changes | Part 3 - Other Issues

Series Outline

Part 1 | Rent Limits and Income Determinations

Part 2 | Tenant Protections

       Part 3 | Other Issues

HUD has released a preview of a significant overhaul of the HOME regulation, pending release in the Federal Register. This series discusses the proposed changes. Upon release in the Federal Register, stakeholders will have 60 days to comment. To facilitate consideration of comments, this series of articles highlights matters that will have the greatest impact on operations and compliance at HOME properties.

The complete proposed rule can be found HERE.

Part 1 can be found HERE.

Part 2 is HERE.  

   Homeownership Sale Delay

The proposed rule would more explicitly state that if a unit intended for homeownership has not been sold to an eligible homebuyer by a proposed 12-month deadline, the participating jurisdiction must immediately convert the unit to HOME-assisted rental housing that meets the requirements of the HOME rental program and impose the required affordability restrictions for the appropriate rental housing period of affordability (which differs from the period of affordability for homebuyer housing). If at some future time, the PJ permits an owner to sell or otherwise convey a unit that converted from a homebuyer activity to a rental activity, the participating jurisdiction may permit the sale. (§ 92.254(a)(3) and § 92.255).

“Reconstruction”

HUD proposes to revise the definition of “reconstruction” to clarify that, although reconstruction is considered rehabilitation for purposes of the HOME program, the property standards for new construction apply to all HOME-assisted reconstruction. (§ 92.251)

Troubled Properties

Additional HOME Investment | The proposed rule would change the amount of additional HOME funds a participating jurisdiction may invest in a troubled HOME-assisted rental project to make it financially and physically viable during the period of affordability. The total investment (original investment plus additional investment) must be the amount needed to address the physical and financial viability of the project and may not exceed the HOME per-unit subsidy limit in effect at the time of the additional investment. The use of HOME funds may include, but is not limited to, rehabilitation of the HOME units and recapitalization of project reserves to fund capital costs. HUD CPD also proposes to clarify that it may impose conditions on the investment of additional HOME funds, including requiring the PJ to extend the period of affordability, increase the number of HOME-assisted units, and/or change the number or designation of Low HOME rent and High HOME rent units. (§ 92.210(b))

Changing HOME Designations | HUD additionally seeks to revise the rule to clarify that even if there are no additional HOME funds invested in the troubled HOME-assisted rental project, HUD CPD may, through written approval, permit participating jurisdictions to not only reduce the total number of HOME units but change the designation of units from Low HOME rent units to High HOME rent units in troubled projects with more than the minimum number of Low HOME rent units. HOME requires at least 20 percent of HOME-assisted units in a project be restricted as Low HOME rent units with the other HOME-assisted units restricted as High HOME rent units. Low HOME rent units must be occupied by those at 50 percent of the Area Median Income (“AMI”) and below, while High HOME rent units must be occupied by those at 80 percent AMI and below. Further, under the requirements for HOME rent limits, the Low HOME rent units are restricted at lower rent levels than High HOME rent units. The Department has reviewed several troubled project requests in which converting Low HOME rent units to High HOME rent units (when there are more than the required minimum 20 percent Low HOME rent units) is sufficient to preserve the project by increasing the ongoing rental revenue to the project to cover project expenses and financially stabilize the property. HUD believes that permitting PJs to undertake such actions for troubled HOME-assisted rental projects will support and preserve HOME units through the required period of affordability. (§ 92.210(c), 42 U.S.C. 12745 and 24 CFR 92.252,§ 92.252)

Finally, the proposed rule would add that investing additional HOME funds in a troubled project is an exception to the requirement that a PJ cannot provide additional HOME funds to a previously assisted project. (§ 92.214(a)(6)) 

Health and Safety Hazards and Physical Standards

Health and Safety Hazards | The proposed rule would add a new provision regarding health and safety, which would require that if a PJ has actual knowledge of an environmental, health, or safety hazard affecting a project, unit, or HOME tenants, the PJ inform the owner and tenants of the nature, date, and scope of such hazards. HUD CPD believes this is a reasonable requirement in light of recent environmental hazards like those in Jackson, Mississippi; Flint, Michigan; and East Palestine, Ohio. Similarly, the proposed rule would require that if an owner has actual knowledge of an environmental, health, or safety hazard affecting a project, unit, or HOME tenants, the owner inform the PJ. The proposed rule would clarify that this notification requirement only applies to hazards discovered after the environmental review process because all hazards found during that process will have been corrected or mitigated, or have a satisfactory mitigation plan in place, per other HUD regulations. (§ 92.253(f) and 24 CFR part 50 or part 58).

Property Standards | HUD CPD proposes several revisions to the property standards applicable to HOME-assisted properties to implement statutory energy efficiency requirements, impose carbon monoxide detector requirements, and incorporate green building standards when a participating jurisdiction elects to exceed the maximum per unit subsidy limit for a project. It also proposes providing administrative relief to reduce duplicative physical inspections, provide additional flexibility for small-scale housing, and correct an inadvertent limitation on homebuyer acquisition programs. Finally, the proposed rule also incorporates further conforming regulatory changes to the NSPIRE Final Rule.

Multiple Funding Monitors | HUD CPD explains that it understands that HOME is frequently one of many financing sources in a multifamily rental development project and, therefore, HOME projects are often subject to the requirements of many other public and private funding sources. Consequently, HUD is proposing to provide administrative relief in this proposed rule by permitting a participating jurisdiction to accept the completion or ongoing inspection, as applicable, conducted for another funding source following the National Standards for the condition of HUD housing (24 CFR part 5, subpart G) or an alternative inspection standard, which HUD may establish through Federal Register notice to determine that the project and units are decent, safe, sanitary, and in good repair. The PJ must still conduct initial and progress inspections of rehabilitation projects and determine compliance with the PJ’s HOME rehabilitation standards, State and local codes, ordinances, and zoning requirements. Under this proposed rule, a PJ may accept an inspection performed under the Uniform Physical Condition Standards before the NSPIRE effective date. Inspections that occur after the effective date of NSPIRE for HOME and used by the participating jurisdiction to verify the housing is decent, safe, sanitary, and in good repair must be conducted under NSPIRE or an alternative inspection standard, as described in the proposed rule. (§ 92.251 paragraphs (b)(1)(viii)(A) (for rehabilitation projects), (f)(3)(i)(B) (for ongoing inspections of rental housing), and (f)(4)(ii) (for housing occupied by tenants receiving TBRA, § 92.251).

For ongoing rental housing inspections, HUD proposes to amend the rule to permit a PJ to accept an inspection that occurred within the past 12 months. However, HUD CPD encourages PJs to align the project’s ongoing inspection schedule with the schedule of inspections of other HUD programs or funders. The proposed rule would require that a PJ perform an on-site inspection within 12 months after project completion and every three years during the period of affordability. The participating jurisdiction may not accept the determination of another funder for the first ongoing inspection occurring 12 months after project completion but may accept the determination of another funder every three years thereafter. (§ 92.251) 

For ongoing annual inspections for housing with tenants receiving TBRA, HUD proposes to insert a new paragraph for TBRA to state that a participating jurisdiction may accept an inspection performed for another funding source in accordance with the above that occurred within the past three months. HUD CPD proposes a shorter timeframe for accepting inspections of TBRA units performed by other funders because TBRA ongoing inspections are required annually after initial occupancy, while inspections of HOME-assisted rental projects may be conducted every three years during the period of affordability.

The proposed rule would also add provisions to require that the PJ document a determination by another funder that the project and unit(s) are decent, safe, sanitary, and in good repair. To document a determination means that the participating jurisdiction must obtain the inspection report that indicates that all deficiencies have been corrected. These paragraphs would also clarify that when the participating jurisdiction documents a determination by another funder under § 92.251, it is not required to conduct a duplicative HOME on-site inspection. (§ 92.251(b)(1)(viii)(B) (for rehabilitation projects) and § 92.251(f)(3)(i)(B) (for ongoing inspections of rental housing) and § 92.251(f)(4)(ii) (for housing occupied by tenants receiving TBRA). 

Inspection sample requirements | Requirements in the proposed rule would require that the sample of units for an onsite inspection be a random sample rather than a statistically valid sample. While HUD CPD's software creates a statistically valid sample of units for its inspection of HUD-assisted housing conducted using the NSPIRE Standards, HUD is proposing this change because it is concerned that PJs do not have software capability to develop a statistically valid sample of units. In addition, participating jurisdictions have sought guidance about the current requirement regarding what constitutes a sample size appropriate for the size of the HOME-assisted project. Consequently, in the proposed rule, HUD CPD would require inspection of a sample size of 20% of the HOME-assisted units in a project, except for a project with one to four HOME-assisted units where the requirement that 100% of the units be inspected remains unchanged. (§ 92.251(f)(3)(iii), § 92.504(d)(1)(ii)(D) 

Carbon Monoxide and Smoke Detectors | In the NSPIRE Final Rule, HUD CPD codified carbon monoxide detection requirements for certain covered programs. Because HOME is not a covered program subject to statutory carbon monoxide detection requirements, HUD CPD determined that rulemaking is necessary to implement these changes for the HOME program. Consequently, the proposed rule would add new paragraphs to impose carbon monoxide detection requirements for all HOME-assisted projects which will be adopted by HUD through a notice published in the Federal Register. HUD CPD intends to evaluate the specific standards for installation of carbon monoxide alarms or detectors for feasibility in new construction, rehabilitation, and homebuyer acquisition projects, respectively.  (24 CFR 5.703(d)(6), Pub. L. 116-20, at § 92.251(a)(3)(vi) (for new construction) and § 92.251(b)(1)(xi) (for rehabilitation) and amends § 92.251(c)(3) (for acquisition of standard housing for homeownership), 24 CFR 5.703(d)(6)) 

Similar to the carbon monoxide detector requirements implemented through the 2021 Consolidated Appropriations Act, described above, the 2023 Consolidated Appropriations Act created additional smoke alarm requirements in federally assisted housing. These requirements apply to several HUD programs but not HOME. These requirements include that federally assisted housing complies with National Fire Protection Association Standard (NFPA) 72, or any successor standard, to use hardwired smoke alarms or sealed and tamper-resistant smoke alarms with ten-year non-rechargeable, nonreplaceable batteries, that provide notification for persons with hearing loss. These requirements will take effect December 29, 2024. HUD believes that in most jurisdictions similar requirements already exist, as many jurisdictions already align with NFPA. HUD is still working to provide guidance on these requirements for covered programs, so this proposed HOME rule does not include proposed regulatory text to align with the 2023 Consolidated Appropriations Act’s smoke alarm requirements. However, HUD requests public comment on how such requirements would impact participating jurisdictions, owners, and developers of HOME-assisted housing. HUD is particularly interested in public comment on the feasibility of these requirements in HOME-funded homeownership programs that do not include rehabilitation or construction of housing (such as downpayment assistance programs). HUD will consider, at the final rule stage, revising the HOME regulations consistent with the forthcoming HUD guidance on these statutory requirements.

Six-Month Lease-Up Rule

The proposed rule would amend the introductory text of a paragraph to eliminate the requirement that a participating jurisdiction must submit a marketing plan to HUD for any HOME-assisted rental units that have not achieved initial occupancy within six months of project completion in IDIS. The participating jurisdiction would still be required to take action to ensure the unit is rented if the unit is not occupied within six months and repay the HOME investment if the unit does not achieve initial occupancy within 18 months. The Department does not currently approve marketing plans, so this change would provide administrative relief to PJs without eliminating the requirement that PJ work with the project owner to develop and implement a marketing plan to meet the deadline for initial occupancy. This change does not revise any affirmative marketing requirements the HOME rule. (§ 92.252 and § 92.351)

Small Scale Housing Adjustments

Wait List | The proposed rule would allow an owner of a small-scale housing project, to request the PJ to establish alternative waiting list procedures for the selection of tenants, subject to HUD’s written approval of the procedures if it has determined that the selection of a tenants from a waiting list in chronological order by the owner is impracticable. The proposed rule provides this flexibility because HUD has observed the use and maintenance of a waiting list for a small-scale housing project is often impracticable. This is because the lower availability and turnover of such units in a project, particularly when there is only one rental unit, may result in a list of applicants who are no longer interested in the unit or are unreachable when the unit becomes available. Owners of small-scale housing often do not have the same capacity as owners of larger multifamily properties to continuously update a waiting list to maintain an accurate list of applicants to enable leasing as soon as the unit becomes available. HUD CPD believes this proposed change would better assist private owners of smaller rental properties that wish to participate in the HOME program by reducing their administrative burden and recognizing that selecting a tenant from a waiting list is not practicable for some small-scale projects. (§ 92.253(e)(5))

Recertification Cycle | The proposed rule would reduce burdens on landlords of small-scale housing by adding a paragraph to permit a participating jurisdiction to permit an owner of small-scale housing to reexamine each tenant’s annual income every three years rather than annually. (§ 92,253(g)(1) and § 92.252) 

For owners of small-scale housing that select the option and are located in participating jurisdictions which permit owners of small-scale housing to reexamine a tenant’s annual income every three years, the proposed rule would except these owners of small-scale housing from the requirement to obtain annual self-certifications from their tenants within the three-year period following completion of these tenants’ income examinations. (§92.203(b)(1)(ii)) 

Physical Inspections | The proposed rule aligns with the other proposed changes for small-scale housing to permit a three-year physical inspection requirement schedule rather than a risk-based schedule. (§ 92.251)

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