Article | Review of Proposed HOME Changes | Part 1 - Rent Limits and Income Determinations

Series Outline

       Part 1 | Rent Limits and Income Determinations

Part 2 | Tenant Protections

Part 3 | Other Issues

Introduction

On May 15, 2024, HUD published a preview of a proposed overhaul of the HOME program. HUD intended to publish the final rule to the HOME regulations at 24 CFR Part 92 in the Federal Register shortly after. It did this on May 29, 2024. HUD’s goal for this proposed rule is to revise the current HOME regulations to update, simplify, or streamline requirements, better align the program with other Federal housing programs, and implement recent amendments to the HOME statute. If finalized as written, it will have a significant impact on how HOME multifamily property compliance works.

It also includes minor revisions to the regulations for the Community Development Block Grant and Section 8 Housing Choice Voucher (HCV) Programs consistent with the implementation of proposed changes to the HOME program.

Comments will be due 60 days after the proposed regulation is published in the Federal Register. Comments may be most easily submitted electronically at www.regulations.gov.

 The full proposed regulation is HERE.

Part 2 of this series is HERE. 

Reach of the HOME Program

Annually, HOME allocates approximately $1.5 billion among States and approximately 600 localities nationwide. According to HUD, in fiscal year 2023, participating jurisdictions (PJs) completed 6,848 rental housing units and 4,051 homebuyer units, assisted 2,717 low-income homeowners to repair their homes, and provided tenant-based rental assistance to 13,016 low-income households. By far, the most common use for HOME funds is gap financing for rental projects, particularly for projects that have been awarded LIHTC, Section 42 tax credits. Currently, there are 245,122 HOME-assisted rental units operating in their periods of affordability, subject to ongoing HOME income and rent requirements. Before it published the new proposed rule, HUD conducted a comprehensive review of the HOME statute and current HOME program regulations to determine whether previously unrecognized opportunities exist to revise current regulatory provisions. The new proposed rule also incorporates changes made by the HOTMA and NSPIRE Final Rules. This proposed rule also suggests further revisions to the HOME regulations to better meet HOTMA and NSPIRE requirements.

Period of Affordability vs. Affordability Period

HUD proposes to add a new definition of “period of affordability,” which is used throughout the HOME regulation. HUD’s goal was to (1) clarify that the term means the required minimum period specified in the HOME regulations (see § 92.252 and § 92.254 and accompanying tables) during which the HOME requirements apply to HOME-assisted housing and (2) distinguish the required period specified in the HOME regulation § 92.252 and § 92.254 from any extended period of affordability or additional compliance period that a PJ may impose on HOME-assisted housing. This is similar to the LIHTC program, which has a 15-year compliance period mandated by the LIHTC rules where federal Section 42 rules apply and the remainder of the extended use period (at least an additional 15 years), during which state LIHTC agency rules apply. HOME differs in that it does not require extended use beyond the period of affordability, but the idea of a period of federal compliance followed by a period defined by agency rules is similar. It also suggests that the participating jurisdiction may create rules that are different from the federal rules and do not affect federal HOME compliance once the federal period of affordability is complete. Current rules would make all PJ rules apply during the entire agreement period. The proposed rule would give PJs and owners/agents greater flexibility and control of the program once the minimum federal commitment is concluded.

The industry will need to adapt to a consistent term here. Throughout the proposed HOME rule HUD had replaced the commonly-used old term “affordability period” with the newly defined “period of affordability.

HOME for Households with Rental Subsidy

HUD is proposing TWO major adjustments to how HOME rents work for households who receive rental assistance. These will probably have the greatest impact on the daily management of HOME rental properties and their financial health. They include (1) how income determinations work for households that receive subsidized rents at HOME rental properties and (2) how the rent limits work with subsidy.

In the HOTMA Final Rule, HUD required that PJs (and ultimately owners/agents) use income determinations made by subsidy program administrators in section 8 project-based voucher and rental assistance programs. HUD intended to reduce separate, duplicative income reviews. HUD also allowed PJs to use income determinations made by public housing agencies or other providers of Federal tenant-based rental assistance instead of requiring the PJ/owners/agents to engage in a separate, duplicative income review. The observation has been made that almost all PJs are exercising their authority to require the use of PHA income determinations for voucher-holding households. This comports better with the National Housing Trust (NHTF) program, which is required by the HOTMA final rule to use the determination of the subsidy provider for both tenant- and project-based subsidy. 

As HUD CPD was preparing guidance and training for PJs and others on how to implement the requirements of the HOTMA Final Rule, the Department determined there were still ways to be clearer about a PJ’s responsibilities regarding income determinations, including when HOME funds are used in a project with either Federal project-based or tenant-based rental assistance or subsidy programs.

The proposed rule would further clarify that when the participating jurisdiction is accepting a public housing agency, owner, or rental assistance provider’s determination of annual and adjusted income for units assisted by a Federal or State project-based rental subsidy program or tenants receiving Federal tenant-based rental assistance in a rental housing project, the participating jurisdiction must calculate annual income per the Section 8 Part 5 method for all units in the rental housing project so there is consistency in the definition of annual income throughout the project. This is only of note for PJs that would generally otherwise choose the IRS’ adjusted gross income definition of income.

For households who are being recertified using self-certification years other than every sixth year of the period of affordability, the proposed rule would also add the requirement that if there is evidence that a tenant’s statement and certification failed to completely and accurately state information about the family’s size or income, a tenant’s income must be re-examined using source documents.

The proposed rule would also implement several changes to the rent limits for HOME-assisted rental housing (§ 92.252). To understand this change, we need to go back to 2008 and a law change that was not implemented for HOME until now. That year, the Housing and Economic Recovery Act (HERA) amended the 1937 Housing Act and made comprehensive and significant reforms to HUD's Section 8 Tenant-Based Voucher and Project-Based Voucher programs. Many of the required regulatory changes at 24 CFR parts 982 were implemented through “The Housing and Economic Recovery Act of 2008 (HERA): Changes to the Section 8 Tenant-Based Voucher and Section 8 Project-Based Voucher Programs,” final rule, published on June 25, 2014 (the “HERA Final Rule”). One of the changes required by HERA streamlined the procedure for determining the rent reasonableness standard for assistance under the Section 8 tenant-based voucher program in units receiving LIHTC or HOME funds. LIHTC and HOME rents used at a property are NOT to be used for the rents that the HCV administrator will pay for an LIHTC or HOME unit. if the rent requested by the owner exceeds the HOME rents for non-voucher families, the PHA must determine what amount of rent is a reasonable rent and the rent shall not exceed the lesser of (1) the reasonable rent and (2) the payment standard established by the PHA for the unit size involved. HUD fully implemented this streamlined process for LIHTC units in the HERA Final Rule. However, the HERA Final Rule did not fully implement the streamlined process for HOME-assisted units, because the HOME regulations separately restrict subsidized rent to the HOME limits, including all tenant rent, utility allowances and any subsidy. Instead, the rent reasonableness requirements for HOME-assisted units included a placeholder pending a future HOME rulemaking to revise conflicting HOME regulations. HUD anticipated that the future HOME rulemaking would revise the HOME regulations to prevent PJs and owners of HOME-assisted projects from being in non-compliance with HOME rent limits when receiving the full rent amount determined by a PHA, according to the rent reasonableness process established by HERA for a tenant with a section 8 housing choice voucher (HCV). HUD is now proposing to make the required revisions to align HOME rent limit requirements with the rent reasonableness requirements for HOME-assisted units and is also revising the HCV rules (at § 982.507(c)(3)). The proposed changes would prevent the PJ and an owner of HOME-assisted units from being in noncompliance with HOME rent limits when a PHA complies with the 1937 Act, as amended by HERA, in its HCV rent payments to owners. This means that HOME units will be able to collect the full amount of subsidy allowed by the local rent payment standard as long as the amount the tenant pays and the utility allowances do not exceed the HOME limits.

The proposed rule would implement the following changes to remove conflicts with the proposed rent requirements for the Section 8 HCV program. HUD proposes to remove the applicability of the HOME rent limits in the HOME regulations (§ 92.252) to payments provided under a Federal or State rental assistance or subsidy program. This would revise current HOME program requirements (§ 92.252) by permitting an owner to receive the rent determined by a PHA rent reasonable standard, or under another Federal or State rental assistance or subsidy program even though the rent for HCV or another Federal or State rental assistance or subsidy program exceeds the HOME rent limits. HUD would continue to apply the HOME rent limits to the rent and utilities required to be paid by the tenant but will exclude the subsidy payments. Although this is on the whole a very favorable proposal, we do note that if a tenant’s portion of the rent does go up above the HOME limit, it is unclear how and owner/agent and the PHA will negotiate the payment standard at that point.

We suggest that this is a matter that owners/agents and PJs will want to consider carefully and submit comments. It is unclear why HUD cannot simply allow the subsidy program’s rent reasonable standard to be paid as long as the unit is assisted by the source of subsidy. This would allow the owner/agent to collect the entire payment regardless of the amount the tenant is paying and avoid complications with the subsidy as tenant portions of rent increase. This better aligns with the LIHTC program, and, we believe, with the intent of the HERA statute.  

HUD believes that this would make tenants and prospective tenants with HCVs or other tenant-based rental assistance more desirable to owners, and that residents of HOME-assisted projects could experience improved housing conditions (since some projects would see improved cash flow).

It is also important to note that the proposed revisions would make the treatment of payments consistent for both High HOME and Low HOME rent units. As a result, HUD believes that this would also decrease the administrative burden for PJs and owners. The hope is that a participating jurisdiction may focus its monitoring and enforcement of HOME rent limit requirements on the amount that is required to be paid by the tenant to an owner rather than on whether payments for rent under a Federal or State tenant-based or project-based rental assistance or subsidy program meet the Low HOME and High HOME rent limit requirements.

HUD is also proposing other changes to remove conflicts with the changes implemented by HERA. The proposed Rule would revise the current requirements by expanding the allowance to collect full subsidy that currently applies only to Low HOME rent units with project-based subsidy. HUD will remove references to “Federal or State project-based rental subsidy” and “Federal or State project-based rental subsidy program.” HOME rent limits will not apply to payments provided under a Federal or State rental assistance or subsidy program, whether project- or tenant-based.

The proposed revision would also clarify that the rent floor for a project is established at the time of commitment of HOME funds to the project and may apply to rents at the time of initial occupancy as well as subsequent rents.

Finally, regarding LIHTC units, HUD is proposing to provide greater clarity concerning the rent reasonableness requirements for LIHTC units in the HCV rules. The current regulatory text provides that the PHA must “perform a rent comparability study per program regulations” if the rent requested by the owner exceeds the LIHTC rents for non-voucher families. This rent comparability determination is the same process the PHA undertakes for non-LIHTC HCV units to determine that the rent to the owner is a reasonable rent in comparison to rent for other comparable units. Consequently, HUD proposes to revise the wording to clarify that the PHA is required to determine the rent to owner is a reasonable rent in accordance with current HCV rules and not some separate process (§ 982.507(b)).

Utility Allowances

The HOME Final Rule of 2013 removed the option for owners/agents to use a utility allowance based on the local PHA estimates. The purpose of this change was to require more accurate utility allowances and reward energy efficiency measures with the possibility of higher rental revenue to the owner. In doing so, the Department unintentionally created a conflict between the HOME program and the Section 8 project-based voucher (PBV) and HUD Veterans Affairs Supportive Housing (HUD-VASH) PBV programs, which require the use of a local PHA’s utility allowance. Due to these conflicting requirements, HUD CPD has approved numerous waivers of this requirement when HOME and PBVs or HUD-VASH PBVs are combined in the same projects. Consequently, the proposed rule would restore the option to use the local PHA’s utility allowance for HOME-assisted rental projects to realign utility allowance requirements in HOME and PBVs (§ 92.252(b)).

HUD is asking for comment as to whether this should apply to all HOME units or just those with PBVs.

Over-Income Residents

The proposed rule would clarify that the PJ may permit tenants of HOME-assisted units subject to rent restrictions under LIHTC to pay the rent amount required under LIHTC requirements (§ 92.252(h)(2)(i)). HUD would further clarify that an over-income tenant in a floating HOME-assisted unit must pay a rent amount no greater than the fair market rent for comparable, non-HOME-assisted units in the neighborhood (§ 92.252(h)(2)(i)).

Up next week: Extensive new proposed HOME tenant protections. 

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