Tuesday, July 30, 2013

HUD issues new final HOME Program rule

by Liza Getsinger and Ethan Handelman, National Housing Conference

The Department of Housing and Urban Development (HUD) released the HOME Investment Partnership program (HOME) new final rule July 24, generating the program’s first substantial regulatory revision since 1996. The HOME block grant program provides funding to state and local governments for rental and home ownership housing development, homebuyer downpayment assistance, homeowner rehabilitation assistance and tenant-based rental assistance. Since the program’s inception, many HOME participating jurisdictions have encountered new challenges in administering the programs and in managing growing portfolios of older HOME projects, even as the program has created over 1 million homes. These challenges have grown in the wake of the recession and housing crisis.

As the rule summary outlines, the final rule updates definitions and adds new terminology relevant to the housing and real estate markets, modifies the eligibility requirements of community housing development organizations, establishes deadlines for project completion, strengthens conflict of interest provisions, and clarifies language in several existing HOME regulatory provisions. HUD states that the final rule generally adopts the provisions included in the proposed rule, which HUD published for comment in December 2011. However, it did make some changes to the final rule in response to a large volume of comments it received. Read about how the final rule incorporates comments from NHC’s National Foreclosure Prevention and Neighborhood Stabilization Task Force.

NHC, as part of the National Foreclosure Prevention and Neighborhood Stabilization Task Force, submitted comments in response to HUD’s proposed rule. Below is a brief summary of taskforce comments and HUD’s response:

1. Eliminate or substantially change the requirement that rehabilitated or newly constructed HOME homeownership units that are not sold within 6 months of completion of construction must be converted to rental.
a. Increase the length of time to one year before any trigger goes into effect.
i. HUD did extend the deadline from 6 months to 9 months, and it clarified that a unit need only be under contract, not a closed sale, to fulfill the requirement.
b. Recognize that some PJs and Community Development Housing Organizations lack scattered-site rental management capacity.
i. HUD acknowledged the capacity challenge but did not offer a solution. Indirectly, they seem to be emphasizing that the rule encourages PJs to only undertake projects if they have the capacity to handle all the requirements, including the possibility of rental operation.
c. Permit PJs the flexibility to market properties at some point after they have converted to rental.
i. As we understand the final rule, once a property has converted from for-sale to rental, it would be subject to a long-term HOME use agreement. Although there is some limited ability (as under the previous rule) to sell rental units to HOME tenants. HUD made it clear in the comment that lease-purchase approaches should be planned from the outset, not added on in reaction to the sale deadline. Also note that this provision of the new rule is only forward-looking—it applies to new projects, not existing projects, some of which are affected by riders on appropriations bills that required conversion to rental after a failure to sell units. Consult the rule for specific applicability.
2. Maintain the requirement that all HOME-assisted homebuyers must receive counseling.
a. HUD adopted this requirement.
3. Maintain the requirement that participating jurisdictions must establish written policies for underwriting standards, antipredatory lending measures, and refinancing standards.
a. HUD adopted this requirement and will issue guidance shortly around the Consumer Financial Protection Bureau’s ability to repay rule and implications for the HOME programs.
4. Retain the new lease-purchase provisions—specifically around the use of HOME tenant-based rental assistance funds for lease-purchase.
a. HUD adopted this provision.

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