To Section 8 Homeownership Program Synopsis
[Federal Register: September 12, 2000 (Volume 65, Number 177)]
[Rules and Regulations]
[Page 55133-55168]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12se00-14]
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Part IV
Department of Housing and Urban Development
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24 CFR Parts 5, 903 and 982
Section 8 Homeownership Program; Final Rule
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Parts 5, 903 and 982
[Docket No. FR-4427-F-02]
RIN 2577-AB90
Section 8 Homeownership Program
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, HUD.
ACTION: Final rule.
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SUMMARY: This final rule implements the ``homeownership option''
authorized by section 8(y) of the United States Housing Act of 1937, as
amended by section 555 of the Quality Housing and Work Responsibility
Act of 1998. Under the section 8(y) homeownership option, a public
housing agency may provide tenant-based assistance to an eligible
family that purchases a dwelling unit that will be occupied by the
family. This final rule follows publication of an April 30, 1999
proposed rule, and takes into consideration the public comments
received on the proposed rule.
DATES: Effective Date: October 12, 2000.
FOR FURTHER INFORMATION CONTACT: Gerald J. Benoit, Office of Public and
Indian Housing, Department of Housing and Urban Development, Room 4210,
451 Seventh Street, SW., Washington, DC 20410; telephone (202) 708-
0477. (This is not a toll-free number.) Hearing or speech-impaired
individuals may access this number via TTY by calling the toll-free
Federal Information Relay Service at 1-800-877-8339.
SUPPLEMENTARY INFORMATION:
I. Introduction
On April 30, 1999 (64 FR 23488), HUD published a proposed rule for
public comment to implement the ``homeownership option'' under section
8(y) of the United States Housing Act of 1937 (42 U.S.C. 1437 et seq.)
(referred to as the ``1937 Act''), as amended by section 555 of the
Quality Housing and Work Responsibility Act of 1998 (Title V of the FY
1999 HUD Appropriations Act; Public Law 105-276, approved October 21,
1998; 112 Stat. 2461, 2518) (referred to as the ``Public Housing Reform
Act''). Section 8(y) authorizes Section 8 tenant-based assistance for
an eligible family that occupies a home purchased and owned by members
of the family.
The April 30, 1999 rule proposed to implement the section 8(y)
homeownership option by adding a new ``special housing type'' under
subpart M of HUD's regulations at 24 CFR part 982. The part 982
regulations, which were amended by a final rule published on October
21, 1999 (64 FR 56894), implement the statutory merger of the Section 8
tenant-based certificate and voucher programs into a new Housing Choice
Voucher program. Subpart M of 24 CFR part 982 describes program
requirements for alternatives to the basic Housing Choice Voucher
program.
Homeownership assistance offers a new option for families that
receive Section 8 tenant-based assistance. As with the other special
housing types, HUD does not provide any additional or separate funding
for homeownership assistance under section 8(y). In general, a public
housing agency (PHA) that administers section 8 tenant-based assistance
has the choice whether to offer homeownership assistance as an option
for qualified applicants and participants in the PHA's Housing Choice
Voucher program. The PHA may choose to make homeownership assistance
available for any qualified applicant or participant, or to restrict
homeownership assistance to families or purposes defined by the PHA.
As required by law, the homeownership option is not available for
units receiving section 8 project-based assistance. By law,
homeownership under section 8(y) may only be provided for families
receiving ``tenant-based assistance'' (42 U.S.C. 1437f(y)(1)). Integral
to the tenant-based nature of the housing choice voucher program is the
freedom-of-choice afforded to the participant family, regardless of
whether the voucher is used for rental or homeownership assistance. A
PHA may not reduce a family's choice by limiting the use of
homeownership assistance to particular units, neighborhoods,
developers, or lenders. For example, while HUD encourages PHAs to
develop partnerships with lenders in order to assist the family in
obtaining financing, the PHA may not require the family to use a
certain lender or financing approach.
II. Overview of the Section 8 Homeownership Program
An overview of how the Section 8 homeownership program works
follows. The details regarding the operation of the Section 8
homeownership option are provided elsewhere in the preamble and the
regulatory text.
A. General
PHA administration of the Section 8 homeownership program differs
from the tenant-based rental program in many ways. A PHA may use the
certificate and voucher program funding already under Annual
Contributions Contract (ACC) or new tenant-based Section 8 funding for
rental or homeownership purposes. The PHA may opt to limit the number
of Section 8 homeownership vouchers or not implement the homeownership
option. There is no separate or additional funding for the
homeownership program.
Generally, a PHA that administers Section 8 tenant-based assistance
has the choice whether to offer the homeownership option. However, a
PHA that elects to provide homeownership assistance must have the
capacity to operate a successful Section 8 homeownership program. The
PHA has the required capacity if it:
Establishes a minimum homeowner downpayment requirement of
at least 3 percent of the purchase price for participation in its
Section 8 homeownership program, and requires that at least one percent
of the purchase price come from the family's personal resources;
Requires that financing for purchase of a home under its
Section 8 homeownership program be provided, insured, or guaranteed by
the state or Federal government, comply with secondary mortgage market
underwriting requirements, or comply with generally accepted private
sector underwriting standards; or
Otherwise demonstrates in its Annual Plan that it has the
capacity, or will acquire the capacity, to successfully operate a
Section 8 homeownership program.
At the briefing of families selected to participate in the tenant-
based Section 8 program, the PHA must discuss any homeownership option.
Family participation in the homeownership program is voluntary.
Although the homeownership program is open to both Section 8 applicants
and participants, not every Section 8 tenant-based family may receive
homeownership assistance. The PHA may limit the number of homeownership
families and there are statutory family eligibility requirements such
as a minimum level of income and a history of full-time employment.
(The employment history requirement is not applicable to elderly and
disabled families, and there is a modified income requirement for
elderly and disabled families.) The program is generally limited to
first-time homeowners. The PHA may add other local eligibility
requirements such as participation in the Family Self-Sufficiency (FSS)
program.
Once a family has been determined by the PHA to be eligible for
Section 8 homeownership assistance, the family must attend
homeownership counseling sessions. The counseling may be done
by PHA staff or another entity such as a HUD-approved housing
counseling agency.
The PHA must advise the family of any deadlines on locating a home,
securing financing, and purchasing the home. In establishing such time
limits, the PHA should ensure that a family who has executed a sales
contract is provided reasonable time to close on the purchase of the
home. The PHA does not issue a voucher to the family. If the family is
unable to locate a home to purchase within the PHA established
deadlines, the PHA may issue the family a rental voucher.
A home may be purchased under the homeownership option if, at the
time the PHA determines that the family is eligible to purchase the
home with homeownership assistance, the home is either under
construction or already existing. The home chosen by the family must
pass an initial PHA Housing Quality Standards (HQS) inspection. (The
HQS used for the Section 8 rental program is applicable to the
homeownership program.) In addition, the family must hire an
independent, professional home inspector to inspect the home selected
by the family to identify physical defects and the condition of the
major building systems and components. A copy of the independent
inspection report must be given to the PHA. The family and the PHA must
determine if any prepurchase repairs are necessary.
The family will enter into a contract of sale with the seller. The
family must secure its own financing for the home purchase. There is no
prohibition against using local or State Community Development Block
Grant (CDBG) or other subsidized financing in conjunction with the
Section 8 homeownership program. The PHA may prohibit certain forms of
financing, require a minimum cash downpayment, or determine that the
family cannot afford the proposed financing. (There are no Section 8
funds for home purchase financing. Instead, the Section 8 housing
assistance will be provided monthly to help the family meet
homeownership expenses.)
It is anticipated that mortgage lenders will consider the Section 8
assistance when underwriting the loan. If purchase of the home is
financed with FHA-insured mortgage financing, such financing is subject
to FHA mortgage insurance credit underwriting requirements. Otherwise,
the underwriting standards of the individual lender and/or financing
program will apply in cases where financing for purchase of the home is
not FHA-insured.
Homeownership housing assistance payments may be made directly to
the family or to lender on behalf of the family. (Two-party checks to
the family and lender are not authorized because such a practice is
incompatible with typical lending documents and practices.) Before the
housing assistance begins, the family and the PHA must execute a
``statement of homeowner obligations.'' The Section 8 tenant-based
housing assistance payments (HAP) contract, request for lease approval
and lease addendum are not applicable to the Section 8 homeownership
program.
The homeownership housing assistance payment will equal the lower
of (1) the payment standard minus the total tenant payment or (2) the
monthly homeownership expenses minus the total tenant payment. The
family is responsible for the monthly homeownership expenses not
reimbursed by the housing assistance payment. (Total tenant payment is
higher of the minimum rent, 10 percent of monthly income, 30 percent of
monthly adjusted income, or the welfare rent.) The PHA must use the
utility allowance schedule and payment standard schedules applicable to
the Section 8 voucher rental program.
After the homeownership housing assistance payments begin, the PHA
will annually reexamine family income and composition and make
appropriate adjustments to the amount of the monthly housing assistance
payment. There is no requirement for the PHA to conduct an annual HQS
inspection.
Except for elderly and disabled families, Section 8 homeownership
assistance may only be paid for a maximum period of 15 years if the
initial mortgage incurred to finance purchase of the home has a term
that is 20 years or longer. In all other cases, the maximum term of
homeownership assistance is 10 years. The PHA may not establish shorter
or longer maximum terms. The maximum term for homeownership assistance
applies to any member of the household who has an ownership interest in
the unit during any time that homeownership payments are made, or is
the spouse of any member of the household who has an ownership interest
in the unit at the time homeownership payments are made.
The maximum term for homeownership assistance does not apply to an
elderly family or a disabled family. In the case of an elderly family,
this exception is only applied if the family qualifies as an elderly
family at the commencement of homeownership assistance. In the case of
a disabled family, this exception applies if at any time during receipt
of homeownership assistance the family qualifies as a disabled family.
If, during the course of homeownership assistance, the family ceases to
qualify as a disabled or elderly family, the maximum term becomes
applicable from the date homeownership assistance commenced. However,
such a family must be provided at least 6 months of homeownership
assistance after the maximum term becomes applicable (provided the
family is otherwise eligible to receive Section 8 homeownership
assistance).
PHAs shall recapture a percentage of homeownership assistance
defined in the regulations upon the sale or refinancing of the home.
Sales proceeds that are used by the family to purchase a new home with
Section 8 homeownership assistance are not subject to recapture.
Further, a family may refinance to take advantage of lower interest
rates, or better mortgage terms, without any recapture penalty. Only
those proceeds realized upon refinancing that are retained by the
family (for example during a ``cash-out'' of the refinanced debt) are
subject to the program recapture provision.
A PHA opting to administer the Section 8 homeownership program must
establish local homeownership policies. The following policies must be
described in the PHA administrative plan: any additional PHA
requirements for participation in its Section 8 homeownership program
(Sec. 982.626(b)); PHA maximum times to locate and purchase a home
(Sec. 982.629(a)); PHA policy about issuing the family a rental voucher
if the family does not find a suitable house to buy (Secs. 982.629(c));
any minimum cash downpayment or equity requirements (Sec. 982.632); any
requirements for financing purchase of a home, including requirements
concerning qualification of lenders (for example, prohibition of seller
financing or case-by-case approval of seller financing), terms of
financing (for example, a prohibition of balloon payment mortgages and
establishment of a minimum homeowner equity requirement), and financing
affordability (Sec. 982.632); any PHA requirements for continuation of
homeownership assistance (Sec. 982.633(b)(8)); PHA policy for
determining the amount of allowable homeownership expenses
(Sec. 982.635(c)); PHA policy for payment of the HAP to the family or
lender (Sec. 982.635(d)); and any PHA policies that prohibit more than
one move by the family during any one year period (Sec. 982.637(a)(3)).
B. Who Is Assisted
1. General
The homeownership option is used to assist families in two types of
housing:
A unit owned by the family--One or more family members
hold title to the home.
A cooperative unit--One or more family members hold
membership shares in the cooperative.
2. Assistance for Homeowner
Before enactment of Section 8(y), Section 8 assistance could be
paid on behalf of a renter or cooperative member, but not for a family
that owns fee title to its home. Section 8 rental assistance terminates
when the family takes title to the home. By contrast, Section 8(y) is
specifically designed to authorize assistance for a ``homeowner''--a
family that owns title to the home.
The law provides that the public housing agency may provide
assistance for:
A ``first-time homeowner''; and
A family that owns or is acquiring shares in a
cooperative.
By law and this rule, the homeownership option is designed to
promote and support homeownership by a ``first-time'' homeowner--a
family that moves for the first time from rental housing to a family-
owned home. Section 8 payments supplement the family's own income to
facilitate the transition from rental to homeownership. The initial
availability of these assistance payments helps the family pay the
costs of homeownership, and may provide additional assurance for a
lender, so that the family can finance purchase of the home.
Section 8 homeownership assistance for cooperative homeowners is
specifically authorized for both a family that is a first time
cooperative homeowner and a family that owned its cooperative unit
prior to receiving Section 8 assistance. Cooperative homeowners were
eligible for tenant-based assistance prior to passage of the Public
Housing Reform Act.
To qualify as a ``first-time homeowner,'' the assisted family may
not include any person who owned a ``present ownership interest'' in a
residence of any family member during the three years before the
commencement of homeownership assistance for the family (regulatory
definition at Sec. 982.4; statutory definition at 42 U.S.C.
1437f(y)(7)(A)). Such interest includes ownership of title or of
cooperative membership shares. This rule defines the term ``first-time
homeowner'' to include a single parent or displaced homemaker who,
while married, owned a home with his or her spouse, or resided in a
home owned by his or her spouse.
The restriction to ``first-time'' homeowners is intended to direct
homeownership assistance to ``new'' homeowners who may be unable to
purchase a home without this assistance, but to discourage use of
Section 8 subsidy on behalf of families who have achieved homeownership
independently, without benefit of the Federal Section 8 subsidy. In
addition, the PHA may not commence homeownership assistance for a
family if any family member has previously received assistance under
the homeownership option, and has defaulted on a mortgage securing debt
incurred to purchase the home (see Sec. 982.627(e) of this final rule).
3. Assistance for Cooperative Member
Section 8(y) authorizes homeownership assistance for a family that
``owns or is acquiring shares in a cooperative.'' Thus, the law allows
assistance for a family that already owns cooperative shares before
commencement of Section 8 homeownership assistance, not just for a
family that acquires cooperative shares for the first time with the
support of such assistance. In this respect, the law treats ownership
of cooperative membership different from ownership of title to the
home. In the latter case, the law authorizes assistance for a first
time homeowner. The rule specifies that cooperative membership shares
may be purchased at or before commencement of homeownership assistance
(see the definition of ``membership shares'' at Sec. 982.4).
Before this rule, HUD has provided essentially the same Section 8
rental assistance for a cooperative member as for a family that chooses
to rent a unit in conventional rental housing. Since the origin of the
Section 8 program, the law has provided that with respect to members of
a cooperative, ``rent'' means the charges under the occupancy
agreements between the members and the cooperative (42 U.S.C.
1437f(f)(5)). Thus Section 8 assistance is paid to cover the difference
between the cooperative occupancy charges and the income-based tenant
rent.
Under this final rule, the PHA may provide assistance for a
cooperative member either under the new homeownership option or under
the special procedures for cooperative housing within the Section 8
tenant-based rental program (Sec. 982.619). Each form of assistance is
designated as a separate special housing type under the Section 8
voucher program. The PHA may elect to offer either or both of these
forms of cooperative assistance in its voucher program, and to define
the appropriate role of each available form of cooperative assistance
in the local Section 8 program.
In the new homeownership option, Section 8 assistance is paid on
behalf of a cooperative member, but there is no requirement that the
cooperative enter into any agreement or any direct relationship with
the PHA that provides Section 8 assistance for the cooperative member.
The cooperative is not asked to modify any ordinary requirement for
cooperative membership or occupancy, nor asked to modify any
requirement concerning assessment or collection of the cooperative
carrying charge, maintenance of the unit or sanctions for violation of
cooperative requirements.
For clarity, in describing requirements for homeownership
assistance to a cooperative member, the new rule supplements existing
definitions. The term ``cooperative'' refers to housing owned by a
corporation or association, and where a member of the corporation or
association has the right to reside in a particular unit, and to
participate in management of the housing (Sec. 982.4). The rule also
adds the following two new definitions:
Cooperative member. A family of which one or more members
owns membership shares in a cooperative.
Membership shares. Shares in a cooperative. By owning such
cooperative shares, the share-owner has the right to reside in a
particular unit in the cooperative, and the right to participate in
management of the housing.
Prior to the enactment of the Public Housing Reform Act, a family
could only receive assistance in a cooperative that had adopted
requirements to maintain continued affordability for lower income
families after transfer of a member's interest. There is now no such
statutory affordability requirement for Section 8 tenant-based
assistance to cooperative residents--whether such assistance is
provided under the rental assistance program or under the new Section
8(y) homeownership option--and there is no such requirement under this
rule.
HUD believes that such a continuing affordability requirement would
restrict housing choice of Section 8 families among available
cooperative units. Such a requirement would also diminish a major
advantage of homeownership--the incentive for an assisted family to
maintain and improve the housing and to benefit from appreciation upon
a future sale of the home. This rule
removes the federal mandate for existing continuing affordability
requirements for rental assistance in cooperative housing.
In addition, this rule modifies the allocation of maintenance
responsibility between the cooperative and the family. In the regular
rental assistance program, the owner is responsible for most
maintenance of a unit. Under the old rule, this principle also applies
to rental assistance for Section 8 cooperative housing. However, in a
conventional cooperative, the member is generally responsible for
maintenance of the individual apartment, and the cooperative entity is
only responsible for maintenance of common areas and systems. The
cooperative agreement defines the division of maintenance obligations
between the member and the cooperative.
The existing regulation is amended by this rule to reflect the
normal division of maintenance responsibility in cooperative housing
for which rental (not homeownership) assistance is being provided
(Sec. 982.619(d)(3)). The revised rule provides that the family is
responsible for a breach of the HQS caused by failure to perform
maintenance in accordance with the cooperative occupancy agreement
between the family and the cooperative. The PHA must take prompt and
vigorous action to enforce the family maintenance obligation, and may
terminate assistance for failure to perform maintenance in accordance
with the cooperative occupancy agreement (Sec. 982.619(d)(4)).
During the term of the HAP contract between the PHA and the
cooperative, the unit and premises must be maintained in accordance
with the Section 8 HQS. If the contract unit and premises are not
properly maintained, the PHA may exercise all available remedies,
regardless of whether the family or the owner is responsible for such
breach of the HQS. PHA remedies for breach of the HQS include recovery
of overpayments, suspension of housing assistance payments, abatement
or other reduction of housing assistance payments, termination of
housing assistance payments and termination of the HAP contract
(Sec. 982.619(d)(1)).
In the new homeownership cooperative option under Section 8(y),
there is no HAP contract (between the PHA and the cooperative as unit
``owner'') and no lease (between the cooperative and the family). The
unit is only inspected before the commencement of assistance. There is
no requirement that the family or cooperative assure that the unit
continues to satisfy HQS during the continuation of assisted occupancy.
Consequently, there is no need to specify any allocation of maintenance
responsibility between the cooperative and the family.
4. Lease-Purchase Agreements
The law and rule explicitly permit Section 8 homeownership
assistance for a family that purchases a home that the family
previously occupied under a ``lease-purchase agreement''--generally a
lease with option to purchase. Section 8(y) provides that the PHA may
provide Section 8 homeownership assistance for an eligible family that
purchases ``a unit under a lease-purchase agreement'' (42 U.S.C.
1437f(y)(1)).
Prior to enactment of the Public Housing Reform Act, a family that
received Section 8 rental subsidy could exercise an option to purchase
the unit under a lease-purchase agreement. However, there were problems
in applying the rent reasonableness requirements and, as noted above,
Section 8 rental subsidy terminated when the family took title to the
home. Thus the prospective loss of subsidy discouraged the family from
taking title, and moving from rental to homeownership. However, Section
8(y) now provides a vehicle for continuation of Section 8 assistance
after the family takes title to the home.
To qualify as a first-time homeowner (as noted above) the family
may not have owned title to a principal residence in the last three
years. The rule specifies, however, that the right to purchase title
under a lease-purchase agreement does not constitute a prohibited
``present ownership interest.'' A family that holds an option to
purchase may exercise the option and receive assistance under the new
homeownership option.
A new Sec. 982.317 is added to describe the requirements for lease-
purchase agreements. The housing assistance payment for a lease-
purchase unit may not exceed the amount that would be paid on behalf of
the family if the rental unit was not subject to a lease-purchase
agreement. Any ``homeownership premium'' included in the rent to the
owner that would result in a higher subsidy amount than would otherwise
be paid by the PHA must be absorbed by the family. ``Homeownership
premium'' is defined as an increment of value attributable to the value
of the lease-purchase right or agreement such as an extra monthly
payment to accumulate a downpayment or reduce the purchase price.
Families are permitted to pay an extra amount out-of-pocket to the
owner for purchase related expenses.
Section 982.317 also provides that in determining whether the rent
to owner for a unit subject to a lease-purchase agreement is a
reasonable amount, any ``homeownership premium'' paid by the family to
the owner must be excluded when the PHA determines rent reasonableness.
Lease-purchase agreements are considered rental, and all the normal
tenant-based Section 8 rental rules are applicable. The family will be
subject to the homeownership regulatory requirements at the time the
family is ready to exercise the homeownership option under the lease-
purchase agreement. At that point in time, the PHA will determine
whether the family is eligible for Section 8 homeownership assistance
(e.g., whether the family meets the income and employment thresholds
and any other criteria established by the PHA). If determined eligible
for a homeownership voucher, the family will then arrange for an
independent home inspection, attend counseling sessions, and obtain
financing. Homeownership assistance will begin when the family
purchases the home and after all of the requirements of the
homeownership option are met.
C. How to Qualify for Homeownership Assistance
1. General
To qualify for assistance under the homeownership option, a family
must meet the general requirements for admission to the PHA's Section 8
tenant-based voucher program, and additional special requirements for
homeownership assistance (Sec. 982.627). The PHA may not provide
homeownership assistance for a family unless the PHA determines that
the family satisfies all of the following initial requirements at
commencement of homeownership assistance for the family:
The family satisfies the minimum income requirements
described in Sec. 982.627(c) of the final rule;
The family satisfies the employment requirements described
in Sec. 982.627(d) of the final rule;
The family has not defaulted on a mortgage securing debt
to purchase a home under the homeownership option (see Sec. 982.627(e)
of the final rule);
Except for cooperative members who have acquired
cooperative membership shares prior to the commencement of
homeownership assistance, no family member has a present ownership
interest in a residence at the commencement of
homeownership assistance for the purchase of any home;
Except for cooperative members who have acquired
cooperative membership shares prior to the commencement of
homeownership assistance, the family has entered into a contract of
sale in accordance with Sec. 982.631(c);
The family satisfies any other initial requirements
established by the PHA.
2. Minimum Income Requirement
To enter the Section 8 voucher program, a family must be income-
eligible (i.e., below the maximum income cutoff). However, to qualify
for the homeownership option in the voucher program, the family must
demonstrate sufficient income to meet a minimum income standard, which
is intended to assure that a family will have sufficient income to pay
homeownership and other family expenses not covered by the Section 8
subsidy.
Section 8(y) provides that a family may not receive homeownership
assistance unless the family demonstrates that gross monthly income is
at least two times the voucher ``payment standard'' or an ``other
amount'' established by the Secretary (Section 8(y)(1)(B), 42 U.S.C.
1437f(y)(1)(B)).
At the request of several public commenters, the final rule
establishes a national minimum income requirement that is equal to
2,000 hours of annual full-time work at the Federal minimum wage. In
response to public comment, the final rule also provides that the adult
family members who will own the home at the commencement of the
homeownership assistance (as opposed to only the head of household or
spouse) must have annual income (gross income) that is not less than
the minimum income requirement.
The law does not specify whether the minimum income requirement is
only applied at initial qualification for commencement of homeownership
assistance, or is also a continuing requirement that must be maintained
so long as the family is receiving assistance under the homeownership
option. (By contrast, the law explicitly provides that the statutory
employment requirement only applies at the time the family initially
receives homeownership assistance.) HUD has decided that any minimum
income requirement will only be applied to determine initial
qualification to purchase a particular home, not as a continuing
requirement. This policy gives assurance to the family, and possibly to
a potential mortgage lender, that the stream of homeownership
assistance payments will not be disrupted because of a drop in family
income. Any minimum income requirement will only apply again if the
family purchases a subsequent home with Section 8 homeownership
assistance.
The law provides that the income counted in meeting any minimum
income requirement under the homeownership option must come from
sources other than welfare assistance. Thus, PHAs may limit
homeownership assistance to families with substantial non-welfare
income available to pay housing and non-housing costs. However, the law
provides that HUD may count welfare assistance in determining
availability of voucher homeownership assistance for an elderly or
disabled family (in which the household head or spouse is an elderly or
disabled person). (The term ``welfare assistance'' is defined in HUD's
regulations at Sec. 5.603, thereby identifying the types of income that
may not be included in determining whether a family meets the
homeownership minimum income standard.)
The rule also clarifies that the requirement to disregard welfare
assistance income only applies in determining whether a family has the
minimum income to qualify for homeownership assistance. However,
welfare assistance income is counted for other program purposes: in
determining income-eligibility for admission to the voucher program, in
calculating the amount of the family's total tenant payment (gross
family contribution); and in calculating the amount of the monthly
homeownership assistance payment for a family assisted under the
homeownership option.
Under the law, HUD may permit PHAs to count welfare assistance
income of an ``elderly family'' or a ``disabled family''--a family
whose head or spouse is elderly or disabled (definitions of these terms
are found in section 3(b)(3)(B) of the 1937 Act; 42 U.S.C.
1437a(b)(3)(B))--in determining whether a family has the minimum income
to qualify for homeownership assistance. On consideration of this
issue, and recognizing the special needs of such families, the rule
requires that the PHA count welfare assistance of an elderly or
disabled family in determining whether the family meets the minimum
income requirement for homeownership assistance. This requirement to
count welfare assistance in determining whether a family has the
minimum income to qualify for homeownership assistance only applies,
however, to families which satisfy the statutory definition of an
elderly or disabled family. In particular, as required by the law, the
requirement to count welfare assistance income does not apply in the
case of a family that includes a disabled person other than the
household head or spouse (and where the household head or spouse are
not elderly or disabled).
3. Family Employment
Section 8(y) provides that, except as provided by HUD, the family
must be able to demonstrate, at the time that the family initially
receives homeownership assistance, that one or more adult members of
the family have achieved employment for the time period established by
HUD (42 U.S.C. 1437f(y)(1)(B)).
The final rule requires that the family must demonstrate that one
or more adult members of the family who will own the home at
commencement of homeownership assistance:
Is currently employed on a full-time basis (the term
``full-time employment'' is defined to mean not less than an average of
30 hours per week); and
Has been continuously so employed during the year before
commencement of homeownership assistance for the family.
The final rule provides that the PHA has the discretion to
determine whether (and to what extent) an employment interruption is
considered permissible in satisfying the employment requirement. The
final rule also clarifies that the PHA may consider successive
employment during the one-year period and self-employment in a
business.
The employment requirement does not apply to an elderly family or a
disabled family. Furthermore, if a family, other than an elderly family
or a disabled family, includes a person with disabilities, the PHA must
grant an exemption from the employment requirement if the PHA
determines that an exemption is needed as a reasonable accommodation so
that the program is readily accessible to and usable by persons with
disabilities.
4. Discussion of Other Requirements
a. Homeownership counseling. Section 8(y) provides that a family
that receives assistance under the homeownership option must
participate in a homeownership and housing counseling program provided
by the PHA (42 U.S.C. 1437f(y)(1)(D)). The rule provides that, before
commencement of homeownership assistance for a family, the family must
attend and satisfactorily complete the pre-assistance homeownership and
housing counseling program required by the PHA (pre-assistance
counseling) (Sec. 982.630).
Suggested topics for the PHA-required pre-assistance counseling program
include:
Home maintenance (including care of the grounds);
Budgeting and money management;
Credit counseling;
How to negotiate the purchase price of a home;
How to obtain homeownership financing and loan
preapprovals, including a description of types of financing that may be
available, and the pros and cons of different types of financing;
How to find a home, including information about
homeownership opportunities, schools, and transportation in the PHA
jurisdiction;
Advantages of purchasing a home in an area that does not
have a high concentration of low-income families and how to locate
homes in such areas;
Information on fair housing, including fair housing
lending and local fair housing enforcement agencies; and
Information about the Real Estate Settlement Procedures
Act (12 U.S.C. 2601 et seq.) (RESPA), state and Federal truth-in-
lending laws, and how to identify and avoid loans with oppressive terms
and conditions.
The PHA may adapt subjects covered in pre-assistance counseling to
local circumstances and the needs of individual families. The PHA may
also offer additional counseling after commencement of homeownership
assistance (ongoing counseling). If the PHA offers a program of ongoing
counseling for participants in the homeownership option, the PHA has
the discretion to determine whether the family is required to
participate in the ongoing counseling.
The counseling may be provided by the PHA, another entity such as a
HUD-approved housing counseling agency, or by both the PHA and another
entity. HUD-approved housing counseling agencies provide free
counseling. The HUD field office will provide the PHA with a list of
the HUD-approved counseling agencies. If the PHA is not using a HUD-
approved housing counseling agency to provide the counseling for
families participating in the homeownership option, the PHA should
ensure that its counseling program is consistent with the homeownership
counseling provided under HUD's Housing Counseling program.
Experience with low-income homeownership programs has demonstrated
that quality counseling is imperative for successful homeownership and
prevention of mortgage defaults. In addition, counseling will assist
families in making informed decisions when selecting the home they wish
to purchase.
b. Financing purchase of home. Families selected to participate in
the Section 8 homeownership program must secure their own financing. If
the family applies for a mortgage or loan (including an FHA mortgage),
all regular lender underwriting and property inspection requirements
apply.
The rule provides that a PHA may establish requirements for
financing purchase of a home to be assisted under the homeownership
option (Sec. 982.632). All PHA financing or affordability requirements
must be described in the PHA administrative plan. The PHA may also set
requirements concerning qualifications of lenders and terms of
financing. For example, a PHA may determine that mortgages with balloon
payments and certain kinds of variable interest rate loans are not in
the best interest of the family because it is unlikely the family could
afford the payments when the balloon comes due or interest rates rise.
In addition, the PHA could opt to prohibit seller financing, or to only
allow seller financing in cases when the seller is a nonprofit or the
purchase price can be clearly supported by an independent appraisal.
Another purpose of the PHA financing review would be to determine
whether the monthly mortgage or loan payment is affordable after
considering other family expenses. The PHA may disapprove proposed
financing, refinancing or other debt if the PHA determines that the
debt is unaffordable. PHAs may wish to establish minimum initial
downpayment requirements to ensure that the family has a personal
financial stake in the home, thus helping to minimize mortgage loan
defaults (for example, the PHA may require that the family use its own
resources to make the entire initial downpayment, or a percentage of
the initial downpayment).
c. Home inspections. Two kinds of physical inspections are required
in the homeownership option (in addition to, and separate from, any
lender required inspections): an HQS inspection by the PHA and an
independent professional home inspection by an inspector that is used
in the private market by homebuyers. (Sec. 982.631).
The PHA inspection is the normal initial HQS inspection conducted
by the PHA for the tenant-based rental assistance program. This
inspection will indicate the current physical condition of the unit and
any repairs necessary to ensure that the unit is safe and otherwise
habitable. The PHA HQS inspection does not include an assessment of the
adequacy and life span of the major building components, building
systems, appliances and other structural components.
The only difference between the HQS inspection requirements for the
tenant-based rental and homeownership programs is that the PHA is not
required by the regulation to conduct annual inspections. The exemption
from annual HQS homeownership inspections is authorized by the statute.
The initial (prior to the commencement of housing assistance) HQS
inspection is the only PHA inspection required for homeownership units
during the entire time the family is receiving Section 8 homeownership
assistance.
The other inspection required by this final rule is a statutory
requirement that is consistent with private real estate practice. The
independent professional home inspection is conducted by a private
market home inspector (not PHA staff) that is experienced and qualified
to conduct prepurchase inspections for homebuyers. The purpose of the
home inspection is the identification of home defects and an assessment
of the adequacy and life span of the major building components,
building systems, appliances and other structural components. The
requirement for an inspection arranged by the buyer and satisfactory to
the buyer is a typical contingency clause in contracts of sale. The
Section 8 family selects the home inspector and pays the home
inspector's fees. (The source of funds for family payment of the home
inspection may be a gift, family savings or an inheritance, or sources
other than family savings.) A copy of the inspection report is provided
to the family and the PHA.
Although the PHA may not require the family to use a particular
inspector, the PHA may establish standards for qualification of the
home inspector selected by the family. For example, the PHA may require
the use of a home inspector certified by the American Society of Home
Inspectors, or a similar national organization.
The PHA must review the home inspector's report to determine
whether repairs are necessary prior to purchase, and to generally
assess whether the purchase transaction makes sense in light of the
overall condition of the home and the likely costs of repairs and
capital expenditures. For example, the home inspector's report might
reveal foundation instability, and a defective roof and heating system
that needs immediate replacement at great cost. Confronted with these
facts the PHA would discuss the inspection results
with the family and decide whether to disapprove the unit for
assistance under the homeownership option because of the major physical
problems and substantial correction costs, or whether it is feasible to
have the necessary repairs accomplished prior to sale.
d. Switching from Section 8 homeownership voucher assistance to
rental voucher assistance, and vice-versa, after a mortgage default and
at other times. There are a number of circumstances under which a
family may switch between rental and homeownership assistance under the
voucher program. Various scenarios are described below.
A Section 8 participant receiving voucher assistance may
request a PHA operating a homeownership program to determine whether
the family is eligible for Section 8 homeownership assistance. If the
family is determined eligible for homeownership assistance, the PHA may
authorize the family to search for a home to purchase. The family would
continue to receive rental assistance until the family vacates the
rental unit (consistent with the lease).
A Section 8 applicant selected from the PHA waiting list
goes to the briefing and learns of the homeownership option. The PHA
determines the family is eligible for homeownership and the family is
given two months to find a home to purchase. At the end of the two
months the PHA extends the search period for an additional month
because the family has found a unit. However, the purchase never occurs
due to problems qualifying for a loan. The family opts to rent an
apartment and try homeownership at a later time after they have
increased their savings. The PHA issues the family a rental voucher.
The family purchases a home under the Section 8
homeownership option. After several years the family decides that they
prefer to live in a rental apartment. If there is no mortgage loan
default and the family has met all obligations under the Section 8
program, the PHA may issue the family a rental voucher. The family must
sell the home before the PHA may provide rental assistance. If there is
a default on a mortgage (whether FHA-insured or non-FHA), the PHA may
exercise the PHA option to issue the family a rental voucher only if
the family vacates the home and conveys the title in accordance with
Sec. 982.638(d) (assuming the family has met all the family obligations
under the Section 8 program other than not causing a mortgage default).
e. Portability. Generally, a family determined eligible for
homeownership assistance by the initial PHA may purchase a unit outside
of the initial PHA's jurisdiction, if the receiving PHA is
administering a voucher homeownership program and is accepting new
homeownership families. In general, the portability procedures for the
Housing Choice Voucher program (described in Secs. 982.353 and 982.355)
apply to the homeownership option and the administrative
responsibilities of the initial and receiving PHA are not altered
except that some administrative functions (e.g, issuance of a voucher
or execution of a tenancy addendum) do not apply to the homeownership
option.
The receiving PHA may absorb the homeownership family or bill the
initial PHA for the homeownership housing assistance using the normal
portability billing process. Communications between the initial and
receiving PHA are necessary. As is the case for Section 8 rental
portable families, all of the receiving PHA's administrative policies
are applicable to the homeownership family. The family will be required
to attend the briefing and counseling sessions required by the
receiving PHA. The receiving PHA, not the initial PHA, will determine
whether the financing for and the physical condition of the unit are
acceptable.
f. Buying another home with Section 8 assistance. A homeownership
family may purchase another home with Section 8 assistance provided
there is no mortgage loan default. The family must sell its current
home in order to purchase another with homeownership assistance.
As noted above, PHAs shall recapture a percentage of homeownership
assistance defined in the regulations upon the sale or refinancing of
the home. Proceeds invested in the purchase of another home are exempt
from recapture. Most of the homeownership requirements applicable to
the first home purchase remain applicable to a subsequent purchase. For
example, the family must once again meet the employment threshold. The
necessity of any counseling will be determined by the PHA. An
independent home inspection will be conducted and the PHA will
determine the acceptability of the financing. The maximum term of
homeownership assistance applies to the cumulative time the family
receives homeownership assistance. The only exception to eligibility
requirements applicable to initial receipt of homeownership assistance
is that the family need not meet the first-time homebuyer requirement
(See Sec. 982.637(b)).
g. Applicability of the Section 8 tenant-based voucher requirements
to the homeownership option. Section 982.641 details the portions of
the voucher regulations that apply to the homeownership special housing
type. PHAs should carefully review this section of the regulations.
It is noted that all civil rights laws applicable to the Section 8
voucher program are applicable to the homeownership program. PHAs must
comply with all equal opportunity and nondiscrimination requirements
imposed by contract or Federal law. In addition, PHAs are reminded that
``finders-keepers'' applies to homeownership assistance; PHAs may not
steer families to particular units or neighborhoods. Further, as in the
tenant-based rental voucher program, PHAs must provide assistance to
expand housing opportunities. The PHA briefing for both rental and
homeownership families must explain:
Where the family may lease or purchase a unit;
How portability works (if the family qualifies to lease or
purchase a unit outside the PHA jurisdiction under portability
procedures); and
The advantages of moving to an area that does not have a
high concentration of poor families (if the family is currently living
in a high poverty census tract within the jurisdiction of the PHA).
Further, if the family includes any person with disabilities, the
PHA must take appropriate steps to ensure effective communication
during the briefing in accordance with 24 CFR 8.6.
h. Link between Section 8 homeownership and the Family Self-
Sufficiency (FSS) Program. PHAs may wish to link Section 8
homeownership with the FSS program. For example, participation in the
FSS program could be a PHA eligibility requirement. The PHA may also
opt to incorporate the homeownership goal into the family's FSS
contract of participation so any FSS escrow could be advanced for
purchase of a home or home maintenance/improvement purposes. It is
noted that FSS families must meet the homeownership income and
employment thresholds.
i. PHA determination of ``homeownership expense''. Section
982.635(c) details the expenses that the PHA will include when
determining the family's homeownership expenses. The principal and
interest amount is the debt service amount for the initial (original)
mortgage debt, any refinancing of such debt, and any mortgage insurance
premium. The utility allowance is the same utility allowance schedule
as used in the rental voucher program. The PHA allowance for
maintenance expenses is the amount the PHA thinks is appropriate for
routine maintenance for a home.
The PHA allowance for major repairs and replacements is the amount
the PHA thinks is appropriate for a replacement ``reserve'' for a home.
If a member of the family is a person with disabilities, such debt may
include debt incurred by the family to finance costs needed to make the
home accessible for such person, if the PHA determines that allowance
of such costs as homeownership expenses is needed as a reasonable
accommodation so that the homeownership option is readily accessible to
and usable by such person, in accordance with 24 CFR part 8.
These allowances for maintenance expenses and major repairs and
replacements should not be based on the condition of the home, similar
to how utility allowances work. It is recommended that a PHA contact
counseling agencies, local realtors and relevant national organizations
for advice on the appropriate level for these local allowances.
(Families are not required to put the amount set aside for these two
maintenance allowances in the bank or in escrow. Further, it is not
expected that the monthly amounts for these allowances will cover all
maintenance and capital expenditures.)
III. Summary of Changes Made by this Final Rule to the April 30,
1999 Proposed Rule
The following discussion summarizes the most significant
differences between the April 30, 1999 proposed rule and this final
rule. The changes made in response to public comment are discussed in
greater detail in sections IV., V., and VI. of this preamble.
1. Revised definition of ``net family assets'' (Sec. 5.603(d)). In
response to public comment, this final rule revises the definition of
``net family assets'' located in 24 CFR 5.603(d) to exclude the value
of a home currently being purchased with Section 8 homeownership
assistance. This exclusion is limited to the first 10 years after the
purchase date of the home.
2. Use of the term ``welfare assistance'' rather than the term
``public assistance'' (Sec. 982.4(a)). The final rule replaces the
proposed definition of the term ``public assistance'' with a cross-
reference to the term ``welfare assistance'', which is defined at 24
CFR 5.603. The proposed definition of ``public assistance'' was
redundant of HUD's existing definition of ``welfare assistance.''
Further, the use of the term ``welfare assistance'' in this final rule
will help to ensure the consistent use of defined terms throughout
HUD's regulations.
3. Revised definition of the term ``cooperative'' (Sec. 982.4(b)).
In response to public comment, the definition of the term
``cooperative'' in the final rule is no longer limited to housing owned
by a nonprofit entity.
4. Revised definition of the term ``first-time homeowner''
(Sec. 982.4(b)). The definition of ``first-time homeowner'' has been
revised to clarify that any family who has owned any residential
property during the preceding three years (regardless of whether its is
the family's principal residence) does not meet the definition of a
``first-time'' homeowner. The final rule also clarifies that a single
parent or displaced homemaker who, while married, owned a home with a
spouse (or resided in a home owned by a spouse) is considered a
``first-time homeowner'' for purposes of the Section 8 homeownership
option.
5. Separate definition of the term ``Present ownership interest''
(Sec. 982.4(b)). For purposes of clarity, this final rule provides a
separate definition of the term ``present ownership interest.'' The
proposed rule had defined this term within the definition of the term
``first-time homeowner.''
6. Overview of special housing types (Sec. 982.601). This final
rule reorganizes and makes several clarifying changes to Sec. 982.601,
which provides an overview of the special housing types. For example,
the changes clarify that the provisions of subpart M of 24 CFR part 982
apply solely to the specific special housing type noted in the heading
of each regulatory section. Further, the revisions clarify that the PHA
may not set aside program funds or program slots for special housing
types or for a specific special housing type. These technical changes
do not establish or modify existing program requirements, but are
designed solely to make Sec. 982.601 easier to understand.
7. PHA capacity to operate successful Section 8 homeownership
program (Sec. 982.625(d)). This final rule adds a new Sec. 982.625(d),
which requires that a PHA wishing to provide Section 8 homeownership
assistance must have the capacity to operate a successful homeownership
program. The PHA has the required capacity if it either:
Establishes a minimum homeowner downpayment requirement of
at least 3 percent of the purchase price for participation in its
Section 8 homeownership program, and requires that at least one percent
of the purchase price come from the family's personal resources;
Requires that financing for purchase of a home under its
Section 8 homeownership program be provided, insured, or guaranteed by
the state or Federal government, comply with secondary mortgage market
underwriting requirements, or comply with generally accepted private
sector underwriting standards; or
Otherwise demonstrates in its Annual Plan that its has the
capacity, or will acquire the capacity, to successfully operate a
Section 8 homeownership program. A PHA may acquire this capacity by
either partnering with an entity experienced in reviewing homeownership
financing or by hiring staff with such experience.
The final rule also makes a conforming change to HUD's PHA Plan
regulations at 24 CFR part 903. The revision is necessary so that the
capacity requirement can be applied fully to high-performing PHAs
wishing to provide Section 8 homeownership assistance. The final rule
amends Sec. 903.11 to provide that the information required by
Sec. 903.7(k) pertaining to homeownership programs must be included in
the PHA's streamlined Annual Plan submission only to the extent that
the PHA participates in homeownership programs under section 8(y) of
the 1937 Act.
8. Reorganization of Eligibility requirements (Secs. 982.626,
982.627, and 982.628). For purposes of clarity, this final rule
reorganizes the eligibility requirements for participation in the
homeownership option located in Secs. 982.626 and 982.627 of the
proposed rule). Section 982.626 of the final rule describes the initial
requirements that must be satisfied before the commencement of
homeownership assistance. Section 982.627 of the final rule sets forth
the eligibility requirements (such as the minimum income and employment
requirements) for families wishing to participate in the homeownership
option. Section 982.628 of the final rule describes the eligibility
requirements for homes purchased with homeownership assistance. With
the exception of those changes described elsewhere in this preamble,
this reorganization is not substantive, but is intended to clarify
these regulatory requirements. The substance of proposed Sec. 982.628
and subsequent regulatory sections have been redesignated to conform to
the establishment of new Sec. 982.628 (for example, proposed
Sec. 982.628 has become Sec. 982.629 of this final rule, proposed
Sec. 982.630 has become Sec. 982.631, etc.).
9. Homeownership assistance as a reasonable accommodation
(Sec. 982.627(b)(3)). This final rule revises Sec. 982.627 to clarify
that a family
containing a family member with disabilities who requires homeownership
assistance as a reasonable accommodation is eligible for the
homeownership option, regardless of whether the family is a cooperative
member or a first-time homeowner (as those terms are defined at
Sec. 982.4).
10. Prohibition on the provision of homeownership assistance to
family with present ownership interest (Sec. 982.627(a)(6)). This final
rule clarifies that, except for cooperative members who have acquired
cooperative membership shares prior to the commencement of
homeownership assistance, no family member may have a present ownership
interest in a residence at the commencement of homeownership assistance
for the purchase of any home.
11. Establishment of national minimum income requirement
(Sec. 982.627(c)). At the request of several public commenters, the
final rule establishes a national minimum income requirement that is
equal to 2,000 hours of annual full-time work at the Federal minimum
wage. A PHA may not establish a minimum income requirement in addition
to the minimum income standard established by this rule.
12. Fulfilling the minimum income requirement (Sec. 982.627(c)(1)).
In response to public comment, the final rule provides that the adult
family members who will own the home at the commencement of the
homeownership assistance (as opposed to only the head of household or
spouse) must have annual income (gross income) that is not less than
the minimum income requirement.
13. Establishment of national employment requirement
(Sec. 982.627(d)). At the request of several public commenters, this
final rule establishes a uniform national employment requirement. For
purposes of uniformity, the final rule defines ``full-time employment''
to mean not less than an average of 30 hours per week. Further, the
final rule adds a new Sec. 982.627(d)(4), which provides that a PHA may
not establish an employment requirement in addition to the employment
standard established by the final rule.
14. Fulfilling the employment requirement (Sec. 982.627(d)(1)). The
final rule provides that one or more adult members of the family who
will own the home at commencement of homeownership assistance (not just
the head of household or spouse) must fulfill the employment
requirement.
15. Interruptions in employment (Sec. 982.627(d)(2)). The final
rule provides that the PHA has the discretion to determine whether (and
to what extent) an employment interruption is considered permissible in
satisfying the employment requirement. The final rule also clarifies
that the PHA may consider successive employment during the one-year
period and self-employment in a business.
16. Eligible homes for purchase under the homeownership option
(Sec. 982.628(a)(2)). The final rule provides that a home is eligible
for purchase under the homeownership option if, at the time the PHA
determines that the family is eligible to purchase the home with
homeownership assistance, the home is either under construction or
already existing.
17. Provision of homeownership counseling (Sec. 982.630). The final
rule clarifies that, although the PHA must require pre-assistance
homeownership counseling, the PHA is not itself obligated to provide
the required counseling.
18. Housing counseling topics (Sec. 982.630(b)). The final rule
clarifies that the PHA-required counseling program should ``generally''
cover the topics listed in Sec. 982.629(b).
19. Fair housing as a suggested counseling topic
(Sec. 982.630(b)(8)). The final rule expands the list of suggested
housing counseling topics to include information on fair housing, fair
housing lending practices, and local fair housing enforcement agencies.
20. RESPA and predatory lending as suggested counseling topics
(Sec. 982.630(b)(9)). The final rule expands the list of suggested
housing counseling topics to include information about the Real Estate
Settlement Procedures Act (12 U.S.C. 2601 et seq.) (RESPA), state and
Federal truth-in-lending laws, and how to identify and avoid loans with
oppressive terms and conditions.
21. Revision of housing counseling topics (Sec. 982.630(c)). The
final rule provides that a PHA may revise the subjects covered in the
pre-assistance counseling to address local circumstances and the needs
of individual families.
22. Housing counseling standards (Sec. 982.630(e)). The final rule
provides that, if the PHA is not using a HUD-approved housing
counseling agency to provide the counseling for families participating
in the homeownership option, the PHA should ensure that its counseling
program is consistent with the homeownership counseling provided under
HUD's Housing Counseling program.
23. Seller certification in contract of sale that the seller is not
debarred, suspended, or subject to a limited denial of participation
(Sec. 982.631(c)(2)(v)). In response to public comment, the final rule
provides that the contract of sale must contain a seller certification
that the seller is not debarred, suspended, or subject to a limited
denial of participation under 24 CFR part 24.
24. Applicability of Federal Housing Administration (FHA)
underwriting standards for non-FHA insured loans (Sec. 982.632). The
final rule removes the requirement that purchases of homes financed
without FHA mortgage insurance must, nonetheless, comply with the basic
underwriting requirements for FHA-insured single family homes. However,
the final rule continues to provide that if the purchase of the home is
financed with FHA mortgage insurance, such financing is subject to FHA
mortgage insurance requirements.
25. PHA approval of refinancing agreements or securing of
additional financing on the home (Sec. 982.632(c)). The final rule
provides that the PHA may establish requirements or other restrictions
concerning debt secured by the home.
26. PHA disapproval of lender qualifications and loan terms
(Sec. 982.632(d)). This final rule clarifies that the PHA may review
lender qualifications and the loan terms before authorizing
homeownership assistance. The PHA may disapprove proposed financing,
refinancing or other debt if the PHA determines that the debt is
unaffordable, or if the PHA determines that the lender or the loan
terms do not meet PHA qualifications.
27. Prohibition on ownership interest in second residence
(Sec. 982.633(b)(7)). This final rule clarifies that no family member
may have a present ownership interest in a second residence while
receiving homeownership assistance.
28. Additional requirements for continuation of homeownership
assistance (Sec. 982.633(b)(8)). The final rule provides that the
additional requirements for continuation of homeownership assistance
established by the PHA may include a requirement for post-purchase
homeownership counseling or for periodic unit inspections while the
family is receiving homeownership assistance. With regards to post-
purchase counseling, PHAs are encouraged to at least provide the family
written briefing materials covering the topics in the PHA-required
housing counseling program at the time of any refinancing of the
initial debt, or the financing for improvement or repair of the home.
29. Maximum term of homeownership assistance (Sec. 982.634). The
final rule provides for a mandatory term limit on homeownership
assistance of 15 years if the initial mortgage incurred to finance
purchase of the home has a term that is 20 years or longer. In all
other cases, the maximum term of homeownership assistance is 10 years.
The PHA may not establish shorter or longer maximum terms.
30. Applicability of maximum term for homeownership assistance
(Sec. 982.634). The final rule clarifies that the maximum term for
homeownership assistance applies to any member of the household who has
an ownership interest in the unit during any time that homeownership
payments are made, or is the spouse of any member of the household who
has an ownership interest in the unit at the time homeownership
payments are made.
As in the proposed rule, the final rule provides that the maximum
term for homeownership assistance does not apply to an elderly family
or a disabled family. The final rule clarifies that, in the case of an
elderly family, this exception is only applied if the family qualifies
as an elderly family at the commencement of homeownership assistance.
In the case of a disabled family, this exception applies if at any time
during receipt of homeownership assistance the family qualifies as a
disabled family.
If, during the course of homeownership assistance, the family
ceases to qualify as a disabled or elderly family, the maximum term
becomes applicable from the date homeownership assistance commenced.
However, such a family must be provided at least 6 months of
homeownership assistance after the maximum term becomes applicable
(provided the family is otherwise eligible to receive homeownership
assistance in accordance with this part).
31. Inclusion of accessibility modifications as homeownership
expenses (Sec. 982.635(c)(2)(vii) and Sec. 982.635(c)(3)(vii)). The
final rule clarifies that, if a member of the family is a person with
disabilities, eligible homeownership expenses may include debt incurred
to finance costs needed to make the home accessible for the family
member, if the PHA determines that the allowance is needed as a
reasonable accommodation.
32. Inclusion of condominium or cooperative operating charges or
maintenance fees as homeownership expenses (Sec. 982.635(c)(4)). The
final rule provides that, if the home is a cooperative or condominium
unit, homeownership expenses may include cooperative or condominium
operating charges or maintenance fees assessed by the condominium or
cooperative homeowner association.
33. Homeownership assistance payments to lender or family
(Sec. 982.635(d)(2)). The final rule clarifies that, if the PHA decides
to make the homeownership assistance payments directly to the lender,
and the assistance payment exceeds the amount due to the lender, the
PHA must pay the excess amount directly to the family.
34. Automatic termination of homeownership assistance
(Sec. 982.635(e)). The final rule clarifies that homeownership
assistance for a family terminates automatically 180 calendar days
after the last housing assistance payment on behalf of the family.
However, a PHA has the discretion to grant relief from this requirement
in those cases where automatic termination would result in extreme
hardship for the family.
35. Clarification of portability procedures (Sec. 982.636). This
final rule clarifies the portability procedures for Section 8
homeownership assistance. Generally, a family determined eligible for
homeownership assistance by the initial PHA may purchase a unit outside
of the initial PHA's jurisdiction, if the receiving PHA is
administering a voucher homeownership program and is accepting new
homeownership families. In general, the portability procedures for the
Housing Choice Voucher program (described in Secs. 982.353 and 982.355)
apply to the homeownership option and the administrative
responsibilities of the initial and receiving PHA are not altered
except that some administrative functions (e.g, issuance of a voucher
or execution of a tenancy addendum) do not apply to the homeownership
option.
36. Prohibition on provision of continued assistance to family with
interest in prior home (Sec. 982.637(a)(2)). The final rule provides
that a PHA may not commence continued tenant-based assistance for
occupancy of the new unit so long as any family member owns any title
or other interest in the prior home.
37. Denial or termination of homeownership assistance
(Sec. 982.638). For purposes of clarity, the final rule consolidates
the provisions regarding the denial and termination of homeownership
assistance in a new Sec. 982.638.
38. Continued assistance after mortgage defaults (Sec. 982.638(d)).
This final rule clarifies the regulatory provisions regarding continued
assistance to a family that has defaulted on a mortgage obtained
through the homeownership option. The final rule provides that the PHA
must terminate voucher homeownership assistance for any member of a
family that is dispossessed from the home pursuant to a judgement or
order of foreclosure on any mortgage (whether FHA-insured or non-FHA)
securing debt incurred to purchase the home, or any refinancing of such
debt. However, the family may be eligible to receive continued voucher
rental assistance. The PHA may consider mitigating circumstances in
determining whether to provide a family with rental assistance after a
mortgage default.
39. Recapture of homeownership assistance (Sec. 982.640). In
response to public comment, the final rule provides for the recapture
of a percentage of homeownership assistance provided to the family upon
the sale or refinancing of the home. Sales proceeds that are used by
the family to purchase a new home with Section 8 homeownership
assistance are not subject to recapture. Further, a family may
refinance to take advantage of lower interest rates, or better mortgage
terms, without any recapture penalty. Only those proceeds realized upon
refinancing that are retained by the family (for example during a
``cash-out'' of the refinanced debt) are subject to the new recapture
provision.
The final rule requires that, upon purchase of the home, a family
receiving homeownership assistance shall execute documentation as
required by HUD, and consistent with State and local law, that secures
the PHA's right to recapture the homeownership assistance. The lien
securing the recapture of homeownership subsidy may be subordinated to
a refinanced mortgage. The amount of homeownership assistance subject
to recapture shall automatically be reduced over a 10 year period,
beginning one year from the purchase date, in annual increments of 10
percent. At the end of the 10 year period, the amount of the
homeownership assistance subject to recapture will be zero.
IV. Public Comments Received on the April 30, 1999 Proposed Rule
The public comment period on the April 30, 1999 proposed rule
closed on June 29, 1999. HUD received 93 public comments. Comments were
submitted by PHAs, including regional and State housing agencies;
national organizations representing PHAs; legal services organizations;
mortgage bankers; Fannie Mae and Freddie Mac; advocates for persons
with disabilities; low-income housing advocates; and various other
organizations and individuals. The following sections of this preamble
present a summary of the significant
issues raised by the public commenters on the April 30, 1999 proposed
rule, and HUD's responses to these comments.
Section V. of the preamble discusses general comments that did not
address a specific regulatory section. Section VI. of the preamble
discusses those comments that concerned a specific regulatory provision
of the proposed rule.
V. Discussion of General Comments Not Regarding a Specific
Regulatory Section
A. Support for Proposed Rule
Comment: Support for proposed rule. Several commenters expressed
support for the proposed rule and the concept of the Section 8
homeownership option. One commenter wrote: ``In general, [our PHA]
commends the job that HUD has done in this component of the immense
regulatory undertaking required by the [Public Housing Reform Act].''
Another commenter wrote that its board ``unanimously endorsed the
concept of the Section 8 homeownership program, and applauds HUD for
taking this initiative.'' Still another commenter wrote: ``[We] applaud
the proposed Section 8 Homeownership Program.''
HUD Response. HUD is appreciative of the comments in support of
HUD's efforts in developing the proposed rule. HUD believes that the
Section 8 homeownership option will provide local PHAs with greater
flexibility in addressing the housing needs of their communities while
creating homeownership opportunities for the low-income families the
Section 8 tenant-based program is designed to serve.
B. General Concerns About the Proposed Rule
Comment: HUD should prohibit or limit the use of Section 8 rental
assistance funds for homeownership. Several commenters were opposed to
the concept of Section 8 homeownership. These commenters wrote that
limited Section 8 resources should be used solely to assist families in
renting decent, safe, and sanitary units. One of the commenters wrote
that many communities currently offer other programs with Community
Development Block Grant (CDBG), HOME, or state or local funding to
assist prospective first-time homebuyers. Several of the commenters
suggested that HUD should establish reasonable upper limits on the
number or percentage of households that can use the homeownership
option, in order to protect the availability of rental assistance for
extremely low-income families. According to these commenters, the
homeownership option is geared toward families with relatively higher
incomes than the typical Section 8 rental program participant.
HUD response. Section 8(y) provides that a PHA, in its discretion,
may make Section 8 homeownership assistance available to eligible
families. HUD anticipates that PHAs will consider local circumstances
(such as the availability of other local resources) when deciding
whether or not to implement a homeownership program.
HUD does not believe it is necessary to establish upper limits on
the number of families a PHA may allow to participate in the
homeownership option in order to protect the interests of extremely
low-income families. Since the same income targeting requirements apply
to the rental and homeownership components of the Section 8 Housing
Choice Voucher program, implementation of the homeownership option
should not have a significant effect on the availability of Section 8
voucher assistance to extremely low-income applicants.
Comment: The lack of uniformity in program rules for PHAs will
discourage lender participation and impede family choice and economic
mobility. Several commenters wrote that the proposed rule grants too
much discretion to PHAs to establish certain critical elements of the
homeownership program. These areas include minimum income requirements,
program eligibility requirements, financing requirements, and the
duration of homeownership assistance. The commenters wrote that, as a
result of the lack of uniform rules, there will be considerable
disparity from one jurisdiction to another unless HUD imposes uniform
rules. The commenters wrote that such disparities would discourage
lender participation and prevent regional efforts to expand
homeownership opportunities. Without broad lender participation,
families would be deprived of the protections offered by a competitive
marketplace and would be vulnerable to fraudulent real estate and
financing practices.
HUD response. The final rule continues to provide PHAs with broad
administrative flexibility over the homeownership option. Where HUD has
determined that uniformity is appropriate (such as in the areas of
minimum income, employment, and maximum term of assistance), this final
rule establishes uniform Federal standards. However, HUD continues to
believe that administrative flexibility is essential for the program to
address local needs, adapt to local markets, and permit localized
financing strategies in order to achieve success in individual
communities. The approach of the final rule is consistent with two of
the purposes of the Public Housing Reform Act: to deregulate PHAs, and
to provide more flexible use of Federal assistance to PHAs (see section
505(b) of the Public Housing Reform Act).
While standardized requirements may facilitate participation by
certain regional and national financing entities, and increase
opportunities for sales of mortgages in the secondary market, HUD
believes that PHA flexibility over certain features of the program will
not preclude that result. For instance, a regional lending institution
could establish its own requirements to participate in the section 8(y)
program. PHAs could then choose to structure their programs accordingly
in order to comply with and complement the lender's requirements for
participation.
C. Comments Regarding Persons with Disabilities
Comment: Support for rule provisions regarding the elderly and
persons with disabilities. A number of commenters commended HUD for the
sensitivity shown in the proposed rule to persons with disabilities'
real life situations, especially in the areas of income and employment.
These commenters wrote that the proposed rule demonstrated that HUD is
attuned to disability issues and that a conscious effort was made to
recognize those barriers faced in accessible housing.
HUD response. HUD appreciates the comments supporting the proposed
rule provisions concerning the elderly and persons with disabilities.
Comment: The rule should require the PHA or a local supportive
service provider to annually review difficulties faced by persons with
disabilities in maintaining their mortgage payments or homes. The
commenter submitting this suggestion wrote that an annual review is
necessary to ensure that: (1) homeowners with disabilities continue to
be able to access the supportive services they choose; and (2)
supportive service agencies and the PHA are aware of any problems the
family may be having.
HUD Response: The final rule provides that PHAs may offer post-
purchase counseling, and HUD encourages the use of such counseling to
further lessen the risk of defaults. However, it would be inappropriate
to limit post-purchase counseling to persons with disabilities, and HUD
believes it would be inappropriate to presume that persons with
disabilities require additional scrutiny because they
are more likely to default on their mortgages. Accordingly, HUD has not
adopted the suggestion made by the commenter.
Comment: The rule should define what constitutes a ``reasonable
accommodation'' for a person with disabilities. Several commenters
wrote that the proposed rule would require a PHA to offer Section 8
homeownership assistance ``if needed as a reasonable accommodation for
a family member who is a person with disabilities'' (64 FR 23488).
These commenters suggested that the final rule should establish
guidelines to determine when homeownership assistance is a ``reasonable
accommodation.'' The commenters wrote that, without such guidance in
the final rule, PHAs that choose not to provide a homeownership option
may fail to provide the required ``reasonable accommodation'' to
persons with disabilities.
Other commenters, however, wrote that PHAs should not be required
to offer homeownership assistance as a reasonable accommodation. The
commenters wrote that this obligation could be costly to a PHA that has
not elected to offer the homeownership option and has not assembled the
counseling and other resources needed to operate it.
HUD response. The provision of homeownership assistance as a
reasonable accommodation is determined on a case-by-case basis by the
PHA. The PHA will determine what is reasonable based on the specific
circumstances and individual needs of the person with a disability. It
is the sole responsibility of the PHA to determine whether it is
reasonable to implement a homeownership program as a reasonable
accommodation. For example, depending on the individual circumstances,
the PHA may determine that it is a reasonable accommodation to provide
homeownership assistance when the PHA has implemented a limited
homeownership program and is currently assisting the maximum number of
homeowners in the PHA program. On the other hand, the PHA may determine
that it is not reasonable to provide homeownership assistance as a
reasonable accommodation in cases where the PHA has otherwise opted not
to implement a homeownership program.
Comment: All homeownership briefing materials should be accessible
to persons with disabilities. Several commenters suggested that HUD
should ensure that all homeownership programs and briefing materials
are accessible to person with all types of disabilities.
HUD response. The Section 8 homeownership program is a ``special
housing type'' under subpart M of the tenant-based Section 8 program
regulations. Except when specifically modified by subpart M,
requirements in the other subparts of the tenant-based regulations
apply to the special housing types (including the homeownership
program). Accordingly, as specified in Sec. 982.301, the PHA, in
briefing a family that includes any person with disabilities, must take
appropriate steps to ensure effective communication in accordance with
24 CFR 8.6.
D. Comments Regarding the Role of Nonprofits
Comment: The final rule should encourage PHAs to contract with
nonprofit organizations to administer the homeownership assistance. A
number of commenters wrote that PHAs have had little experience in
operating homeownership programs, whereas nonprofits have a solid-track
record in this area. These commenters wrote that PHA partnerships with
nonprofits may prove particularly helpful in preventing fraud and other
abusive practices. In addition, the commenters wrote that nonprofits'
knowledge of the market can help ensure that families are exposed to
housing choices in a range of neighborhoods. The commenters wrote that
there is much to be gained by requiring, or at least strongly
encouraging, PHAs to partner with nonprofits in the design and
operation of Section 8 homeownership programs.
HUD response. While the final rule does not require the PHA to
partner with a nonprofit, the PHA may wish to consider subcontracting
with nonprofits for administration of one or more of the
responsibilities under the homeownership program, just as it may
contract out other PHA functions in administering the Section 8 Housing
Choice Voucher program. Alternatively, the PHA may wish to consult with
nonprofit organizations with homeownership experience in designing the
PHA's homeownership program. HUD encourages PHAs lacking in
homeownership program experience to explore the possibility of working
with experienced nonprofits through partnerships or contractual
arrangements to design and administer a successful section 8(y)
program. Regardless of the PHA approach to the delivery of PHA
responsibilities, the PHA is always responsible for overall compliance
with program requirements.
Comment: Where there is no PHA willing to implement the
homeownership option in a particular area, HUD should permit other
public agencies or private nonprofits to administer a Section 8
homeownership program. Several commenters wrote that this approach
would expand homeownership opportunities for persons with disabilities,
even in those cases where a PHA chooses not to provide the
homeownership option or where there is no tenant-based program at all
(perhaps an area where there is little or no rental housing, but an
abundance of low-cost single-family homes).
HUD response. Section 8(o)(15) of the 1937 Act specifically
provides that a PHA providing tenant-based assistance ``may at the
option of the agency, provide assistance for homeownership'' and that a
PHA ``may contract with a nonprofit organization to administer a
homeownership program.'' The decision to offer homeownership assistance
rests with the PHA and there is no additional or separate funding
provided for homeownership assistance. A PHA that does not want to use
existing staff to implement a homeownership program may consider
subcontracting with a nonprofit organization to administer the
homeownership program on behalf of the PHA, but is not required to do
so.
E. Comments Regarding Income Targeting
Comment: The final rule should clarify whether Section 8
homeownership subsidies are subject to the same income targeting
requirements as the Section 8 rental assistance program. A few
commenters wrote that if the new income targeting requirements of the
Public Housing Reform Act apply, the requirements will reduce the pool
of families eligible for Section 8 homeownership assistance.
HUD response. The Section 8 homeownership program is a ``special
housing type'' under subpart M of the tenant-based Section 8 program
regulations. Except when specifically modified by subpart M,
requirements in the other subparts of the tenant-based regulations
apply to the special housing types (including the homeownership
program). The income targeting requirements apply to the PHA's entire
tenant-based Section 8 program, including the rental and any
homeownership portion of the program.
HUD anticipates that most participants in the Section 8
homeownership program will be current program participants, not
applicants. Since families continuing to receive assistance under the
1937 Act are not considered as new admissions, their income levels are
not examined for compliance with income targeting requirements.
F. Comments Regarding the Relationship Between the Homeownership Option
and the Family Self-Sufficiency (FSS) Program
Comment: Linking the FSS Program to Homeownership Option. One
commenter expressed the opinion that it is very important to retain PHA
discretion regarding whether to link the Section 8 homeownership
program to FSS. Several commenters wrote that families should not be
required to participate in the FSS program as a condition of receiving
homeownership assistance.
HUD response. There is no federal requirement that families must
participate in the FSS program as a condition of receiving
homeownership assistance. There is, however, PHA administrative
flexibility to link the FSS and homeownership programs. For example,
the PHA may adopt local homeownership eligibility requirements such as
participation in the FSS program. The PHA may opt to incorporate the
homeownership goal in the family's FSS contract of participation so any
FSS escrow could be advanced for purchase of a home or home
maintenance/improvement purposes. HUD believes that PHA discretion over
this issue is appropriate and in keeping with the intention to ensure
there is sufficient PHA flexibility to address the local community's
needs and objectives in the administrative policies of the program.
G. Considering Section 8 Assistance as Income for Purposes of Financing
Purchase of Home
Comment: Section 8 assistance should not be considered income for
purposes of financing the purchase of the home. Several commenters
wrote that the proposed rule did not adequately consider the high cost
of housing in certain metropolitan areas. The commenters wrote that the
preamble to the proposed rule states that ``it is anticipated that
mortgage lenders will consider the Section 8 assistance as a source of
income when underwriting the loan'' (64 FR 23488, 23489). Instead, the
commenters suggested that the final rule should require that the
voucher housing assistance payment be deducted from the monthly housing
expense. The commenters wrote that, due to the high cost of housing in
certain metropolitan areas, the housing assistance payment will not
raise income sufficiently to permit the family to qualify for a loan in
an amount necessary to purchase a good quality home.
One of the commenters wrote that lenders should not consider
Section 8 assistance as a source of income because payments are not
earned income or entitlement income, are not guaranteed for more than
12 months, and may decrease with an increase in total family income or
violation of Section 8 program requirements.
Another commenter recommended that the final rule prohibit
discrimination based on source of income because lending institutions
do not view government benefits as a reliable or stable source of
income. Accordingly, these lenders will be unlikely to approve home
loan applications from Section 8 recipients.
HUD response. Section 8(y) does not regulate the lending industry.
Consequently, the final rule does not impose any requirement on lenders
to treat the subsidy in a certain manner, nor does the rule prohibit
discrimination by lenders based on source of income. Lenders will apply
their underwriting criteria for financing of homes to be purchased
under the Section 8 homeownership program. HUD notes that, to the
extent applicable, lenders must comply with the Equal Credit
Opportunity Act (15 U.S.C. 1601 et seq.) (referred to as ``ECOA'') and
the implementing regulations issued by the Federal Reserve Board at 12
CFR part 202. ECOA prohibits lending discrimination, including
discrimination based on receipt of public assistance.
H. Comments Regarding Mortgage Defaults
Comment: HUD should require that each PHA with a homeownership
program develop a strategy to reduce foreclosure risk. Two commenters
wrote that such a requirement would help minimize foreclosures among
participating families.
HUD response. Although HUD has not adopted the suggestion, the
final rule does provide that a family must attend and satisfactorily
complete pre-assistance homeownership counseling before homeownership
assistance may commence. In addition, HUD encourages PHAs to provide
post-purchase counseling and otherwise develop local strategies to
reduce mortgage foreclosures by families participating in the
homeownership program.
I. Other General Comments
Comment: The final rule should explicitly permit PHAs to limit
homeownership assistance to local needs. The preamble to the April 30,
1999 proposed rule provided that: The PHA may choose to make
homeownership assistance freely available for any qualified applicant
or participant, or to restrict homeownership assistance to families or
purposes defined by the agency. (64 FR 23488)
One commenter wrote that the proposed regulatory text does not
contain comparable language. The commenter wrote that a PHA should have
the discretion to limit application of its Section 8 homeownership
program, in whole or in part, to achieve local housing goals or
priorities. Accordingly, the commenter suggested that the final rule
contain regulatory text equivalent to the quoted preamble language.
HUD response. The final rule explicitly provides at Sec. 982.626(b)
that the PHA may limit homeownership assistance to families or purposes
defined by the PHA.
Comment: HUD should explicitly authorize and encourage PHAs to join
together to administer the homeownership option. Several commenters
wrote that lenders are much more likely to participate in a regional
program than in a program whose rules vary from PHA to PHA. The
commenters wrote that a regional program would facilitate mobility and
minimize portability concerns.
HUD response. PHAs currently have necessary flexibility to join in
the regional administration of the homeownership option. Explicit
authorization is not necessary for PHAs to jointly administer (or
otherwise cooperate in the administration) of the Section 8
homeownership program.
Comment: PHAs should be required to provide homeownership option. A
few commenters suggested that PHAs should be required to offer Section
8 homeownership assistance. The commenters wrote that HUD should exempt
a PHA from offering homeownership assistance only if the PHA can
document that implementing the homeownership option in its jurisdiction
would not be feasible.
HUD response. The recommendation made by the commenters is
inconsistent with the 1937 Act. Section 8(o)(15) of the 1937 Act
specifically provides that a PHA providing tenant-based Section 8
assistance ``may at the option of the agency, provide assistance for
homeownership.'' Accordingly, HUD has not adopted the suggestion made
by the commenters.
Comment: HUD should isolate Section 8 homeownership loans from
other FHA loans. One commenter wrote that loans under the Section 8
homeownership program will likely
have higher default ratios than other loans, and that lenders
originating these loans would be penalized when their default numbers
are higher than those of their peers who have not participated in the
program. Specifically, the commenter wrote that lenders participating
in the Section 8 homeownership program might unfairly lose their FHA
approved lender status. Therefore, the commenter suggested that HUD's
tracking systems should isolate loans issued under the Section 8
homeownership program from other FHA loans.
HUD response. Lenders will use normal FHA underwriting criteria for
FHA-insured loans. As a result, HUD does not anticipate a higher than
average default rate and HUD does not intend to track these loans
separately.
J. General Questions About the Proposed Rule
Comment: Is a PHA an eligible seller under the homeownership
program?
HUD response. There is no prohibition against a family purchasing a
PHA-owned home under the Section 8 homeownership program. However, the
PHA cannot steer families (or otherwise limit or restrict purchase
options) to PHA-owned or controlled units.
Comment: Is a manufactured home eligible for purchase under the
homeownership program?
HUD response. A manufactured home and the real property upon which
the manufactured home sits are eligible for purchase under the
homeownership program.
Comment: At annual reexaminations of family income subsequent to
home purchase, will the owned home be counted as an asset? One
commenter wrote that this could become a serious problem if there is
rapid appreciation of the value of the home.
HUD response. In response to this comment, HUD has revised the
definition of ``net family assets'' found in 24 CFR 5.603(d). The
revised definition excludes the value of a home currently being
purchased with Section 8 homeownership assistance. This exclusion is
limited to the first 10 years after the purchase date of the home.
Comment: Is the initial 40 percent maximum rent burden requirement
under the Housing Choice Voucher program applicable to the
homeownership option? The commenter wrote that this provision, if
applied to the homeownership program, would severely limit housing
choice.
HUD response. The 40 percent initial rent burden cap does not apply
to families who will participate in the Section 8 homeownership program
since homeownership families do not pay rent.
Comment: If the lender is relying on the Section 8 assistance to
secure the mortgage, is the family, the PHA, or HUD is responsible for
payment of the note?
HUD response. Neither the PHA nor HUD is guarantor of mortgage note
for a home being purchased under the Section 8 program. The terms of
the loan note will determine who is responsible for payment (usually
the family) of the loan.
VI. Discussion of Comments Regarding a Specific Regulatory Section
For the convenience of readers, the discussion that follows is
organized by the regulatory section of the proposed rule it pertains to
(e.g., Sec. 982.625, Sec. 982.633, etc.). As noted, HUD has made
several organizational changes at the final rule stage. Accordingly,
the proposed regulatory section headings do not always correspond to
those of this final rule.
A. Definitions (proposed Sec. 982.4)
Comment: Definition of ``Public Assistance'' is too broad. Several
commenters wrote that the proposed definition of ``public assistance''
is overly broad and subject to misinterpretation. The commenters
suggested that the definition should be narrowed to specifically
identify only those welfare programs that may not be counted in
determining minimum income. Other commenters wrote that the definition
should exclude food stamps, unemployment insurance and permanent
disability payments.
HUD response. The final rule addresses the concerns raised by the
commenters regarding the clarity of the definition of ``public
assistance.'' Specifically, HUD has removed the definition of the term
``public assistance'' and adopted, in its place, the definition of the
term ``welfare assistance'' located in 24 CFR 5.603. The definition of
``welfare assistance'' is well-established and understood by PHAs.
Further, the use of the term ``welfare assistance'' in this final rule
will help to ensure the consistent use of defined terms throughout
HUD's regulations.
Comment: The definition of ``cooperative'' should not be limited to
``housing owned by a nonprofit corporation or association.'' One
commenter wrote that many housing cooperatives are incorporated under
their home state's business corporation act. The commenter suggested
that by dropping the word ``nonprofit,'' the definition would better
reflect the reality of diverse legal practices among states. Another
commenter wrote that the proposed definition is unnecessarily
intrusive, imposes unnecessary administrative functions, and unduly
hinders the use of cooperative housing.
HUD response. Consistent with the recommendation, the regulatory
definition of ``cooperative'' in the final rule is no longer limited to
housing owned by a nonprofit entity.
B. Lease-purchase arrangements (proposed Secs. 982.305 and 982.317)
Comment: HUD should develop a model lease-purchase agreement to
prevent fraud by seller. The commenter wrote that a standard lease-
purchase agreement would prevent seller fraud.
HUD response. HUD does not intend to provide or require the use of
a standard HUD-prescribed lease-purchase agreement for the Housing
Choice Voucher program. HUD believes broad flexibility is needed in
this area to reflect the wide range of acceptable real estate market
practices that differ among localities.
Comment: Applicability of homeownership requirements upon entering
lease-purchase agreement. Two commenters suggested that a lease-
purchase family should be required to comply with all homeownership
requirements before purchase of the home. Another commenter wrote that
PHAs should be provided with the option of requiring compliance with
the homeownership requirements at the start of the lease-purchase
arrangement.
One commenter wrote that Section 8 families opting for
homeownership through a lease-purchase arrangement should be required
to satisfy at least half the continuous employment and half the
required counseling requirements at the time they enter the lease-
purchase program. The commenter wrote that, since lease-purchase
families typically have credit-history problems to clear up over time,
it would be onerous to impose all of the homeownership requirements on
the family at the time of their entrance into the program.
Other commenters wrote that a lease-purchase family should be
subject to the independent professional home inspection requirements of
the homeownership program before entering into a lease-purchase
arrangement. These commenters wrote that it would be devastating to a
lease-purchase family to reach the purchase option stage only to
discover that the purchase is jeopardized due to a property defect.
Several commenters suggested that the counseling requirement should
be applicable before entering into the lease-purchase arrangement. These
commenters wrote that families should have an idea of what the
responsibilities of homeownership are before entering into a lease-
purchase arrangement.
One commenter wrote that HUD should continue to allow a family to
enter into a lease-purchase arrangement without being subject to the
homeownership program requirements.
HUD response. HUD has not changed the requirements specified in the
proposed rule for lease-purchase arrangements. The final rule does not
require families with lease-purchase arrangements under the Section 8
tenant-based rental program to comply with any of the Section 8
homeownership program requirements. However, HUD believes it is in the
best interest of these families for the PHA to brief the family on the
homeownership requirements if they expect to receive Section 8
homeownership assistance to complete the purchase transaction. The PHA
may refer families participating in lease-purchase arrangements to HUD
homeownership counseling agencies. There is generally little or no cost
to the participant for this HUD funded counseling.
C. Cooperative Housing (proposed Sec. 982.619).
Comment: Final rule should clarify that the occupancy agreement
controls not only the allocation of maintenance responsibility between
the cooperative member and the cooperative, but also the rules to which
the Section 8 assisted members are subject. Several commenters wrote
that consideration and adoption of the rules governing co-ownership is
the focus of much democratic process in virtually every housing
cooperative. The commenters wrote that few cooperatives would be
willing to accept the existence of a differently-privileged class of
Section 8-assisted members in their midst.
HUD response. HUD disagrees that the suggested clarification is
necessary. The rule does not change the legal relationship between the
cooperative and cooperative member.
Comment: Final rule should clarify that, where rental assistance is
used in a cooperative setting, Section 8 assistance may be used for the
acquisition costs of cooperative memberships or shares. The commenter
wrote that this is especially critical in limited-equity cooperatives,
which is the type of cooperative in which most Section 8 rental
assistance is used. In limited-equity cooperatives, the share or
membership prices are strictly limited to provide ongoing affordability
of acquisition to low-income families. Section 8 rental assistance is
currently used in these settings to pay for the membership acquisition
over time.
HUD response. This comment, which appears to relate only to Section
8 rental assistance, is outside the scope of this rulemaking, which
implements the ``homeownership option'' authorized by section 8(y) of
the 1937 Act. HUD notes, however, that the final rule provides that the
costs of purchasing a cooperative unit may be included as a
``homeownership expense'' for purposes of determining the amount of
monthly homeownership assistance payment (see Sec. 982.635(c) of this
final rule).
D. Homeownership Option: General (proposed Sec. 982.625)
Comment: Newly constructed homes or units under construction should
be eligible for purchase under the homeownership option. Several
commenters wrote that in some areas the only affordable housing is new
housing being constructed by nonprofits, and that new construction
provides greater assurances to low-income families that major repairs
will not be necessary. The commenters wrote that the prohibition
against new construction would make it more difficult for persons with
disabilities to find accessible homes. Other commenters wrote that new
construction normally occurs in areas of job growth. The prohibition
would therefore prevent families from moving to such an area in search
of employment opportunities.
HUD response. In response to these comments, HUD has revised
proposed Sec. 982.625, which described the ``existing home''
requirement. Section 982.628(a)(2) of this final rule provides that a
home may be purchased under the homeownership option if, at the time
the PHA determines that the family is eligible for Section 8
homeownership assistance, the home is either under construction or
already existing. However, before commencing homeownership assistance
for the family, the PHA must determine that the home satisfies all of
the applicable requirements described in Sec. 982.628 of this final
rule (for example, the home must have been inspected by a PHA inspector
and by an independent inspector designated by the family; and the home
must meet the HUD Housing Quality Standards (HQS)).
Comment: The homeownership option should be available only to
current recipients of Section 8 rental assistance who have successfully
complied with all rental program requirements for at least one year.
One commenter suggested that homeownership assistance should not be
made available at initial admission. According to the commenter, this
will facilitate proper counseling and a considered housing search
without imposing artificial deadlines.
HUD response. HUD has not adopted this suggestion. HUD notes,
however, that PHAs may choose to impose this condition as an additional
requirement for eligibility.
Comment: Possible exceptions to the first-time homebuyer
requirement. Several commenters made suggestions on possible exceptions
to the first-time homebuyer requirement. Other commenters, however,
wrote that HUD should retain the first-time homeownership requirements
as set forth in the proposed rule, since the definition conforms to the
industry standard. Among the suggested exceptions, were exceptions for:
A divorced spouse who does not retain homeownership
interest;
Persons with disabilities who lost a previous home as a
result of becoming disabled;
Any otherwise eligible person with a disability;
Victims of domestic violence;
Current manufactured homeowners;
Owners of substandard housing; and
Single parents.
Another commenter suggested that the first-time homebuyer
requirement should only apply to the mortgagor, not to the entire
family. The commenter wrote that, otherwise, other family members would
be unfairly prevented from subsequently enjoying Section 8
homeownership benefits.
Two commenters wrote that homeownership assistance should not be
restricted to first-time homebuyers. Several commenters wrote that PHAs
should be provided with the option of establishing additional
exceptions to the first-time homebuyer requirement.
HUD response. HUD has carefully considered all of the suggested
exemptions to the first-time homebuyer requirement and is sympathetic
to the circumstances of families in many of the suggested categories.
However, HUD has decided not to attempt to specify, by regulation, the
many possible situations that may merit an exception to the first-time
homebuyer requirement.
However, HUD has revised the definition of ``first-time homeowner''
at Sec. 982.4 to clarify the eligibility of single parents and
displaced homemakers, as those terms are defined in section 956 of the
Cranston-Gonzalez National Affordable Housing Act (codified at 42
U.S.C. 12713). Section 956 provides that no displaced homemaker or
single parent ``may be denied eligibility under any Federal program to assist
first time homebuyers'' because of previous ownership of a home by or
with a spouse. Accordingly, this final rule provides that such
individuals are ``first-time homeowners'' for purposes of the
homeownership option and are, therefore, eligible to receive Section 8
homeownership assistance.
In addition, HUD has further revised this definition to clarify
that any family who has owned any residential property during the
preceding three years (regardless of whether it is the family's
principal dwelling unit or not) does not qualify as a first-time
homeowner.
Comment: The PHA should not be able to ``pass over'' a family on
its waiting list in order to provide another family homeownership
assistance. One commenter suggested that such a practice would be
unfair to families on the waiting list. Another commenter suggested
that HUD should explicitly forbid separate waiting lists for rental and
homeownership assistance.
HUD response. HUD's regulations at 24 CFR part 982, subpart M,
provide that a PHA may not set aside program funding for special
housing types or for a specific special housing type. The PHA may not
require an applicant to use the Housing Choice Voucher program
assistance for a particular special housing type. Consequently, a PHA
may not maintain separate waiting lists for special housing types or
provide a selection preference based on a family's willingness to use
the housing choice voucher for a particular special housing type.
Instead, if the PHA opts to offer Section 8 homeownership
assistance, the PHA may offer families (both current participants and
applicants who have been issued housing choice vouchers) that meet the
initial eligibility criteria (including any additional requirements
established by the PHA) the opportunity to use their Section 8
assistance to purchase a home. If the PHA has established limits on the
number of vouchers that may be used for homeownership, the PHA simply
suspends offering Section 8 homeownership assistance at such time that
the number of families receiving homeownership assistance, in
combination with the number currently in the pre-assistance phase of
the program, reaches the PHA limit.
E. Initial requirements (Proposed Sec. 982.626)
Comment: The rule should allow for homeownership assistance to be
used by a family to purchase a two- and three-family home. The
commenter wrote that, in certain areas, much of the affordable housing
stock consists of two-and three-family homes, and the rental income
would help the family meet its share of the homeownership expenses.
HUD response. Homeownership assistance is provided to assist a
family with the monthly homeownership expenses of its residence.
Homeownership assistance may not be used to assist the family with the
monthly expenses for investment or rental property. The family may not
use Section 8 homeownership assistance to purchase two- or three-family
homes. Accordingly, Sec. 982.628 of this final rule clarifies that a
home purchased with homeownership assistance must either be a one unit
property or a single dwelling unit in a cooperative or condominium.
Comment: PHAs should not be allowed to establish local eligibility
requirements for the homeownership option that are more restrictive
than those for Section 8 rental assistance. Several commenters wrote
that stricter requirements have the potential to discriminate or
discourage users with disabilities from using the homeownership option.
HUD response. HUD has not adopted this suggestion. Section 8(y)
specifically requires homeownership eligibility criteria that are not
applicable to the Section 8 rental assistance program. In addition, HUD
believes it is appropriate for PHAs to have broad administrative
authority to target homeownership assistance for specific purposes.
Since the PHA has the option whether or not to offer Section 8
homeownership assistance, HUD believes retaining PHA administrative
flexibility over this area is important to encourage wider
implementation of the homeownership option.
Comment: The prohibition against providing homeownership assistance
if the seller is debarred, suspended, or subject to a limited denial of
participation imposes a hardship on the purchaser. The commenter wrote
that after the purchase agreement is signed, the purchaser is
contractually obligated to buy the home according to the terms the
parties agreed to. Failure to complete the sale will result in loss of
downpayment and could result in the purchaser being sued for failure to
perform. An alternative would be to have the PHA conduct a review of
the seller before execution of the purchase agreement.
HUD response. PHAs are encouraged to regularly review the list of
individuals and entities that are debarred, suspended or subject to a
limited denial of participation in HUD programs. In response to this
comment, the final rule provides at Sec. 982.631 that the contract of
sale must contain a seller certification that the seller is not
debarred, suspended, or subject to a limited denial of participation
under 24 CFR part 24.
F. How to Qualify for Homeownership Assistance (Proposed Sec. 982.627)
Comment: The relaxed regulatory requirements for the elderly and
persons with disabilities will limit homeownership assistance to these
individuals. One commenter wrote that lenders will be wary of the
relaxed employment/income requirements established by the proposed rule
for the elderly and persons with disabilities. The commenter wrote that
lenders, concerned for their risk in underwriting a loan without the
usual level of work history, will be less likely to approve home loans
for elderly and disabled families.
HUD response.
HUD has not revised the rule in response to this comment. The
relaxed eligibility requirements for elderly and disabled families are
used by the PHA to determine if the family is eligible for
homeownership assistance. The rule does not impose relaxed or exception
standards for any family with respect to their ability to obtain
financing from a lender.
Lenders will determine the creditworthiness of each borrower on a
case-by-case basis using their own requirements and standards.
G. Minimum Income Requirements (proposed Sec. 982.627(b)).
Comment: The minimum income requirements should be eliminated.
Several commenters wrote that, since lenders will evaluate a family's
resources as part of their mortgage application review, HUD should rely
on them to screen out families who do not have sufficient resources to
make payments on a mortgage loan, rather than permitting PHAs to
establish a minimum income threshold.
HUD response. HUD has not adopted this suggestion. Section 8(y)
explicitly establishes a minimum income requirement for participation
in the Section 8 homeownership program.
Comment: HUD should establish uniform minimum income requirements.
Several commenters wrote that a national standard creates
certainty, making it possible for national, regional, or statewide
entities (lenders, advocates, intermediaries, nonprofits, etc.) to
develop and administer activities in support of the program.
Other commenters wrote that the final rule should restrict the PHA
from establishing minimum income requirements that will prevent persons
on fixed incomes from receiving homeownership assistance, since elderly
and persons with disabilities are often on low, fixed incomes. The
commenters recommended that any minimum income requirements established
by the PHA should not be so high that they exclude these individuals
from homeownership assistance.
HUD response. HUD agrees that the regulation should establish a
national standard for the minimum income requirements. As suggested by
several of the commenters, HUD has decided to establish a national
minimum income requirement that is equal to 2,000 hours of annual full-
time work under the Federal minimum wage. A PHA may not establish a
minimum income requirement in addition to the minimum income standard
established by this final rule. HUD believes that this standard is
administratively straight-forward, and addresses the statutory income
requirement without arbitrarily eliminating working families that are
making no more than the minimum wage.
Comment: PHAs should be permitted to make reasonable exceptions to
the minimum income requirement if they determine that the applicant
household has a high probability of being a successful owner. One
commenter wrote that the minimum income requirements do not address one
of the factors in mortgagor credit review--a household's total monthly
fixed payment obligation. The commenter wrote that a household below
the minimum requirement may have an exemplary credit history and no
additional debt obligations. According to the commenter, such a
household would be a better candidate for homeownership than a
household with income above the minimum.
HUD response. HUD has not adopted this suggestion. The minimum
income requirement represents the bare minimum income threshold the
family must meet to be eligible for homeownership assistance, and does
not automatically indicate the family would be a successful candidate
for homeownership. Instead of making exceptions to the minimum income
requirement for families that otherwise appear to have a high
probability of being a successful homeowner, the PHA could work with
the family on increasing family income through the FSS program or other
self-sufficiency efforts.
Comment: Requiring the ``head of household or spouse'' to meet
minimum income requirement fails to acknowledge the varied structure of
some families, and has a disparate impact on single-headed households,
domestic partners, and households that have related but unmarried adult
members. Several commenters wrote that the minimum income requirements
fail to account for the wide variety of families receiving Section 8
assistance. For example, it is possible for the head of household to
have no earned income but have a domestic partner, adult child, or
other adult family member that works.
HUD response. The purpose of the minimum income requirement is to
ensure that the family has adequate resources to meet the additional
costs associated with homeownership. The proposed rule tied the minimum
income to the head of household and spouse in order to ensure that
those family members who actually owned the home met the income
requirement, as opposed to other family members that might shortly
leave the household following the purchase (thereby increasing the risk
of defaults). However, HUD agrees that this type of restriction does
not sufficiently take the variety of family structures into account.
Therefore, the final rule provides that the adult family members who
will own the home at commencement of homeownership assistance must have
annual income (gross income) that is not less than the minimum income
requirement, as opposed to only the head and spouse.
Comment: Disabled and elderly families should be exempt from
minimum income requirements. One commenter wrote that although the rule
permits public assistance payments to be considered in determining
whether an elderly or disabled family meets the minimum income
requirements, disabled or elderly families would still have difficulty
in meeting the minimum income threshold. The commenter suggested that
elderly and disabled families should be exempt from the minimum income
requirements, because the goal of rewarding work does not apply to
these households.
HUD response. Section 8(y) does not provide for an exemption from
the minimum income requirement for elderly or disabled families, other
than the source of income used to determine if the family meets the
requirement. The purpose of the minimum income requirement is to ensure
that the family has sufficient income available to absorb the
additional expenses associated with homeownership, not to ensure that
the family meets the employment requirement.
H. Family Employment (proposed Sec. 982.627(c))
Comment: The employment requirement should be eliminated. Several
commenters recommended elimination of this requirement. The commenter
wrote that HUD should rely on lenders to determine what is an
acceptable employment history, rather than establishing minimum
employment requirements or permitting PHAs to establish such
requirements. Other commenters wrote that, since a minimum income
requirement already exists, the employment requirement is redundant.
The commenters suggested that, in the place of an employment
requirement, HUD require a family to show proof that it earned the
minimum income amount during the past year.
HUD response. The employment requirement is statutory and the
requirement is essential to the purpose of rewarding work and assisting
families in making the transition to economic self-sufficiency.
However, the final rule, in accordance with the law, provides
exceptions from the employment requirement for disabled and elderly
families.
Comment: PHAs need flexibility in determining whether the family
has fulfilled the ``continuous'' employment requirement. Several
commenters wrote that the final rule should focus on whether
prospective participants have maintained a steady income, not on
whether they have been continuously employed. The commenters wrote that
in some parts of the country there are seasonal industries that result
in annual full-time income being acquired during only part of the year.
Many persons, such as construction workers, nurses, taxi drivers,
waitresses and hair dressers, may have multiple employers in the same
year. The commenters recommended that the final rule grant PHAs
flexibility in interpreting the ``continuous'' employment requirement.
HUD response. HUD agrees that the employment requirement should
allow for small breaks in service to be taken into consideration. The
final rule provides that the PHA has discretion to determine whether
(and to what extent) an interruption is considered permissible. The
final rule also clarifies that the PHA may count successive employment
during the year and consider self-employment in a business.
Comment: Requiring the ``head of household or spouse'' to meet
employment requirement fails to acknowledge the varied structure of
some families. Several commenters wrote that requiring the head of
household or spouse to meet the employment requirements will
disqualify many non-traditional families.
In some extended families the head of household may be unemployed, but
there may be an adult child who is employed and providing the income
upon which the family could qualify for financing. One commenter
suggested that the final rule should simply require that an adult
member of the household be gainfully employed.
HUD response. HUD agrees with the commenters and the final rule
provides that any of the adult family members who will own the home at
commencement of homeownership assistance may fulfill the employment
requirement.
Comment: The required term of employment should be lengthened. One
commenter suggested that HUD should impose a two year employment term.
The commenter recommended that the final rule should require either:
(1) two years employment with the same employer; or (2) two years
employment in the same line of work. The commenter wrote that this is
the minimum required by mortgage underwriters. Other commenters
suggested that the employment term should be at least three years.
Another commenter wrote that the head of household or spouse should be
required to be employed for as long as the family is receiving
homeownership assistance, with limited periods of unemployment due to
circumstances beyond the control of the family taken into
consideration.
HUD response. The final rule does not extend the minimum employment
term. HUD believes one year of substantially continuous employment is
an acceptable minimum threshold and a realistic gauge of the likelihood
of continued employment in the future. At the request of several public
commenters, this final rule establishes a uniform national employment
requirement. For purposes of uniformity, the final rule defines ``full-
time employment'' to mean not less than an average of 30 hours per
week. Further, the final rule adds a new Sec. 982.627(d)(4), which
provides that a PHA may not establish an employment requirement in
addition to the employment standard established by the final rule.
However, the lender will apply its own underwriting criteria, which may
include an employment requirement that is more stringent than the
standard adopted by the final rule.
I. Ineligibility of Family if Head or Spouse Previously Defaulted on a
Mortgage When Receiving Homeownership Assistance (proposed
Sec. 982.627(d))
Comment: Prohibition against mortgage defaults is unnecessarily
restrictive. Several commenters wrote that the requirement is
unnecessarily restrictive. These commenters wrote that this is a matter
best left to the discretion of the loan underwriter, who will consider
the default in determining whether to approve the mortgage.
Another commenter suggested that a family who defaulted on a
previous mortgage due to the death of a family member, or other
circumstances beyond the family's control, should not be prohibited
from receiving future homeownership assistance. The commenter suggested
that the final rule should permit the PHA to determine on a case-by-
case basis whether the default was beyond the family's control.
HUD response. The prohibition on participation by a family that
previously defaulted on a mortgage while receiving section 8(y)
assistance is a statutory requirement. Accordingly, HUD has not adopted
the changes suggested by the commenters.
J. Additional PHA Requirements for Family Search and Purchase (proposed
Sec. 982.628)
Comment: Delays in provision of assistance may limit effectiveness
of program. One commenter wrote that the longer, more unpredictable
time frame between the time the PHA determines a family is eligible for
homeownership assistance and the time that assistance actually
commences would affect lease up rates and PHA financial management. The
commenter wrote that this unpredictability may cause PHAs to offer
homeownership assistance only to existing participants, rather than
allowing new clients to participate.
HUD response. HUD agrees with the comment that permitting
applicants to participate in the homeownership option will present PHAs
with several significant challenges (such as defining a realistic
search term for a first-time homebuyer without creating adverse impact
on utilization rates and administrative fees) that do not surface if
the PHA limits the option to current rental participants. For this
reason, HUD anticipates that most participants in the Section 8
homeownership program will be families currently participating in the
tenant-based rental program. The time required for a current
participant to locate and purchase a home will have a minimal impact on
the PHA's lease-up rate or financial management activities since the
family may continue to receive rental assistance in their rental unit
during the search and settlement process. The decision to extend the
homeownership option to applicants, participants, or both applicants
and participants rests with the PHA.
Comment: A family should be allowed more than two months to locate
a home. Several commenters wrote that finding a home can be a lengthy
process and requires more than two months. Although there was no
consensus on the amount of time that should be provided, all of the
commenters advocated that the final rule establish a greater length of
time for finding a home. Suggestions included a minimum of four months,
six months, and a range of six to nine months. A number of commenters
wrote that due to the difficulty of finding a home that is both
affordable and accessible, the final rule should ensure that persons
with disabilities are provided with ample time to find a home to
purchase.
HUD response. Neither the April 30, 1999 proposal nor this final
rule place a two month limitation on the family's search for a home.
Section 982.303 (term of voucher) is not applicable to the
homeownership option (see Sec. 982.641(b) of this final rule). HUD has
not adopted the suggestions to establish a minimum term for family
search and purchase. HUD believes this decision is properly left to the
administrative discretion of the PHA, as the housing market will vary
from community to community. However, in establishing such time limits,
the PHA should ensure that a family who has executed a sales contract
is provided reasonable time to close on the purchase of the home.
Comment: The final rule should explicitly provide that if a family
is unable to locate a home within the time limits, the PHA should be
required to issue a rental voucher or put the family at the top of the
waiting list. One commenter made this suggestion.
HUD response. HUD has not adopted this comment. HUD does not wish
to impose this type of requirement on PHAs.
Comment: The PHA should provide a letter to the lender verifying
the applicant's family income, payment standard assistance, and any
other financial help that would be offered to the family. Two
commenters wrote that this type of documentation would enable the
family to show prospective sellers, realtors, etc. that the family is
in fact empowered to make the acquisition of a home. The commenters
also wrote that this would assist the lender to pre-qualify the family
accurately.
HUD Response. Although HUD is not requiring PHAs to provide such a
letter to lenders in the final rule, PHAs may opt to provide
prospective lenders or realtors with information concerning the
family's participation in the Section 8 homeownership program, the
applicable payment standard, and how the monthly subsidy will be
calculated under the housing choice voucher program. However, HUD would
caution the PHA not to provide income information on an individual
family to any third party. The family must disclose income to the
lender through the mortgage application process, and the verification
of family income for underwriting purposes is the responsibility of the
lender, not the PHA.
K. Homeownership Counseling (proposed Sec. 982.629)
Comment: HUD should provide funding for homeownership counseling
services. Several commenters recommended that HUD provide additional
funding for homeownership counseling. One commenter suggested that HUD
should make the additional funds available through a demonstration
program or competition. Other commenters wrote that HUD should provide
the necessary funding by either an increase in the ongoing
administrative fee or by making provisions for approving release of the
hard-to-house fee (currently available for assisting large families to
lease a unit).
HUD Response. HUD has not adopted these recommendations. There are
no additional appropriations made available for this purpose.
Furthermore, PHAs can partner with HUD-funded homeownership counseling
agencies to provide the necessary counseling. Since these agencies
provide homeownership counseling services at little or no charge, the
cost incurred by the PHA would be nominal. A list of the HUD-approved
homeownership counseling agencies is available from the HUD Housing
Counseling Clearinghouse website (http://www.hudhcc.org/agencies/
agencies.html).
Comment: Charges to the family for counseling should be nominal.
One commenter made this recommendation.
HUD response. Family completion of the pre-assistance homeownership
counseling program is mandatory in order for homeownership assistance
to commence on behalf of the family. Since the PHA cannot charge a
family any type of fee to receive Section 8 assistance, the PHA may not
charge a family a fee or otherwise pass on any of the cost of the
counseling to the family.
Comment: Paragraph (b) of this section would be more accurate if it
read ``The PHA-required pre-assistance counseling program. . . .'' One
commenter wrote that the addition of the word ``required'' would
clarify that the PHA itself is not obligated to provide the counseling.
HUD response. HUD agrees with the commenter, and has incorporated
the suggested revision in the final rule.
Comment: The final rule should allow as much flexibility as
possible to PHAs in the development of counseling programs. One
commenter wrote that several of the mandatory counseling requirements
may be inappropriate for certain types of PHA homeownership programs.
The commenter urged that the final rule provide greater flexibility
regarding the crafting of homeownership counseling programs.
HUD response. The final rule clarifies that the PHA-required
counseling program should ``generally'' cover the topics listed in
Sec. 982.630. The final rule also provides that the PHA may adapt the
housing counseling topics to local circumstances and the needs of
individual families. Further, the final rule provides that, if the PHA
is not using a HUD-approved housing counseling agency to provide the
counseling for families participating in the homeownership option, the
PHA should ensure that its counseling program is consistent with the
homeownership counseling provided under HUD's Housing Counseling
program.
Comment: Counseling programs should include information on fair
housing and fair housing lending practices, as well as referrals to
local fair housing enforcement agencies. One commenter made this
suggestion.
HUD response. HUD agrees with the commenter, and the suggested
revision has been incorporated in the final rule.
L. Home Inspections and Contract of Sale (proposed Sec. 982.630)
Comment: Dual inspection requirements. A number of commenters
objected to the proposed dual HQS/independent home inspection
requirements. Several commenters wrote that two inspections would be
duplicative and add unnecessary expense and time to the homebuying
process. The commenters offered various alternatives to the dual
inspection requirement. Several commenters suggested that only the
independent inspection be required; others recommended that the initial
HQS inspection be retained and the requirement for third-party
inspection be removed. One commenter suggested that PHAs be granted the
discretion to establish criteria for one uniform inspection. Another
commenter recommended that the scope of the HQS inspection be expanded
to include the desired features of an independent professional home
inspection.
Other commenters supported the dual inspection requirement
contained in the proposed rule. These commenters wrote that an
independent home inspection was useful to identify potential problems
that were not immediate deficiencies, but that an HQS inspection is
also important to identify basic health and safety issues. One
commenter wrote that the HQS inspection was also useful because it
limited the possible financial burden on the family by identifying
significant HQS deficiencies and eliminating the need for the family to
pay for a subsequent independent inspection.
HUD response. After carefully considering the comments, HUD has not
changed the requirement that the unit must pass an initial HQS
inspection conducted by the PHA and also be subject to an independent
professional home inspection. Section 8(y) removes the requirement that
the PHA conduct annual HQS inspections, but does not eliminate the
requirement that the unit initially meet HQS before assistance payments
may commence. The statute specifically requires that the contract of
sale provide for a pre-purchase inspection by an independent
professional, which is clearly separate and distinct from the statutory
HQS inspection.
The purposes of these inspections are also separate and distinct.
The HQS inspection determines if the current physical condition of the
unit is decent, safe, and sanitary, and is therefore eligible to be
assisted under the Section 8 program. It is the sole responsibility of
the PHA to determine whether a potential unit meets the HQS
requirements of the program.
The HQS inspection is not designed to assess the life span of major
components, building systems, appliances and other structural
components in order to identify potential problems for the future, such
as the need to replace an aging heating system or roof in the next
several years. Clearly, such information is important for a potential
homebuyer to take into consideration. The requirement for an inspection
arranged by the buyer and satisfactory to the buyer is a typical
contingency clause in contracts of sale and is consistent with private
real estate practice.
HUD does not believe it is advisable to combine the distinct
purposes of each
inspection into a single inspection. Combining the inspections
compromises the independent standing of the professional inspector, who
is selected by and paid by the potential buyer, and the separate
programmatic role and responsibility of the PHA HQS inspector. HUD also
agrees that the initial HQS inspection serves to ensure the family does
not enter into a contract of sale or otherwise expend family resources
for the independent inspection for units that are ineligible for
Section 8 assistance.
Comment: The final rule should provide PHAs the discretion to
modify the inspection requirements for new homes. Several commenters
wrote that newly constructed homes often come with builder/contractor
warranties and that new homes have to pass a series of inspections by
local authorities in order to receive a final certificate of occupancy.
The commenters recommended that the final rule permit PHAs to establish
more relaxed inspection standards for newly constructed homes.
HUD response. HUD has not provided PHAs with the discretion to
relax or modify the inspection requirements for newly constructed
homes. HUD does not believe that the inspection requirement will prove
problematic for new homes. The unit must initially meet the HQS and
there is no automatic guarantee against poor construction or other
types of problems, regardless of the date of completion of a particular
unit.
Comment: HQS inspections should be performed on a regular basis
throughout the term of assistance. One commenter wrote that HQS
inspections should be required annually during the term of
homeownership assistance. Another commenter suggested that HQS
inspections should be performed at least once every two years at
minimum. One commenter wrote that the PHA, or local supportive service
provider, should be given the option of performing annual HQS
inspections.
HUD response. The statute explicitly provides that the annual HQS
inspection is not required for section 8(y) units. While the final rule
does not require the PHA to conduct subsequent inspections of the unit,
the final rule clarifies that the additional requirements for
continuation of homeownership assistance established by the PHA may
include additional unit inspections while the family is receiving
homeownership assistance (see Sec. 982.633(b)(8) of this final rule).
Comment: PHAs should be permitted to pay for the independent
professional home inspection. Several commenters wrote that, given the
expense involved in contracting with a home inspector, PHAs should be
provided the option of paying for the independent home inspection.
HUD response. The independent home inspection is supposed to be
independent of, not only the seller, but also the PHA. The HQS
inspection, conducted prior to the time the family enters into a
contract of sale and contracts for the independent inspection, and the
pre-assistance counseling program should reduce the likelihood of the
family having to incur the cost of the inspection for numerous units.
Comment: The independent inspector should be allowed to be an
employee or contractor of the PHA. One commenter wrote that some PHAs
contract with private nonprofit agencies that provide a variety of
housing related services. According to the commenter, these agencies
have rehabilitation programs and inspectors that are completely
separate from the Section 8 program. The commenter wrote that PHAs
should not lose these agencies as a resource for independent
inspections.
HUD response. HUD has not adopted this recommendation. The pre-
purchase inspection is supposed to be conducted by a professional
independent of the PHA. The purpose of the requirement is to provide
the potential buyer with an impartial third-party assessment of the
physical condition of the property's systems and components. The final
rule explicitly provides that the independent inspector may not be a
PHA employee or contractor, or other person under control of the PHA.
M. Financing Purchase of Home; Affordability of Purchase (proposed
Sec. 982.631)
Comment: PHA administrative authority to establish financing
requirements. Several commenters wrote that the PHA is not acting as
the lender, nor has an ownership interest in the property, and should
not determine acceptable types of financing or establish payment
requirements. As an alternative, one of the commenters suggested that
HUD should allow PHAs to define in their PHA Plans questionable
financing situations (such as balloon payment mortgages) that would
trigger a PHA review to determine the reasonableness of the financing
arrangement.
Several other commenters wrote that variable interest rates have
the potential to negatively impact a first-time homebuyer's success if
the mortgage balloons while the family's income remains stagnant. These
commenters urged that the final rule establish an absolute prohibition
against balloon payments.
HUD response. After carefully considering the comments submitted on
this issue, HUD has decided that it is appropriate to retain PHA
administrative discretion to establish requirements regarding the terms
of the financing. The PHA is in the best position to determine what is
workable in its local community, and what level of risk related to
variable interest rate mortgages and balloon payments is acceptable for
the PHA's homeownership program. HUD believes that the flexibility
granted to PHAs by the final rule will help to ensure responsible
financial oversight of the homeownership program and that homeowners
are provided with necessary protections. In addition, HUD believes that
allowing the PHA to prohibit questionable types of financing will
increase the number of PHAs willing to offer the homeownership option.
While HUD believes that PHAs should have the discretion to
determine what financing requirements are appropriate for their
localities, HUD also wishes to protect families participating in the
Section 8 homeownership option from abusive lending practices. This
final rule makes several changes that are designed to ensure that
families are protected from abusive lending practices. For example,
Sec. 982.632 of this final rule clarifies that a PHA may review lender
qualifications and the loan terms before authorizing homeownership
assistance. The PHA may disapprove proposed financing, refinancing or
other debt if the PHA determines that the debt is unaffordable or the
lender or the loan terms do not meet PHA qualifications. HUD also
encourages PHAs to analyze each loan (including refinancing or
financing for improvements or repairs) to identify and eliminate
abusive lending practices. (See Section VII. of this preamble for
additional information regarding the prevention of predatory lending
practices in the Section 8 homeownership option.)
Comment: The final rule should establish uniform qualification
requirements for lenders. One commenter wrote that examples of this
type of lender or financial program qualifications might include
identifying specific entities (such as conventional mortgage lenders)
that regularly participate in the secondary market or that participate
in governmental lending or mortgage insurance programs; State Housing
Finance Agency programs; subsidy programs administered by
states, counties, cities, or subdivisions; and nonprofit organizations.
HUD response. HUD believes such a requirement is too restrictive
and could inappropriately limit available financing in some markets.
The final rule continues to allow the PHA to establish requirements
concerning the qualification of lenders but does not impose any for the
program as a whole.
Comment: Final rule should not require or permit the PHA to
establish homebuyer downpayment requirements. Several commenters
opposed any homebuyer downpayment requirements under the homeownership
program. One commenter wrote that requiring families to make
downpayments from their own resources will effectively prevent families
residing in expensive housing markets from ever participating in the
homeownership option. Another commenter wrote that foreclosures are not
caused by families choosing to walk away from a home because they have
equity invested but because they lose their income.
HUD response. The proposed rule did not propose to establish a
minimum downpayment requirement, but proposed to grant the PHA
flexibility to establish a requirement for a minimum homeowner equity
payment from the family's personal resources. The final rule continues
to provide this flexibility to the PHA. A PHA may determine that a
minimum contribution by the family for the downpayment is appropriate
to demonstrate the family's commitment and readiness for the
responsibilities of homeownership. HUD notes that an Individual
Development Account (IDA) is considered to be a family asset under
HUD's annual income regulations at Sec. 5.609 and would, therefore, be
considered a personal family resource for purposes of meeting such a
PHA downpayment requirement.
Comment: Final rule should permit seller contributions to
downpayment/closing costs. According to one commenter, this policy
would increase housing choice for participating families.
HUD response. This final rule does not prohibit seller
contributions to the downpayment or closing costs. However, the final
rule continues to provide that the PHA may establish a minimum equity
requirement from the family's personal resources, types of financing,
and qualifications of lenders. The PHA's administrative policy on these
subjects might impact on the extent to which seller contributions would
be permissible. In addition, individual lenders may have underwriting
criteria impacting seller contributions to the downpayment or closing
costs, which would be applicable regardless of the PHA policy regarding
seller contributions.
Comment: Use of FHA underwriting standards for non-FHA insured
loans. Several commenters supported the requirement that all loans
under the Section 8 homeownership program meet FHA underwriting
criteria. On the other hand, other commenters wrote that the use of FHA
underwriting standards would unduly restrict the availability of
properties available for purchase. These commenters wrote that the use
of FHA criteria would prevent families from using other types of
flexible mortgage financing designed to assist low-income homebuyers.
Some commenters also wrote that the added burden and restrictions of
complying with FHA requirements would deter lenders from participating
in the program.
HUD response. After considering the comments on this issue, HUD has
revised the rule by removing the requirement that purchases of homes
financed without FHA-insured mortgage assistance must, nonetheless,
comply with the basic mortgage insurance credit underwriting
requirements for FHA-insured single family mortgage loans.
HUD proposed this requirement to minimize the risk of default by
imposing a minimum underwriting standard. However, HUD agrees that
imposing FHA requirements on non-FHA loans would unduly restrict the
availability of financing vehicles and options for Section 8
homeownership families. FHA underwriting requirements are in place for
FHA mortgages to protect the solvency of the FHA fund but may not
necessarily be an appropriate standard for non-FHA loans. In fact,
mandating FHA underwriting standards would result in eliminating
desirable non-FHA financing options for families, such as foundation
funds or State programs for first-time homebuyers.
The final rule clarifies that if purchase of the home is financed
with FHA-insured mortgage financing, the financing is subject to FHA
insurance credit underwriting requirements. Otherwise, the underwriting
standards of the individual lender and/or financing program will apply
in cases where financing for purchase of the home is not FHA-insured.
Comment: PHA authority to disapprove proposed financing if the PHA
determines the debt for the purchase of the home is unaffordable. One
commenter recommended that the final rule should require the PHA to
take a family's expenses into account in determining whether to approve
the financing for a homeownership loan. Another commenter suggested
that the final rule should establish uniform standards for use by PHAs
in assessing the affordability of debt. The commenter wrote that a
national standard will provide certainty for institutions seeking to
develop programs designed to dovetail with the homeownership option.
The commenter recommended that a standard similar to that used in the
HOME program or the USDA Section 502 Direct loan program be adopted.
Another commenter wrote that the PHA's right to review and
disapprove financing should be limited to seller financing. The
commenter wrote that reputable mortgage lenders have no incentive to
underwrite loans that will default.
HUD response. The final rule retains the broad PHA administrative
discretion to disapprove proposed financing if the PHA determines that
the debt for the purchase of the home is unaffordable. HUD believes
that local administrative flexibility is appropriate, and that the
decisions as to what level of debt is unaffordable or what terms of
financing are appropriate are best left to the PHA.
N. Continued Assistance Requirements; Family Obligations (proposed
Sec. 982.632)
Comment: The family should obtain PHA approval prior to entering
into refinancing agreements or securing additional financing on the
home (whether to finance repairs, consolidate debts, or for any other
reason) and the family should secure counseling before such action. One
commenter made this suggestion.
HUD response. HUD agrees that the PHA should have the option to
require prior PHA approval before the family enters into a refinancing
agreement or secures additional financing on the home. Accordingly,
Sec. 982.632 of the final rule incorporates the suggestion made by the
commenter.
Comment: HUD should develop contracts for use in the Section 8
homeownership program. One commenter wrote that a Statement of
Homeowner Obligations is not a contract and would probably be
insufficient if the PHA has to turn to the local courts. The commenter
recommended that HUD develop two separate contracts for use by PHAs--
one if the payments are made directly to the family and another for
payments made directly to the lender.
HUD response. The PHA is not contractually obligated to make
payments to the lender. The HAP payments to the lender are made on
behalf of the family, not the PHA. If the HAP payment were to cease,
the family
would still be responsible for the full monthly mortgage payment due
the lender. Furthermore, mortgages are often sold and families may
refinance. Encumbering the mortgage or the lender with a mandated HUD
contract may ultimately discourage lender participation in the program.
Comment: Homebuyers should be required to demonstrate that real
property taxes, assessments, water taxes, etc., are current on an
annual basis. One commenter made this suggestion.
HUD response. HUD has not added evidence of payment of taxes as a
specific requirement for continued homeownership assistance in the
final rule. However, Sec. 982.633(b)(8) of this final rule permits PHAs
to establish additional requirements for the continuation of
homeownership assistance, which could include such a requirement. HUD
believes that imposing a requirement of this type is best left to the
discretion of the individual PHA.
O. Maximum Term of Homeownership Assistance (proposed Sec. 982.633)
Comment: What is the appropriate length of time to provide
homeownership assistance to the family? Several commenters wrote in
support of the ten year limit. Other commenters urged HUD to extend the
10 year limit. Many of these commenters suggested that the maximum term
be extended to fifteen, twenty, or thirty years, to better reflect
usual mortgage terms. The commenters urging an extension of the maximum
10 year period stated that the shorter term would discourage lenders
and the secondary mortgage market from participating in the program.
Several of these commenters wrote that in ten years it is unlikely that
the unamortized balance of a mortgage could be refinanced at a monthly
payment affordable to an unassisted homeowner, therefore resulting in a
large number of mortgage defaults. Accordingly, the commenters stated
that the maximum term might limit homeownership assistance to higher
income families able to afford the increased mortgage payments
following the termination of assistance. Further, low income families
concerned about defaulting at the end of the maximum term would be
forced to purchase in depressed real estate markets, such as minority
and/or poverty concentrated areas.
On the other hand, a number of commenters wrote that the ten year
maximum term should be reduced to three, five, or seven years. These
commenters stated that by providing a mortgage subsidy for ten or more
years, HUD would be promoting ongoing dependency on Section 8
assistance and reducing the availability of limited Section 8 resources
for other families.
A couple of commenters wrote that the final rule should establish a
uniform maximum term instead of permitting a PHA to establish a maximum
term shorter than ten years. The commenters stated that without the
availability of a uniform program time period, lenders and other
agencies likely to provide subsidy assistance would find it difficult
to develop national or regional programs to support the homeownership
option. However, other commenters recommended that PHAs should have
absolute flexibility to determine the maximum term of assistance based
on their local housing needs.
HUD response. After carefully considering the comments on the
maximum term for a family to receive homeownership assistance, HUD has
significantly revised the requirement in the final rule.
HUD agrees that there is a need to establish a Federal standard
regarding the maximum time that a family may receive homeownership
assistance to ensure that the program is equitable for all families
receiving homeownership assistance. Further, a uniform Federal standard
will establish consistency across jurisdictional lines, thus
facilitating wider lender participation. The final rule removes PHA
discretion to establish a shorter minimum term than the Federal
standard.
HUD also believes that a time limit is appropriate for
homeownership assistance. The purpose of the Section 8 homeownership
program goes beyond simply defraying the monthly homeownership costs as
opposed to rent. Rather, the objective is to move an assisted renter
into homeownership in order to foster responsibility and assist the
family in ultimately achieving economic self-sufficiency. A related
statutory objective is to assist renters make the transition to
economic self-sufficiency. This objective is made clear from the fact
that section 8(y) targets homeownership assistance to first-time
homebuyers. The statute does not expand eligibility for scarce Section
8 assistance to existing homeowners.
The final rule provides for a mandatory term limit on homeownership
assistance of 15 years if the initial mortgage incurred to finance
purchase of the home has a term that is 20 years or longer. In all
other cases, the maximum term of homeownership assistance is 10 years.
HUD believes that a family should be able to assume the full
responsibility for monthly homeownership expenses at the end of such
time. HUD also believes that the maximum term established by this final
rule is sufficient to achieve broad lender participation.
HUD understands the concerns raised by some of the commenters
regarding Section 8 homeowners who, due to circumstances beyond their
control, are unable to assume full responsibility for the monthly
homeownership expenses at the end of the maximum term. HUD encourages
PHAs and families to realistically assess the family's economic
situation a year or so before the conclusion of the maximum term of the
homeownership assistance. The family would then be in a position to
decide whether it might be in the family's best interest to sell the
property and revert to Section 8 rental assistance.
The final rule retains the provision that if the family receives
homeownership assistance for different homes or from different PHAs,
the total of assistance term is subject to the regulatory maximum term
(15 or 10 years, depending on the length of the initial mortgage to
purchase the first unit under the homeownership option).
As in the proposed rule, the final rule provides that the maximum
term limit does not apply to elderly or disabled families. The final
rule clarifies that, in the case of an elderly family, the exception is
only applied if the family qualifies as an elderly family at the
commencement of homeownership assistance. For instance, if a family is
a non-elderly family when homeownership assistance commences, the
family is still subject to the term limit on assistance even if the
family subsequently meets the definition of an elderly family during
the term. In the case of a disabled family, the exception applies if at
any time during receipt of homeownership assistance the family
qualifies as a disabled family.
If, during the course of homeownership assistance, the family
ceases to qualify as a disabled or elderly family, the maximum term
becomes applicable from the date homeownership assistance commenced.
However, such a family must be provided at least 6 months of
homeownership assistance after the maximum term becomes applicable
(provided the family is otherwise eligible to receive homeownership
assistance in accordance with this part).
Comment: Does the maximum term requirement mean that no person in
the family may have received more than ten years assistance? One
commenter asked whether the daughter of a head of household who has
resided in a home
purchased under the homeownership option for ten years would be
prohibited from applying for assistance to purchase her own home. The
commenter recommended that the final rule clarify that the maximum term
applies only to those family members who obtained an ownership interest
through the program.
HUD response. The final rule clarifies that the time limit applies
to any member of the household who has an ownership interest in the
unit during any time that homeownership payments are made, or is the
spouse of any member of the household who has an ownership interest in
the unit at the time homeownership payments are made.
P. Amount and Distribution of Monthly Homeownership Assistance Payment
(proposed Sec. 982.634)
Comment: Families should be permitted to receive homeownership
assistance for the initial 3 years of the mortgage term, even if HAP
assistance is reduced to zero as a result of the annual examination of
the family's income. According to the commenter, this recommendation
would provide a safety net for mortgage lenders and would be consistent
with current underwriting requirements, which require payments like
child support to be available for a minimum of 36 months.
HUD response. The length of time a family will remain eligible for
a subsidy in the homeownership program is the same as in the rental
program. During this time, the family has a subsidy slot reserved,
thereby denying use of the assistance by another deserving family. In
light of the severe needs for housing assistance and the length of time
applicants must already wait to receive assistance, HUD has not revised
the rule to increase the length of time the subsidy slot is reserved
for a family who has a relatively high income and no longer qualifies
for a subsidy.
Comment: The final rule should provide that a stable bedroom-size
assistance level will be provided to the family throughout the life of
the mortgage. Three commenters worried that as children leave home
Section 8 assistance levels would be reduced, therefore jeopardizing
the ability of a family to maintain its mortgage payments. The
commenters wrote that such fluctuating assistance levels would
discourage lenders from participating in the program.
HUD response. HUD does not need to revise the proposed rule to
address this concern. The final rule retains the provision that
protects the homeowner from decreases in the normally applicable
payment standard. The payment standard for a family receiving
homeownership assistance is the greater of the payment standard at the
commencement of homeownership assistance for occupancy of the home and
the payment standard at the most recent regular reexamination of family
income and composition since the commencement of homeownership
assistance for occupancy of the home. This policy minimizes the risk of
default due to decreases in the payment standard or changes in family
composition.
Comment: Should the family or the lender receive the HAP payments?
Several commenters suggested that HAP payments should only be made
directly to the lender and never to the family. One of the commenters
wrote that this would increase the efficiency of program
administration. Other commenters were concerned that a family might
inappropriately use the funds and potentially jeopardize the mortgage.
One of the commenters also suggested that shelter costs (such as debt
service, property taxes, insurance and reserve for replacement) be
built directly into the mortgage payment.
Several other commenters wrote that the payments should be made
directly to the family and not the lender. The commenters wrote that it
would be an administrative nightmare for lenders to be required to
accept separate payments from the homeowner (for the family's portion)
and the PHA. The commenters recommended that the assistance payment
should be made by the PHA as a direct automatic deposit into the
family's bank account with provisions for automatic withdrawal of the
mortgage amount by the lender.
HUD comment. This final rule continues to provide that the PHA may
make the homeownership assistance payment either directly to the family
or to a lender on behalf of the family. The PHA may determine it is
necessary to make housing assistance payments directly to the family in
order to secure lender participation, thereby avoiding the possibility
that both the PHA and the family will be sending checks to the lender
for the mortgage payment. On the other hand, some lenders may indicate
their participation is contingent on receiving the payment directly
from the PHA.
The final rule clarifies that if the PHA decides to make the
homeownership assistance payment directly to the lender, and the
assistance payment exceeds the amount due to the lender, the PHA must
pay the excess amount directly to the family.
Comment: To prevent loss of home due to unpaid taxes, the final
rule should require that the mortgage payment include taxes. One
commenter made this suggestion.
HUD response. This is a matter that is more appropriately left to
negotiation between the lender and the family, subject to any local or
state laws.
Comment: PHAs should be permitted to set a separate payment
standard for the homeownership program. Several commenters wrote that
PHAs should have the latitude to set a separate payment standard for
the homeownership option. For example, a payment standard of 95% of the
Fair Market Rent (FMR) might work for the rental market, but for the
for-sale market a payment standard of 105% might be more appropriate.
Another commenter wrote that, if the unit selected by the participating
family is new, the PHA should have the latitude to adjust the payment
standard to account for the superiority of the housing unit.
HUD response. HUD has not made the recommended changes. The subsidy
level for a homeowner should not be higher than for a renter under the
tenant-based program. Fewer families would be assisted if HUD provided
a higher subsidy to homeowners. Also, it would not be equitable to
provide larger subsidies for families who are more likely (on average)
to have higher incomes than their counterparts receiving rental
assistance.
Comment: What do ``monthly homeownership expenses'' include? Two
commenters requested clarification regarding the items included in
``monthly homeownership expenses.''
HUD response. The final rule lists the items that comprise the
monthly homeownership expenses at Sec. 982.635(c).
Comment: Homeownership expenses should not include maintenance
expenses nor major repairs and replacements. One commenter wrote that
these are expenses that come with the risk of homeownership. The
commenter wrote that families participating in the program should have
the means to maintain their home and protect the investment without
subsidy.
HUD response. HUD has not adopted this comment. The costs of
maintaining and repairing a home are significant expenses associated
with homeownership. HUD does not believe it is inappropriate to
consider these costs in determining the monthly homeownership expense
for a family. Furthermore, in any case where the family's monthly
homeownership expenses exceed the applicable payment
standard, the maximum subsidy that may be paid on behalf of a family is
capped by the applicable payment standard. Reimbursement for such
expenses is therefore limited by the voucher subsidy formula.
Comment: In addition to the allowance for major home repair and
replacements, there should also be consideration for the cost of
modifications to make a home accessible to owners with disabilities.
Several commenters wrote in support of this change to the proposed
rule.
HUD response. The final rule clarifies that where a member of the
family is a person with disabilities, mortgage debt incurred to finance
costs for major repairs, replacements or improvements for the home may
include debt incurred by the family to finance costs needed to make the
home accessible for the disabled person, if the PHA determines the
allowance is needed as a reasonable accommodation.
Comment: Other items should be considered in determining the
homeownership expenses. Several commenters suggested the consideration
of various items in the determination of homeownership expenses,
including water and sewer fees; condominium fees; and homeowner
association fees.
HUD response. Water and sewer fees were already covered in the
proposed rule under the PHA utility allowance for the home. The final
rule has been amended to provide that if the home is a cooperative or
condominium unit, homeownership expenses may also include cooperative
or condominium operating charges or maintenance fees, or charges
assessed by the condominium or cooperative homeowner association.
Comment: HUD should develop a uniform rule for allowances of
homeownership expenses. The proposed rule would allow PHAs to adopt
policies for determining the amount of homeownership expenses in
determining the family's Section 8 subsidy amount. Several commenters
stated that giving discretion to PHAs to exclude any of these amounts
as expenses would create great inequities across jurisdiction lines.
The commenters suggested that HUD adopt a uniform rule regarding
homeownership expenses. One of the commenters recommended that all of
the listed items be considered homeownership expenses.
HUD response. The proposed rule and the final rule do not provide
the PHA with the discretion to exclude any of the listed homeownership
expenses or to add any additional items. The PHA is responsible for
determining the appropriate allowance amount provided for maintenance
expenses; major repairs and replacements; and utilities (which is the
same utility allowance amount that applies to the voucher program as a
whole). HUD believes it is appropriate for the PHA to determine the
allowance amounts provided for the homeownership expenses, since a
realistic projection of these average costs will vary from jurisdiction
to jurisdiction.
Q. Portability (proposed Sec. 982.635)
Comment: Applicability of portability to the homeownership program.
Several commenters suggested that homeownership assistance should be
freely portable. The commenters wrote that restricting portability
would prohibit a family living in a center city from pursuing job
opportunities in suburban areas where the homeownership option is not
provided.
One commenter suggested that if a person with a disability finds a
home outside the jurisdiction of the initial PHA, the initial PHA
should be permitted to continue to administer the program where the
receiving PHA will not provide homeownership assistance. The commenter
wrote that the final rule could also require the receiving PHA to
provide homeownership assistance to the person with the disability.
Several other commenters recommended that portability of assistance
under the Section 8 homeownership program between PHA jurisdictions
should be prohibited. One commenter wrote that Section 8 homeownership
funding is provided by HUD to assist local needs and should not be
transferable to another jurisdiction that has chosen not to provide
such assistance.
HUD response. As noted above, HUD has clarified the portability
procedures of the proposed rule, which provide that the family may
qualify to move outside the initial PHA jurisdiction with continued
assistance under the voucher program. In general, the receiving PHA is
not required to permit families that move into the PHA's jurisdiction
to receive any special housing type (including homeownership
assistance), regardless of whether the family was receiving such
assistance at the initial PHA. While the family participating in the
Housing Choice Voucher program has the portability right to move
anywhere in the country where a PHA administering tenant-based
assistance has jurisdiction, Section 8(y) also provides the PHA with
the sole discretion to determine whether to make homeownership
assistance available. A family under the homeownership option retains
the portability rights of the Section 8 voucher, but may only continue
to receive homeownership assistance if the receiving PHA runs a
homeownership program and is accepting additional homeownership
families.
Comment: PHAs should be authorized to enter into homeownership
transactions outside their normal service areas, provided no other PHA
runs a homeownership program in that area. The commenter wrote that
this policy would follow the principle of promoting maximum portability
wherever the PHA is willing to administer the program.
HUD response. HUD has not adopted this comment. The PHA area of
operation is determined by state law, and the language of Section 8(y)
does not provide a statutory basis for overriding state law with
respect to PHA administration of the homeownership option.
R. Move With Continued Tenant-Based Assistance (proposed Sec. 982.636)
Comment: A family should not be permitted to use the homeownership
option more than once. One commenter questioned whether the policy
permitting a family to purchase multiple units with voucher assistance
was a prudent use of scarce housing subsidy dollars.
HUD response. Both the proposed and final rules permit the family
to purchase one or more subsequent homes with continued Section 8
assistance, provided that the head of household or spouse has not
defaulted on a mortgage securing debt incurred to purchase the home
(see Secs. 982.627(e) and 982.637 of this final rule). HUD believes it
is appropriate to permit family mobility in the homeownership program.
Families may need to move for a number of compelling reasons such as
safer neighborhoods, better schools, because more or less space is
needed, or to be closer to a job.
The final rule provides that the PHA may not commence homeownership
assistance for occupancy of the new unit so long as any family member
owns any title or other interest in the prior home. As noted earlier,
the final rule provides that the family cannot be assisted if they own
another residential property. HUD agrees that it is appropriate to
limit homeownership assistance only to families that do not own other
residential property. The purpose of the program is to help families
meet their immediate housing needs and limited assistance funds should
not be provided to families who currently own another home, regardless
of whether the family
chooses not to make that property their primary residence.
Comment: The final rule should provide for the recapture of
homeownership assistance upon the sale or transfer of the home. Several
commenters made this suggestion. There was no consensus among these
commenters as to the extent of the recapture. Two of the commenters
suggested that recaptures should only apply to half of the
homeownership assistance payments made to or on behalf of the family.
One of these commenters also suggested that the PHA should use the
recaptured proceeds to assist other Section 8 families. Another
commenter wrote that any recapture provision should be designed to
limit the amount of equity that a participant may realize through the
sale of a home under the Section 8 homeownership program.
HUD response. HUD agrees with the commenters that it is appropriate
for HUD to recapture homeownership assistance upon the sale or
refinancing of the home. Further, HUD agrees with the commenters that
the recaptured assistance should be used to assist additional housing
choice voucher assistance families. HUD recognizes that the possibility
of accumulating equity in the property and the realization of profit
upon sale is an important facet of homeownership. However, HUD believes
these benefits can be realized even if a portion of the assistance
payments made on behalf of the family are retained by the PHA out of
the net sales proceeds of the property in order to further assist other
needy families.
The final rule establishes a new Sec. 982.640 that provides for
such recaptures. PHAs shall recapture a percentage of the homeownership
assistance defined in the regulations upon the sale or refinancing of
the home. Sales proceeds that are used by the family to purchase a new
home with Section 8 homeownership assistance are not subject to
recapture. Further, a family may refinance to take advantage of lower
interest rates, or better mortgage terms, without any recapture
penalty. Only those proceeds realized upon refinancing that are
retained by the family (for example during a ``cash-out'' of the
refinanced debt) are subject to the new recapture provision.
New Sec. 982.640 requires that, upon purchase of the home, a family
receiving homeownership assistance shall execute documentation as
required by HUD, and consistent with State and local law, that secures
the PHA's right to recapture the homeownership assistance. The lien
securing the recapture of homeownership subsidy may be subordinated to
a refinanced mortgage.
The homeownership assistance subject to recapture shall
automatically be reduced over a 10 year period, beginning one year from
the purchase date, in annual increments of 10 percent. For example, if
the family sells the home during the first year after purchase, the PHA
will recapture 100% of the homeownership assistance provided to the
family. If the family sells one year (but less than two years) after
purchase, the PHA will recapture 90% of the homeownership assistance,
etc. At the end of the 10 year period, the amount homeownership
assistance subject to recapture will be zero.
Comment: HUD should clarify how to treat a rollover sale by which
the family sells one unit to purchase another. The commenter questioned
if the profit from the sale of the first property should be counted as
income (for purposes of determining the total tenant payment) if the
family purchased or rented another unit with Section 8 assistance.
HUD response. In calculating the family income, the treatment of
income realized by the family as a result of the sale of a home
purchased with assistance under the homeownership program is no
different than treatment of net income from real property under 24 CFR
part 5. However, in accordance with Sec. 982.640 of this final rule,
the PHA may recapture a percentage of the homeownership assistance
provided to family upon the sale or refinancing of the home (see the
discussion of the preceding comment). Any profit remaining from the
sale or refinancing after the recapture is ``income'', and may reduce
the amount of future subsidy for the family.
Comment: If a family participating in the homeownership program
decides to ``switch back'' to rental assistance, must the family first
sell its home before receiving rental assistance?
HUD response. Yes, the family must sell its home before the family
can receive continued Section 8 rental or homeownership assistance in
another unit. The final rule makes this clarification.
Comment: What ramifications should a family default have on
continued participation in the rental program? Several commenters
suggested that a family that defaults on its mortgage should not be
allowed to receive Section 8 rental assistance. The commenters
recommended that the family should be placed on the waiting list.
However, there was no consensus among these commenters regarding where
on the waiting list the family should be placed. For example, one
commenter wrote that the family should not be penalized through
placement at the end of the waiting list. Another commenter, however,
recommended that a defaulting family should be placed at the bottom of
the Section 8 waiting list.
Two commenters wrote that a family that defaults should be required
to re-apply for Section 8 assistance (rather than being placed back on
the waiting list). One of the commenters believed that it would be
unfair to other families to place the defaulting family on the waiting
list (even at the bottom of the list) since in many jurisdictions
Section 8 waiting lists are closed for an extended periods.
Several commenters recommended that the PHA should have the
flexibility to develop its own guidelines regarding the provision of
rental assistance after a default or to handle such matters on a case-
by-case basis. The commenters wrote that there may be circumstances
beyond the recipient's control (such as death, divorce, disability, or
job lay-off) that result in a default. The commenters wrote that a
recipient should not be penalized in these instances.
HUD response. The proposed and final rule both provide that the PHA
may terminate the family's participation in the voucher program if the
family fails to comply with the terms of the mortgage (for instance, if
the family defaults). Like other grounds for denial or termination of
voucher assistance, the decision whether to deny the family's continued
participation in the voucher program or to permit the family to
automatically be placed back on the waiting list rests with the PHA.
The final rule also retains the statutory provision that if the
family defaults on an FHA-insured mortgage, the PHA must terminate the
Section 8 assistance and may not issue the family a rental voucher
unless the family: (1) Moves from the unit within the specified time
period established or approved by HUD; and (2) conveys the title to the
home, as required by HUD, to HUD or HUD's designee. Even if the family
complies with these requirements, the PHA may still deny the family
continued participation in the rental voucher program, since the family
did not comply with the family obligations under Sec. 982.633.
The final rule continues to leave the decision on the ramifications
of the termination of homeownership assistance because of a default
with the PHA. The PHA may allow the family to move and receive rental
assistance (except in cases where the family defaulted on an FHA-
insured mortgage and has not complied with HUD requirements for
conveyance and
possession of the property). The PHA may also choose, consistent with
the PHA policy in the PHA administrative plan, to require the family to
reapply for rental assistance. The PHA may place the family at the
bottom of the list, at the top of the list, or wherever the family
would normally fall based on PHA preferences. The PHA may also prohibit
the family from re-applying for assistance for a certain period of
time. HUD notes that the family may request an informal hearing if a
current participant that has defaulted on a mortgage for a Section 8
homeownership unit is denied a rental voucher.
Comment: The incentives provided for rapid possession and title
conveyance for homes with FHA mortgage defaults should be extended to
all lenders including secondary market agencies. Two commenters made
this suggestion.
HUD response. As noted above, the PHA must deny the family
continued assistance if the family defaults on an FHA-insured mortgage
and does not comply with HUD requirements. HUD has not extended the
mandatory termination provision to a family who defaults on a non-FHA
mortgage.
Section 8(y) provides for the mandatory termination of a family
that does not comply with HUD requirements to convey title and vacate
the property because the Federal government has a vested interest in
protecting the FHA insurance fund. HUD does not believe that it is
appropriate to extend this mandatory termination policy in the case of
non-FHA mortgages. There may be circumstances where the terms of the
mortgage or the conditions for rapid possession and title conveyance to
the lender are not reasonable. The PHA should have the discretion to
decide how to address these situations.
Comment: The final rule should require lenders to provide a copy to
the PHA of any default notice at the same time such notice is sent to
the borrower. One commenter made this suggestion.
HUD response. HUD has not revised the rule to incorporate this
suggestion. HUD believes the recommended change could negatively impact
lender participation and the sale of mortgages on the secondary market.
Section 982.633(b)(6) of the final rule retains the requirement that
the family must notify the PHA if the family defaults on a mortgage
securing any debt incurred to purchase the home.
S. Administrative Fees (proposed Sec. 982.637)
Comment: Additional HUD funding is needed for implementation of new
program. One commenter identified various requirements of the
homeownership option that will require staff time and new staff
expertise to carry out. The commenter suggested that HUD should
compensate PHAs on a performance basis and provide some preliminary
funding to set up the program. Another commenter wrote that HUD should
provide a one time incentive of $5,000 for each homebuyer family as an
incentive for PHAs to participate.
HUD response. The final rule has not adopted these suggestions.
Section 8(y) is intended to provide PHAs with added flexibility in
serving the housing needs of their local communities within the
existing framework and funding constraints of the Section 8 Housing
Choice Voucher program. HUD does not have any additional or separate
funding to increase administrative fees for PHAs that choose to
exercise the homeownership option.
It is true that the PHA has some additional administrative duties
for homeownership families. However, there is a corresponding reduction
in the administrative responsibilities that the PHA must perform for a
family receiving rental assistance over the duration of the family's
participation in the program. For example, the PHA is not required to
determine rent reasonableness or conduct annual HQS inspections under
the homeownership option.
Comment: HUD should consider allowing the PHA to impose a one-time
fee on families participating in the program to offset additional PHA
expenses, such as marketing, developing program materials, and
coordinating activities with homebuyer counselors. One commenter made
this suggestion.
HUD response. HUD has not adopted this suggestion. PHAs may not
charge families fees to participate in the homeownership program or for
the normal program responsibilities to be performed by the PHA.
Although there are additional PHA upfront responsibilities associated
with a family purchasing a home, the time necessary to perform the
PHA's ongoing responsibilities will decrease since rent reasonableness
and annual HQS inspections are not required in the homeownership
program.
VII. Prevention of Predatory Lending Practices
While HUD believes that PHAs should have the discretion to
determine what financing requirements are appropriate for their
localities, HUD also wishes to protect families participating in the
Section 8 homeownership option from abusive lending practices. HUD has
joined with the Department of the Treasury to develop recommendations
on legislative, regulatory, and other steps to curb predatory mortgage
practices. These recommendations, which are contained in a joint HUD-
Treasury report, are based on information that HUD and the Department
of the Treasury gathered as co-chairs of the National Predatory Lending
Task Force, convened in April, 2000. Through public forums with
industry, consumers, consumer advocates, and local and state
governments in Washington, Atlanta, Los Angeles, New York, Baltimore,
and Chicago, HUD and the Department of the Treasury collected evidence
on the nature and growing incidence of predatory lending practices
nationwide.
As noted above, this final rule makes several changes that are
designed to ensure that families are protected from abusive lending
practices. For example, Sec. 982.632 of this final rule clarifies that
a PHA may review lender qualifications and the loan terms before
authorizing homeownership assistance. The PHA may disapprove proposed
financing, refinancing or other debt if the PHA determines that the
debt is unaffordable or the lender or the loan terms do not meet PHA
qualifications.
PHAs are also encouraged to analyze each loan (including
refinancing or financing for improvements or repairs) before providing
assistance to determine whether the lender and the loan meet its
qualifications. While no one set of abusive practices or terms
characterizes a predatory mortgage loan, PHAs should be particularly
careful of loans with the following features: loans in which financing
costs represent a high percentage of the total loan amount; loans that
include high credit insurance premiums; balloon payments that the
borrower will be unable to repay; interest rates (including variable
rates) significantly higher than conventional mortgages; pre-payment
penalties, especially penalties that extend over long terms; high
ratios of family debt to income; loans based on unverified sources of
income or without regard to the borrower's ability to repay; excessive
fees or fees ``packed'' into the loan amount without the borrower's
understanding; and ``loan flipping'' accompanied by high fees
(including prepayment penalties that strip the borrower's equity with
each successive refinancing).
HUD will revise its regulations for the Section 8 homeownership
option, as appropriate, to implement legislative or other changes made
in response to the
joint HUD-Treasury report. A copy of the joint report may be obtained
through HUD's internet homepage at www.hud.gov.
VIII. Performance-Based Standards for the Section 8 Homeownership
Option
HUD intends to develop performance-based standards for the Section
8 homeownership option. HUD would use these standards to monitor PHA
program performance in administering their Section 8 homeownership
programs, and to determine whether HUD intervention is appropriate due
to excessive mortgage default rates.
IX. Findings and Certifications
Paperwork Reduction Act
The homeownership option is a special housing type under 24 CFR
part 982, subpart M, of the unified rule for the Section 8 tenant-based
voucher program. The information collection requirements of the Section
8 rental voucher program approved by the Office of Management and
Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-
3520) are not increased by the implementation of this new special
housing type. While the rule substitutes several variations to existing
requirements under the normal Section 8 tenant-based program, the
homeownership option does not increase the total reporting and
recordkeeping burden resulting from the collection of information for
the Section 8 voucher program. The following provisions of this final
rule contain information collections: Secs. 982.305, 982.629, 982.631,
982.633, and 982.638.
The OMB approval number for the Section 8 tenant-based assistance
program is 2577-0169. An agency may not conduct or sponsor, and a
person is not required to respond to, a collection of information
unless the collection displays a valid control number.
Environmental Impact
A Finding of No Significant Impact (FONSI) with respect to the
environment was made in accordance with HUD regulations in 24 CFR part
50 that implement section 102(2)(C) of the National Environmental
Policy Act of 1969 (42 U.S.C. 4223) at the proposed rule stage. That
FONSI remains applicable to this final rule and is available for public
inspection between 7:30 a.m. and 5:30 p.m. weekdays in the Office of
the Rules Docket Clerk, Office of General Counsel, Room 10276,
Department of Housing and Urban Development, 451 Seventh Street, SW,
Washington, DC.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C.
1531-1538) establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. This final rule does not impose any
Federal mandates on any State, local, or tribal governments or the
private sector within the meaning of Unfunded Mandates Reform Act of
1995.
Executive Order 12866
The Office of Management and Budget (OMB) reviewed this final rule
under Executive Order 12866, Regulatory Planning and Review. OMB
determined that this final rule is a ``significant regulatory action,''
as defined in section 3(f) of the Order (although not economically
significant, as provided in section 3(f)(1) of the Order). Any changes
made to the final rule subsequent to its submission to OMB are
identified in the docket file, which is available for public inspection
in the office of the Department's Rules Docket Clerk, Room 10276, 451
Seventh Street, SW, Washington, DC 20410-0500.
Impact on Small Entities
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)) (the RFA), has reviewed and approved this final rule and
in so doing certifies that this rule will not have a significant
economic impact on a substantial number of small entities. The reasons
for HUD's determination are as follows:
(1) A Substantial Number of Small Entities Will Not Be Affected.
The final rule is exclusively concerned with public housing agencies
that administer tenant-based housing assistance under section 8 of the
United States Housing Act of 1937. Specifically, the final rule will
permit a PHA to provide Section 8 tenant-based assistance to an
eligible family that purchases a dwelling unit that will be occupied by
the family. Under the definition of ``Small governmental jurisdiction''
in section 601(5) of the RFA, the provisions of the RFA are applicable
only to those few PHAs that are part of a political jurisdiction with a
population of under 50,000 persons. The number of entities potentially
affected by this rule is therefore not substantial.
(2) No Significant Economic Impact. The final rule will not change
the amount of funding available under the Section 8 voucher program.
Accordingly, the economic impact of this rule will not be significant,
and it will not affect a substantial number of small entities.
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial direct compliance costs on State and local
governments and is not required by statute, or the rule preempts State
law, unless the agency meets the consultation and funding requirements
of section 6 of the Executive Order. This final rule is exclusively
concerned with the establishment of an alternative use of Section 8
rental voucher assistance. Specifically, the rule authorizes a PHA to
provide tenant-based assistance for an eligible family that purchases a
dwelling unit that will be occupied by the family. This final rule does
not have federalism implications and does not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive Order.
Catalog of Domestic Assistance Number
The Catalog of Domestic Assistance number for the program affected
by this final rule is 14.855.
List of Subjects
24 CFR Part 5
Administrative practice and procedure, Aged, Claims, Drug abuse,
Drug traffic control, Grant programs--housing and community
development, Grant programs--Indians, Individuals with disabilities,
Loan programs--housing and community development, Low and moderate
income housing, Mortgage insurance, Pets, Public housing, Rent
subsidies, Reporting and recordkeeping requirements.
24 CFR Part 903
Administrative practice and procedure, Public housing, Reporting
and recordkeeping requirements.
24 CFR Part 982
Grant programs--housing and community development, Housing, Rent
subsidies, Reporting and recordkeeping requirements.
For the reasons described in the preamble, HUD amends 24 CFR parts
5, 903 and 982 as follows:
PART 5--GENERAL HUD PROGRAM REQUIREMENTS; WAIVERS
1. The authority citation for part 5 continues to read as follows:
Authority: 42 U.S.C. 3535(d), unless otherwise noted.
2. In Sec. 5.603(b), amend the definition of ``net family assets''
by adding new paragraph (4) to read as follows:
Sec. 5.603 Definitions.
* * * * *
(d) * * *
Net family assets. * * *
(4) For purposes of determining annual income under Sec. 5.609, the
term ``net family assets'' does not include the value of a home
currently being purchased with assistance under part 982, subpart M of
this title. This exclusion is limited to the first 10 years after the
purchase date of the home.
* * * * *
PART 903--PUBLIC HOUSING AGENCY PLANS
3. The authority citation for 24 CFR part 903 continues to read as
follows:
Authority: 42 U.S.C. 1437c; 42 U.S.C. 3535(d).
4. Revise Sec. 903.11(c)(1) to read as follows:
Sec. 903.11 Are certain PHAs eligible to submit a streamlined Annual
Plan?
* * * * *
(c) * * *
(1) For high performing PHAs, the streamlined Annual Plan must
include the information required by Sec. 903.7(a), (b), (c), (d), (g),
(h), (k), (m), (n), (o), (p) and (r). The information required by
Sec. 903.7(m) must be included only to the extent this information is
required for the PHA's participation in the public housing drug
elimination program and the PHA anticipates participating in this
program in the upcoming year. The information required by Sec. 903.7(k)
must be included only to the extent that the PHA participates in
homeownership programs under section 8(y).
* * * * *
PART 982--SECTION 8 TENANT-BASED ASSISTANCE: HOUSING CHOICE VOUCHER
PROGRAM
5. The authority citation for 24 CFR part 982 continues to read as
follows:
Authority: 42 U.S.C. 1437f and 3535(d).
Subpart A--General Information
6. Amend Sec. 982.4 as follows:
a. In paragraph (a)(3), in the first sentence revise the phrase
``and utility reimbursement'' to read ``utility reimbursement'' and
``welfare assistance'';
b. In paragraph (b), revise the definitions of ``Cooperative,'' and
``Special housing types'';
c. In paragraph (b), remove the definition of ``Mutual housing'';
and
d. In paragraph (b), add the definitions of ``Cooperative member,''
``Family,'' ``First-time homeowner,'' ``Home,'' ``Homeowner,''
``Homeownership assistance,'' ``Homeownership expenses,''
``Homeownership option,'' ``Interest in the home,'' ``Membership
shares,'' ``Present ownership interest,'' and ``Statement of homeowner
obligations'' in alphabetical order.
Sec. 982.4 Definitions.
* * * * *
(b) * * *
Cooperative. Housing owned by a corporation or association, and
where a member of the corporation or association has the right to
reside in a particular unit, and to participate in management of the
housing.
Cooperative member. A family of which one or more members owns
membership shares in a cooperative.
* * * * *
Family. A person or group of persons, as determined by the PHA,
approved to reside in a unit with assistance under the program. See
discussion of family composition at Sec. 982.201(c).
* * * * *
First-time homeowner. In the homeownership option: A family of
which no member owned any present ownership interest in a residence of
any family member during the three years before commencement of
homeownership assistance for the family. The term ``first-time
homeowner'' includes a single parent or displaced homemaker (as those
terms are defined in 12 U.S.C. 12713) who, while married, owned a home
with his or her spouse, or resided in a home owned by his or her
spouse.
* * * * *
Home. In the homeownership option: A dwelling unit for which the
PHA pays homeownership assistance.
Homeowner. In the homeownership option: A family of which one or
more members owns title to the home.
Homeownership assistance. In the homeownership option: Monthly
homeownership assistance payments by the PHA. Homeownership assistance
payment may be paid to the family, or to a mortgage lender on behalf of
the family.
Homeownership expenses. In the homeownership option: A family's
allowable monthly expenses for the home, as determined by the PHA in
accordance with HUD requirements (see Sec. 982.635).
Homeownership option. Assistance for a homeowner or cooperative
member under Sec. 982.625 to Sec. 982.641. A special housing type.
* * * * *
Interest in the home. In the homeownership option:
(1) In the case of assistance for a homeowner, ``interest in the
home'' includes title to the home, any lease or other right to occupy
the home, or any other present interest in the home.
(2) In the case of assistance for a cooperative member, ``interest
in the home'' includes ownership of membership shares in the
cooperative, any lease or other right to occupy the home, or any other
present interest in the home.
* * * * *
Membership shares. In the homeownership option: shares in a
cooperative. By owning such cooperative shares, the share-owner has the
right to reside in a particular unit in the cooperative, and the right
to participate in management of the housing.
* * * * *
Present ownership interest. In the homeownership option: ``Present
ownership option'' in a residence includes title, in whole or in part,
to a residence, or ownership, in whole or in part, of membership shares
in a cooperative. ``Present ownership interest'' in a residence does
not include the right to purchase title to the residence under a lease-
purchase agreement.
* * * * *
Special housing types. See subpart M of this part 982. Subpart M of
this part states the special regulatory requirements for: SRO housing,
congregate housing, group home, shared housing, manufactured home
(including manufactured home space rental), cooperative housing (rental
assistance for cooperative member) and homeownership option
(homeownership assistance for cooperative member or first-time
homeowner).
Statement of homeowner obligations. In the homeownership option:
The family's agreement to comply with program obligations.
* * * * *
Subpart G--Leasing a Unit
7. Add Sec. 982.305(b)(3) to read as follows:
Sec. 982.305 PHA approval of assisted tenancy.
* * * * *
(b) * * *
(4) In the case of a unit subject to a lease-purchase agreement,
the PHA
must provide written notice to the family of the environmental
requirements that must be met before commencing homeownership
assistance for the family (see Sec. 982.626(c)).
* * * * *
8. Add Sec. 982.317 to read as follows:
Sec. 982.317 Lease-purchase agreements.
(a) A family leasing a unit with assistance under the program may
enter into an agreement with an owner to purchase the unit. So long as
the family is receiving such rental assistance, all requirements
applicable to families otherwise leasing units under the tenant-based
program apply. Any homeownership premium (e.g., increment of value
attributable to the value of the lease-purchase right or agreement such
as an extra monthly payment to accumulate a downpayment or reduce the
purchase price) included in the rent to the owner that would result in
a higher subsidy amount than would otherwise be paid by the PHA must be
absorbed by the family.
(b) In determining whether the rent to owner for a unit subject to
a lease-purchase agreement is a reasonable amount in accordance with
Sec. 982.503, any homeownership premium paid by the family to the owner
must be excluded when the PHA determines rent reasonableness.
Subpart H--Where Family Can Live and Move
9. Revise Sec. 982.352(a)(6) to read as follows:
Sec. 982.352 Eligible housing.
(a) * * *
(6) A unit occupied by its owner or by a person with any interest
in the unit.
* * * * *
Subpart M--Special Housing Types
10. Amend Sec. 982.601 as follows:
a. Revise paragraphs (a), (b)(1), and (b)(2);
b. Remove paragraph (d);
c. Redesignate paragraph (c) as paragraph (d);
d. Remove the first sentence of newly designated paragraph (d); and
e. Add new paragraphs (c) and (e) as set forth below.
Sec. 982.601 Overview.
(a) Special housing types. This subpart describes program
requirements for special housing types. The following are the special
housing types:
(1) Single room occupancy (SRO) housing;
(2) Congregate housing;
(3) Group home;
(4) Shared housing;
(5) Manufactured home;
(6) Cooperative housing (excluding families that are not
cooperative members); and
(7) Homeownership option.
(b) PHA choice to offer special housing type. (1) The PHA may
permit a family to use any of the following special housing types in
accordance with requirements of the program: single room occupancy
(SRO) housing, congregate housing, group home, shared housing,
manufactured home when the family owns the home and leases the
manufactured home space, cooperative housing or homeownership option.
(2) In general, the PHA is not required to permit families
(including families that move into the PHA program under portability
procedures) to use any of these special housing types, and may limit
the number of families using special housing types.
* * * * *
(c) Program funding for special housing types. (1) HUD does not
provide any additional or designated funding for special housing types,
or for a specific special housing type (e.g, the homeownership option).
Assistance for special housing types is paid from program funding
available for the PHA's tenant-based program under the consolidated
annual contributions contract.
(2) The PHA may not set aside program funding or program slots for
special housing types or for a specific special housing type.
* * * * *
(e) Applicability of requirements. (1) Except as modified by this
subpart, the requirements of other subparts of this part apply to the
special housing types.
(2) Provisions in this subpart only apply to a specific special
housing type. The housing type is noted in the title of each section.
(3) Housing must meet the requirements of this subpart for a single
special housing type specified by the family. Such housing is not
subject to requirements for other special housing types. A single unit
cannot be designated as more than one special housing type.
11. Amend Sec. 982.619 as follows:
a. Revise paragraph (a);
b. Redesignate paragraph (d) as paragraph (e); and
c. Add new paragraph (d).
Sec. 982.619 Cooperative housing.
(a) Assistance in cooperative housing. This section applies to
rental assistance for a cooperative member residing in cooperative
housing. However, this section does not apply to:
(1) Assistance for a cooperative member under the homeownership
option pursuant to Sec. 982.625 through Sec. 982.641; or
(2) Rental assistance for a family that leases a cooperative
housing unit from a cooperative member (such rental assistance is not a
special housing type, and is subject to requirements in other subparts
of this part 982).
* * * * *
(d) Maintenance. (1) During the term of the HAP contract between
the PHA and the cooperative, the dwelling unit and premises must be
maintained in accordance with the HQS. If the dwelling unit and
premises are not maintained in accordance with the HQS, the PHA may
exercise all available remedies, regardless of whether the family or
the cooperative is responsible for such breach of the HQS. PHA remedies
for breach of the HQS include recovery of overpayments, abatement or
other reduction of housing assistance payments, termination of housing
assistance payments and termination of the HAP contract.
(2) The PHA may not make any housing assistance payments if the
contract unit does not meet the HQS, unless any defect is corrected
within the period specified by the PHA and the PHA verifies the
correction. If a defect is life-threatening, the defect must be
corrected within no more than 24 hours. For other defects, the defect
must be corrected within the period specified by the PHA.
(3) The family is responsible for a breach of the HQS that is
caused by any of the following:
(i) The family fails to perform any maintenance for which the
family is responsible in accordance with the terms of the cooperative
occupancy agreement between the cooperative member and the cooperative;
(ii) The family fails to pay for any utilities that the cooperative
is not required to pay for, but which are to be paid by the cooperative
member;
(iii) The family fails to provide and maintain any appliances that
the cooperative is not required to provide, but which are to be
provided by the cooperative member; or
(iv) Any member of the household or guest damages the dwelling unit
or premises (damages beyond ordinary wear and tear).
(4) If the family has caused a breach of the HQS for which the
family is responsible, the PHA must take prompt and vigorous action to
enforce such family obligations. The PHA may
terminate assistance for violation of family obligations in accordance
with Sec. 982.552.
(5) Section 982.404 does not apply to assistance for cooperative
housing under this section.
* * * * *
12. Add Secs. 982.625 through 982.641 under a new undesignated
heading ``Homeownership Option'' to read as follows:
Homeownership Option
Sec.
982.625 Homeownership option: General.
982.626 Homeownership option: Initial requirements.
982.627 Homeownership option: Eligibility requirements for
families.
982.628 Homeownership option: Eligible units.
982.629 Homeownership option: Additional PHA requirements for
family search and purchase.
982.630 Homeownership option: Homeownership counseling.
982.631 Homeownership option: Home inspections and contract of
sale.
982.632 Homeownership option: Financing purchase of home;
affordability of purchase.
982.633 Homeownership option: Continued assistance requirements;
Family obligations.
982.634 Homeownership option: Maximum term of homeownership
assistance.
982.635 Homeownership option: Amount and distribution of monthly
homeownership assistance payment.
982.636 Homeownership option: Portability.
982.637 Homeownership option: Move with continued tenant-based
assistance.
982.638 Homeownership option: Denial or termination of assistance
for family.
982.639 Homeownership option: Administrative fees.
982.640 Homeownership option: Recapture of homeownership
assistance.
982.641 Homeownership option: Applicability of other requirements.
Sec. 982.625 Homeownership option: General.
(a) The homeownership option is used to assist a family residing in
a home purchased and owned by one or more members of the family.
(b) A family assisted under the homeownership option may be a newly
admitted or existing participant in the program.
(c) The PHA must approve a live-in aide if needed as a reasonable
accommodation so that the program is readily accessible to and useable
by persons with disabilities in accordance with part 8 of this title.
(See Sec. 982.316 concerning occupancy by a live-in aide.)
(d) The PHA must have the capacity to operate a successful Section
8 homeownership program. The PHA has the required capacity if it
satisfies either paragraph (d)(1), (d)(2), or (d)(3) of this section.
(1) The PHA establishes a minimum homeowner downpayment requirement
of at least 3 percent of the purchase price for participation in its
Section 8 homeownership program, and requires that at least one percent
of the purchase price come from the family's personal resources;
(2) The PHA requires that financing for purchase of a home under
its Section 8 homeownership program:
(i) Be provided, insured, or guaranteed by the state or Federal
government;
(ii) Comply with secondary mortgage market underwriting
requirements; or
(iii) Comply with generally accepted private sector underwriting
standards; or
(3) The PHA otherwise demonstrates in its Annual Plan that it has
the capacity, or will acquire the capacity, to successfully operate a
Section 8 homeownership program.
Sec. 982.626 Homeownership option: Initial requirements.
(a) List of initial requirements. Before commencing homeownership
assistance for a family, the PHA must determine that all of the
following initial requirements have been satisfied:
(1) The family is qualified to receive homeownership assistance
(see Sec. 982.627);
(2) The unit is eligible (see Sec. 982.628); and
(3) The family has satisfactorily completed the PHA program of
required pre-assistance homeownership counseling (see Sec. 982.630).
(b) Additional PHA requirements. Unless otherwise provided in this
part, the PHA may limit homeownership assistance to families or
purposes defined by the PHA, and may prescribe additional requirements
for commencement of homeownership assistance for a family. Any such
limits or additional requirements must be described in the PHA
administrative plan.
(c) Environmental requirements. The PHA is responsible for
complying with the authorities listed in Sec. 58.6 of this title
requiring the purchaser to obtain and maintain flood insurance for
units in special flood hazard areas, prohibiting assistance for
acquiring units in the coastal barriers resource system, and requiring
notification to the purchaser of units in airport runway clear zones
and airfield clear zones.
Sec. 982.627 Homeownership option: Eligibility requirements for
families.
(a) Determination whether family is qualified. The PHA may not
provide homeownership assistance for a family unless the PHA determines
that the family satisfies all of the following initial requirements at
commencement of homeownership assistance for the family:
(1) The family has been admitted to the Section 8 Housing Choice
Voucher program, in accordance with subpart E of this part.
(2) The family satisfies any first-time homeowner requirements
(described in paragraph (b) of this section).
(3) The family satisfies the minimum income requirement (described
in paragraph (c) of this section).
(4) The family satisfies the employment requirements (described in
paragraph (d) of this section).
(5) The family has not defaulted on a mortgage securing debt to
purchase a home under the homeownership option (see paragraph (e) of
this section).
(6) Except for cooperative members who have acquired cooperative
membership shares prior to commencement of homeownership assistance, no
family member has a present ownership interest in a residence at the
commencement of homeownership assistance for the purchase of any home.
(7) Except for cooperative members who have acquired cooperative
membership shares prior to the commencement of homeownership
assistance, the family has entered a contract of sale in accordance
with Sec. 982.631(c).
(8) The family also satisfies any other initial requirements
established by the PHA (see Sec. 982.626(b)). Any such additional
requirements must be described in the PHA administrative plan.
(b) First-time homeowner requirements. At commencement of
homeownership assistance for the family, the family must be any of the
following:
(1) A first-time homeowner (defined at Sec. 982.4);
(2) A cooperative member (defined at Sec. 982.4); or
(3) A family of which a family member is a person with
disabilities, and use of the homeownership option is needed as a
reasonable accommodation so that the program is readily accessible to
and usable by such person, in accordance with part 8 of this title.
(c) Minimum income requirements. (1) At commencement of
homeownership assistance for the family, the family must demonstrate
that the annual income (gross income), as determined by the PHA in
accordance with Sec. 5.609 of this title, of the adult family members
who will own
the home at commencement of homeownership assistance is not less than
the Federal minimum hourly wage multiplied by 2,000 hours.
(2)(i) Except in the case of an elderly family or a disabled family
(see the definitions of these terms at Sec. 5.403(b) of this title),
the PHA shall not count any welfare assistance received by the family
in determining annual income under this section.
(ii) The disregard of welfare assistance income under paragraph
(c)(2)(i) of this section only affects the determination of minimum
annual income used to determine if a family initially qualifies for
commencement of homeownership assistance in accordance with this
section, but does not affect:
(A) The determination of income-eligibility for admission to the
voucher
program;
(B) Calculation of the amount of the family's total tenant payment
(gross family contribution); or
(C) Calculation of the amount of homeownership assistance payments
on behalf of the family.
(iii) In the case of an elderly family or a disabled family, the
PHA shall count welfare assistance in determining annual income.
(3) A PHA may not establish a minimum income requirement in
addition to the minimum income standard established by this paragraph.
(d) Employment requirements. (1) Except as provided in paragraph
(d)(2) of this section, the family must demonstrate that one or more
adult members of the family who will own the home at commencement of
homeownership assistance:
(i) Is currently employed on a full-time basis (the term ``full-
time employment'' means not less than an average of 30 hours per week);
and
(ii) Has been continuously so employed during the year before
commencement of homeownership assistance for the family.
(2) The PHA shall have discretion to determine whether and to what
extent interruptions are considered to break continuity of employment
during the year. The PHA may count successive employment during the
year. The PHA may count self-employment in a business.
(3) The employment requirement does not apply to an elderly family
or a disabled family (see the definitions of these terms at
Sec. 5.403(b) of this title). Furthermore, if a family, other than an
elderly family or a disabled family, includes a person with
disabilities, the PHA shall grant an exemption from the employment
requirement if the PHA determines that an exemption is needed as a
reasonable accommodation so that the program is readily accessible to
and usable by persons with disabilities in accordance with part 8 of
this title.
(4) A PHA may not establish an employment requirement in addition
to the employment standard established by this paragraph.
(e) Prohibition against mortgage defaults. The PHA shall not
commence homeownership assistance for a family if any family member has
previously received assistance under the homeownership option, and has
defaulted on a mortgage securing debt incurred to purchase the home.
Sec. 982.628 Homeownership option: Eligible units.
(a) Initial requirements applicable to the unit. The PHA must
determine that the unit satisfies all of the following requirements:
(1) The unit is eligible. (See Sec. 982.352. Paragraphs (a)(6),
(a)(7) and (b) of Sec. 982.352 do not apply.)
(2) The unit was either under construction or already existing at
the time the PHA determined that the family was eligible for
homeownership assistance to purchase the unit.
(3) The unit is either a one unit property or a single dwelling
unit in a cooperative or condominium.
(4) The unit has been inspected by a PHA inspector and by an
independent inspector designated by the family (see Sec. 982.631).
(5) The unit satisfies the HQS (see Sec. 982.401 and Sec. 982.631).
(b) PHA disapproval of seller. The PHA may not commence
homeownership assistance for occupancy of a home if the PHA has been
informed (by HUD or otherwise) that the seller of the home is debarred,
suspended, or subject to a limited denial of participation under part
24 of this title.
Sec. 982.629 Homeownership option: Additional PHA requirements for
family search and purchase.
(a) The PHA may establish the maximum time for a family to locate a
home, and to purchase the home.
(b) The PHA may require periodic family reports on the family's
progress in finding and purchasing a home.
(c) If the family is unable to purchase a home within the maximum
time established by the PHA, the PHA may issue the family a voucher to
lease a unit or place the family's name on the waiting list for a
voucher.
Sec. 982.630 Homeownership option: Homeownership counseling.
(a) Before commencement of homeownership assistance for a family,
the family must attend and satisfactorily complete the pre-assistance
homeownership and housing counseling program required by the PHA (pre-
assistance counseling).
(b) Suggested topics for the PHA-required pre-assistance counseling
program include:
(1) Home maintenance (including care of the grounds);
(2) Budgeting and money management;
(3) Credit counseling;
(4) How to negotiate the purchase price of a home;
(5) How to obtain homeownership financing and loan preapprovals,
including a description of types of financing that may be available,
and the pros and cons of different types of financing;
(6) How to find a home, including information about homeownership
opportunities, schools, and transportation in the PHA jurisdiction;
(7) Advantages of purchasing a home in an area that does not have a
high concentration of low-income families and how to locate homes in
such areas;
(8) Information on fair housing, including fair housing lending and
local fair housing enforcement agencies; and
(9) Information about the Real Estate Settlement Procedures Act (12
U.S.C. 2601 et seq.) (RESPA), state and Federal truth-in-lending laws,
and how to identify and avoid loans with oppressive terms and
conditions.
(c) The PHA may adapt the subjects covered in pre-assistance
counseling (as listed in paragraph (b) of this section) to local
circumstances and the needs of individual families.
(d) The PHA may also offer additional counseling after commencement
of homeownership assistance (ongoing counseling). If the PHA offers a
program of ongoing counseling for participants in the homeownership
option, the PHA shall have discretion to determine whether the family
is required to participate in the ongoing counseling.
(e) If the PHA is not using a HUD-approved housing counseling
agency to provide the counseling for families participating in the
homeownership option, the PHA should ensure that its counseling program
is consistent with the homeownership counseling provided under HUD's
Housing Counseling program.
Sec. 982.631 Homeownership option: Home inspections and contract of
sale.
(a) HQS inspection by PHA. The PHA may not commence homeownership
assistance for a family until the PHA has inspected the unit and has
determined that the unit passes HQS.
(b) Independent inspection. (1) The unit must also be inspected by
an independent professional inspector selected by and paid by the
family.
(2) The independent inspection must cover major building systems
and components, including foundation and structure, housing interior
and exterior, and the roofing, plumbing, electrical, and heating
systems. The independent inspector must be qualified to report on
property conditions, including major building systems and components.
(3) The PHA may not require the family to use an independent
inspector selected by the PHA. The independent inspector may not be a
PHA employee or contractor, or other person under control of the PHA.
However, the PHA may establish standards for qualification of
inspectors selected by families under the homeownership option.
(4) The independent inspector must provide a copy of the inspection
report both to the family and to the PHA. The PHA may not commence
homeownership assistance for the family until the PHA has reviewed the
inspection report of the independent inspector. Even if the unit
otherwise complies with the HQS (and may qualify for assistance under
the PHA's tenant-based rental voucher program), the PHA shall have
discretion to disapprove the unit for assistance under the
homeownership option because of information in the inspection report.
(c) Contract of sale. (1) Before commencement of homeownership
assistance, a member or members of the family must enter into a
contract of sale with the seller of the unit to be acquired by the
family. The family must give the PHA a copy of the contract of sale
(see also Sec. 982.627(a)(7)).
(2) The contract of sale must:
(i) Specify the price and other terms of sale by the seller to the
purchaser.
(ii) Provide that the purchaser will arrange for a pre-purchase
inspection of the dwelling unit by an independent inspector selected by
the purchaser.
(iii) Provide that the purchaser is not obligated to purchase the
unit
unless the inspection is satisfactory to the purchaser.
(iv) Provide that the purchaser is not obligated to pay for any
necessary repairs.
(v) Contain a certification from the seller that the seller has not
been debarred, suspended, or subject to a limited denial of
participation under part 24 of this title.
Sec. 982.632 Homeownership option: Financing purchase of home;
affordability of purchase.
(a) The PHA may establish requirements for financing purchase of a
home to be assisted under the homeownership option. Such PHA
requirements may include requirements concerning qualification of
lenders (for example, prohibition of seller financing or case-by-case
approval of seller financing), or concerning terms of financing (for
example, a prohibition of balloon payment mortgages, or establishment
of a minimum homeowner equity requirement from personal resources).
(b) If the purchase of the home is financed with FHA mortgage
insurance, such financing is subject to FHA mortgage insurance
requirements.
(c) The PHA may establish requirements or other restrictions
concerning debt secured by the home.
(d) The PHA may review lender qualifications and the loan terms
before authorizing homeownership assistance. The PHA may disapprove
proposed financing, refinancing or other debt if the PHA determines
that the debt is unaffordable, or if the PHA determines that the lender
or the loan terms do not meet PHA qualifications. In making this
determination, the PHA may take into account other family expenses,
such as child care, unreimbursed medical expenses, homeownership
expenses, and other family expenses as determined by the PHA.
(e) All PHA financing or affordability requirements must be
described in the PHA administrative plan.
Sec. 982.633 Homeownership option: Continued assistance requirements;
Family obligations.
(a) Occupancy of home. Homeownership assistance may only be paid
while the family is residing in the home. If the family moves out of
the home, the PHA may not continue homeownership assistance after the
month when the family moves out. The family or lender is not required
to refund to the PHA the homeownership assistance for the month when
the family moves out.
(b) Family obligations. The family must comply with the following
obligations.
(1) Ongoing counseling. To the extent required by the PHA, the
family must attend and complete ongoing homeownership and housing
counseling.
(2) Compliance with mortgage. The family must comply with the terms
of any mortgage securing debt incurred to purchase the home (or any
refinancing of such debt).
(3) Prohibition against conveyance or transfer of home. (i) So long
as the family is receiving homeownership assistance, use and occupancy
of the home is subject to Sec. 982.551(h) and (i).
(ii) The family may grant a mortgage on the home for debt incurred
to finance purchase of the home or any refinancing of such debt.
(iii) Upon death of a family member who holds, in whole or in part,
title to the home or ownership of cooperative membership shares for the
home, homeownership assistance may continue pending settlement of the
decedent's estate, notwithstanding transfer of title by operation of
law to the decedent's executor or legal representative, so long as the
home is solely occupied by remaining family members in accordance with
Sec. 982.551(h).
(4) Supplying required information. (i) The family must supply
required information to the PHA in accordance with Sec. 982.551(b).
(ii) In addition to other required information, the family must
supply any information as required by the PHA or HUD concerning:
(A) Any mortgage or other debt incurred to purchase the home, and
any refinancing of such debt (including information needed to determine
whether the family has defaulted on the debt, and the nature of any
such default), and information on any satisfaction or payment of the
mortgage debt;
(B) Any sale or other transfer of any interest in the home; or
(C) The family's homeownership expenses.
(5) Notice of move-out. The family must notify the PHA before the
family moves out of the home.
(6) Notice of mortgage default. The family must notify the PHA if
the family defaults on a mortgage securing any debt incurred to
purchase the home.
(7) Prohibition on ownership interest on second residence. During
the time the family receives homeownership assistance under this
subpart, no family member may have any ownership interest in any other
residential property.
(8) Additional PHA requirements. The PHA may establish additional
requirements for continuation of homeownership assistance for the
family (for example, a requirement for post-purchase homeownership
counseling or for periodic unit inspections while the family is
receiving homeownership assistance). The family must comply with any
such requirements.
(9) Other family obligations. The family must comply with the
obligations of a participant family described in Sec. 982.551. However,
the following
provisions do not apply to assistance under the homeownership option:
Sec. 982.551(c), (d), (e), (f), (g) and (j).
(c) Statement of homeowner obligations. Before commencement of
homeownership assistance, the family must execute a statement of family
obligations in the form prescribed by HUD. In the statement, the family
agrees to comply with all family obligations under the homeownership
option.
Sec. 982.634 Homeownership option: Maximum term of homeownership
assistance.
(a) Maximum term of assistance. Except in the case of a family that
qualifies as an elderly or disabled family (see paragraph (c) of this
section), the family members described in paragraph (b) of this section
shall not receive homeownership assistance for more than:
(1) Fifteen years, if the initial mortgage incurred to finance
purchase of the home has a term of 20 years or longer; or
(2) Ten years, in all other cases.
(b) Applicability of maximum term. The maximum term described in
paragraph (a) of this section applies to any member of the family who:
(1) Has an ownership interest in the unit during the time that
homeownership payments are made; or
(2) Is the spouse of any member of the household who has an
ownership interest in the unit during the time homeownership payments
are made.
(c) Exception for elderly and disabled families. (1) As noted in
paragraph (a) of this section, the maximum term of assistance does not
apply to elderly and disabled families.
(2) In the case of an elderly family, the exception only applies if
the family qualifies as an elderly family at the start of homeownership
assistance. In the case of a disabled family, the exception applies if
at any time during receipt of homeownership assistance the family
qualifies as a disabled family.
(3) If, during the course of homeownership assistance, the family
ceases to qualify as a disabled or elderly family, the maximum term
becomes applicable from the date homeownership assistance commenced.
However, such a family must be provided at least 6 months of
homeownership assistance after the maximum term becomes applicable
(provided the family is otherwise eligible to receive homeownership
assistance in accordance with this part).
(d) Assistance for different homes or PHAs. If the family has
received such assistance for different homes, or from different PHAs,
the total of such assistance terms is subject to the maximum term
described in paragraph (a) of this section.
Sec. 982.635 Homeownership option: Amount and distribution of monthly
homeownership assistance payment.
(a) Amount of monthly homeownership assistance payment. While the
family is residing in the home, the PHA shall pay a monthly
homeownership assistance payment on behalf of the family that is equal
to the lower of:
(1) The payment standard minus the total tenant payment; or
(2) The family's monthly homeownership expenses minus the total
tenant payment.
(b) Payment standard for family. (1) The payment standard for a
family is the lower of:
(i) The payment standard for the family unit size; or
(ii) The payment standard for the size of the home.
(2) If the home is located in an exception payment standard area,
the PHA must use the appropriate payment standard for the exception
payment standard area.
(3) The payment standard for a family is the greater of:
(i) The payment standard (as determined in accordance with
paragraphs (b)(1) and (b)(2) of this section) at the commencement of
homeownership assistance for occupancy of the home; or
(ii) The payment standard (as determined in accordance with
paragraphs (b)(1) and (b)(2) of this section) at the most recent
regular reexamination of family income and composition since the
commencement of homeownership assistance for occupancy of the home.
(4) The PHA must use the same payment standard schedule, payment
standard amounts, and subsidy standards pursuant to Secs. 982.402 and
982.503 for the homeownership option as for the rental voucher program.
(c) Determination of homeownership expenses. (1) The PHA shall
adopt policies for determining the amount of homeownership expenses to
be allowed by the PHA in accordance with HUD requirements.
(2) Homeownership expenses for a homeowner (other than a
cooperative member) may only include amounts allowed by the PHA to
cover:
(i) Principal and interest on initial mortgage debt, any
refinancing of such debt, and any mortgage insurance premium incurred
to finance purchase of the home;
(ii) Real estate taxes and public assessments on the home;
(iii) Home insurance;
(iv) The PHA allowance for maintenance expenses;
(v) The PHA allowance for costs of major repairs and replacements;
(vi) The PHA utility allowance for the home; and
(vii) Principal and interest on mortgage debt incurred to finance
costs for major repairs, replacements or improvements for the home. If
a member of the family is a person with disabilities, such debt may
include debt incurred by the family to finance costs needed to make the
home accessible for such person, if the PHA determines that allowance
of such costs as homeownership expenses is needed as a reasonable
accommodation so that the homeownership option is readily accessible to
and usable by such person, in accordance with part 8 of this title.
(3) Homeownership expenses for a cooperative member may only
include amounts allowed by the PHA to cover:
(i) The cooperative charge under the cooperative occupancy
agreement including payment for real estate taxes and public
assessments on the home;
(ii) Principal and interest on initial debt incurred to finance
purchase of cooperative membership shares and any refinancing of such
debt;
(iii) Home insurance;
(iv) The PHA allowance for maintenance expenses;
(v) The PHA allowance for costs of major repairs and replacements;
(vi) The PHA utility allowance for the home; and
(vii) Principal and interest on debt incurred to finance major
repairs, replacements or improvements for the home. If a member of the
family is a person with disabilities, such debt may include debt
incurred by the family to finance costs needed to make the home
accessible for such person, if the PHA determines that allowance of
such costs as homeownership expenses is needed as a reasonable
accommodation so that the homeownership option is readily accessible to
and usable by such person, in accordance with part 8 of this title.
(4) If the home is a cooperative or condominium unit, homeownership
expenses may also include cooperative or condominium operating charges
or maintenance fees assessed by the condominium or cooperative
homeowner association.
(d) Payment to lender or family. The PHA must pay homeownership
assistance payments either:
(1) Directly to the family or;
(2) At the discretion of the PHA, to a lender on behalf of the
family. If the assistance payment exceeds the amount due to the lender,
the PHA must pay the excess directly to the family.
(e) Automatic termination of homeownership assistance.
Homeownership assistance for a family terminates automatically 180
calendar days after the last housing assistance payment on behalf of
the family. However, a PHA has the discretion to grant relief from this
requirement in those cases where automatic termination would result in
extreme hardship for the family.
Sec. 982.636 Homeownership option: Portability.
(a) General. A family may qualify to move outside the initial PHA
jurisdiction with continued homeownership assistance under the voucher
program in accordance with this section.
(b) Portability of homeownership assistance. Subject to
Sec. 982.353(b) and (c), Sec. 982.552, and Sec. 982.553, a family
determined eligible for homeownership assistance by the initial PHA may
purchase a unit outside of the initial PHA's jurisdiction, if the
receiving PHA is administering a voucher homeownership program and is
accepting new homeownership families.
(c) Applicability of Housing Choice Voucher program portability
procedures. In general, the portability procedures described in
Secs. 982.353 and 982.355 apply to the homeownership option and the
administrative responsibilities of the initial and receiving PHA are
not altered except that some administrative functions (e.g, issuance of
a voucher or execution of a tenancy addendum) do not apply to the
homeownership option.
(d) Family and PHA responsibilities. The family must attend the
briefing and counseling sessions required by the receiving PHA. The
receiving PHA will determine whether the financing for, and the
physical condition of the unit, are acceptable. The receiving PHA must
promptly notify the initial PHA if the family has purchased an eligible
unit under the program, or if the family is unable to purchase a home
within the maximum time established by the PHA.
(e) Continued assistance under Sec. 982.637. Such continued
assistance under portability procedures is subject to Sec. 982.637.
Sec. 982.637 Homeownership option: Move with continued tenant-based
assistance.
(a) Move to new unit. (1) A family receiving homeownership
assistance may move to a new unit with continued tenant-based
assistance in accordance with this section. The family may move either
with voucher rental assistance (in accordance with rental assistance
program requirements) or with voucher homeownership assistance (in
accordance with homeownership option program requirements).
(2) The PHA may not commence continued tenant-based assistance for
occupancy of the new unit so long as any family member owns any title
or other interest in the prior home.
(3) The PHA may establish policies that prohibit more than one move
by the family during any one year period.
(b) Requirements for continuation of homeownership assistance. The
PHA must determine that all initial requirements listed in Sec. 982.626
have been satisfied if a family that has received homeownership
assistance wants to move to a new unit with continued homeownership
assistance. However, the following requirements do not apply:
(1) The requirement for pre-assistance counseling (Sec. 982.630) is
not applicable. However, the PHA may require that the family complete
additional counseling (before or after moving to a new unit with
continued assistance under the homeownership option).
(2) The requirement that a family must be a first-time homeowner
(Sec. 982.627) is not applicable.
(c) When PHA may deny permission to move with continued assistance.
The PHA may deny permission to move to a new unit with continued
voucher assistance as follows:
(1) Lack of funding to provide continued assistance. The PHA may
deny permission to move with continued rental or homeownership
assistance if the PHA determines that it does not have sufficient
funding to provide continued assistance.
(2) Termination or denial of assistance under Sec. 982.638. At any
time, the PHA may deny permission to move with continued rental or
homeownership assistance in accordance with Sec. 982.638.
Sec. 982.638 Homeownership option: Denial or termination of assistance
for family.
(a) General. The PHA shall terminate homeownership assistance for
the family, and shall deny voucher rental assistance for the family, in
accordance with this section.
(b) Denial or termination of assistance under basic voucher
program. At any time, the PHA may deny or terminate homeownership
assistance in accordance with Sec. 982.552 (Grounds for denial or
termination of assistance) or Sec. 982.553 (Crime by family members).
(c) Failure to comply with family obligations. The PHA may deny or
terminate assistance for violation of participant obligations described
in Sec. 982.551 or Sec. 982.633.
(d) Mortgage default. The PHA must terminate voucher homeownership
assistance for any member of family receiving homeownership assistance
that is dispossessed from the home pursuant to a judgment or order of
foreclosure on any mortgage (whether FHA-insured or non-FHA) securing
debt incurred to purchase the home, or any refinancing of such debt.
The PHA, in its discretion, may permit the family to move to a new unit
with continued voucher rental assistance. However, the PHA must deny
such permission, if:
(1) The family defaulted on an FHA-insured mortgage; and
(2) The family fails to demonstrate that:
(i) The family has conveyed title to the home, as required by HUD,
to HUD or HUD's designee; and
(ii) The family has moved from the home within the period
established or approved by HUD.
Sec. 982.639 Homeownership option: Administrative fees.
The ongoing administrative fee described in Sec. 982.152(b) is paid
to the PHA for each month that homeownership assistance is paid by the
PHA on behalf of the family.
Sec. 982.640 Homeownership option: Recapture of homeownership
assistance.
(a) General. The PHA shall recapture a percentage of the
homeownership assistance provided to the family upon the family's sale
or refinancing of the home.
(b) Securing the PHA's right of recapture. Upon purchase of the
home, a family receiving homeownership assistance shall execute
documentation as required by HUD, and consistent with State and local
law, that secures the PHA's right to recapture the homeownership
assistance in accordance with this section. The lien securing the
recapture of homeownership subsidy may be subordinated to a refinanced
mortgage.
(c) Recapture amount for sales. In the case of the sale of the
home, the recapture shall be in an amount equalling the lesser of:
(1) The amount of homeownership assistance provided to the family,
adjusted as described in paragraph (f) of this section; or
(2) The difference between the sales price and purchase price of
the home, minus:
(i) The costs of any capital expenditures;
(ii) The costs incurred by the family in the sale of the home (such
as sales commission and closing costs);
(iii) The amount of the difference between the sales price and
purchase
price that is being used, upon sale, towards the purchase of a new home
under the Section 8 homeownership option; and
(iv) Any amounts that have been previously recaptured, in
accordance with this section.
(d) Recapture amount for refinancing. In the case of a refinancing
of the home, the recapture shall be in an amount equalling the lesser
of:
(1) The amount of homeownership assistance provided to the family,
adjusted as described in paragraph (f) of this section; or
(2) The difference between the current mortgage debt and the new
mortgage debt; minus:
(i) The costs of any capital expenditures;
(ii) The costs incurred by the family in the refinancing of the
home (such as closing costs); and
(iii) Any amounts that have been previously recaptured as a result
of refinancing.
(e) Use of sales price in determining recapture amount. The
recapture amount shall be determined using the actual sales price of
the home, unless the sale is to an identity-of-interest entity. In the
case of identity-of-interest transactions, the PHA shall establish a
sales price based on fair market value.
(f) Automatic reduction of recapture amount. The amount of
homeownership assistance subject to recapture will automatically be
reduced over a 10 year period, beginning one year from the purchase
date, in annual increments of 10 percent. At the end of the 10 year
period, the amount of homeownership assistance subject to recapture
will be zero.
Sec. 982.641 Homeownership option: Applicability of other
requirements.
(a) General. The following types of provisions (located in other
subparts of this part) do not apply to assistance under the
homeownership option:
(1) Any provisions concerning the Section 8 owner or the HAP
contract between the PHA and owner;
(2) Any provisions concerning the assisted tenancy or the lease
between the family and the owner;
(3) Any provisions concerning PHA approval of the assisted tenancy;
(4) Any provisions concerning rent to owner or reasonable rent; and
(5) Any provisions concerning the issuance or term of voucher.
(b) Subpart G requirements. The following provisions of subpart G
of this part do not apply to assistance under the homeownership option:
(1) Section 982.302 (Issuance of voucher; Requesting PHA approval
of assisted tenancy);
(2) Section 982.303 (Term of voucher);
(3) Section 982.305 (PHA approval of assisted tenancy);
(4) Section 982.306 (PHA disapproval of owner);
(5) Section 982.307 (Tenant screening);
(6) Section 982.308 (Lease and tenancy);
(7) Section 982.309 (Term of assisted tenancy);
(8) Section 982.310 (Owner termination of tenancy);
(9) Section 982.311 (When assistance is paid) (except that
Sec. 982.311(c)(3) is applicable to assistance under the homeownership
option);
(10) Section 982.313 (Security deposit: Amounts owed by tenant);
and
(11) Section 982.314 (Move with continued tenant-based assistance).
(c) Subpart H requirements. The following provisions of subpart H
of this part do not apply to assistance under the homeownership option:
(1) Section 982.352(a)(6) (Prohibition of owner-occupied assisted
unit);
(2) Section 982.352(b) (PHA-owned housing); and
(3) Those provisions of Sec. 982.353(b)(1),(2), and (3) (Where
family can lease a unit with tenant-based assistance) and Sec. 982.355
(Portability: Administration by receiving PHA) that are inapplicable
per Sec. 982.636;
(d) Subpart I requirements. The following provisions of subpart I
of this part do not apply to assistance under the homeownership option:
(1) Section 982.403 (Terminating HAP contract when unit is too
small);
(2) Section 982.404 (Maintenance: Owner and family responsibility;
PHA remedies); and
(3) Section 982.405 (PHA initial and periodic unit inspection).
(e) Subpart J requirements. The requirements of subpart J of this
part (Housing Assistance Payments Contract and Owner Responsibility)
(Secs. 982.451-456) do not apply to assistance under the homeownership
option.
(f) Subpart K requirements. Except for those sections listed below,
the requirements of subpart K of this part (Rent and Housing Assistance
Payment) (Secs. 982.501-521) do not apply to assistance under the
homeownership option:
(1) Section 982.503 (Voucher tenancy: Payment standard amount and
schedule);
(2) Section 982.516 (Family income and composition: Regular and
interim reexaminations); and
(3) Section 982.517 (Utility allowance schedule).
(g) Subpart L requirements. The following provisions of subpart L
of this part do not apply to assistance under the homeownership option:
(1) Section 982.551(c) (HQS breach caused by family);
(2) Section 982.551(d) (Allowing PHA inspection);
(3) Section 982.551(e) (Violation of lease);
(4) Section 982.551(g) (Owner eviction notice); and
(5) Section 982.551(j) (Interest in unit).
(h) Subpart M requirements. The following provisions of subpart M
of this part do not apply to assistance under the homeownership option:
(1) Sections 982.602-982.619; and
(2) Sections 982.622-982.624.
Dated: August 24, 2000.
Harold Lucas,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 00-22829 Filed 9-11-00; 8:45 am]
BILLING CODE 4210-33-P
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