HUD Publishes 2013 HOME Final Rule

HUD published a Final Rule in the Federal Register on July 24 to amend the Home Investment Partnerships (HOME) program regulations. The HOME program provides grant funding through a formula allocation to states and local governments to strengthen public-private partnerships and increase the supply of affordable housing for low-income households. State and local government agencies that administer HOME programs, or participating jurisdictions (PJs), are required to match a portion of federal funds with non-federal resources. HOME funds are provided for transitional housing acquisition, rehabilitation, and new construction, and tenant-based rental assistance.

HOME funds are frequently used together with low-income housing tax credits (LIHTC). Although LIHTC equity often can fund as much as half of a project's total development costs, often even that is not enough to achieve the developer's affordability objectives. In these situations, adding HOME funds could reduce the property's mortgage payments, thereby allowing rents to be more affordable, or perhaps allowing the property to offer additional features such as a computer learning center. Adding HOME funds could also allow the developer to provide a community building, or to make the dwelling units larger.

The recent amendments to the HOME regulations represent the most significant changes to the HOME program in 17 years. Informed by what HUD and PJs have learned over the years, HUD made significant changes to the HOME program regulations with the overall goal of providing PJs and their partners with regulatory guidance to enhance the efficiency and effectiveness of the HOME program in the context of a more complex housing and community development environment.

Among the changes included in the final rule, are the following:

• A requirement that the PJs repay HOME funds invested in any rental housing unit that has not been rented to eligible tenants 18 months after the date of project completion; and
• A provision stating that HUD may allow a PJ to invest additional HOME funds in an existing HOME-assisted rental development and/or reduce the number of HOME-assisted units to address troubled properties.

The rule lists as key changes made during the final rule stage the following:

• Amending the definition of “commitment” to reinforce that PJs must not commit HOME funds to a project in the Integrated Disbursement and Information System (IDIS) or in a written agreement until all necessary financing has been secured, a budget and production schedule established, and underwriting and subsidy layering completed; and clarifying, within that definition, the meaning of commitment to a specific local project;
• Allowing Community Housing Development Organizations to become owners of rental housing that they do not develop;
• Adopting a 12-month time frame for committing HOME funds for the reconstruction of a unit that was destroyed;
• Establishing the time frame for income source documentation as two months;
• Making the cost of conducting unit inspections and determining the income of tenant-based rental assistance applicants or recipients an eligible project-related soft cost;
• Eliminating the requirement for separate written standards for methods and materials for new construction projects;
• Eliminating the requirement for a minimum 15-year useful life of major systems, and providing, in lieu of such requirement, that the PJ must estimate the remaining useful life of major systems based on age and current condition of the systems and determine the necessary annual replacement reserve contributions to facilitate system replacement at the appropriate time;
• Providing that the requirement for a current inspection of a unit is no earlier than 90 days before the commitment of HOME assistance; and
• Revising the description of the cumulative methodology that HUD uses to determine compliance with the commitment, CHDO reservation, and expenditure deadlines to better present the method of calculation in use.

In general, the provisions in the final rule will be applicable to projects for which HOME funds are committed on or after Aug. 23. HUD has posted section-by-section summaries.