Use Same HUD Passbook Savings Rate Despite Fed Rate Cut

On March 3, the Federal Reserve cut its federal funds rate by half a percentage point. It was the first rate cut in 2020 and came in response to the threat posed to the economy by the coronavirus.

When the Fed cuts interest rates, consumers usually earn less interest on their savings. Banks will typically lower rates paid on cash held in bank certificates of deposits, money market accounts, and regular savings accounts.

Although the Federal Reserve recently lowered its benchmark interest rate, there won’t be a change to the method for calculating income generated by assets until HUD announces such a change to the imputed interest rate.

Calculating Income from Assets

As with other income, any income generated by assets is included when determining annual household income for LIHTC units—but only if the total cash value of all assets for a household is more than $5,000.

Specifically, the rule states, “When net family assets are more than $5,000, annual income includes the greater of the following: (a) Actual income from assets; or (b) a percentage of the value of family assets based on the current passbook savings rate as established by HUD. This is called imputed income from assets” [HUD Handbook 4350.3, par. 5-7(F)(1)].

Current Passbook Savings Rate

In October 2014, after 20 years of using the same 2 percent imputed interest rate, HUD published Notice H 2014-15 acknowledging that the imputed interest rate didn’t reflect the savings environment at the time and adjusted it to 0.06 percent effective Feb. 1, 2015, for all programs.

At the time, HUD also announced its intention to tie the rate to the current passbook rate and stated that changes would be made on an annual basis. HUD published a second notice, HUD Notice H 2016-01, on Jan. 19, 2016, announcing that the imputed interest rate would remain the same.

Since then, no additional notices have been published. As a result, the imputed interest rate, also known as the passbook rate, currently remains at 0.06 percent. It’s important to note that HUD Handbook 4350.3 hasn’t been updated and still lists the imputed interest rate as 2 percent.