Updated Terminology for State Housing Agency Housing Assistance Payments Contracts

<RULE> DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT <CFR>24 CFR Part 883</CFR> <DEPDOC>[Docket No. FR-6378-F-02]</DEPDOC> <RIN>RIN 2502-AJ68</RIN> <SUBJECT>Updated Terminology for State Housing Agency Housing Assistance Payments Contracts</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Office of the Assistant Secretary for Housing—Federal Housing Commissioner, Department of Housing and Urban Development (HUD). <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This final rule revises HUD's regulations for Housing Assistance Payments contracts that were initially issued and administered by a State Housing Finance Agency. This final rule clarifies the meaning of the terms “HFA (Housing Finance Agency)” and “State Agency (Agency)” when HUD either assumes contract administration responsibilities or assigns the contract administration responsibilities to a Performance-Based Contract Administrator. This final rule also clarifies how reserve accounts may be transferred following assumption of contract administration duties by a new party. These regulatory changes conform with longstanding HUD policy and practice. This final rule adopts HUD's July 17, 2024, proposed rule without change. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Effective January 3, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Jennifer Larson, Director, Office of Asset Management and Portfolio Oversight, U.S. Department of Housing and Urban Development, 451 7th Street SW, Washington, DC 20410, telephone number 202-402-3823 (this is not a toll-free number). HUD welcomes and is prepared to receive calls from individuals who are deaf or hard of hearing, as well as individuals with speech or communication disabilities. To learn more about how to make an accessible telephone call, please visit <E T="03">https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. Section 8 Project-Based Rental Assistance Program</HD> The Section 8 Project-Based Rental Assistance (Section 8 PBRA) program was enacted as part of the Housing and Community Development Act of 1974, <SU>1</SU> <FTREF/> which amended the United States Housing Act of 1937. <SU>2</SU> <FTREF/> Under the Section 8 PBRA program, either HUD or a public housing agency (PHA) acting pursuant to an annual contributions contract (ACC) with HUD provides rental assistance payments via a Housing Assistance Payments (HAP) Contract to project owners who, in turn, rent units covered by the HAP Contract to families who meet program eligibility rules. Either HUD or a PHA acting pursuant to an ACC serves as the contract administrator, which is responsible for performing multiple functions, from maintaining a reserve for replacement account and a residual receipts account to processing annual rent adjustments and periodic contract renewals. Pursuant to the United States Housing Act of 1937 and HUD regulations, a housing finance agency (HFA) meets the definition of a PHA and, as such, may serve as a Performance-Based Contract Administrator (PBCA). <FTNT> <SU>1</SU>  Public Law 93-383, 88 Stat. 633 (1974). </FTNT> <FTNT> <SU>2</SU>  42 U.S.C. 1437f. </FTNT> <HD SOURCE="HD2">B. Regulatory and Operational History of the 24 CFR Part 883 Section 8 PBRA Program</HD> On April 15, 1975, HUD published 24 CFR part 883, establishing policies and procedures under which HFAs could select proposals for funding under the Section 8 New Construction and Substantial Rehabilitation Programs. <SU>3</SU> <FTREF/> Pursuant to 24 CFR part 883, HFAs provided permanent financing and assumed the risk of default and foreclosure on selected project proposals. In selecting a project for permanent financing, HFAs and project owners could enter into HAP Contracts with initial mortgage terms of up to 40 years, <SU>4</SU> <FTREF/> with the HFA serving as the HAP Contract administrator. Significantly for purposes of this rulemaking, in January of 1980, HUD issued a new regulation under 24 CFR part 883 that introduced a limit on annual distributions of project surplus cash for some project owners, a requirement for such owners to establish a residual receipts account, and a requirement to maintain a reserve for replacement account to address physical condition issues. <SU>5</SU> <FTREF/> As HAP Contract administrators, the HFAs controlled the residual receipts and reserve for replacement accounts required by 24 CFR part 883. <FTNT> <SU>3</SU>  40 FR 16934. </FTNT> <FTNT> <SU>4</SU>  The terms “HFA” and “State Agency” appear in both part 883 and corresponding HAP Contracts. </FTNT> <FTNT> <SU>5</SU>  45 FR 6889 (Jan. 30, 1980). </FTNT> In the 1990s, HAP Contracts between HFAs and project owners began to reach the end of the contracted term and expire. Where a HAP Contract expires and is not renewed, families eligible for Section 8 PBRA are at risk of displacement from their housing because there is no longer an agreement in place that allows project owners to receive Section 8 PBRA rental assistance for the applicable units. To authorize the renewal of expiring HAP Contracts, including HAP Contracts issued pursuant to 24 CFR part 883 (Part 883 HAP Contracts), Congress enacted the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA). <SU>6</SU> <FTREF/> As implemented by HUD, MAHRA allows the issuance of HAP Contracts that incorporate and renew nearly all provisions of an expired, original HAP Contract. Relevant to the purposes of this final rule, the provisions incorporated into renewed Part 883 HAP Contracts include references to the terms “HFA” and “State Agency.” <FTNT> <SU>6</SU>  42 U.S.C. 1437f. </FTNT> Beginning in May of 1999, HUD began using PBCAs to streamline the renewal and administration of expiring HAP Contracts, including Part 883 HAP Contracts, by assigning administration and servicing tasks to PBCAs, which qualify as PHAs under the United States Housing Act of 1937 and act in accordance with an ACC that sets forth requirements and performance-based incentive standards. As Part 883 HAP Contracts expired, HUD began terminating ACCs with the HFAs of the expiring Part 883 HAP Contracts, with HUD then either taking over administration of the Part 883 HAP Contracts itself or assigning administration of the contracts to PBCAs. Relevant to the purpose of this final rule, references to the terms “HFA” and “State Agency” remained in both 24 CFR part 883 and the renewed Part 883 HAP Contracts that were now administered by either HUD or a PBCA. As of the second quarter of 2023, there were approximately 2,690 Part 883 HAP Contracts in effect throughout the country. Of these contracts, the vast majority are now administered either by a PBCA or HUD, with only sixty-five (65) Part 883 HAP Contracts still being administered by an HFA. For the Part 883 HAP Contracts that were previously administered by an HFA but that are now administered by a PBCA or HUD, the terms “HFA” and “State Agency” still appear in the Part 883 HAP Contracts, along with references to the same terms in 24 CFR part 883. The references to these terms in the contracts and part 883 create confusion because HUD or a PBCA now administers these Part 883 HAP Contracts rather than an HFA or State Agency. This confusion is especially problematic with regard to the administration of project owners' restricted financial accounts ( <E T="03">i.e.,</E> the residual receipts and reserve for replacement accounts) because of unclear expectations regarding which entity must issue approvals to withdraw funds. HUD issues this final rule to eliminate this confusion. <HD SOURCE="HD2">C. Residual Receipts and Reserve for Replacement Project Accounts</HD> Both the residual receipts account and the reserve for replacement account are project accounts. The project owner must make deposits to the residual receipts account and the reserve for replacement accounts, consistent with HUD requirements, and must receive prior approval before withdrawing funds from either account. When a HAP Contract associated with the project is administered by an HFA, the project owner requests fund withdrawal approval from the HFA. Once an ACC between the HFA and HUD expires, HUD must review such fund withdrawal requests; therefore, the HFA must release the funds in the accounts upon the request of the project owner. The project owner, in turn, must ensure that the residual receipts and reserve for replacement accounts funds are placed in accounts that meet HUD requirements, after which time any fund withdrawals will be made only with HUD approval. <HD SOURCE="HD1">II. The Proposed Rule</HD> On July 17, 2024, HUD published for public comment a proposed rule entitled “Updated Terminology for State Housing Agency Housing Assistance Payments Contracts.”  <SU>7</SU> <FTREF/> The proposed rule proposed to amend the definitions of two terms defined in 24 CFR 883.302: “HFA (Housing Finance Agency)” and “State Agency (Agency).” In the proposed rule, HUD proposed that the definitions found in 24 CFR 883.302 for these terms continue to apply while an ACC between HUD and an HFA is in effect. When an ACC between HUD and the HFA expires and is not renewed, HUD proposed that the definitions of the terms “HFA (Housing Finance Agency)” and “State Agency (Agency)” then be defined the same as “Contract Administrator” is defined at 24 CFR 880.201. In addition to the proposed definition changes to 24 CFR 883.302, HUD also proposed to make a conforming change to 24 CFR 883.701. In the proposed rule, HUD also proposed to amend 24 CFR 883.306 and add a new § 883.702 to make clear that project owners are required to request the withdrawal of funds from residual receipts and reserv ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 21k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━