HUD Issues New RAD Notice PIH 12-32 REV 2

Yesterday, HUD issued the long-awaited RAD Notice implementing changes to the RAD program in the latest extension of the program enacted by Congress in December 2014. 
Among the big changes in the law enacted late last year was the increase in the cap on public housing conversions from 60,000 to 185,000 units and the ability of RAD Component 2 projects (Rent Supplement, RAP and Mod Rehab projects) to obtain project-based rental assistance (PBRA), as opposed to previous guidance which only allowed for conversion to project-based vouchers (PBV). Despite industry efforts, unfortunately, under the notice, HUD limited the initial PBRA rents under Component 2 to 110% of FMR, which could make preservation of some projects infeasible. In addition to these substantive changes, HUD took the opportunity to reorganize the RAD Notice in an attempt to make the program more streamlined and to address several procedural issues that have arisen over the course of the past three years of processing RAD transactions. In a major shift, HUD eliminated all pre-Financing Plan milestones and made changes to better align the RAD submission requirements for tax credit transactions with the industry standards for processing of these transactions. The December legislation expanded eligibility to Mod Rehab Single Room Occupancy (SRO) projects that were funded under the McKinney-Vento Homeless Assistance Act and HUD has provided guidance specific to conversion of those contracts.  HUD clarified several provisions of the program, such as residents’ right to remain or return to the property in all Component 2 conversions and the specific HUD nondiscrimination and equal opportunity requirements that are applicable under different conversion plans, as well as the standards for environmental review that apply to different types of conversions. HUD also has made clear that Davis-Bacon wages apply to all rehabilitation/construction work associated with a RAD conversion. HUD added a requirement for a second tenant meeting for all Component 2 conversions (previously only one was required). The Notice also clarifies a couple of issues related to Rent Supp and RAP conversions in buildings that went through, or are going through, a decoupling. Projects that previously received a waiver to keep a Rent Supp or RAP contract in place (typically upon decoupling) are now eligible to participate in RAD, and HUD added a section related to “decoupled projects and PBV rents,” which seeks to address the problem on rent increases not taking effect for 60 days after closing.