HUD HQ Updates RCS Waiver Policy

BY , Kelly Behr

HUD Headquarters recently updated the standing policy on granting waivers of a third-party rent comparability study (RCS) required in connection with PBRA HAP Contract renewals. The recently revised policy supersedes the prior policy memos from 2018, and provides for waivers in more limited circumstances. HUD also provides flexibilities relating to COVID-19.

The revised policy memo, dated May 28, 2020, provides for considerations of RCS waivers in more limited circumstances than the prior policy from 2018. The prior policy allowed for a waiver of the third-party RCS in cases in which the proposed rents were between 140% and 150% of the median gross rent by zip code (GRZC) and in cases in which the proposed rents were below 120% of Fair Market Rent (FMR), as well as in cases of limited availability of funding to contract for the HUD third-party RCS and in cases with upcoming deadlines and an inability to meet those deadlines within the standard processing.

The revised policy does not carry forward flexibility for transactions with proposed rents between 140% and 150% of the GRZC. Rather, the revised policy draws on FMRs and on the approach of both of the prior waiver authorities, with some modifications. Waivers will be considered where a project meets two criteria. First, there must be a problem in conducting the third-party RCS in a timely manner, either because there is insufficient contracting funding available or there is an upcoming a time sensitive need to finalize the rent conclusion, such as a closing or other critical preservation-related deadline. Second, HUD will consider a waiver only if the proposed median unit rent is less than 120% of the relevant Small Area FMR (SAFMR). For projects in locations without an SAFMR, HUD will look to 120% of FMR instead. The 150% GRZC approach provided one benchmark rent for all projects in a zip code, which sometimes had the effect that projects with smaller bedroom sizes would qualify for a waiver whereas projects with larger bedroom sizes would not. By using 120% SAFMR as a threshold test, which is tailored by bedroom size, rather than 150% GRZC, HUD appears to be seeking to remove that bias.

This new guidance also provides flexibility to allow HUD's third-party contractor to complete its RCS despite obstacles presented by COVID-19. On a case by case basis, HUD may authorize its third-party RCS provider to take listed steps in completing their RCS. These include conducting inspections of onlyvacant units, using video recordings or virtual inspections, using construction drawings or other documentation to supplement physical inspections, and other flexibilities. Until recently, HUD had suspended third party RCS processing across the country through its Multifamily FAQs. Those FAQs were updated on May 21 and removed that blanket suspension, and it appears that this new case-by-case approach was put in place shortly thereafter.

HUD's policy on this topic has evolved a number of times in recent years. As HUD gathers and reflects on the experience implementing this newest approach, that evolution may well continue.

Click here for a PDF copy of HUD’s memo.

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Nathaniel S. Cushman


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Kelly Behr


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