Affordable Housing Updates

March 27, 2012

Affordable Housing Alert

Author(s): Richard Michael Price, Anthony D. Ruvolo, Stephen J. Wallace

HUD recently issued a new notice, Notice PIH 2012-19, addressed to listed properties for funding tenant protections vouchers. The notice seeks applications by May 4. Read our alert and the Notice to see if one of your properties is listed.

Also read about HUD’s changes to the HAP extension policy and the development of a small multifamily risk share program.

HUD issues Notice PIH 2012-19, implementing funding for TPVs for certain “at-risk” properties in low vacancy areas

By Stephen J. Wallace and Richard Michael Price

HUD issued Notice PIH 2012-19 (“Notice”), which implements funding for tenant protection vouchers (“TPVs”) for certain “at-risk” properties in low vacancy areas. This notice implements the provisions in the Fiscal Year 2012 HUD Appropriations bill (PL 112-55), which provides up to $10M for TPVs for eligible tenants residing in the following categories of properties:

  1. The maturity of a HUD-insured, HUD-held, or Section 202 loan that requires HUD’s consent to prepay;
  2. The expiration of a rental assistance contract for which tenants are not eligible for enhanced vouchers or tenant protection vouchers under existing law; and
  3. The expiration of affordability restrictions accompanying a mortgage or preservation program administered by HUD (i.e., expiring ELIHPA Use Agreements).

Since the Rental Assistance Demonstration program (“RAD”) included in the FY 2012 HUD Appropriations legislation provides TPVs for the termination of RAP and Rent Supplement contracts (see Notice PIH 2012-18) that fall into category (ii) above, projects with RAP and Rent Supp will not be covered under this Notice. Therefore, HUD is setting aside $6M to provide either TPVs or project-based vouchers (“PBVs”) to eligible residents.

To be eligible for TPVs or PBVs a property must be on the list attached to the Notice and have “at risk” households living at the property. “At-risk” households are those whose annual income is at or below HUD’s FY ’12 low-income limit who may have to pay more than 30% of monthly income towards rent. If an owner believes his property meets the statutory criteria and is not on the HUD list, upon request, HUD will review the project facts.

To receive assistance under this Notice an owner must make a request by May 4, 2012. The Notice outlines the process for submitting a completed request. After HUD’s review and verification of the request, HUD will conduct a lottery to award the limited funds. The Notice sets forth a timeframe for HUD to make the funding awards.

HUD changes HAP extension policy

By Anthony D. Ruvolo

HUD has started to implement a change in procedures and policies with respect to the extension of existing HAP contracts and the provision of new 20-year HAP contracts. These changes will affect pending and future preservation transactions, as well as extensions requested to increase distributions.

Existing HUD guidance permits an owner to extend an existing HAP contract in certain circumstances so that the contract will have up to a 20-year term from the date of extension. To implement such extensions, HUD released a form of extension agreement as Attachment 20 to the Section 8 Renewal Policy Guide (the “Guide”) in a transmittal dated September 26, 2008. Such extensions were intended to facilitate the refinancing and preservation of Section 8 properties in light of the lending market’s general requirement for 20-year HAP contracts. HUD subsequently expanded the use of such extensions through a transmittal dated April 13, 2009, which revised Chapter 4 of the Guide to permit increased distributions to for-profit owners who enter into long-term HAP contracts. Under a new policy that is expected to appear in a revised Guide, HUD has discontinued the extension of existing HAP contracts, and instead will permit owners to terminate existing MAHRA renewal contracts and replace them with new 20-year HAP contracts.

The new 20-year contracts, however, will come with additional requirements. The owner must also execute a “preservation amendment” in the form of Attachment 1 to Housing Notice H20 11-31, under which the owner will agree that after the 20-year term of the new HAP contract is completed, the owner will renew the HAP contract for a term at least equal to the balance remaining on the contract in effect prior to the 20-year term. Furthermore, in our experience, HUD is telling owners that they must submit a new Rent Comparability Study (“RCS”) with the request for the 20-year HAP contract, even if the existing RCS is less than 4-years old. Although HUD has not announced these changes, it is applying them to pending extension requests submitted under HUD’s outstanding written guidance.

Apparently, the policy changes are being driven by the inability of a HUD system to handle a HAP contract that would be longer than 20 years from the date of its inception. Given that HUD released the Attachment 1, 20-year extension form in 2008, it is unclear why the problem has surfaced only recently. Nor is it clear why the project cannot remain on its current 5-year RCS cycle. The RCS requirement also raises a number of questions as to whether and how it will be used to adjust rents.  These issues are particularly troubling for owners who have proceeded under HUD’s actual outstanding guidance and who are now being told that the rules have changed.

HUD is developing small multifamily risk share program

By Stephen J. Wallace and Richard Michael Price

HUD held a roundtable discussion on March 21st to examine options for a new program for small multifamily project loans aimed at projects with 49 units or fewer. Nearly one-third of renters live in small, unsubsidized properties. HUD is concerned with a loss of rental housing as some housing converts to homeownership as the economy improves, as well as properties deteriorating because owners cannot find reasonable recapitalization options. HUD has been informally reviewing options for some time and this roundtable moves forward the administration’s policy to examine financing opportunities for rental housing. More specifically, the administration’s Fiscal Year 2013 budget provides for a small multifamily risk share program. At this time, HUD’s goal is to utilize the Section 542(b) risk share program, which provides a 50/50 risk share with lenders. The small loan program is particularly important to rural areas, which tend to have smaller multifamily density.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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