Federal Register: November 26, 2007 (Volume 72, Number 226)
DOCID: fr26no07-3 FR Doc E7-22908
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
U.S. Citizenship and Immigration Services
CFR Citation: 24 CFR Parts 200 and 401
Docket ID: [Docket No. FR-4751-F-02]
RIN ID: RIN 2502-AH86
NOTICE: Part II
DOCID: fr26no07-3
DOCUMENT ACTION: Final rule.
SUBJECT CATEGORY:
Implementation of Mark-to-Market Program Revisions
DATES: Effective Date: December 26, 2007.
DOCUMENT SUMMARY:
Based on statutory changes and HUD's technical operational experience in administering the program, this final rule implements a number of changes to the MarktoMarket (M2M) program, HUD's mortgage restructuring program for FHAinsured projects with projectbased Section 8 assistance, to facilitate processing. Unlike the M2M proposed and final rules addressing renewal of expiring Section 8 projectbased assistance contracts that HUD published on January 12, 2006, this rule addresses a range of administrative and programmatic issues other than the projectbased assistance contracts. This final rule follows publication of a March 14, 2006, proposed rule and takes into consideration the public comments received on the proposed rule.
SUMMARY:
Housing and Urban Development Department,
SUPPLEMENTAL INFORMATION
I. Background
The Multifamily Assisted Housing Reform and Affordability Act (MAHRA) became law on October 27, 1997. (See Pub. L. 10565, 111 Stat. 1384, 42 U.S.C. 1437f note.) The Departments of Veterans Affairs and Housing and Urban Development, and Independent Agencies Appropriations Act for Fiscal Year 1999 (Pub. L. 105276, approved October 21, 1998) revised section 524(a)(2) of MAHRA to make renewal of expiring contracts under that section subject to section 516 of MAHRA, which prohibits mortgage restructuring and consideration of requests for contract renewals in the case of certain kinds of conduct by the project owner. On October 20, 1999, the Departments of Veterans Affairs, Housing and Urban Development, and Independent Agencies Appropriations Act for Fiscal Year 2000, Public Law 10674, 113 Stat. 1047, at 1110, extensively revised section 524 of MAHRA. Among other changes, the revisions changed the method for calculating rents when an expiring or terminating Section 8 contract is renewed, and required reduction to comparable market rents for certain projects that, prior to expiration or termination, had rents that exceeded such comparable market rents.
The MarktoMarket Extension Act of 2001 (Title VI of Pub. L. 107 116, approved January 10, 2002) (MarktoMarket Extension Act) made a number of amendments to MAHRA and a MAHRArelated amendment to section 223(a)(7) of the National Housing Act (12 U.S.C. 1715n). A discussion of the implementation of those amendments and additional proposed revisions to HUD's mortgage restructuring program can be found in the preamble of the March 14, 2006, proposed rule (71 FR 13221).
MAHRA is currently implemented in HUD's regulations at 24 CFR parts 401 and 402. These regulations were initially published as an interim rule on September 11, 1998 (63 FR 48926). On March 22, 2000, HUD published a final rule implementing 24 CFR part 401 and portions of 24 CFR part 402 (65 FR 15485).
In order to facilitate restructurings under MAHRA, this rule also amends HUD's regulations at part 200. Part 200 is the introductory section addressing HUD's mortgage insurance programs under the National Housing Act, 12 U.S.C. 1701 et seq. The specific sections being amended are 24 CFR 200.20, which applies to the refinancing of insured mortgages, and 24 CFR 200.40, which sets HUD's fees and charges for its mortgage insurance programs.
For more information on the implementation of the revisions being
made to the M2M program, please see the preamble of the March 14, 2006, proposed rule.
II. This Final Rule; Changes to the March 14, 2006, Proposed Rule
This final rule follows publication of the March 14, 2006, proposed rule, and takes into consideration the public comments received on the proposed rule. After careful review of the public comments, HUD has made the following changes to the proposed rule:
1. Removal of references to the OMHAR. HUD has removed the definition and all references to the Office of Multifamily Housing Assistance Restructuring (OMHAR). The Office of Affordable Housing Preservation (OAHP) replaced OHMAR as of October 1, 2004. OAHP was established to assure the smooth continuation of the M2M program, utilizing authorities that continued after the legislative sunset of OMHAR. HUD has taken the opportunity afforded by this rule to update its regulations to reflect the organizational structure of the program as it is currently implemented. In addition, references to the ``Director'' of OAHP have been replaced with more general references to ``HUD'' to avoid having to amend the regulations whenever the title of a HUD official is changed. ``HUD'' is defined to include an official authorized to act under the provisions of MAHRA.
2. Transfer Fee Exemption. The language of Sec. 200.40(h) is clarified to provide for a fee exemption for transfers that are contemporaneous with the restructuring of a mortgage pursuant to a restructuring plan, rather than for transfers ``in connection with'' a restructuring plan.
3. Revised Tenant Endorsement Procedure. In response to public comment, HUD has revised the tenant endorsement procedure. A purchaser will now only be required to hold one informational meeting, but may hold additional meetings as necessary. Tenant endorsement will be based upon a potential priority purchaser receiving a majority of the tenant heads of household's written endorsement. Those tenants who do not attend the informational meeting, or any subsequent meeting, may be directly contacted by the purchaser to collect their written endorsement. Purchasers who are unable to obtain the majority of tenant heads of household's written endorsement after undertaking reasonable efforts will be able to submit a request, in writing, to HUD. Based upon the information and explanation contained in the request, HUD will make a determination whether or not to grant tenant endorsement to a purchaser based on a lower percentage of tenants' written endorsement. III. Discussion of Public Comments Received on the March 14, 2006, Proposed Rule
The public comment period on the proposed rule closed on May 15,
2006. HUD received three public comments in response to the proposed
rule. One of the comments was submitted jointly by a group of national organizations
[[Page 66035]]
representing real estate managers, lessors, lenders, builders, and
realtors. One of the comments was submitted on behalf of a group of
regional, state, and national organizations with extensive experience
in preserving and improving HUD's inventory of multifamily housing. One
of the comments was submitted by a statewide renter's association. This
section of the preamble presents a summary of the significant issues
raised by the public commenters on the March 14, 2006, proposed rule, and HUD's responses to these issues.
Section 200.40 HUD Fees
Comment: The charging of transactional fees does discourage participation in the M2M program. The commenter agrees with HUD that various transactional fees discourage owners from participating in the M2M program and that select fees should be exempt or eliminated.
HUD Response: HUD appreciates the input of regulated entities in the formulation of its regulations. Based upon HUD's experience and that of regulated entities, the regulations at Sec. 200.40(h) and (j) will be revised to exempt transfer fees where the transfer of physical assets or substitution of mortgagors occurs contemporaneously with the restructuring of a mortgage pursuant to a restructuring plan and eliminated an application or commitment fee in connection with the insurance of a mortgage used to facilitate a restructuring plan, respectively.
Section 401.452 Property Standards for Rehabilitation
Comment: The property standards for rehabilitation are reasonable. The commenter expressed approval of the objectives of the provision to ensure that the property can attract nonsubsidized tenants, but competes on rents rather than amenities, which the commenter finds reasonable.
HUD Response: HUD is implementing the property standards for rehabilitation as proposed. HUD believes that the property standards are realistic, by taking into consideration the resources of the project as well as ensuring the rehabilitation reflects current standards.
Section 401.461 HUDheld Second Mortgage
Comment: The use of discretion in whether simple or compound interest on HUDheld second mortgages will be required is good policy. The commenter wrote that in Sec. 401.461(b)(1), HUD's proposed elimination of the reference to simple interests and its use of administrative discretion in requiring simple or compound interest, so that waivers will no longer be required, makes good sense. The commenter also appreciates HUD's willingness to make restructuring transactions using Low Income Housing Tax Credits (LIHTCs) feasible without the need for waiver.
HUD Response: HUD appreciates the support expressed for the revisions to Sec. 401.461(b)(1). The regulatory change removes the reference to simple interest and, thereby, allows HUD to use its administrative discretion in requiring simple or compound interest. This enables HUD to make determinations that are in the best interest of the government and the individual debt restructuring.
Comment: There should not be a time limit on the canceling, modifying, or assigning of a property's MarktoMarket subsidiary mortgage(s) if transferring to a priority purchaser. The commenters wrote that Sec. 401.461(b)(1) should be revised to eliminate the time limit (i.e., 3year window) for canceling, modifying, or assigning a property's MarktoMarket subsidiary mortgage(s), so long as the transfer is to a priority purchaser. In addition, the commenters suggested that the regulation clarify that there is no time limit for transferring MarktoMarket restructured properties to priority purchasers. Currently, Appendix C of the Operating Procedures Guide and the Standard Restructuring Commitment form allow the forgiveness of second and third debt to qualified purchasers only if the property transfers within 3 years of restructuring.
HUD Response: HUD has not revised the regulations in response to this comment. Section 401.461(b)(5) states that HUD will consider modification, assignment of the second mortgage to an acquiring entity, or forgiveness of all or part of the second mortgage to a priority purchaser. No defined time period for making the request is contained in this section. In applying Sec. 401.461(b)(5), as described in Appendix C of the Operating Procedures Guide and the Standard Restructuring Commitment form, HUD has generally limited its consideration to requests made by priority purchasers within 3 years of the restructuring. HUD believes that this guidance provides an appropriate and reasonable time frame for a priority purchaser to request modification, assignment of the second mortgage to an acquiring entity, or forgiveness of all or part of the second mortgage. However, HUD will consider, on a casebycase basis, requests made by a priority purchaser that are outside of this 3year window. Such requests remain subject to continuing statutory authority.
Section 401.480 Sale or Transfer of Project
Comment: The tenant endorsement procedure for attaining priority purchaser status should be revised. The commenters wrote that all provisions pertaining to a second meeting devoted to a formal voting process should be eliminated. This would also eliminate the need for proxies and, thereby, eliminate the increased possibility of undue influence (monetary or other promised favors), which distort the endorsement process. In place of the second meeting, the commenters suggested revising the regulations to require that 51 percent of the tenants provide written endorsement. The commenters believe that this would encourage a priority purchaser to thoroughly engage tenants in order to gain their informed, genuine, and meaningful support.
HUD Response: HUD specifically requested comment on the procedure for demonstrating tenant endorsement and solicited recommendations for a less prescriptive and more streamlined procedure that will meet the goal of providing an opportunity for the informed participation of tenants in an endorsement process that can reasonably be considered to be valid. In response to these comments and recommendations, HUD is revising the rule by adopting the commenters' suggested endorsement procedure with some modifications. A purchaser is only required to hold an informational meeting under this final rule; however, additional meetings may be scheduled in accordance with the notice requirements of Sec. 401.480(e). Tenant endorsement under Sec. 401.480(e) is to be demonstrated by a purchaser submitting documentation, such as ballots, letters of support, or petitions, to HUD from a majority (51 percent) of the tenant heads of household. A purchaser may contact tenant heads of households who did not attend the meeting, to collect a written endorsement.
HUD is also implementing a process by which a purchaser who has
made a reasonable effort to obtain the majority of the tenants'
endorsement but was unsuccessful can ask HUD to make a determination as
to whether endorsement can be obtained with a lower percentage of
endorsing tenants. The purchaser will have to make the request in
writing and include a description of the efforts undertaken to secure
the endorsement, an explanation of the circumstances that resulted in
failing to receive endorsement from a majority of tenant heads of household, and any comments received from
[[Page 66036]]
tenants regarding the approval of the endorsement.
HUD believes that this process is less prescriptive than the procedures that were proposed and serves the interests of both purchasers and tenants.
Comment: The informational meeting should be held at a convenient time and location and conducted by a neutral third party. The commenter wrote that the proposed regulation should be revised to require that the informational meeting be held at a time and location convenient to the majority of the tenants, and should be conducted by the Participating Administrative Entity (PAE) or other neutral third party.
HUD Response: HUD has not revised the rule in response to this comment. It is HUD's intent to allow flexibility in the conduct of tenant meetings so as to allow the needs and resources of each project to be addressed. Further, since tenant endorsement will be determined based on receiving endorsement of 51 percent of the tenant heads of household, it is in the interest of all involved to hold meetings that are convenient as to time and location with competent facilitators. HUD will issue guidance, as needed, that outlines informational meeting best practices.
Comment: The final rule should state that there must be at least 3 weeks between the informational meeting and final endorsement of the purchaser. Two commenters supported the requirement of an informational meeting, but would revise the regulation to require that 3 weeks elapse between the date of the informational meeting and when final endorsement of the purchaser is made.
HUD Response: HUD has not revised the rule in response to this comment. HUD does not believe that a required time interval between a tenant meeting and the final endorsement of the purchaser would be beneficial. HUD acknowledges that time is needed for adequate consideration and deliberation; however, HUD chooses not to prescribe how much time is necessary.
Comment: Additional elements should be required for the informational meeting. The commenters wrote that the regulations should require prospective priority purchasers to prepare materials that must be readily available at no cost to residents before and after the informational meeting. Included among the materials suggested by the commenters were any plans for repairs and improvements to the property; any changes in the onsite manager or management company; any changes in utility billing; the names and locations of other properties owned by the potential purchaser, specifically identifying properties that are HUDassisted; and the names and affiliations of the prospective purchaser's directors and officers. The commenters also wrote that if English is not the primary language of a significant number of tenants, then the final rule should require the prospective owner to provide interpreters and written materials for the informational meeting in other languages spoken by 15 percent of the tenants.
HUD Response: HUD has not revised the rule in response to this comment. As stated above, HUD does not want to impose overly prescriptive requirements on the tenant endorsement procedure. HUD has created the endorsement framework and believes that the needs and resources of the project and the restructuring of that project should dictate the conduct of the meeting(s) and endorsement process. HUD will supplement this framework by issuing guidance containing best practices, as needed.
Comment: A representative of the purchaser must attend the informational meeting. The commenters also wrote that the final rule should require that a representative of the prospective purchaser must be present at the informational meeting. The representative should be prepared to discuss plans for improving the property and capable of addressing tenant questions and concerns.
HUD Response: HUD agrees with this comment and has included a provision at Sec. 401.480(e)(1), which requires that a representative of the purchasing entity attend the required tenant meeting(s), present its plan for the acquisition and improvement of the project, and answer the questions of tenants attending the meeting.
Comment: The provisions governing how tenants are to be notified of
the informational meeting should be revised. The commenters wrote that
Sec. 401.480(e)(2), regarding notice to tenants and tenant
organizations, should be modified to require that notice must be
delivered directly or by mail to the parties listed in Sec. 401.501,
which include local government, the public housing authority, the
Outreach and Training Grant (OTAG) or Intermediary Technical Assistance Grant (ITAG) organization, other appropriate neighborhood
representatives, and other affected parties. Additionally, the
commenters suggested the regulations must state that notice of the
informational meeting must also be posted in three conspicuous places
on the property and provided in appropriate languages. The commenters
wrote that if the informational meeting is not part of the second PAE
convened tenant comment meeting, then the regulations must require
notice no less than 3 days and no more than 10 days prior to the informational meeting.
HUD Response: HUD has not revised the rule in response to this comment. HUD believes that the imposition of such prescriptive requirements would not be beneficial to the tenant endorsement process. HUD envisions an endorsement procedure that reflects the needs and resources of the project. However, HUD will issue, as determined to be necessary, guidance outlining best practices.
Comment: The definition of ``tenant organization'' should be amended to be more inclusive. The commenters wrote that the final rule should state that a ``tenant organization'' includes any organization based on the property, as well as any nonprofit organizing group working with the property's residents.
HUD Response: HUD has not revised the rule in response to this comment. HUD believes that the scope of the definition of ``tenant organization,'' which is limited to households of occupied units of the property, is appropriate. Tenantorganizing groups may help establish a tenant organization, but do not themselves constitute tenant organizations for purposes of the rule.
Comment: The regulations should contain the Operating Procedures Guide regarding the posting of notices, meeting times and location, and priority purchaser ``independence'' criteria.
HUD Response: HUD has not revised the rule in response to this comment. HUD does not want to impose requirements as to all aspects of the tenant endorsement procedure. HUD intends to promote flexibility and responsiveness to each project. HUD will issue guidance, as needed, to inform participants of best practices for the endorsement process.
Comment: A record of the informational meeting should be submitted with the restructuring plan or as an addendum to the restructuring plan. The commenters wrote that the final rule should require that comments made by tenants at the informational meeting regarding needed repairs, current management, and other concerns must be captured in writing and submitted with the restructuring plan or as an addendum to the restructuring plan.
HUD Response: HUD has not revised the rule in response to this
comment. HUD does not believe that a record of the informational meeting should be submitted with the restructuring plan,
[[Page 66037]]
because the meeting is outside the scope of HUD's review. This does not
preclude tenants from conditioning their endorsement on the potential
priority purchaser including such items in the restructuring plan; however, HUD chooses not to make this a requirement.
Comment: Claims or promises made by potential priority purchasers should be made a binding provision of the restructuring plan. The commenters stated that the final rule should provide that any claims or promises made to tenants in order to ensure their endorsement must be a binding provision in the restructuring plan, and enforceable by tenants.
HUD Response: HUD has not revised the rule in response to this
comment. HUD believes that the rule adequately requires and encourages
extensive tenant participation in the sale or transfer process when the sale or transfer is to a priority purchaser.
IV. Findings and Certifications
Paperwork Reduction Act
The information collection requirements contained in this final rule have been approved by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 35013520) and assigned OMB Control Number 25020563. In accordance with the Paperwork Reduction Act, HUD may not conduct or sponsor, and a person is not required to respond to, a collection of information, unless the collection displays a currently valid OMB control number.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 15311538) establishes requirements for federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments, and the private sector. This rule, which implements a statutory mandate to establish a program for the resolution of a narrow category of disputes, will not impose any federal mandates on any state, local, or tribal government, or the private sector within the meaning of UMRA.
Environmental Impact
A Finding of No Significant Impact with respect to the environment was made at the proposed rule stage in accordance with HUD regulations in 24 CFR part 50 that implement section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332). The finding continues to apply and remains available for public inspection during regular business hours in the Office of the Rules Docket Clerk, Office of General Counsel, Department of Housing and Urban Development, 451 Seventh Street, SW., Room 10276, Washington, DC 20410. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the docket file by calling the Regulations Division at (202) 7083055 (this is not a tollfree number). Persons with hearing or speech impairments may access this number via TTY by calling the tollfree Federal Information Relay Service at (800) 877 8339.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. This rule affects only owners of multifamily projects with Section 8 assistance. There are very few multifamily Section 8 owners who are small businesses. Therefore, this rule will not have a significant economic impact on a substantial number of small entities. Accordingly, the undersigned certifies that this rule will not have a significant economic impact on a substantial number of small entities.
Executive Order 13132, Federalism
This rule does not have federalism implications and does not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order. List of Subjects
24 CFR Part 200
Administrative practice and procedure, Claims, Equal employment opportunity, Fair housing, Home improvement, Housing standards, Lead poisoning, Loan programshousing and community development, Mortgage insurance, Organization and functions (Government agencies), Penalties, Reporting and recordkeeping requirements, Social security, Unemployment compensation, Wages.
24 CFR Part 401
Grant programshousing and community development, Housing, Housing
assistance payments, Housing standards, Insured loans, Loan programs
housing and community development, Low and moderate income housing,
Mortgage insurance, Mortgages, Rent subsidies, Reporting and recordkeeping requirements.
Accordingly, HUD amends 24 CFR parts 200 and 401 as follows: PART 200INTRODUCTION TO FHA PROGRAMS
1. The authority citation for part 200 continues to read as follows:
Authority: 12 U.S.C. 17021715z21; 42 U.S.C. 3535(d). 2. Revise Sec. 200.20 to read as follows:
Sec. 200.20 Refinancing insured mortgages.
An existing mortgage insured under the Act, or an existing mortgage
held by the Secretary that is subject to a mortgage restructuring and
rental assistance sufficiency plan under the Multifamily Assisted
Housing Reform and Affordability Act, 42 U.S.C. 1437f note (MAHRA), may
be refinanced pursuant to section 223(a)(7) of the Act and such terms
and conditions as may be established by the Commissioner. The term of
such refinancing in connection with the implementation of an approved
restructuring plan under section 401, subpart C of this title, may be up to, but not more than, 30 years.
3. In Sec. 200.40, revise paragraphs (h) and (j) to read as follows: Sec. 200.40 HUD fees.
* * * * *
(h) Transfer fee. Upon application for the approval of a transfer
of physical assets or the substitution of mortgagors, a transfer fee of
50 cents per thousand dollars shall be paid on the original face amount
of the mortgage in all cases, except that a transfer fee shall not be
paid where both parties to the transfer transaction are nonprofit
purchasers, or when the transfer of physical assets or the substitution
of mortgagors occurs contemporaneously with the restructuring of a
mortgage pursuant to a restructuring plan under part 401, subpart C of this title.
* * * * *
(j) Fees not required. (1) The payment of an application,
commitment, inspection, or reopening fee shall not be required in
connection with the insurance of a mortgage involving the sale by the
Secretary of any property acquired under any section or title of the Act.
(2) The payment of an application or commitment fee shall not be
required in connection with the insurance of a mortgage used to
facilitate a restructuring plan under part 401, subpart C of this title.
[[Page 66038]]
PART 401MULTIFAMILY HOUSING MORTGAGE AND HOUSING ASSISTANCE RESTRUCTURING PROGRAM (MARKTOMARKET)
4. The authority citation for part 401 continues to read as follows:
Authority: 12 U.S.C. 1715z1 and 1735f19(b); 42 U.S.C. 1437(c)(8), 1437f(t), 1437f note, and 3535(d).
5. In Sec. 401.2(c), remove the definition of OMHAR, revise the
definition of HUD, and add the definition of OAHP to read as follows: Sec. 401.2 What special definitions apply to this part?
* * * * *
(c) * * *
HUD means a HUD official authorized to act under the provisions of MAHRA, and otherwise has the meaning given in Sec. 5.100 of this title.
* * * * *
OAHP means the Office of Affordable Housing Preservation, and any successor office.
* * * * *
6. In Sec. 401.101, add a new paragraph (d) to read as follows:
Sec. 401.101 Which owners are ineligible to request Restructuring Plans?
* * * * *
(d) Notice to tenants. The PAE or HUD will give notice to tenants
of a rejection in accordance with Sec. Sec. 401.500(f)(2), 401.501, and 401.502.
7. In Sec. 401.304, revise paragraphs (a)(2), (b), and (d) to read as follows:
Sec. 401.304 PRA provisions on PAE compensation.
(a) * * *
(2) HUD will establish a substantially uniform baseline for base
fees for public entities. The base fee for a PAE will be adjusted, if necessary, after the first term of the PRA.
* * * * *
(b) Incentives. The PRA may provide for incentives to be paid by
HUD. While individual components may vary between PAEs (both public and
private), the total amount potentially payable under the incentive
package will be uniform. Objectives may include maximizing savings to
the Federal Government, timely performance, tenant satisfaction with
the PAE's performance, the infusion of public funds from nonHUD
sources, and other benchmarks that HUD considers appropriate. * * * * *
(d) Other matters. HUD will retain the right of final approval of
any fee schedule. HUD will publish the standard form of PRA and the compensation package annually on its Internet Web site.
8. In Sec. 401.309, revise the section heading and paragraphs (b)(2) and (c) to read as follows:
Sec. 401.309 PRA term and termination provisions; other provisions. * * * * *
(b) * * *
(2) Termination for convenience of Federal Government. HUD may
terminate a PRA, and may remove an eligible property from a PRA, at any
time in accordance with the PRA or applicable law, regardless of
whether the PAE is in default of any of its obligations under the PRA,
if such termination is in the best interests of the Federal Government.
The PRA will provide for payment to the PAE of a specified percentage
of the base fee authorized by Sec. 401.304(a) and amounts for
reimbursement of thirdparty vendors to the PAE authorized by Sec. 401.304(c).
* * * * *
(c) Liability for damages. During the term of a PRA, and
notwithstanding any termination of a PRA, HUD may seek its actual,
direct, and consequential damages from any PAE for failure to comply with its obligations under PRA.
* * * * *
9. Revise the section heading and add a new sentence to the end of Sec. 401.401 to read as follows:
Sec. 401.401 Consolidated Restructuring Plans.
* * * HUD's decision to approve or disapprove a Consolidated Restructuring Plan will be made on a casebycase basis.
10. Revise Sec. 401.452 to read as follows:
Sec. 401.452 Property standards for rehabilitation.
The restructuring plan must provide for the level of rehabilitation
needed to restore the property to the nonluxury standard adequate for
the rental market for which the project was originally approved. If the
standard has changed over time, the rehabilitation may include
improvements to meet the current standards. The rehabilitation also may
include the addition of significant features, in accordance with Sec.
401.472. The result of the rehabilitation should be a project that can
attract nonsubsidized tenants, but competes on rent rather than on
amenities. When a range of options exists for satisfying the
rehabilitation standard, the PAE must choose the least costly option
considering both capital and operating costs and taking into account
the marketability of the property and the remaining useful life of all
building systems. Nothing in this part exempts rehabilitation from the
requirements of part 8 of this title concerning accessibility to persons with disabilities.
11. In Sec. 401.461, revise paragraphs (a)(1), (a)(2)(ii), (b)(1), (b)(5), and (c) to read as follows:
Sec. 401.461 HUDheld second mortgage.
(a) Amount. (1) The Restructuring Plan must provide for a second
mortgage to HUD whenever the Plan provides for either payment of a
claim under section 541(b) of the National Housing Act (541(b) claim)
or the modification or refinancing of a HUDheld first mortgage that
results in a first mortgage with a lower principal amount. The term
``second mortgage'' in this section also includes a new HUDheld first
mortgage (not a refinancing mortgage), if a full payment of claim is
made under Sec. 401.471 or if a full payment of claim is unnecessary
because surplus project accounts are available to facilitate the
Restructuring Plan, pursuant to section 517(b)(6) of MAHRA, or if Sec.
401.460(a) does not permit a restructured first mortgage in any amount. (2) * * *
(ii) The greater of:
(A) The section 541(b) claim (or the difference between the unpaid
principal balance on HUDheld mortgage debt immediately before and
after the restructuring), plus surplus project accounts from residual
receipts accumulated pursuant to 24 CFR 880.205(e), 881.205(e), or
883.306(e) and derived from an expiring Section 8 Housing Assistance
Payments contract and not otherwise distributed to the owner and made
available to facilitate the Restructuring Plan pursuant to section 517(b)(6) of MAHRA, and
(B) The difference between the unpaid balance on the first mortgage immediately before and after the restructuring.
(b) Terms and conditions. (1) The second mortgage must have an
interest rate of at least one percent, but not more than the applicable Federal rate.
* * * * *
(5) HUD will consider modification, assignment to the acquiring
entity, or forgiveness of all or part of the second mortgage, if: The
Secretary holds the second mortgage; and if the project has been sold
or transferred to a tenant organization or tenantendorsed community
based nonprofit or public agency that meets eligibility guidelines determined by HUD; accepts additional
[[Page 66039]]
affordability requirements acceptable to HUD; and requests such
modification, assignment, or forgiveness. A communitybased nonprofit
group or public agency demonstrates that it is tenantendorsed in accordance with Sec. 401.480(e).
(c) Additional mortgage to HUD. (1) A Restructuring Plan shall
require the owner to give an additional mortgage on the project to HUD in an amount that:
(i) For the restructuring of a mortgage insured by HUD, does not exceed the difference between:
(A) The amount of a section 541(b) claim paid under Sec. 401.471
increased by any residual receipts, pursuant to 24 CFR 880.205(e), 881.205(e), or 883.306(e); and
(B) The principal amount of the second mortgage; or
(ii) For the restructuring of a mortgage held by HUD, does not exceed the difference between:
(A) The principal amount of a restructured HUDheld mortgage and
the sum of, as applicable, a restructured HUDheld first mortgage at
reduced principal amount, new mortgage funds paid to HUD at closing,
and surplus project accounts other than residual receipts, pursuant to 24 CFR 880.205(e), 881.205(e), or 883.306(e); and
(B) The principal amount of the second mortgage.
(2) HUD may approve a Plan that does not require an additional
mortgage, or provides for less than the full difference to be payable
under the additional mortgage, or allows for subsequent modification,
assignment, or forgiveness of the additional mortgage under any of the following circumstances:
(i) The anticipated recovery on the additional mortgage is less than the servicing costs; or
(ii) HUD has approved modification, assignment, or forgiveness of
the second mortgage, pursuant to paragraph (b)(5) of this section.
(3) With respect to the second mortgage required by paragraph (a) of this section, any additional mortgage must:
(i) Be junior in priority;
(ii) Bear interest at the same rate; and
(iii) Require no payment until the second mortgage is satisfied, at
which time it will be payable upon demand of HUD or as otherwise agreed by HUD.
12. Revise Sec. 401.472(b) to read as follows:
Sec. 401.472 Rehabilitation funding.
* * * * *
(b) Statutory restrictions. Any rehabilitation funded from the
sources described in paragraph (a) of this section is subject to the
requirements in section 517(c) of MAHRA for an owner contribution.
(1) Addition of significant features. With respect to significant
added features, the required owner contribution will be as proposed by
the PAE and approved by HUD, and not to exceed 20 percent of the total
cost. Significant added features include the addition of air
conditioning (including conversions from window air conditioning to
central air conditioning), an elevator, or additional community space.
(2) Cap on owner contribution. If a restructuring plan includes
additions other than those specified, and the PAE considers the
additions significant, the PAE may propose to make those additions
subject to the cap on owner contribution. In general, the owner will
contribute 3 percent toward the cost of each significant addition. The
PAE may propose a lower or higher owner contribution, not to exceed 20 percent, with respect to significant additions.
(3) Other rehabilitation. With respect to other rehabilitation, the
required owner contribution will be calculated as 20 percent of the
total cost of rehabilitation, unless HUD or the PAE determines that a
higher percentage is required. The owner contribution must include a
reasonable proportion (as determined by HUD) of the total cost of rehabilitation from nongovernmental resources.
(4) Cooperatives. The PAE may exempt housing cooperatives from the owner contribution requirement.
* * * * *
13. In Sec. 401.480 revise paragraph (b) and add paragraph (e) to read as follows:
Sec. 401.480 Sale or transfer of project.
* * * * *
(b) When must the restructuring plan include sale or transfer of
the property? If the owner is determined to be ineligible pursuant to
Sec. 401.101 or Sec. 401.403, or if the property is subject to an
approved plan of action under the Emergency Low Income Housing
Preservation Act of 1987 or the Low Income Housing Preservation and
Resident Homeownership Act of 1990, as described in section 524(e)(3)
of MAHRA, the property must be sold or transferred as a condition of
implementation of a restructuring plan, which must include a condition
that the owner sell or transfer the property to a purchaser acceptable
to HUD, in accordance with paragraph (c) of this section. Such sale or
transfer shall be a condition to the implementation of the Restructuring Plan.
* * * * *
(e) Tenant endorsement procedure for priority purchaser status. (1)
Required meeting. (i) A communitybased nonprofit or public agency
purchaser requesting tenant endorsement to obtain priority purchaser
status must conduct an informational meeting with the tenants of the
project to disseminate information about both the endorsement request and the purchaser's plans for the project.
(ii) If the purchaser is acting contemporaneously with the
Restructuring Plan, the informational meeting must occur at the second
meeting of tenants convened by the PAE to discuss the restructuring plan pursuant to Sec. 401.500(d).
(iii) A representative of the purchasing entity must attend the
informational meeting to present its plans for the acquisition and
improvement of the project and to respond to questions about the purchaser's plans for the property.
(iv) Tenants shall have the opportunity, but are not to be
required, to vote for or against the acquisition at the informational meeting.
(v) For the purpose of obtaining tenant endorsement, a purchaser
may conduct additional meetings with tenants in accordance with the
notice requirements of paragraphs (e)(2) and (e)(3) of this section.
(2) Parties who must receive notice. The purchaser must deliver
notice of the informational meeting, and any subsequent meeting, to
each tenant household in the project and any tenant organization for
the project, and post notices of the meeting in the project.
(3) Notice contents. The notice must identify the place, date, and
time of the informational meeting, and any subsequent meeting. Include
a brief description of the purpose of the meeting and provide a
narrative outlining the purchaser's plans for the project, including
any request made to HUD for debt relief under Sec. 401.461(b)(5) of the second and any additional mortgage.
(4) Tenant endorsement. (i) A purchaser may demonstrate that it is
tenant endorsed by submitting documentation to HUD that a majority (51
percent) of the tenant heads of household have given their endorsement
in writing. Such documentation may include, but is not limited to,
ballots, letters of support, or petitions. The endorsement of tenants
who did not attend, or vote at, the informational meeting, or any
subsequent meeting, may be sought directly from each of these tenants subsequent to the meeting.
[[Page 66040]]
(ii)(A) If the purchaser has made a reasonable effort to obtain the
endorsement of a majority (51 percent) of the tenants and the necessary
percentage of votes was not obtained, the purchaser may seek HUD
approval to obtain endorsement based on a lower percentage of endorsing tenants.
(B) The purchaser must deliver notice to each tenant household that
the purchaser is seeking HUD approval of a tenant endorsement based on
less than 51 percent of tenant approval and provide tenants with at
least 10 days from the date of the notice to submit comments to the purchaser on the approval of endorsement.
(C) The purchaser and/or seller must submit, in writing, to HUD an
account of the efforts taken to secure tenant endorsement, the number
and percentage of tenants voting for and against endorsement, and any
comments received from tenants regarding the approval of endorsement.
(D) HUD will determine whether or not to approve endorsement on the
basis of all the information available to HUD and will promptly notify the purchaser of HUD's determination.
14. Revise Sec. 401.500(f)(2) to read as follows:
Sec. 401.500 Required notices to third parties and meeting with third parties.
* * * * *
(f) * * *
(2) Within 10 days after a determination that the Restructuring
Plan will not move forward for any reason, HUD or the PAE shall provide
notice to affected tenants that describes the reasons for the failure
of the Plan to move forward and the availability of tenantbased assistance under Sec. 401.602(c).
15. Revise Sec. 401.645 to read as follows:
Sec. 401.645 Owner request to review HUD decision.
(a) HUD notice of decision. (1) HUD will provide notice to the owner of:
(i) A decision that the owner or project is not eligible for the MarktoMarket program;
(ii) A decision not to offer a proposed Restructuring Commitment to the owner; and
(iii) A decision to offer a proposed Restructuring Commitment. The
proposed Restructuring Commitment provided to the owner constitutes the
notice of decision for purposes of requesting a review of a HUD decision.
(2) The notice of decision will include the reasons for the decision.
(3) The notice of decision will also notify the owner of the right
to request a review of the decision or to cure any deficiencies on
which the decision was based; the date by which the review request must
be submitted or the deficiencies must be cured, which will be at least
30 days after the date of the notice of decision; and the address to which the review request is to be submitted.
(b) Review request by owner. (1) Written statement. The review request must specify in writing:
(i) Each item of the decision to which the owner objects; (ii) The reasons for the owner's objections; and
(iii) All information in support of the objections that the owner wants HUD to consider.
(2) Scope of information submitted. HUD will not consider
information first submitted to HUD in conjunction with an owner's request for review except for:
(i) Information that could not have been submitted previously; and (ii) New health and safety information.
(c) HUD review and final decision. (1) HUD may expand the scope of
review beyond the issues raised by the owner and may review and modify
any term within the Restructuring Commitment without regard to whether
the owner has raised an objection to that term, including adjustments
to rents or expenses as underwritten by the PAE. If HUD does expand the
scope of review, HUD will notify the owner of such action and provide
an additional 30 days for the owner to raise any additional objections and provide additional information.
(2) Within 30 days of HUD's receipt of the owner's review request
and any additional objections and information, HUD will review the
request and, using a standard of what is reasonable in light of all of
the evidence presented, issue a final decision. The final decision will:
(i) Affirm the notice of decision; or
(ii) Modify the notice of decision and, if applicable, modify the
Restructuring Commitment, in which event HUD will issue an amended or
restated Restructuring Commitment that incorporates the final decision; or
(iii) Revoke the notice of decision and, if applicable, terminate
the Restructuring Commitment and notify the owner that the owner is not
eligible for participation in the MarktoMarket program or that a restructuring of the property is not feasible.
16. Revise Sec. 401.650 to read as follows:
Sec. 401.650 When may the owner request an administrative appeal?
(a) No review request by owner. If the owner does not request a
review of the notice of decision under Sec. 401.645 or does not
execute the proposed Restructuring Commitment within the time provided
in the notice of decision, HUD will send a written notice to the owner
stating that the notice of decision is HUD's final decision and that
the owner has 10 days after receipt of the letter to accept the
decision, including a Restructuring Commitment, if applicable, or
request an administrative appeal in accordance with Sec. 401.651.
(b) Upon receipt of final decision. HUD will send the owner a
written notice of the final decision under Sec. 401.645 that will also
provide the owner with 10 days to request an administrative appeal of the final decision.
(c) HUD decision to accelerate the second mortgage. Upon receipt of
notice from HUD of a decision to accelerate the second mortgage under
Sec. 401.461(b)(4), the owner may request an administrative appeal in accordance with Sec. 401.651.
17. In Sec. 401.651, revise paragraph (b) to read as follows: Sec. 401.651 Appeal procedures.
* * * * *
(b) Written decision. Within 20 days after the conference, or 20
days after any agreedupon extension of time for submission of
additional materials by or on behalf of the owner, HUD will review the
evidence presented for the administrative appeal and, using the
standard of whether the determination of the final decision was
reasonable, will advise the owner in writing of the decision to
terminate, modify, or affirm the original decision. HUD will act, as
necessary, to implement the decision, for example, by offering a revised Restructuring Commitment to the owner.
* * * * *
Dated: November 14, 2007.
Brian D. Montgomery,
Assistant Secretary for HousingFederal Housing Commissioner. [FR Doc. E722908 Filed 112307; 8:45 am]
BILLING CODE 421067P
FOR FURTHER INFORMATION CONTACT
Theodore Toon, Deputy Assistant Secretary, Office of Affordable Housing Preservation (OAHP), Department of Housing and Urban Development, 451 Seventh Street, SW., Room 6230, Washington, DC 20024, telephone number (202) 7080001 (this is not a tollfree number). Persons with hearing or speech impairments may access this number via TTY by calling the tollfree Federal Information Relay Service at (800) 8778339.