HUD Issues Final Rule Intended to Streamline Rent Regulations

The Department of Housing and Urban Development Appropriations Act, 2014, made several changes to the United States Housing Act of 1937. Five streamlining changes were implemented through a Federal Register notice on June 25, 2014. And on Jan. 6, 2015, HUD issued a proposed rule codifying these changes and proposing additional changes to streamline existing regulatory requirements.

The Department of Housing and Urban Development Appropriations Act, 2014, made several changes to the United States Housing Act of 1937. Five streamlining changes were implemented through a Federal Register notice on June 25, 2014. And on Jan. 6, 2015, HUD issued a proposed rule codifying these changes and proposing additional changes to streamline existing regulatory requirements.

Now, in an effort to reduce the administrative burden on state and local governments, public housing authorities, and private owners of HUD-assisted multifamily sites, HUD recently published a new final rule to ease regulatory requirements under a number of the Department’s programs. The new rule is intended to streamline a host of requirements and to provide greater flexibility for agencies responsible for administering HUD’s rental assistance programs.

“This rule provides a number of much-needed flexibilities that will enable public housing agencies and other housing administrators to operate their programs more efficiently and effectively,” said Lourdes Castro Ramirez, HUD’s Principal Deputy Assistant Secretary for Public and Indian Housing. “We will continue to explore other areas to reduce administrative burden while ensuring grantees’ ability to provide housing assistance to low-income families in communities across the nation.”

HUD emphasizes that the changes included in this rule, while important, should be considered an initial step towards more systematic streamlining of HUD’s rental assistance programs. HUD recognizes that its partners are struggling to operate their programs in a difficult budget environment and intends to continue reexamining program requirements in order to find ways to eliminate unnecessary requirements and improve efficiency.

The new streamlined rule applies to local housing agencies administering Public Housing (PH) and the Housing Choice Voucher (HCV) programs as well as private owners under contract through HUD’s Multifamily Housing Programs (MFH). In addition, the rule relaxes regulations on state and local units of government administering tenant-based rental assistance programs through HUD’s HOME Investment Partnerships Program and Housing Opportunities for Person with AIDS Program (HOPWA).

HUD’s new rule affects the PH, HCV, multifamily housing, and Community Planning and Development programs. Affected multifamily housing programs include project-based Section 8, Section 8 Moderate-Rehabilitation, Rent Supplement Program, Section 202 Supportive Housing for the Elderly, Section 811 Supportive Housing for Persons with Disabilities, Section 236 Interest Reduction Payments Program, Rental Assistance Program, and Sections 221(d)(3) and (d)(5).

Changes Affecting HCV, MFH, and PH Regulations

In response to public comment and further consideration by HUD, the final rule makes the following revisions to the January 2015 proposed rule.

Social Security number verification. The use of the phrase “date of admission” appeared twice in the proposed rule, first to identify the endpoint of the six-month period during which a family member under the age of 6 years who lacks a Social Security number (SSN) may have been added to an applicant family, and then again to identify the starting point for the 90-day period allotted to such a family to obtain an SSN for the newly added child. Commenters stated that, in the HCV program, the “date of admission” is typically the date of lease-up (that is, the effective date of the Housing Assistance Payment, or HAP, contract).

Prior to lease-up, however, a PHA may have expended considerable time and resources pulling a family from the waiting list, obtaining the necessary verifications, procuring a Housing Quality Standards (HQS) inspection, and performing a rent reasonableness determination. Lease-up could ultimately occur more than six months from the date the child was added the household, which would result in the household being ineligible for admission to the program. To address such a scenario, HUD has, in this final rule, adopted two separate “dates of admission” for the HCV program for purposes of this provision: the date of voucher issuance and the date of lease-up. Specifically, the endpoint of the six-month period during which a family member under the age of 6 may be added to the household is the date of voucher issuance; the 90-day clock doesn’t start ticking until the date of lease-up. This provision applies to the HCV/Project-Based Voucher (PBV), Rent Supplement, Section 8, Sections 221(d)(3) and (d)(5), Section 236, 202/811, and PH programs.

Definition of “annual income.” Current regulations define “annual income” to be income projected for the upcoming 12 months. The proposed rule allowed PHAs and private multifamily property owners to define annual income as either actual past income or projected income, requiring them to apply the option they chose to all families. Based on comments received, HUD has decided not to adopt the use of actual past income because it would provide little or no streamlining benefit.

Reexamination of income for fixed incomes. HUD had proposed allowing PHAs and owners of multifamily housing the option of conducting streamlined annual reexaminations of income for households when 100 percent of a household’s income consists of fixed sources, such as Social Security. The final rule will be substantially revised, allowing PHAs the option of conducting a streamlined income determination for any family member who has a fixed source of income, even if that person or family also has a non-fixed source of income.

Upon admission to a program, a third-party verification of all income amounts will be required for all family members. A full income reexamination and redetermination must be performed every three years. In the intervening years, a streamlined income determination must be conducted by applying a verified cost of living adjustment (COLA) or current rate of interest to the previously verified or adjusted income amount.

Earned income disregard (EID). Current regulations provide for an earned income disregard (EID) that permits certain tenants of public housing and persons with disabilities participating in the voucher program to accept a job without having their rent increased immediately due to their increased income. The EID is available for a total of 24 months, but those months may be spread across 48 months to account for intermittent job losses. PHAs are required to fully exclude income for the first 12 months of an EID, and to exclude at least 50 percent for the last 12 months.

HUD had proposed eliminating the 48-month time frame, requiring families to maintain continuous employment in order to obtain an EID limited to a straight 24-month period. For the second 12 months HUD had proposed allowing PHAs the discretion of phasing in a rent increase, excluding at least 50 percent of income.

The final rule eliminates the 48-month time frame, limiting an EID to a 24-month period. However, the final rule will also eliminate the continuous employment requirement. Residents will be able to start and stop employment and still retain the EID, but the EID will be available only for up to 24 consecutive months from the date of the initial increase in annual income. For example, if someone becomes eligible for an EID, the 24-month period will not stop if employment ends or income declines. However, if employment is subsequently regained or income increases, the EID would again be available during the remainder of the 24-month period. After the 24-month period ends, an individual will no longer be eligible for an EID in the future.

Changes Affecting Only HCV and PH Regulations

Family declaration of assets under $5,000. The proposed rule would have authorized a PHA to rely on a family’s declaration starting with the first reexamination and going forward indefinitely. In the final rule, a PHA must obtain third-party documentation of assets every three years. The Office of Multifamily Housing Programs in HUD’s Office of Housing noted support for expansion of this provision to its rental assistance programs and is issuing an interim final rule to do just that.

Utility reimbursements. The proposed rule offered PHAs the option of providing utility reimbursements on a quarterly basis to residents of public housing and residents with vouchers if the amounts owed were $20 or less. PHAs could continue to provide utility reimbursements monthly if they chose to. The final rule will retain the quarterly option, but raise the amount to $45 or less per quarter. If a PHA opts to make payments on a quarterly basis, the PHA must establish a hardship policy if less frequent reimbursements will create a financial hardship for tenants.

Changes Affecting Only PH Regulations

Community service requirement. Currently, PHAs are required to review and determine annually whether public housing residents comply with the community service requirements. The proposed rule allowed a tenant to self-certify compliance with the requirement. The final rule retains the self-certification option and adds a requirement that PHAs review a sample of self-certifications and validate their accuracy with third-party verification procedures currently in place.

Grievance procedures. In the preamble to the proposed rule, HUD had claimed that many portions of the tenant grievance process are repetitive or overly prescriptive for PHAs. Therefore, HUD had proposed streamlining procedures relating to informal settlements, grievance procedures for failing to request a hearing and requiring escrow deposits, and matters relating to transcripts, copies, and the conduct of a hearing.

The preamble to the final rule notes that commenters expressed concern that the proposed rule would eliminate the requirement for PHAs to consult with residents regarding the appointment of hearing officers. HUD responded that consultation with residents is a burden for PHAs, and the final rule doesn’t require resident consultation about hearing officer appointments. The final rule does state that, because tenant input into the hearing officer selection process can be valuable, PHAs are required to include their policies for selecting hearing officers in resident leases.

Commenters urged HUD to continue to require PHAs to provide summaries of informal settlements, and that requirement is included in the final rule. Commenters also urged HUD to continue to require PHAs to allow residents to record a meeting and have transcripts made at their own expense, and the final rule includes that requirement.

Changes to HCV Program Regulations

Biennial inspections and use of alternative inspection methods. The FY 2014 Appropriations Act authorized PHAs to inspect voucher units every other year, rather than annually, and permitted the use of alternative inspections conducted for other programs such as the Low Income Housing Tax Credit (LIHTC) program if HCV units are included in the population of units forming the basis of the sample. This option was maintained in the proposed rule and is in the final rule. The final rule also requires alternative inspection methods that are not conducted under LIHTC or HOME program protocols to submit the protocol to HUD’s Real Estate Assessment Center (REAC) and to demonstrate that the protocol meets Housing Quality Standards.

Exception payment standards for providing reasonable accommodations. Voucher regulations currently require a PHA to request a waiver from the HUD Field Office for a voucher exception payment standard above 110 percent of the fair market rent (FMR). HUD had proposed to allow PHAs to approve a payment standard of no more than 120 percent of the FMR without HUD approval if it is required as a reasonable accommodation for a family that includes a person with a disability. The final rule includes this provision.

Utility payment schedule. Current voucher regulations require PHAs to establish utility allowances based on unit size (number of bedrooms) or family size, whichever results in a lesser allowance, and on the type of unit (apartment, row house, townhouse, single-family house, detached house, and manufactured home).

HUD had proposed that utility allowances continue to be based on unit size or family size, but also on a newly defined “unit type,” which would be a HUD-determined “attached” or “detached” unit value. Many commenters objected to the proposed change that limited the definition of “unit types” to “attached” and “detached,” and the final rule removes that change.