HUD NSP Policy Alerts

Transcription

1 HUD NSP Policy Alerts Last Updated April 3, 2014 Description: This document contains all NSP Policy Alerts issued by HUD. To search for Policy Alerts on the OneCPD Resource Exchange, click on Advanced Search and select NSP Policy Alert as the Resource Type. U.S. Department of Housing and Urban Development Community Planning and Development Neighborhood Stabilization Program 1

2 Table of Contents Click on the Policy Alert title to jump to the full text. Guidance on Amendment Procedures Updated April 3, Guidance on the FHA First Look Sales Method Updated October 17, Updated NSP2 Guidance on Reporting in FederalReporting.gov September 30, Updated NSP2 Guidance on Reporting in FederalReporting.Gov June 28, Updated NSP2 Guidance on Reporting in FederalReporting.Gov March 28, Guidance on NSP Disposition and Demolition March 14, Guidance on Allocating Costs Between Different NSP Grants January 7, Updated NSP2 Guidance on Reporting in FederalReporting.Gov January 2, Updated NSP2 Guidance on Reporting in FederalReporting.Gov October 2, Guidance on Revolving Funds under NSP August 20, Guidance on NSP National Objectives, Uses and Activities August 16, Guidance on Operating Deficit Reserves, Overhead Expenses, and Combined Loan to Value Ratios July 30, Guidance on Verifying Expenditures in the Next Quarterly Performance Report (QPR) July 24, Updated NSP2 and NSPTA Guidance on Reporting in FederalReporting.Gov June 26, Guidance on the Procurement of Developers and Subrecipients June 1, Guidance on NSP Activity Delivery and Administrative Costs May 18, Updated NSP2 Guidance on Reporting in FederalReporting.Gov March 29, Guidance on NSP Appraisals: Voluntary Acquisitions Updated March 15, Updated NSP2 Guidance on Reporting in FederalReporting.Gov January 3, Guidance on NSP Draw Thresholds Updated December 12, Guidance on Developers, Subrecipients, and Contractors Updated November 16, Guidance on NSP2 Reporting in FederalReporting.Gov October 6, Additional Performance Measurement September 29, Guidance on Allocating Real Estate Development Costs in the Neighborhood Stabilization Program Updated September 16, Environmental Review, Options and Conditional Contracts September 16, Updated Guidance on Meeting the 25% Set-Aside Requirement September 1, Using Option and Conditional Contracts for Purchase of Real Property September 1, Program Income in the Neighborhood Stabilization Program July 13, NSP2 Recovery Act Reporting Update June 29, Guidance on Applying Davis-Bacon to NSP-Funded Activities June 16, Possible Government Shutdown Does Not Affect April FederalReporting.Gov Deadlines for NSP2 and NSP-TA Grantees April 8, Updated CDBG-R and NSP2 Guidance on Reporting in FederalReporting.gov March 30, U.S. Department of Housing and Urban Development 2

3 Guidance on Updating NSP Action Plans in DRGR January 28, Guidance on Joint Agreements for NSP3 Grantees January 24, Guidance for Habitat for Humanity Affiliates January 12, Guidance on Mapping and Needs Data for State NSP3 Action Plans December 29, Guidance on CDBG-R and NSP2 Reporting in FederalReporting.Gov Updated December 28, Guidance on NSP Loan Loss Reserves December 7, Guidance on Calculating Expenditures for NSP2 and NSP3 September 3, Guidance on the National First Look Program and the FHA First Look Sales Method September 3, Guidance on the NSP1 Recapture and Reallocation Notice August 26, Guidance on Recovery Act Reporting Updated August 24, Guidance on New Monthly Reporting Requirements for NSP1 Grantees August 19, Guidance on NSP Tenant Protection Requirements under the Recovery Act Updated August 12, Guidance on Documenting the Sales Price on NSP-Assisted Acquisitions August 5, Guidance on Amendments to the 25 Percent Set-Aside Requirement July 23, Guidance on NSP2 Reporting in FederalReporting.Gov Updated June 21, Guidance on FHA Mortgage Insurance for NSP Grantees May 23, Guidance on Tracking and Reporting the Use of NSP Funds: Obligations for Specific Activities April 23, Guidance on the Impact of New Definitions for NSP-Eligible Properties April 2, Guidance on Charging Administrative Costs Incurred by NSP2 Grantees March 24, Guidance on NSP-Eligible Appliance Purchases March 3, Guidance on Conditional Purchase Agreements for NSP-Assisted Acquisition and Rehabilitation of Single-Family Properties (1-4 units) February 1, Guidance on Section 106 for NSP Land Banking January 1, Guidance on NSP-Eligible Acquisition & Rehabilitation Activities December 11, Guidance on Property Types Under Each Eligible Use December 3, Guidance on State NSP Plans November 1, Guidance on NSP, Lead Hazard Control, and Healthy Homes Interventions November 1, Guidance on Joint Agreements for NSP Grantees November 1, Guidance on NSP-Supported Homeownership: Affordability, Financial Structure, and Program Income March 3, U.S. Department of Housing and Urban Development 3

4 NSP Policy Alert! April 3, 2014 Community Planning and Development Guidance on Amendment Procedures Updated April 3, 2014 Note: The Guidance on Amendment Procedures was revised April 3, 2014 to reflect updates to the NSP1, NSP2, and NSP3 amendment process. The original guidance was issued March 28, HUD has received many questions on how NSP grantees can make a substantial amendment to their approved NSP action plans. This guidance seeks to clarify when and how NSP1, NSP2, and NSP3 Grantees can amend their plans. HUD encourages each grantee to carry out its NSP activities in the context of a comprehensive plan for the community s vision of how it can make its neighborhoods not only more stable, but also more sustainable, competitive, and integrated into the overall metropolitan fabric. HUD understands that NSP Grantees from time to time may need to make amendments to their approved action plans. Because NSP follows CDBG regulatory guidelines, NSP grantees should adhere to the following regulation dealing with Substantial Amendments: 24 CFR (a) Amendments to the plan. The jurisdiction shall amend its approved plan whenever it makes one of the following decisions: (1) To make a change in its allocation priorities or a change in the method of distribution of funds. (2) To carry out an activity, using funds from any program covered by the consolidated plan (including program income), not previously described in the action plan; or (3) To change the purpose, scope, location, or beneficiaries of an activity. These regulations are clear that using funds or program income on a CDBG activity not included in the grantee s original action plan would trigger an amendment If a grantee adds or subtracts census tracts from their target area this would change the location and would trigger an amendment. A change in beneficiaries could mean the number of households a grantee will be assisting and it could also mean the income group a grantee planned on assisting. An example of this could be changing a project from Low Income (LH25 50% AMI) to Middle-Moderate Income (LMMI 120% AMI) this type of change would trigger an amendment because these are different groups of beneficiaries. A change in allocation priorities or change in scope could be triggered by decreasing the amount of units produced or by moving funds from one CDBG eligible activity to another. ***NOTE*** Moving activities from one NSP eligible use to another NSP eligible use may not trigger an amendment; these changes usually occur because of property eligibility a grantee discovers purchasing vacant homes is easier than purchasing foreclosed properties, so they U.S. Department of Housing and Urban Development

5 wish to move funds from Eligible Use B to Eligible Use E. HUD has determined that this kind of change would not trigger an amendment as long as the scope of the project remains the same. NSP Policy Alert! April 3, 2014 Community Planning and Development However, grantees that move funds between the correlated CDBG activities could trigger an amendment. The chart provided at the end of this guidance (that is also a part of all three NSP Notices) separates NSP Eligible Uses and CDBG eligible activities, with the CDBG activities listed on the right. For example, when a grantee moves funds from Rehabilitation to New Construction, this could trigger an NSP amendment if the amount is large enough that it changes the scope of your activities. HUD does not prescribe a certain percentage to use for moving funds between activities that could trigger an amendment, grantees reallocating funds from one activity s budget to another activity should determine whether that change affects the scope of their project (thus triggering a substantial amendment). For example, if a grantee s activity budget is $10 million and you are moving $900,000 to a different activity, this may be considered a small percentage but the reasonable citizen might consider that a substantial change. Grantees should examine each case separately. If the above examples do not apply and the change the grantee is making does not meet the definition of a substantial amendment, the grantee can make these minor changes in DRGR without following the substantial amendment process. It is a good idea to note these changes in DRGR so your CPD/NSP Rep is kept up to date. NSP1 & NSP3 Amendment Process Each grantee must follow its citizen participation process for substantial amendments found at and (Grantees have their own processes that may be more restrictive than these regulations grantees must always follow the more restrictive standards.) Grantees should note that HUD has provided alternative requirements (for NSP1 & NSP3) to 42 U.S.C. 5304(a)(2) and waiving (k) and (i) to the extent necessary to allow the grantee to provide no fewer than 15 calendar days for citizen comment (rather than 30 days). Upon completion of the comment period, the jurisdiction must make the amendment public and must notify HUD that an amendment has been made. Each grantee should post the NSP amendment on its official website along with a summary of citizen comments received within the 15-day comment period. The jurisdiction should submit a copy of each amendment to their HUD Field Office Representative as it occurs. On May 21, 2013, HUD published the Notice of Formula Allocations and Program Requirements for Neighborhood Stabilization Programs 1 and 3 (NSP1 and NSP3) Formula Grants; Amendment. This Notice revises the process of adding new census tracts to NSP1 and NSP3 grantees target area. HUD has updated the data in the original tool designed for NSP3 and it is now available for use by NSP1 and NSP3 grantees. The data combines foreclosures, pre-foreclosures, real estate- owned, and vacant property transactions from March 2011 through September After May 21, all NSP grantees should be using the updated data found at For NSP1 Grantees: The updated data is available to NSP1 grantees for use in determining and designating areas of greatest need. For NSP3 Grantees: After May 21, 2013, all NSP3 grantees must begin using the updated foreclosure needs map when amending their currently approved target areas. NSP3 grantees may continue to work U.S. Department of Housing and Urban Development

6 in target areas approved by HUD prior to the effective date of this Notice, but any amendments made to select new NSP3 target areas after May 21 must qualify based on information from the new maps and data. NSP2 Amendment Process NSP Policy Alert! April 3, 2014 Community Planning and Development NSP2 allocations were based on a competitive scoring process, which means any substantial amendment could affect a grantee s competitive score. The NSP2 NOFA dictates that, No amendment to an approved application may be made unless HUD rates the approved application as amended and it scores high enough to have been selected for funding under the NSP2 competition. The NSP2 amendment process is different that granting amendments in NSP1 & NSP3. The Department acknowledges that certain types of amendments may improve a grantee s capacity to successfully implement its NSP2 program. HUD is willing to consider technical changes that improve program performance, such as adding a new consortium member. While HUD remains concerned that proposals to expand target geographies may negatively impact other rating factors and change approved programs, the Department recognizes that, in some circumstances, amendments to expand or modify target areas are appropriate. Such requests will be considered when the change is modest and well-supported by market and demographic data. When applying for a substantial amendment, NSP2 grantees need to address every rating factor and sub-factor in the NSP2 NOFA that could be affected by their Amendment request. If a specific rating factor would not change the substance of the grantee s original application, please note that in the amendment request and the Panel will consult the grantee s original application. Amendments that state "No change" for every factor will be returned unrated. Keep in mind, if a grantee changes the target geography of its NSP2 action plan, multiple factors could be affected. For example, a grantee may add new census tracts that are no longer accessible to transportation (Factor 5a: Transit accessibility) or perhaps these changes could affect a grantee s project completion schedule (Factor 3b: Project completion schedule). These issues should all be addressed under the appropriate rating factor. Grantees that reduce the number of units they will affect must insure they will meet the minimum requirement of the NSP2 NOFA which states that grantees must have the effect of either returning a minimum of 100 abandoned or foreclosed homes back to productive use or otherwise eliminating or mitigating their negative effects on the stability of the target geography. New Guidance on Adding New Census Tracts in NSP2 Previously for NSP2, when a grantee was adding or subtracting a census tract from its target geography, the foreclosure needs map provided foreclosure-related needs scores at the census tract level. Grantees had to select tracts with an average combined index score of 18 or greater as indicated by the map. The needs scores were generated with foreclosure data from This data is now outdated and in many cases it no longer reflects the foreclosure market in NSP2 target areas. Further, HUD improved mapping capabilities for NSP3, allowing NSP3 grantees to draw the outline of a targeted neighborhood rather than selecting best fit census tracts. This method allows a better correlation between the data provided and the target geography. On May 21, 2013, HUD published the NOFA for NSP2 under the American Recovery and Reinvestment Act, 2009: Announcement of Availability of Updated Foreclosure Information. This Notice revises the U.S. Department of Housing and Urban Development

7 process of adding new census tracts to NSP2 grantees target area. After May 21, NSP2 grantees that are adding census tracts to their approved target geographies must now use the updated data available at Unlike NSP2 mapping previously, grantees are no longer constrained to Census Tract boundaries and can align their target areas more precisely with their intended service areas. Grantees can also test and compare different areas before choosing a final target area. NSP Policy Alert! Working with the NSP Mapping Tool April 3, 2014 Community Planning and Development On the updated NSP mapping site, HUD provides estimates of foreclosure need and a foreclosure related needs scores at the Census Tract level. The scores range from 1 to 20, with a score of 20 indicating census tracts with the HUD-estimated greatest need. The neighborhood or neighborhoods identified by the NSP2 grantee as being the areas of greatest need must have an individual score for the grantee s identified target geography that is not less than a score of 17. If more than one neighborhood is identified in the Action Plan, HUD will average the neighborhood NSP scores, weighting the scores by the estimated number of housing units in each identified neighborhood. HUD s mapping tool allows communities to assess the weighted average score of multiple target areas. NSP2 grantees working in multiple states must achieve a weighted average score across all states of 17 or higher (regardless of the individual state s minimum score). If a grantee working across several states is having difficulties meeting this standard, it should contact its CPD Representative. Map Submission The Areas of Greatest Need map should be created by following the instructions at the HUD NSP Mapping Tool for Preparing Action Plan website at The tool assists NSP grantees to prepare data for citizens during the public comment period and to submit with their grant applications by allowing applicants to draw the exact location of their target neighborhood. The tool then calculates the number of housing units, Neighborhood NSP Score, and State Minimum threshold NSP score of the area drawn and sends an back to the applicant within 24 hours. The has an attachment containing the necessary data for the NSP2 amendment, along with information HUD can use to confirm the intended program area. This document should be included with any Action Plan amendment submission. If a grantee has more than one identified target area, it will need to include the PDF for each area. **Note: Grantees adding census tracts after May 21 will have an old group of census tracts (grandfathered in using the old system) and a new group of census tracts (using the new NSP3 mapping tool). HUD will keep these groups separate when rating amendments, grantees should make sure to keep them separate as well, especially as they look to closeout and need to subtract census tracts. Any subtraction will also be kept within either the old grandfathered group or the new group, depending on when the census tract was originally added. Grantees will have to keep an 18 average score in the old group and a 17 average score in the new group. The NSP2 NOFA also requires grantees to invest NSP2 funds in every census tract included in the final approved target geography. This means that before a grantee can close its grant, it must amend its action plan to subtract all census tracts where work did not occur, while still maintaining the minimum required foreclosure score. Grantees must follow their original posting methods for each substantial amendment and submit proof to HUD that their amendment was posted for public comment for 10 days (the NSP2 requirement is shorter than the NSP1 & NSP3 requirement). Grantees must also include either a summary of citizen comments or an acknowledgement that they received no comments with their final amendment submission. HUD Headquarters will read each request and hold a panel to review the amendment, as it did for original submissions. If information is missing, the grantee will have an opportunity to provide it. Once all U.S. Department of Housing and Urban Development

8 the required information has been received, the process normally takes three to four weeks to complete. Please plan accordingly. NSP Policy Alert! April 3, 2014 Community Planning and Development U.S. Department of Housing and Urban Development

9 NSP Policy Alert! Template for NSP2 Amendment Submission **Grantees must address every rating factor and sub-factor 1) Need/Extent of the Problem a. Target Geography b. Market Conditions and Demand Factors 2) Demonstrated Capacity and Relevant Organizational Staff a. Past Experience of the Applicant b. Management Structure 3) Soundness of Approach a. Proposed Activities b. Project Completion Schedule c. Income Targeting d. Continued Affordability e. Consultation, Outreach, Communications f. Performance and Monitoring 4) Leveraging a. Leveraged Funds b. Rubric 5) Energy Efficiency Improvements and Sustainable Development Factors a. Transit accessibility b. Green building standards c. Re-use of cleared sites d. Deconstruction 6) Neighborhood Transformation and Economic Opportunity April 3, 2014 Community Planning and Development Grantees should send a soft copy of their amendment request to their CPD Representative at their Field Office and to Jennifer Hylton from the NSP Team (Jennifer.M.Hylton@hud.gov) and also a hard copy to HUD Headquarters: Stanley Gimont Director Department of Housing and Urban Development 451 Seventh Street, SW, Room 7286 Washington, DC U.S. Department of Housing and Urban Development

10 NSP Eligible Uses and Correlated CDBG Eligible Activities NSP-Eligible Uses NSP Policy Alert! (A) Establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties, including such mechanisms as soft-seconds, loan loss reserves, and shared-equity loans for lowand moderate-income homebuyers (B) Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon, in order to sell, rent, or redevelop such homes and properties (C) Establish and operate land banks for homes and residential properties that have been foreclosed upon Correlated Eligible Activities From the CDBG Entitlement Regulations April 3, 2014 Community Planning and Development As part of an activity delivery cost for an eligible activity as defined in 24 CFR Also, the eligible activities listed below to the extent financing mechanisms are used to carry them out. 24 CFR (a) Acquisition (b) Disposition, (i) Relocation, and (n) Direct homeownership assistance (as modified below); 24 CFR eligible rehabilitation and preservation activities for homes and other residential properties. HUD notes that any of the activities listed above may include required homebuyer counseling as an activity delivery cost 24 CFR (a) Acquisition and (b) Disposition. HUD notes that any of the activities listed above may include required homebuyer counseling as an activity delivery cost (D) Demolish blighted structures 24 CFR (d) Clearance for blighted structures only. (E) Redevelop demolished or vacant properties as housing 24 CFR (a) Acquisition, (b) Disposition, (c) Public facilities and improvements, (e) Public services for housing counseling, but only to the extent that counseling beneficiaries are limited to prospective purchasers or tenants of the redeveloped properties, (i) Relocation, and (n) Direct homeownership assistance (as modified below). 24 CFR Eligible rehabilitation and preservation activities for demolished or vacant properties. 24 CFR Community based development organizations. HUD notes that any of the activities listed above may include required homebuyer counseling as an activity delivery cost U.S. Department of Housing and Urban Development

11 October 17, 2013 Community Planning and Development NSP Policy Alert! Guidance on the FHA First Look Sales Method Updated October 17, 2013 QUESTION: How do NSP grantees participate in the Federal Housing Administration s First Look sales method? Introduction The Federal Housing Administration s (FHA) First Look sales method provides Neighborhood Stabilization Program (NSP) grantees (NSP1, NSP2, and NSP3) exclusive access to review and purchase newly conveyed FHA real estate-owned (REO) properties that are located in their designated areas. Grantees will have the opportunity to make a purchase offer on a property prior to it being made available to other entities. NSP grantees can purchase these properties at a 10% discount off of the appraised value. These instructions are intended to assist grantees in obtaining the necessary approval to purchase these properties. Further information about First Look was published in the Federal Register on July 15, 2010, and is available online: Additional information about First Look is also available on HUD s website: OneCPD Resource Exchange: FHA REO Home: For Access to FHA First Look contact the National Community Stabilization Trust (NCST): FHAfirstlook@stabilizationtrust.com *First Look sales are NOT integrated into the HUDHomeStore; purchasers must contact NCST. Questions and Answers Who is eligible to participate in the FHA s First Look Sales Method? Eligible NSP Purchasers are defined as NSP Grantees, including Government entities and Nonprofit organizations/ developers, either as: Direct recipients of NSP funds; or Subrecipients (or subawardees) of direct NSP grantees o Under NSP2, consortium members may also be included. NOTE: For-profit entities are NOT eligible to participate in First Look. U.S. Department of Housing and Urban Development

12 Review the eligibility criteria at If you qualify, contact But I already have a NAID with FHA? Generally, FHA assigns a Name and Address Identifier (NAID) to individual purchasers to participate in the various sales methods offered. However, by participating in First Look through the National Stabilization Trust, purchasers are now allowed to purchase homes utilizing the universal NAID assigned to the Trust. Additionally, FHA assigns payee types to the NAID to identify the specific sales methods that the specific purchaser qualifies for. The Trust s NAID payee type qualifies it for First Look. Therefore, grantees that already have a NAID with a government or nonprofit payee type may still need to use the Trust s NAID instead. Grantees NO longer need to apply for a NAID, nor apply for the First Look payee type to be added in the case of grantees that already have a NAID. Further information about the First Look sales window, submitting an offer, environmental review contingencies and etcetera is all provided during the Trust s onboarding process. U.S. Department of Housing and Urban Development

13 September 30, 2013 Community Planning and Development NSP Policy Alert! Updated NSP2 Guidance on Reporting in FederalReporting.gov September 30, 2013 The Federal Reporting period for NSP2 and NSP-TA is October 1-14, You are encouraged to submit your report as early as possible, ideally no later than Friday, October 11, If you are new to Federal Reporting, it is recommended that you visit the HUD Recovery Website. Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub-recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub-recipients. When a grantee is handling all Federal Reporting data entry itself, the grantee is to review and verify the information provided to them by their sub-recipients prior to data entry. NSP2 and NSP-TA grantees must continue to report into FederalReporting.gov even if they have expended all of their NSP2 grant funds. ARRA funded grantees can only mark reports final when all or nearly all ARRA funds associated with the award have been invoiced and received, no additional jobs will be funded, and the project status is complete per agency requirements. Projects funded under NSP2 are not considered completed until they have met a national objective. The Recovery Act Transparency Board (RATB) has sent guidance that FederalReporting.gov will be open and recipients expected to report in case of a government shutdown. There is a new phone number for the help desk, Starting October 1, 2013, if you have trouble reporting, please send a detailed to FederalReportingHelpDesk@ratb.gov. The help desk will remain open beyond the reporting period and will be staffed even if the government is shutdown. However, the upcoming reporting period closes for recipients on the 14th, which is a holiday. Because the help desk will not be open on weekends or holidays, recipients should be encouraged to report as early as possible. U.S. Department of Housing and Urban Development

14 Expected Timetable: (Subject to change by OMB) October 1 October 10 October 11 October 14 October 15 October 18 NSP Policy Alert! Initial Submission Period (Prime Recipients & Subs Enter Reports). Extended Submission Period. September 30, 2013 Community Planning and Development Prime Recipient Review Period (Prime Recipients Review Data Submitted by Sub(s) / Prime Recipients & Subs Make Corrections). October 19 October 29 October 30 November 2 December 18 Agency Review Period (Agency Review or Data Submitted / Prime Recipients & Subs Make Corrections). Recipient Reports published on Recovery.gov. Continuous Quality Assurance Period. Deadlines are as of midnight Eastern Time Previous Federal Reporting Guidance Quarterly Updates also contain information on a variety of reporting issues: How to provide clear and descriptive narratives Information about the federal System for Award Management (SAM.gov) which is the integrated acquisitions system (the umbrella) in which CCR (the former Central Contractor Registration -- CCR) system is now located How to ensure that the Project Title and Primary Place of Performance fields provide transparent data in accordance with OMB M-10-34: guidance document M How to Avoid Saving a Draft Report Instead of a Final Report How to minimize Reporting Errors in FederalReporting.gov How to correct Errors in FederalReporting.gov Sub-Recipient Reporting Need to Ensure Correct DUNS number These resources can be found on the HUD Recovery Act website. This site also provides links to other resources, such as the SAM registration website and the Dun and Bradstreet registration website. U.S. Department of Housing and Urban Development

15 June 28, 2013 Community Planning and Development NSP Policy Alert! Updated NSP2 Guidance on Reporting in FederalReporting.Gov June 28, 2013 The Federal Reporting period for NSP2 and NSP-TA is July 1-14, 2013, which is only 8 working days, due to the Federal Holiday and Sequestration on July 5th. You are encouraged to submit your report as early as possible, ideally no later than Friday, July 12. If you are new to Federal Reporting, it is recommended that you visit the HUD Recovery Website at: rants_-_recovery_reporting Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub-recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub-recipients. When a grantee is handling all Federal Reporting data entry itself, the grantee is to review and verify the information provided to them by their sub-recipients prior to data entry. NSP2 and NSP-TA grantees must continue to report into federalreporting.gov even if they have expended all of their NSP2 grant funds. ARRA funded grantees can only mark reports final when all or nearly all ARRA funds associated with the award have been invoiced and received, no additional jobs will be funded, and the project status is complete per agency requirements. Projects funded under NSP2 are not considered completed until they have met a national objective. Expected Timetable: July 1-14 July July July 30 Aug 3 Sept 18 (Subject to change by OMB) Grantees and sub-recipients report in FederalReporting.gov. HUD will be able to view prime recipients reports and contact non-reporting recipients starting the week of July 1st. Prime Recipient Review Period (Prime Recipients Review Data Submitted by Sub-recipients(s)/Prime Recipients & Sub-recipients make corrections) HUD data review and comment period for data entered by grantees and subrecipients (Agency Review of Data Submitted/Prime Recipients & Sub- Recipients make corrections) Recovery Act Transparency Board posts recipient reports to Recovery.gov System re-opens to make error corrections to reports that were created from July 1-14th. HUD comments on grantee reports; grantees review subrecipients reports; prime recipients and sub-recipients correct reports U.S. Department of Housing and Urban Development

16 Deadlines are as of midnight Eastern Time Previous Federal Reporting Guidance Quarterly Updates also contain information on a variety of reporting issues: How to provide clear and descriptive narratives Information about the federal System for Award Management (SAM.gov) which is the integrated acquisitions system (the umbrella) in which CCR (the former Central Contractor Registration -- CCR) system is now located. How to ensure that the Project Title and Primary Place of Performance fields provide transparent data in accordance with OMB M-10-34: guidance document M How to Avoid Saving a Draft Report Instead of a Final Report How to minimize Reporting Errors in FederalReporting.gov How to correct Errors in FederalReporting.gov Sub-Recipient Reporting Need to Ensure Correct DUNS number These resources can be found on the HUD Recovery Act website: This site also provides links to other resources, such as the SAM registration website and the Dun and Bradstreet registration website. For additional help: The Service Desk is ready to help with reporting and can be reached by phone at 1 (877) The service desk hours of operation are 8 AM to 5 PM ET, Monday Friday. For more information regarding the Service Desk, please visit the Help section of NSP2 reporting questions as they relate to DRGR may be submitted to: or U.S. Department of Housing and Urban Development

17 NSP Policy Alert! March 28, 2013 Community Planning and Development Updated NSP2 Guidance on Reporting in FederalReporting.Gov March 28, 2013 FederalReporting.gov: The April Reporting Period Is Here! Reporting will cover the period April 1-14, If you are new to Federal Reporting, it is recommended that you visit the HUD Recovery Website at: rants_-_recovery_reporting Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub-recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub-recipients. When a grantee is handling all Federal Reporting data entry itself, the grantee is to review and verify the information provided to them by their sub-recipients prior to data entry. Grantees are no longer required to enter or update their environmental review information in RAMPS. April 1-14 April April April 30 May 3 June 18 Grantees and sub-recipients report in FederalReporting.gov. HUD will be able to view prime recipients reports and contact non-reporting recipients starting the week of April 1st. Prime Recipient Review Period (Prime Recipients Review Data Submitted by Sub-recipients(s)/Prime Recipients & Sub-recipients make corrections) HUD data review and comment period for data entered by grantees and sub-recipients (Agency Review of Data Submitted/Prime Recipients & Sub-Recipients make corrections) Recovery Act Transparency Board posts recipient reports to Recovery.gov System re-opens to make error corrections to reports that were created from April 1-14th. HUD comments on grantee reports; grantees review sub-recipients reports; prime recipients and sub-recipients correct reports Deadlines are as of midnight Eastern Time U.S. Department of Housing and Urban Development

18 Provide Clear and Descriptive Narratives: Some grantees need to provide greater clarity in their narrative descriptions in FederalReporting.gov. NSP2 and NSPTA grantees Award Description, Quarterly Activities/Project Description and Quarterly Job Description fields must provide clear, complete narratives that facilitate an understanding by the general public. If you have not already amended your narrative descriptions, please review them in FederalReporting.gov during the January Federal Reporting cycle to ensure that they provide concise, clear and detailed information before submitting your report. At a minimum, the narratives should include: a. Clear and complete information on the award s purpose, scope and nature of activities, outcomes, and status of activities; b. An explanation of all abbreviations or acronyms that may be unfamiliar to the general public; c. The names and location of specific projects, so it is clear how and where ARRA funds are being spent, within the character limitations; and, d. The grantee s website address and any additional websites that provide detailed grant or project level information will be listed. If you need to update your descriptions - below is suggested language with some highlighted notations of where you should add your own information. This suggested language is not meant to be all inclusive. Please provide as much detail as possible to reflect the work/progress of your NSP2 funds. Once you revise the Award Description you should not have to update this quarterly, only the Quarterly Description/Project Description will need updating each quarter. Below is a Sample Template: Award Description The Neighborhood Stabilization Program2 (NSP2) funds will invest in [Name of Project(s)]. The purpose of this project(s) is to. Quarterly Activities/Project Description NSP2 funds will assist [enter the number of projects NSP2 is funding] projects throughout the city/state [if possible provide the cities or counties, or at least some of them if there are too many locations] A listing of all projects receiving [NSP2] funding is posted to our website at [provide website of where you have posted your NSP2 completed projects]. [You should describe what your Agency accomplished/worked on during the quarter. Provide as much detail as possible.] For example - This quarter, $ were committed to of projects, $ were expended for of projects, of written agreements were finalized, work began on of projects [list the project names], work is continuing at [list the project names], work was completed at [list general location of the projects]. Quarterly Job Description [NSP2] funds were used to create/retain FTE jobs this quarter. [Name type of jobs and the number of FTE jobs that were funded with ARRA dollars] If no jobs were created, state this and the reason. U.S. Department of Housing and Urban Development

19 These reporting requirements represent an unprecedented transparency and accountability effort. Accordingly, we recognize that many grantees may encounter challenges and delays in the reporting process, and we appreciate your continued commitment to working with HUD toward the important goal of economic recovery. For additional help: The Service Desk is ready to help with NSP2 reporting and review questions and can be reached by phone at 1 (877) The service desk hours of operation are 8 AM to 6 PM ET, Monday Friday. For more information regarding the Service Desk, please visit the Help section of FederalReporting.gov. NSP2 reporting questions as they relate to DRGR may be submitted to the Ask a Question page on the OneCPD Resource Exchange. FAQs are also available on the NSP Resource Exchange. Previous Federal Reporting Guidance Quarterly Updates also contain information on a variety of reporting issues: Amendments to Approved CDBG-R Programs Information about the federal System for Award Management (SAM) which is the former Central Contractor Registration (CCR) system Ensuring that Project Title and Primary Place of Performance fields provide transparent data in accordance with OMB M-10-34: Guidance Document M How to Avoid Saving a Draft Report Instead of a Final Report Minimizing Reporting Errors in FederalReporting.gov Correcting Errors in FederalReporting.gov Sub-Recipient Reporting Need to Ensure Correct DUNS number These resources can be found on the HUD Recovery Act website: U.S. Department of Housing and Urban Development

20 March 14, 2013 Community Planning and Development NSP Policy Alert! Guidance on NSP Disposition and Demolition March 14, 2013 I. INTRODUCTION HUD is aware that market conditions in many target geographies require a mix of demolition and preservation of housing units to stabilize communities that have suffered from foreclosures and abandonment. This guidance seeks to clarify the way in which grantees can use Neighborhood Stabilization Program (NSP) funds to demolish and dispose of troubled properties. Please note that this guidance applies only to the NSP program, and unless otherwise stated should not be used for the Community Development Block Grant (CDBG) program activities. Clearance (demolition) is an eligible activity under CDBG found in 24 CFR (d). In NSP, demolition is eligible on blighted properties under Eligible Use D, as a part of a Redevelopment Activity under Eligible Use E, or as part of a Reconstruction activity under Eligible Use B. Clearance can include: Demolition of buildings and improvements; Removal of demolition products (rubble) and other debris; Physical removal of environmental contaminants or treatment of such contaminants to render them harmless; and Movement of structures to other sites. Disposition is an eligible activity under CDBG found in 24 CFR (b). In NSP, disposition can be used as an allowable expense in an eligible activity, it can be both the eligible activity and end use, or as the eligible activity used to dispose of a property for an ineligible end use that meets a national objective. These scenarios will be explained fully in this guidance. This guidance will examine demolition and disposition by focusing on the three main objectives grantees must achieve when expending NSP funds on a project. An activity must: Conform with the correct eligible USE Be an eligible ACTIVITY Meet a NATIONAL OBJECTIVE In order to meet the national objective requirement, Section 2301(f)(3)(A) of the Housing Economic Recovery Act (HERA) states, all of the funds appropriated or otherwise made available under this section shall be used with respect to individuals and families whose income does not exceed 120 percent of area median income. As a result, NSP allows the use of only the low-moderate-middle-income (LMMI) national objective. This means that any clearance or disposition activity must meet the national objective requirement through LMMH (housing), LH25 (housing for households at 50% AMI), LMMA (area) benefit, LMMJ (jobs) benefit, or LMMC (limited clientele) benefit. U.S. Department of Housing and Urban Development

21 The rest of this guidance will explain in more detail when demolition is eligible as an end use or as an interim use, and also the different ways that demolition and disposition can meet the relevant national objectives. U.S. Department of Housing and Urban Development

22 Demolition Table: Meeting eligibility requirements and national objectives Eligible Use (EU) National Objective EU D - Demolish blighted properties Demolition as End Use Demolition with Acquisition NSP Closeout Notice now allows acquisition of blighted properties under EU D LMMA Demolition without Acquisition EU D - Demolish blighted properties LMMA Demolition for Housing Activities Reconstruction (Rehabilitate housing) Redevelopment (New construction or Reconstruction of housing) EU B - Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes and properties EU E - Redevelop demolished or vacant properties as housing LMMH LMMH U.S. Department of Housing and Urban Development

23 II. DEMOLITION DEMOLITION AS AN END USE (with or without acquisition) Demolition of a single blighted property Eligibility: Eligible Use D (EU D) Demolish blighted structures. To demolish a single property with no other use intended for that land, grantees must document that this property meets their local legal definition of blighted. HUD recommends that grantees place liens on all NSP demolished properties that have not been acquired, but a lien is required if NSP investment is $25,000 or more. See Change of Use section for more information. National Objective: The demolition of one property meets an LMMA national objective only if the grantee is eliminating conditions that are detrimental to public safety and health. HUD notes that the grantee must determine and document the actual service area benefiting from the demolition of the structure, in accordance with the regulations. Examples: Dilapidated properties being used as drug houses or decaying structures that pose a safety hazard for anyone near them. Concentrated neighborhood demolition strategy Eligibility: Eligible Use D (EU D) Demolish blighted structures. Grantees can demolish blighted structures as part of a comprehensive neighborhood strategy, but grantees must document each property meets their local legal definition of blighted. National Objective: The demolition of several properties can meet an LMMA national objective when they are part of a comprehensive neighborhood strategy. HUD notes that the grantee must determine the actual service area benefiting from the neighborhood strategy of demolition, in accordance with the regulations. Example: Demolition of a majority of the blighted buildings in a 6 block target area where at least 51% of the households incomes are less than 120% of area median income (AMI). DEMOLITION FOR HOUSING ACTIVITIES Clearance as a part of Reconstruction Activity Eligibility: Eligible Use B (EU B) - Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes and properties. Reconstruction generally means the rebuilding of a structure on the same site in substantially the same manner, and falls under the category of rehabilitation according to CPD Notice (Get Notice Here). o CPD Notice states, Grantees may reconstruct on the same site housing that is publicly or privately owned. Deviations from the original design are allowed for reasons of safety or if otherwise impractical. The number of dwelling units on a site may not be increased; but, the number of rooms per unit may be increased or decreased Reconstruction of residential structures also permits replacing an existing substandard unit of manufactured housing with a new or standard unit of housing, manufactured or otherwise. U.S. Department of Housing and Urban Development

24 If an activity qualifies as Reconstruction and the clearance is integral to the reconstruction and the construction will be assisted with NSP funds, then the clearance activities may be treated as a part of the construction costs. The demolition is not required to be qualified separately under the program. In these circumstances, the clearance may be partial or total. This means that when clearance is directly connected to the reconstruction activity, the demolition of a property does not have to qualify under EU D and therefore does not have to be blighted. Instead, the property must qualify as either foreclosed or abandoned. National Objective: The national objective for the Rehabilitation of housing (which would include any clearance activities) is always either LMMH or LH25, depending on the final beneficiary that resides in the property. Clearance as part of New Construction or Redevelopment (reconstruction) Eligibility: Eligible Use E (EU E) - Redevelop demolished or vacant properties as housing. Where demolition is integral to the new construction of a building and the construction is assisted with NSP funds, the clearance activities may be treated as a part of the construction costs and need not be qualified separately under the program. Thus, when clearance is directly connected to New Construction of housing, the demolition of the property does not have to qualify under EU D. In these cases, the property does not have to be blighted but, instead, the property must qualify as vacant. National Objective: The national objective for the New Construction of housing (which would include any clearance activities) is always either LMMH or LH25, depending on the final beneficiary that resides in the property. DEMOLITION OF LANDBANK PROPERTIES Demolition in order to Landbank properties Eligibility: Eligible Use C Establish and operate land banks for homes and residential properties that have been foreclosed upon AND Eligible Use D - Demolish blighted properties. Because EU C only allows for acquisition and disposition of property, a grantee must qualify the demolition through Eligible Use D. So these properties must meet the definition of blighted and foreclosed upon. This means that in a landbank, blighted and foreclosed properties can be demolished with Eligible Use D and then can continue to be held in a land bank. National Objective: All three NSP Notices state, if an assisted land bank is not merely acquiring properties, but is also working in an area in which other activities are being carried out that are intended to arrest neighborhood decline, such as maintenance, demolition, and facilitating redevelopment of the properties, HUD will, for NSP-assisted activities only, accept that the acquisition and management activities of the land bank may provide sufficient benefit to an area generally (as described in 24 CFR (a)(1) and (b)(1)). Therefore, these activities meet a national objective (LMMA) prior to final disposition of the land-banked property. HUD notes that the grantee must determine the actual service area benefiting from a land bank s activities, in accordance with the regulations. o While grantees that follow the above strategy can meet the LMMA national objective, HUD does not believe the benefits of simply holding property are U.S. Department of Housing and Urban Development

25 sufficient to stabilize most neighborhoods. Because of this, HUD is requiring an eligible re-use of the property within 10 years of the grantee s closeout agreement. Any NSP assisted properties remaining in the land bank ten years after the date of grant closeout shall: o revert entirely to the CDBG program, and o be immediately used to meet a national objective or disposed of in accordance with CDBG use of real property RELOCATION REQUIREMENTS PERTAINING TO DEMOLITION: The purchase of real property by the grantee or other entities under this eligibility category is subject to the requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of Among other things, this could mean that persons displaced as a result of the acquisition and/or clearance must be provided with financial assistance. Temporary easements, acquisition from another public agency, and voluntary offers in response to a public solicitation are exempt from Uniform Act requirements. Reference: III. DISPOSITION Disposition as an allowable expense in an eligible activity Eligible Activity: Public Facility or Improvement NSP1 Only: Eligible Use E - Redevelop demolished or vacant properties. If a grantee is demolishing the property first and the demolition is integral to the development of the public facility, and where the construction or development is also to be assisted with NSP funds, the clearance activities may be treated as a part of the costs to develop the public facility and need not be qualified separately under the program. This means that when clearance is directly connected to the construction of a public facility, the demolition of the property does not have to qualify under EU D and, therefore, does not have to qualify as blighted but instead must qualify as vacant. In this case, disposition would be an allowable cost related to disposing of the property as a public facility or improvement. Example: Use as a green space, neighborhood park, community center, homeless shelter, or community garden. (NSP1 only) National Objective: To meet the LMMA national objective, the public facility must be used for a purpose the benefits of which are available to all the residents in a particular area that is primarily residential. HUD notes that the grantee must determine the actual service area benefiting from the public facility, in accordance with the regulations. Eligible Activity: Special Economic Development Eligibility: Eligible Use B (EU B) - Purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon in order to sell, rent, or redevelop such homes and properties and Eligible Use E (EU E) for NSP1 Only - Redevelop demolished or vacant properties. U.S. Department of Housing and Urban Development

26 Example: A parking lot for a grocery store serving a LMM income neighborhood, a for-profit clinic that is designed to serve patients on Medicaid or welfare, or a home day care center that creates or retains jobs principally for LMM income persons National Objective: This activity can meet the LMMA, LMMJ or LMMC national objectives. HUD notes that the grantee must determine and document the actual service area benefiting from the disposition of the structure(s), the jobs being created or retained, or that the facilities designed will be used predominantly by LMM income persons, in accordance with the regulations. Disposition as both the eligible activity and end use Eligible Activity: Disposition (dispose of as a side lot) Eligibility: Eligible Use B, C, D, and Eligible Use E for NSP1 only. A side lot is an individual parcel of property that is physically contiguous to an adjacent residential property. There are a few options grantees can consider when dealing with side lots: Donate or sell the property to a neighbor in a qualified LMMI area to use as a side lot If not in an LMMI area, sale for FMV grantees can sell the property to a neighbor at FMV (the sale proceeds would be program income) and they can choose to finance the sale in a way that will ensure it is affordable to the neighbor (i.e. 0% interest on a 15 year loan). Note: Continued affordability requirements do not apply because there are no housing units being produced from the NSP funds. National Objective: In NSP, once you meet the LMMA national objective with the demolition, the disposition (and acquisition) activities will continue to meet the LMMA national objective. HUD notes that the grantee must determine and document the actual service area benefiting from the demolition(s) and disposition of the structure(s), in accordance with the regulations. Disposition as the eligible activity for an ineligible end use that meets a national objective Eligible Activity: Disposition (dispose of property for an ineligible activity that meets a national objective) NSP2 & NSP3: Eligible Use B, C, or D. There are certain activities allowed under CDBG and NSP1 that meet one of the eligible national objectives, but are ineligible using NSP2 or NSP3 funds (e.g. public facilities). HUD has determined that there are strategies for grantees that want to pursue these activities, as long as they meet an eligible national objective (LMMA, LMMJ or LMMC). NSP grantees may dispose of NSP-assisted properties acquired or demolished for ineligible activities, or use such properties for NSP ineligible activities, as long as: 1) the NSP-ineligible activities are not assisted with NSP funds 2) The property was acquired under eligible use B, C, or D (Eligible Use E works for NSP1 only) 3) The NSP ineligible activity will contribute to neighborhood stabilization in the NSP target area 4) The initial acquisition or demolition and use of the property meets an NSP national objective U.S. Department of Housing and Urban Development

27 5) The planned use of these properties is described in the grantee s Action Plan or substantial amendment Once a grantee has acquired and/or demolished a property that is eligible under EU B, C, or D, grantees could, for example: Donate land to a nonprofit or community group to develop a community garden as long as it meets the LMMA national objective and no NSP2 or NSP3 funds are used in the construction of the facility. Dispose of the property as a neighborhood playground, but the swing sets and equipment are purchased using other non-nsp funds and it meets the LMMA national objective. Dispose of the property by leasing it out for the development of a senior center, as long as the construction and development is paid with other funds and it meets the LMMA or LMMC national objective. National Objective: To meet the LMMA national objective, a public facility must be used for a purpose the benefits of which are available to all the residents in a particular area that is primarily residential. HUD notes that the grantee must determine the actual service area benefiting from the public facility, in accordance with the regulations. To meet the LMMJ national objective, an activity must create or retain permanent jobs, at least 51 percent of which, on a full time equivalent (FTE) basis, are either held by LMM income persons or considered to be available to LMM income persons. To meet the LMMC national objective, a facility must be designed to be used predominantly by LMM income persons. IV. OTHER REQUIREMENTS 25% SET-ASIDE Keep in mind that demolition can only count towards a grantee s 25% set-aside when clearance is a part of a reconstruction or redevelopment activity that results in housing for individuals or families whose incomes do not exceed 50 percent of area median income. This is described above in Clearance as a part of Reconstruction Activity or Clearance as part of New Construction. These activities are the only time when the costs of the demolition can be counted toward the LH25 national objective. CHANGE OF USE PROVISIONS Grantees should consult their CPD/NSP Representative to apply the Change of Use provision to a NSP-assisted property. HUD will review and approve these on a case-bycase basis. Grantees must always ensure that the use of grant funds in both acquiring and demolishing properties constituted an eligible use under HERA and that the acquisition, demolition, and disposition of any property meets a national objective. Then any subsequent use of the cleared property must be treated as a change of use under 24 CFR Use of real property when the real property within the recipient s control which was acquired or improved in whole or in part using CDBG funds in excess of $25,000. This means: U.S. Department of Housing and Urban Development

28 If a grantee spent less than $25,000 on acquisition and/or improvements, and the initial acquisition and clearance met a national objective, the change of use provision would not apply. It is possible that a property can then pass out of the program and no other NSP regulations apply, but these cases must be reviewed by the grantee s Field Office Representative. Note that the cost of demolition is not included in this calculation because HUD counsel has determined that demolition is not an improvement. If a grantee spent more than $25,000 on acquisition or improvements and cannot continue to meet an LMMI national objective after it has demolished or disposed of the property, the property or interest must be sold at the current fair market value (FMV). This could be because the grantee would like to transfer the property to another entity or pursue some other use that doesn t meet a national objective. Sale proceeds would be considered NSP program income. No matter what the NSP investment, if the grantee is never able to meet a national objective, the grantee must reimburse the program for the full cost of the activity. TAKING REAL PROPERTY OUT OF THE NSP/CDBG PROGRAM When does the Change of Use rule apply (24 CFR ) and when must the program be reimbursed for the entire cost? Total NSP Funds Invested (excluding demo) CHANGE OF USE: Initial Use met National Objective, but Subsequent Use does not INELIGIBLE ACTIVITY: Activity never met a National Objective (Not a change of use) Greater than $25,000 Less than $25,000 Reimburse NSP for Fair Market Value Ask HUD for permission to remove from program. HUD will verify expenses. Reimburse NSP for all funds expended on project Reimburse NSP for all funds expended on project U.S. Department of Housing and Urban Development

29 Eligible Activities National Objectives Examples Housing LMMH/LH25 Rehabilitate multi-family or single-family housing Eligible Use B Disposition for Special Economic Development LH25 1. LMMJ 2. LMMA 1. Create in-home day care center with new jobs 2. Long term lease of land for corner grocery store in target area Disposition for Ineligible activities 1. LMMA 2. LMMC 1. Donate to non-profit to develop community garden 2. Lease building for neighborhood senior center Housing LMMH/LH25 Rehab multi-family or single-family housing units Eligible Use C Disposition (as an end use) LMMA Side lot in area with comprehensive disposition Disposition for Ineligible activities LMMJ Discounted sale of property to be used for a hair salon that creates new jobs Eligible Use D Disposition (as an end use) LMMA Sell or donate to neighbor as side lot Disposition for Ineligible activities LMMA or LMMJ Donate land for local business development Housing LMMH/LH25 Construct new multi-family or single-family housing Eligible Use E NSP1 Public Facilities LMMC Homeless shelter Disposition for Special Econ Development LMMA or LMMJ Build a parking lot for a grocery store Disposition for Ineligible activities LMMA or LMMJ Lease to a for-profit to develop a shopping center NSP2 & NSP3 Housing Activity only LMMH/LH25 Renovate or build new multi-family housing U.S. Department of Housing and Urban Development

30 NSP Policy Alert! January 7, 2013 Community Planning and Development Guidance on Allocating Costs Between Different NSP Grants January 7, 2013 NSP grantees have asked whether general program administration funds from one year can be used to administer other program years. In addition, grantees wish to know whether funds from one grant (e.g. NSP1) can pay for activities planned for a different grant (e.g. NSP3.) Finally, questions have arisen regarding the availability of funds for program administration after the expenditure deadline. Using Administrative Funds in Different Program Years HUD has determined that NSP grantees may use Planning and Administration funds from one NSP grant to administer another NSP grant. These are funds that are subject to the 10% limit. An example is a grantee that has excess budget in its NSP1 program, since the grants were generally larger, and wishes to support its NSP3 program with those funds. Because these are administrative funds, there is no requirement to treat them as different funding sources, even though there are small variations between program years in terms of eligibility or other requirements. Using Program Funds in Different Years The interchangeability of program funds is more complex but still possible. Federal requirements mandated by the Office of Management and Budget (OMB) generally do not allow costs that are allocable to one cost objective or Federal grant award to be charged to another federal award. However, NSP grantees may use funds from one grant to fund activities that are included in that grant s action plan and another grant s action plan. For example, if NSP1 funds are authorized to be used for demolition activities and NSP3 funds are also authorized for use in demolition, the grantee may use either grant s funds for such activities. Conversely, if a grantee has already allocated funds, performed the work and paid for an activity, it may not charge those costs to a different grant. Funds from one grant may be used for activities in another grant, subject to the following limitations: 1. The activities (e.g. rehabilitation or demolition) are included in approved Action Plans for both program years; 2. The proposed activities will take place in a target area which has been approved in both grants Action Plans; 3. The funds have not yet been allocated to the specific projects or properties for which they are proposed. For example, both grants have housing rehabilitation as an eligible activity in the same Census Tract, but the grantee has not allocated funds to specific properties in either grant. 4. The competitive nature of the NSP2 program means that such changes may affect the award factors. Grantees should consult with their HUD field office to ensure that any allocation actions do not have a negative effect on their scores. U.S. Department of Housing and Urban Development

31 Paying Administrative Costs After Expenditure Deadlines Regarding administrative costs, program income is the most obvious source of funds after 100% expenditures. Grantees that meet the spending deadline and have program income on hand or coming in, may use that source for administrative costs up to the total amount of 10% of the original grant plus 10% of any program income. (Grantees who do not meet the expenditure deadline may have their funds blocked and will receive direction from HUD at that time.) Grantees without program income may use funds from another grant year, subject to the limits above. If program income is anticipated, grantees may retain budget capacity, up to the 10% of grant funds plus program income, for use in later periods. However, if there is no NSP program income to replenish the administrative budget, grantees must generally find other sources of funds. For example, a grantee with a $5 million grant and $1 million in program income has up to $600,000 that it can spend on planning and administration (10% of $6 million.) If it spent $400,000 prior to the expenditure deadline, then it may be able to spend the additional $200,000 after the deadline if program income is available. U.S. Department of Housing and Urban Development

32 NSP Policy Alert! January 2, 2013 Community Planning and Development Updated NSP2 Guidance on Reporting in FederalReporting.Gov January 2, 2013 FederalReporting.gov: The January Reporting Period Is Here! Reporting will cover the period January 1-14, If you are new to Federal Reporting, it is recommended that you visit the HUD Recovery Website at: _Recovery_Reporting Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub-recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub-recipients. When a grantee is handling all Federal Reporting data entry itself, the grantee is to review and verify the information provided to them by their sub-recipients prior to data entry. Grantees also need to enter or update their environmental review information in RAMPS. Expected Timetable: (Subject to change by OMB) January 1 10 Initial Submission Period (Prime Recipients & Subs Enter Reports). January Extended Submission Period. January Prime Recipient Review Period (Prime Recipients Review Data Submitted by Sub(s) / Prime Recipients & Subs Make Corrections). January Agency Review Period (Agency Review or Data Submitted / Prime Recipients & Subs Make Corrections). Deadlines are as of midnight Eastern Time U.S. Department of Housing and Urban Development

33 Provide Clear and Descriptive Narratives: Some grantees need to provide greater clarity in their narrative descriptions in FederalReporting.gov. NSP2 and NSPTA grantees Award Description, Quarterly Activities/Project Description and Quarterly Job Description fields must provide clear, complete narratives that facilitate an understanding by the general public. If you have not already amended your narrative descriptions, please review them in FederalReporting.gov during the January Federal Reporting cycle to ensure that they provide concise, clear and detailed information before submitting your report. At a minimum, the narratives should include: a. Clear and complete information on the award s purpose, scope and nature of activities, outcomes, and status of activities; b. An explanation of all abbreviations or acronyms that may be unfamiliar to the general public; c. The names and location of specific projects, so it is clear how and where ARRA funds are being spent, within the character limitations; and, d. The grantee s website address and any additional websites that provide detailed grant or project level information will be listed. If you need to update your descriptions - below is suggested language with some highlighted notations of where you should add your own information. This suggested language is not meant to be all inclusive. Please provide as much detail as possible to reflect the work/progress of your NSP2 funds. Once you revise the Award Description you should not have to update this quarterly, only the Quarterly Description/Project Description will need updating each quarter. Below is a Sample Template: Award Description The Neighborhood Stabilization Program2 (NSP2) funds will invest in [Name of Project(s)]. The purpose of this project(s) is to. Quarterly Activities/Project Description NSP2 funds will assist [enter the number of projects NSP2 is funding] projects throughout the city/state [if possible provide the cities or counties, or at least some of them if there are too many locations] A listing of all projects receiving [NSP2] funding is posted to our website at [provide website of where you have posted your NSP2 completed projects]. [You should describe what your Agency accomplished/worked on during the quarter. Provide as much detail as possible.] For example - This quarter, $ were committed to of projects, $ were expended for of projects, of written agreements were finalized, work began on of projects [list the project names], work is continuing at [list the project names], work was completed at [list general location of the projects]. Quarterly Job Description [NSP2] funds were used to create/retain FTE jobs this quarter. [Name type of jobs and the number of FTE jobs that were funded with ARRA dollars] If no jobs were created, state this and the reason. U.S. Department of Housing and Urban Development

34 These reporting requirements represent an unprecedented transparency and accountability effort. Accordingly, we recognize that many grantees may encounter challenges and delays in the reporting process, and we appreciate your continued commitment to working with HUD toward the important goal of economic recovery. For additional help: The Service Desk is ready to help with CDBG-R and NSP2 reporting and review questions and can be reached by phone at 1 (877) The service desk hours of operation are 8 AM to 6 PM ET, Monday Friday. For more information regarding the Service Desk, please visit the Help section of FederalReporting.gov. NSP2 reporting questions as they relate to DRGR may be submitted to the Ask a Question page on the OneCPD Resource Exchange. FAQs are also available on the NSP Resource Exchange. Previous Federal Reporting Guidance Quarterly Updates also contain information on a variety of reporting issues: Amendments to Approved CDBG-R Programs Information about the federal System for Award Management (SAM) which is the former Central Contractor Registration (CCR) system Ensuring that Project Title and Primary Place of Performance fields provide transparent data in accordance with OMB M-10-34: Guidance Document M How to Avoid Saving a Draft Report Instead of a Final Report Minimizing Reporting Errors in FederalReporting.gov Correcting Errors in FederalReporting.gov Sub-Recipient Reporting Need to Ensure Correct DUNS number These resources can be found on the HUD Recovery Act website: This site also provides links to other resources, such as the SAM registration website and the Dun & Bradstreet registration website. U.S. Department of Housing and Urban Development

35 NSP Policy Alert! October 2, 2012 Community Planning and Development Updated NSP2 Guidance on Reporting in FederalReporting.Gov October 2, 2012 FederalReporting.gov: The October Reporting Period Is Here! Reporting will cover the period October 1-14, 2012, which is only 9 working days, due to the October 8 th Holiday. You are encouraged to report as early as possible, ideally by Friday, Oct 12 th as most offices are closed the weekend of October If you are new to Federal Reporting, it is recommended that you visit the HUD Recovery Website at: _Recovery_Reporting Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub-recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub-recipients. When a grantee is handling all Federal Reporting data entry itself, the grantee is to review and verify the information provided to them by their sub-recipients prior to data entry. Grantees also need to enter or update their environmental review information in RAMPS. Expected Timetable: (Subject to change by OMB) October 1-14 Grantees and sub-recipients report in FederalReporting.gov HUD will be able to view prime recipients reports and contact non-reporting recipients starting the week of October 1st. Ongoing Grantees should continue to report their environmental reviews into RAMPS (Recovery Act Management Performance System) and update their information as it becomes available. October Prime Recipient Review Period (Prime Recipients Review Data Submitted by Sub-recipients(s)/Prime Recipients & Sub-recipients make corrections) October HUD data review and comment period for data entered by grantees and subrecipients (Agency Review of Data Submitted/Prime Recipients & Sub- Recipients make corrections) October 30 Recovery Act Transparency Board posts recipient reports to Recovery.gov Nov 3 Dec 18 System re-opens to make error corrections to reports that were created from October 1-14th. HUD comments on grantee reports; grantees review subrecipients reports; prime recipients and sub-recipients correct reports Deadlines are as of midnight Eastern Time U.S. Department of Housing and Urban Development

36 If you have any questions regarding these closeout instructions, please refer them to your HUD Field Office Representative. Provide Clear and Descriptive Narratives: Some grantees need to provide greater clarity in their narrative descriptions in FederalReporting.gov. NSP2 and NSPTA grantees Award Description, Quarterly Activities/Project Description and Quarterly Job Description fields must provide clear, complete narratives that facilitate an understanding by the general public. If you have not already amended your narrative descriptions, please review them in FederalReporting.gov during the October Federal Reporting cycle to ensure that they provide concise, clear and detailed information before submitting your report. At a minimum, the narratives should include: e. Clear and complete information on the award s purpose, scope and nature of activities, outcomes, and status of activities; f. An explanation of all abbreviations or acronyms that may be unfamiliar to the general public; g. The names and location of specific projects, so it is clear how and where ARRA funds are being spent, within the character limitations; and, h. The grantee s website address and any additional websites that provide detailed grant or project level information will be listed. If you need to update your descriptions - below is suggested language with some highlighted notations of where you should add your own information. This suggested language is not meant to be all inclusive. Please provide as much detail as possible to reflect the work/progress of your NSP2 funds. Once you revise the Award Description you should not have to update this quarterly, only the Quarterly Description/Project Description will need updating each quarter. Below is a Sample Template: Award Description The Neighborhood Stabilization Program2 (NSP2) funds will invest in [Name of Project(s)]. The purpose of this project(s) is to. Quarterly Activities/Project Description NSP2 funds will assist [enter the number of projects NSP2 is funding] projects throughout the city/state [if possible provide the cities or counties, or at least some of them if there are too many locations] A listing of all projects receiving [NSP2] funding is posted to our website at [provide website of where you have posted your NSP2 completed projects]. [You should describe what your Agency accomplished/worked on during the quarter. Provide as much detail as possible.] For example - This quarter, $ were committed to of projects, $ were expended for of projects, of written agreements were finalized, work began on of projects [list the project names], work is continuing at [list the project names], work was completed at [list general location of the projects]. U.S. Department of Housing and Urban Development

37 Quarterly Job Description [NSP2] funds were used to create/retain FTE jobs this quarter. [Name type of jobs and the number of FTE jobs that were funded with ARRA dollars] If no jobs were created, state this and the reason. These reporting requirements represent an unprecedented transparency and accountability effort. Accordingly, we recognize that many grantees may encounter challenges and delays in the reporting process, and we appreciate your continued commitment to working with HUD toward the important goal of economic recovery. For additional help: The Service Desk is ready to help with NSP2 reporting and review questions and can be reached by phone at 1 (877) The service desk hours of operation are 9 AM to 5 PM ET, Monday Friday. It will be closed for the 8 th of October Holiday. For more information regarding the Service Desk, please visit the Help section of FederalReporting.gov. HUD s Recovery Act Reporting Call Center, , is available to answer NSP2 reporting questions as they relate to DRGR. The call center is available 8:30am to 5:30pm EDT, Monday to Friday, but will be closed for the 8 th of October Holiday. Previous Federal Reporting Guidance Quarterly Updates also contain information on a variety of reporting issues: How to Renew your city s CCR (Central Contractor Registration) Ensuring that Project Title and Primary Place of Performance fields provide transparent data in accordance with OMB M-10-34: Guidance Document M How to Avoid Saving a Draft Report Instead of a Final Report Minimizing Reporting Errors in FederalReporting.gov Correcting Errors in FederalReporting.gov Sub-Recipient Reporting Need to Ensure Correct DUNS number These resources can be found on the HUD Recovery Act website: This site also provides links to other resources, such as the CCR registration website and the Dun & Bradstreet registration website. U.S. Department of Housing and Urban Development

38 NSP Policy Alert! August 20, 2012 Community Planning and Development Guidance on Revolving Funds under NSP August 20, 2012 Introduction Revolving funds (also referred to as revolving loan funds or RLFs) can be useful tools in managing the flow of program income (PI). Although they are a common part of many grantees CDBG programs, questions remain about their use under NSP. This guidance serves to clarify the role of revolving funds, address issues specific to NSP, and provide resources for additional assistance. NSP and Program Income Because revolving funds are a tool for managing program income, grantees need to understand PI to understand revolving funds. Below is a link to the NSP Policy Alert on Program Income dated 07/13/2011. This document provides an overview of PI under NSP, and contains relevant excerpts from CDBG regulations, which NSP largely follows (those rules are located in appendix 2 of the Policy Alert on pgs ). However, note that NSP program income, including PI deposited in revolving funds, must be spent on NSP-eligible activities only; it cannot be used for CDBG activities that are ineligible under NSP. Reference: NSP Policy Alert: Program Income in NSP, July 13, Note: The information regarding PI in DRGR (starting on pg. 14) has not been updated to reflect changes made during DRGR Release 7.3 in December See DRGR and Revolving Funds paragraph below for more information on these changes. Revolving Funds under NSP A revolving fund is a separate fund (with a set of accounts that are independent of other program accounts) established to carry out a specific, eligible NSP activity that will generate program income. It is a fund in which grantees place program income, and from which monies are disbursed, replenished, and again disbursed in perpetuity. Grantees may establish a revolving fund, for example, to make loans for homeownership assistance through first and second mortgages, or to fund acquisition and rehabilitation of single-family homes. A grantee will place repayments or sales proceeds into the revolving fund for continued use in carrying out NSP-eligible activities. Grantees may establish several revolving funds, but each must be for an NSP-eligible, income-generating activity meeting an NSP national objective. U.S. Department of Housing and Urban Development

39 Key Requirements of Revolving Funds Grantees must do an action plan amendment to create a revolving fund. Grantees must build up a revolving fund from program income; they cannot capitalize a revolving fund using NSP grant funds from a line of credit, except as permitted under the limited CDBG rules related to lump sum draw downs for rehabilitation only activities, as provided for in 24 CFR Grantees that deposit program income into a revolving fund are not required to expend it on nonrevolving fund activities before drawing from a line of credit; the PI in each revolving fund is dedicated to that fund s specific purpose. Each revolving fund activity must comply with an eligible use and carry out a specific type of eligible activity that meets a national objective under NSP; funds cannot be used for CDBG activities that are ineligible under NSP. Simply establishing a revolving fund does not constitute meeting a national objective and is not inherently an eligible activity. A revolving fund is only a mechanism to implement activities that meet national objectives. PI from each program NSP1, NSP2, NSP3 must be tracked separately. A repayment to a revolving fund is NSP program income subject to all CDBG and NSP statutory and regulatory requirements, regardless of the amount of times the funds revolve. Funds generated from NSP1, NSP2, and NSP3 activities must each be used in accordance with their respective program rules. However, program income from all sources can be combined in a project IF the project meets the requirements of all applicable programs. Revolving fund dollars must be kept in an interest bearing account, and the interest earned from funds in the account must be remitted to the U.S. Treasury not less than annually. If a grantee returns more than a nominal amount of interest, this will likely be cause for a monitoring to verify that the revolving funds are being used regularly, and used before drawing down additional grant funds for the same activity. Interest paid by borrowers is program income and can be deposited into a revolving fund to be reused. Revolving Funds and Draw Rules Under NSP, program in.7come received must be used before drawing down additional grant funds. However, by setting up a revolving fund for a specific activity and thus designating program income toward a specific purpose, grantees are no longer subject to this rule when it comes to PI deposited in a revolving fund. This does not mean that grantees can use a revolving fund to simply store funds; they are required to use the money in a revolving fund for the next activity with the same purpose as that revolving fund. For example, if a grantee currently has funds in its Housing Rehabilitation Revolving Fund, then these must be the first funds used for a housing rehabilitation project, before they can access grant funds. DRGR has been updated as part of Release 7.3 to reflect this requirement (see DRGR and Revolving Funds paragraph below for more details). U.S. Department of Housing and Urban Development

40 Program Design for Revolving Funds Revolving fund activities must be specific and eligible under NSP. However, this is only one of many factors in deciding which activities to select and how many to undertake. Below is a list of topics to consider when setting up revolving funds: Select an appropriate number of activities Grantees that have only one or two activities probably do not require a revolving fund. Conversely, grantees should be cautious of creating too many revolving funds, as the tracking of numerous funds can become onerous and create a monitoring risk. Select activities that are appropriate for the size and scope of the program to ensure that funds will revolve Multi-family rehabilitation, for example, is unsuitable for all but very large grantees; the program income payments could potentially be so large and irregular that management of the funds would be excessively cumbersome. In addition, the accumulated interest in the fund will have to be accounted for by the grantee. Revolving funds can be broken up by target areas Grantees should select locations and corresponding activities to maximize the consistency of program income received, and take into account the projected need for the activity in the future. Grantees should be cautious of creating several revolving funds for activities that are all eligible under rehabilitation Activities such as acquisition, financing, and disposition are eligible as components of rehabilitation under 24 CFR Generally they should not be treated as specific and separate activities. However, there are some cases when separate revolving funds should be established for these activities, such as when funds for rehabilitation are coming from a source other than program income. Expenditure Deadlines To meet the NSP expenditure deadline, a grantee does not need to expend its entire line of credit if it is earning and using program income. Instead, a grantee must expend a combination of program income and grant funds equal to its award amount. If a grantee expends an amount equivalent to 100% of its grant funds by the deadline, HUD will not take a corrective action relative to the expenditure deadline. If the grantee expends less than the total amount of its award by the deadline, the remaining grant funds may be recaptured. However, if the grantee expends the required amount by in part using program income, then funds will likely remain in the line of credit. NSP 1 and NSP3 grantees may continue to keep the line of credit open for the expenditure of funds. NSP2 grantees should continue to have access to funds in the line of credit until September Even though these funds are not subject to rescission if the grantee meets the expenditure deadline, they should be spent as quickly as possible. As a result, NSP grantees should not establish revolving funds solely as a means of protecting funds in the line of credit. Subrecipient agreements can also serve to segregate program income for specific activities and different project partners. Closeout The expenditure deadline is NOT the trigger for grant closeout. HUD will publish a notice on closeout requirements shortly. Post closeout: for former NSP grantees that are CDBG entitlements or state governments, reporting on NSP funds will eventually transfer from DRGR to IDIS, and will be required annually, not quarterly. At this point, transferring a revolving fund from DRGR to IDIS is likely to be simpler than shifting a number of separate activities. Grantees may consider depositing PI into one or more single-use revolving fund accounts to make NSP funds easier to manage alongside a CDBG program in the future. U.S. Department of Housing and Urban Development

41 DRGR and Revolving Funds As of DRGR Release 7.3, grantees are now able to identify revolving funds using the PROJECT screen. Each revolving fund allows users to identify activities where receipts will be recorded and program income will be disbursed under the revolving fund. Revolving fund projects can only include activities with a single activity type; however, there may be multiple activities within a revolving fund project based on different national objectives, responsible organizations, and/or multifamily complexes. As part of the DRGR 7.3 Release, the system now forces the use of PI on hand. By setting up a revolving fund project, this system check will only apply to those activities within the revolving fund. When a user submits a voucher, DRGR checks for the availability of program income funds within the revolving fund, and requires that these funds be drawn before program funds. As before, grantee users can create vouchers with both fund types. Reference: DRGR Release 7.3 fact sheet for an overview of new functions Links to Additional Resources 24 CFR CFR CFR CFR (f) Greatest Hits of Program Income Webinar slides: Greatest Hits of Program Income Webinar transcript: Greatest Hits of Program Income Webinar recording: Life After Expenditure Deadlines Webinar slides: Life After Expenditure Deadlines Webinar transcript: Life After Expenditure Deadlines Webinar recording: U.S. Department of Housing and Urban Development

42 NSP Policy Alert! August 16, 2012 Community Planning and Development Guidance on NSP National Objectives, Uses and Activities August 16, 2012 Introduction The Neighborhood Stabilization Program (NSP) was designed to address the redevelopment of abandoned and foreclosed upon homes and residential properties in areas of greatest need. NSP investments made in these areas are required to benefit low, moderate and middle income individuals (LMMI), that is, those who earn less than 120 percent of an area s median income. To achieve these redevelopment and affordable housing goals, Congress established NSP on the framework of the Community Development Block Grant Program (CDBG). This means that NSP follows regulations and policy requirements typically associated with CDBG. While the Housing and Economic Recovery Act (HERA) provided the eligible uses for NSP, CDBG forms the basis of the eligible activities and national objectives associated with NSP. The National Objectives Chart Practitioners implementing NSP understand the five eligible uses described in HERA, but there is often confusion around how to demonstrate that each activity meets a national objective. The National Objectives Chart provides a quick reference for grantees and other NSP affiliates to navigate eligible activities and national objectives. It takes viewers through each of the five eligible uses and describes what actions qualify as an eligible activity and what steps must be taken to meet a national objective. NSP grantees must meet one of two CDBG National Objectives Low, Moderate and Middle Income Housing (LMMH) or Low Moderate and Middle Income Area (LMMA). If an activity is completed that does not meet a national objective, the Chart indicates what additional actions are needed. Completing a Project An NSP funded project is not considered to be complete until the grantee completes an activity and satisfies a national objective. For example, if a grantee or related affiliate were to acquire a home under eligible use B and rehabilitate the home in accordance with 24 CFR , the project is still not completed until the home is occupied by an income eligible household. This benefit can be achieved by renting or selling the home to a household at or below 120 percent of the area s median income. When a project does not result in the production of a home, there are other ways that it can benefit income eligible households such as through the production of parks, side lots, drainage improvements or other public facilities as described in 24 CFR (c). Typically these are only eligible in NSP1. Options for completing a project will vary based on NSP funding round, but the Chart applies to NSP1, 2, and 3 grantees. Updates to the chart will be made as new information becomes available via NSP Notices or policy decisions. U.S. Department of Housing and Urban Development

43 This chart illustrates the most common NSP projects, sometimes composed of several eligible activities and sometime several eligible uses. The chart aims to clarify the often-complex interplay among eligible properties, uses, and activities all of which must result in activities that meet a national objective. NSP Eligible Uses Eligible Property Eligible Activities Specific Activity National Objective Meeting the National Objective (A) Financing Mechanisms NOTE: All Activities in this eligible use finance activities in the categories below. Follow the instructions for those activities. Acquisition Acquire a property and take no further action except to rent or sell it LMMH Rent or sell the residential property to a family at or below 120% AMI Rehabilitation, Homeownership Assistance², Homebuyer Counseling 1 Rehabilitate a property that the grantee acquired through tax foreclosure in the past. NOTE: The grantee may not reimburse itself for the cost of the property with NSP funds, but can be repaid through sale proceeds LMMH Rent or sell the residential property to a family at or below 120% AMI (B) Acquisition Rehabilitation Abandoned or Foreclosed Homes and Residential Properties Acquisition, Rehabilitation, Homeownership Assistance², Homebuyer Counseling 1 Acquisition, Rehabilitation, Relocation, Homebuyer Counseling 1 Acquire and Rehabilitate a property and rent or sell it Acquire and Rehabilitate a rental property that has a Bona Fide Tenant and rent or sell it LMMH LMMH Rent or sell the residential property to a family at or below 120% AMI Protect the tenant. Rent or sell the residential property to a family at or below 120% AMI Acquisition, Rehabilitation, Homeownership Assistance², Homebuyer Counseling 1 Provide Financial Assistance to rehabilitate and/ or acquire an NSP eligible home. This assistance can be directly to the homebuyer or other interested party LMMH Rent or sell the residential property to a family at or below 120% AMI Acquisition, Rehabilitation, Homeownership Assistance², Homebuyer Counseling 1 Reconstruct a property on the footprint of the original structure that was demolished LMMH Rent or sell the residential property to a family at or below 120% AMI Acquisition and Purchase and briefly _ Another action must be U.S. Department of Housing and Urban Development

44 NSP Eligible Uses Eligible Property Eligible Activities Disposition Specific Activity maintain an acquired property in a static state until a beneficiary occupies the property. Disposition can include maintenance, marketing and closing costs. National Objective Meeting the National Objective taken for the property to meet a National Objective Acquisition Acquire a foreclosed property _ Simply acquiring a property does not meet a National Objective; another action must be taken, typically under Uses B or E (C) Land Banks Foreclosed Homes and Residential Properties Disposition Maintain the property in a static state for up to 10 years. Disposition can include board-up, minor repair, marketing, and related costs. _ Another action must be taken for the property to meet a National Objective Disposition Sell or donate the property LMMA Sell or donate a residential property for a use that benefits an area where at least 51% of the residents are at or below 120% AMI (D) Demolition Blighted Homes and Residential Properties ("Blighted" is defined by state or local law.) Clearance Clearance Demolish a structure that meets the local definition of "Blighted" when the grantee has the legal authority to demolish these structures The grantee demolishes a number of structures that meet the local definition of "Blighted in a concentrated neighborhood demolition plan. LMMA LMMA Remove a structure that poses a detriment to the NSP target area where at least 51% of the residents are at or below 120% AMI Improve a target area where at least 51% of the residents are at or below 120% AMI through a comprehensive plan to remove dangerous or blighting structures. Clearance Demolish a structure that meets the local definition of "Blighted" and with the intention of carrying out another activity. _ Another action must be taken for the property to meet a National Objective U.S. Department of Housing and Urban Development

45 NSP Elible Uses Eligible Property Eligible Activities Specific Activity National Objective Meeting the National Objective Acquisition Acquire a property with the intent to demolish with use D and then redevelop - Another action must be taken for the property to meet a National Objective Acquisition, New Construction, Homeownership Assistance², Homebuyer Counseling 1 Acquire vacant land and construct a new structure on it LMMH Rent or sell the residential property to a family at or below 120% AMI (E) Redevelopment Demolished or Vacant Properties New Construction, Homeownership Assistance², Homebuyer Counseling 1 Reconstruct a new structure on the site of a structure that the grantee demolished LMMH Rent or sell the residential property to a family at or below 120% AMI Acquisition, Construction of Public Facilities FOR NSP1 FUNDS ONLY: Construct a public facility or improvement LMMA The public improvement must provide a benefits to NSP target area where at least 51% of the residents are at or below 120% AMI Disposition Briefly maintain the property in a static state until a beneficiary occupies the property, fund expenses related to seller closing costs _ Another action must be taken for the property to meet a National Objective Program Administration and Planning General Administration Activities General Management, oversight and coordination (limited to 10% of total grant and Program Income) _ Does not need to directly meet a National Objective, because it will support an activity that will. Footnotes 1 All Prospective Homeowners need to receive at least 8 hours of housing Counseling ² Homeownership Assistance can only be provided directly to a homeowner U.S. Department of Housing and Urban Development

46 July 30, 2012 Community Planning and Development NSP Policy Alert! Guidance on Operating Deficit Reserves, Overhead Expenses, and Combined Loan to Value Ratios July 30, 2012 Operating Deficit Reserves Several organizations involved in the Neighborhood Stabilization Program (NSP) have requested that HUD allow the establishment of reserves for operating deficits for rental housing developments. These reserves support the cash flow of new developments during lease-up and later may be used when expenses exceed revenues, to avoid default. HUD has not generally allowed such reserves in CDBG based on longstanding interpretation of the Housing and Community Development Act. Operating deficit reserves have only been allowed when required by a third party lender, based on the language in 24 CFR (b) that allows other means of carrying out the rehabilitation. Not all NSP projects have private lenders, so this provision does not address every situation. NSP grantees have been advised that replacement reserves may be generated from excess cash flow, but not capitalized initially with NSP grant funds. Given the current strain on financing affordable housing and the downward pressure on property values, HUD has determined that creating operating deficit reserves for NSP multifamily projects is important to the sustainability of these projects, as required by the Housing and Economic Recovery Act of The Public Housing and HOME programs both allow operating reserves to be established. Therefore, CPD finds that allowing such reserves is appropriate for NSP grantees. To enable this to occur, the Department will consider grantee requests for exceptions to the eligibility provisions of the HCD Act, at 42 USC Section 5305(a). Exceptions may be approved by the local field office. The basis for granting an exception shall be that project underwriting demonstrates to the field office that an operating deficit reserve is necessary for project viability in the target market. Grantees may request a one-time allocation to an initial operating deficit reserve fund for an amount justified by project underwriting. Such amounts should not exceed a value equal to eighteen months of principal and interest payments. Reserves must be maintained by an independent trustee and may be used for both lease-up and operating deficits. A grantee considering an exception request is advised to review the HOME program policy on initial operating deficit reserves at 24 CFR (d)(5) for guidance. Technical assistance with underwriting rental developments is available through the NSP Resource Exchange at no cost to the grantee. U.S. Department of Housing and Urban Development

47 Overhead Expenses Developer fees consist of profit and overhead. While subrecipients, consortium members and public nonprofits may not act as developers and receive profits, they may benefit from a Public Housing practice of allowing a fee of 3% in lieu of a cost allocation structure (PIH Notice ) Many smaller non-profits have been discouraged by the difficulty of developing and receiving approval for indirect cost allocation plans, although they regularly incur such expenses. In its mixed-finance projects, Public Housing provides a safe harbor level of 3 percent of total development costs which is deemed a reasonable fee to cover indirect costs or overhead. According to the Office of Public and Indian Housing, this structure is permitted under OMB Circular A-87, Attachment A, Section (A)(2)(b) as an alternative to reduce the administrative burden of establishing overhead rates. CPD supports the application of this policy in NSP projects. This reasonable fee acknowledges the existence of indirect costs and provides modest reimbursement with little administrative burden. NSP grantees may use this method beginning immediately. Any grantee using this method must document its choice in the applicable activity records. Any indirect cost or overhead charge above this level still requires a cost allocation plan. Mortgages Exceeding 100% Combined Loan to Value HUD has cautioned NSP grantees to underwrite loans to home buyers carefully, taking care not to oversubsidize or over-burden low-, moderate-, or middle-income buyers. Many conventional lenders allow closing costs to be included in the mortgage amount; conventional loans are bank mortgages not insured by a government agency. This practice can result in Combined Loan to Value (CLTV) ratios over 100%. HUD policy previously discouraged this course of action. NSP grantees, subrecipients and developers should have access to the same financing as any other developers. Because NSP grantees generally offer soft second mortgages, with deferred or forgivable payments, this practice is being permitted when there is a conventional first mortgage on the property. U.S. Department of Housing and Urban Development

48 NSP Policy Alert! Guidance on Verifying Expenditures in the Next Quarterly Performance Report (QPR) July 24, 2012 July 24, 2012 Community Planning and Development This policy alert provides guidance on compliance with the expenditure requirements of the NSP1, NSP2, and NSP3 programs. All NSP1 grantees are required to expend 100 percent of their allocated funds within four years from the date funds became available to the grantee for obligation. All NSP2 and NSP3 grantees are statutorily required to expend at least 50 percent of allocated funds within two years and 100 percent of allocated funds within three years from the date funds became available to the grantee for obligation. NSP Expenditure Requirement NSP1 100% Expended NSP2 100% Expended NSP3 50% Expended NSP3 100% Expended Deadline February 25 April 1, 2013 (four years from the date that HUD signed the grantee agreement) February 11, 2013 (three years from the date that HUD signed the grant agreement) February 24 March 24, 2013 (two years from the date that HUD signed the grant agreement) February 24 March 24, 2014 (three years from the date that HUD signed the grant agreement) Currently, HUD is using grantee drawdown data from DRGR to gauge how quickly grantees are progressing in their programs. Because in most cases funds may not be drawn more than three days in advance of need, this makes a grantee s drawdown amount a reasonable proxy for the expended amount. But drawdowns do not equal expenditures. Several grantees have drawn down over 60 percent of their grant amounts but have reported zero expenditures, and this must be corrected as soon as possible. HUD is requiring each grantee to verify expenditures by opening its Quarterly Performance Report (QPR) in DRGR and reporting on actual expenditures by August 31, What is an expenditure? Outlays (expenditures) mean charges made to the project or program. They may be reported on a cash or accrual basis. For reports prepared on a cash basis, outlays are the sum of actual cash disbursement for direct charges for goods and services, the amount of indirect expense incurred, the value of in-kind contributions applied, and the amount of cash advances and payments made to contractors and subgrantees. U.S. Department of Housing and Urban Development

49 For reports prepared on an accrued expenditure basis, outlays are the sum of actual cash disbursements, the amount of indirect expense incurred, the value of in-kind contributions applied, and the new increase (or decrease) in the amounts owed by the grantee for goods and other property received, for services performed by employees, contractors, subgrantees, subcontractors, and other payees, and other amounts becoming owed under programs for which no current services or performance are required, such as annuities, insurance claims, and other benefit payments. Most grantees report on the accrual basis. This guidance means that costs that have been incurred, but not yet paid, are considered expended. How can I update my expenditures? Grantees can report on expenditures by opening their most current QPR in DRGR and recording all actual expenditures as of that date. After entering the information, grantees should save the QPR. After saving the QPR, the grantee s expenditures should automatically be updated in DRGR. This will allow each grantee to document progress towards meeting its expenditure goals. Failure to demonstrate expenditures accurately can result in recapture of funds. Updating Performance Measures in DRGR We are also encouraging grantees to update their performance measures in DRGR. Grantees should ensure they are reporting on both expected number of units to be treated and the number of units that have been completed. Completed units should be reported once a national objective is met. Updating these performance measures allows HUD to get a more accurate picture of grantee performance that goes beyond expenditures. Congress, the White House, and the media all inquire frequently about the accomplishments of NSP grantees. U.S. Department of Housing and Urban Development

50 NSP Policy Alert! Updated NSP2 and NSPTA Guidance on Reporting in FederalReporting.Gov June 26, 2012 June 26, 2012 Community Planning and Development Reporting will cover the period July 1-14, 2012, which is only 9 working days, due to the 4 th of July Holiday; you are encouraged to report as early as possible. If you are new to Federal Reporting, it is recommended that you visit the HUD Recovery website at Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub-recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub-recipients. When a grantee is handling all Federal Reporting data entry itself, the grantee is to review and verify the information provided to them by their sub-recipients prior to data entry. Grantees also need to enter or update their environmental review information in RAMPS. Expected Timetable: (Subject to change by OMB) July 1-14 Grantees and sub-recipients report in FederalReporting.gov HUD will be able to view prime recipients reports and contact non-reporting recipients starting the week of July 1st. Ongoing Grantees should continue to report their environmental reviews into RAMPS (Recovery Act Management Performance System) and update their information as it becomes available. July Prime Recipient Review Period (Prime Recipients Review Data Submitted by Sub-recipients(s)/Prime Recipients & Sub-recipients make corrections) July HUD data review and comment period for data entered by grantees and subrecipients (Agency Review of Data Submitted/Prime Recipients & Sub- Recipients make corrections) July 30 Recovery Act Transparency Board posts recipient reports to Recovery.gov Aug 3 Sept 18 System re-opens to make error corrections to reports that were created from July 1-14th. HUD comments on grantee reports; grantees review subrecipients reports; prime recipients and sub-recipients correct reports Deadlines are as of midnight Eastern Time U.S. Department of Housing and Urban Development

51 Provide Clear and Descriptive Narratives: Some grantees need to provide greater clarity in their narrative descriptions in FederalReporting.gov. NSP2 and NSPTA grantees Award Description, Quarterly Activities/Project Description and Quarterly Job Description fields must provide clear, complete narratives that facilitate an understanding by the general public. If you have not already amended your narrative descriptions, please review them in FederalReporting.gov during the July Federal Reporting cycle to ensure that they provide concise, clear and detailed information before submitting your report. At a minimum, the narratives should include: a. Clear and complete information on the award s purpose, scope and nature of activities, outcomes, and status of activities; b. An explanation of all abbreviations or acronyms that may be unfamiliar to the general public; c. The names and location of specific projects, so it is clear how and where ARRA funds are being spent, within the character limitations; and, d. The grantee s website address and any additional websites that provide detailed grant or project level information will be listed. If you need to update your descriptions - below is suggested language with some highlighted notations of where you should add your own information. This suggested language is not meant to be all inclusive. Please provide as much detail as possible to reflect the work/progress of your NSP2 or NSPTA funds. Once you revise the Award Description you should not have to update this quarterly, only the Quarterly Description/Project Description will need updating each quarter. Below is a sample Template: Award Description The Neighborhood Stabilization Program2 (NSP2) funds will invest in [Name of Project(s)]. The purpose of this project(s) is to. Quarterly Activities/Project Description NSP2 funds will assist [enter the number of projects NSP2 is funding] projects throughout the city/state [if possible provide the cities or counties, or at least some of them if there are too many locations] A listing of all projects receiving [NSP2] funding is posted to our website at [provide website of where you have posted your NSP2 completed projects]. [You should describe what your Agency accomplished/worked on during the quarter. Provide as much detail as possible.] For example - This quarter, $ were committed to of projects, $ were expended for of projects, of written agreements were finalized, work began on of projects [list the project names], work is continuing at [list the project names], work was completed at [list general location of the projects]. Quarterly Job Description NSP2 funds were used to create/retain FTE jobs this quarter. [Name type of jobs and the number of FTE jobs that were funded with ARRA dollars] If no jobs were created, state this and the reason. U.S. Department of Housing and Urban Development

52 For additional help: The Service Desk is ready to help with NSP2 reporting and review questions and can be reached by phone at 1 (877) The service desk hours of operation are 9 AM to 5 PM ET, Monday Friday. It will be closed for the 4 th of July Holiday. For more information regarding the Service Desk, please visit the Help section of FederalReporting.gov. HUD s Recovery Act Reporting Call Center, , is available to answer NSP2 reporting questions as they relate to DRGR. The call center is available 8:30am to 5:30pm EDT, Monday to Friday, but will be closed for the 4 th of July Holiday. Previous Federal Reporting Guidance Quarterly Updates also contain information on a variety of reporting issues: Amendments to Approved CDBG-R Programs How to Renew your city s CCR (Central Contractor Registration) Ensuring that Project Title and Primary Place of Performance fields provide transparent data in accordance with OMB M : guidance document M How to Avoid Saving a Draft Report Instead of a Final Report Minimizing Reporting Errors in FederalReporting.gov Correcting Errors in FederalReporting.gov Sub-Recipient Reporting Need to Ensure Correct DUNS number These resources can be found on the HUD Recovery Act website: This site also provides links to other resources, such as the CCR registration website and the Dun & Bradstreet registration website. U.S. Department of Housing and Urban Development

53 NSP Policy Alert! June 1, 2012 Community Planning and Development Guidance on the Procurement of Developers and Subrecipients June 1, 2012 This guidance supplements the NSP Policy Alert Guidance on Developers, Subrecipients, and Contractors updated on November 16, 2011 and expands on information from the NSP Policy Alert Guidance on NSP-Eligible Acquisition & Rehabilitation Activities published on December 11, Grantee Designation of Entities and their Roles Neighborhood Stabilization Program (NSP) grantees may work with developers, subrecipients, contractors, or any combination of these entities to implement their programs. However, different HUD and OMB rules apply to these entities depending on the specific situation. The November 2011 guidance defines the three entities, responds to common questions regarding developer fees, and lists administrative implications by entity type. The December 2009 guidance includes definitions of third party entities, how these are selected and implications of their designation as developers or subrecipients. This alert serves to clarify the procurement requirements for NSP grantees; it deals only with real estate development arrangements and thus excludes contractors. Contractors might work for a developer, but do not have site control and do not assume the risk of development. In order to understand which entities are required to follow procurement rules, it is important that grantees designate each entity as a subrecipient or developer or both [in this case they need to have two separate agreements] at the outset of their program. This identity stays with the entity for the duration of the agreement; entities generally do not change roles. Grantees can designate an entity as a developer using several guidelines: 1. The regulatory definition: Developers are indirectly described in 24 CFR (b)(1): Assistance to private individuals and entities, including profit making and nonprofit organizations, to acquire for the purpose of rehabilitation, and to rehabilitate properties, for use or resale for residential purposes; For the purpose of NSP (and CDBG), private entities include developers. Much like income eligible households, developers are considered beneficiaries or end users of NSP funds. For new construction, a developer is defined under (Community Based Development Organizations CBDO) or under the section above. This section of the CDBG housing rehabilitation regulations comes closest to describing the range of NSP new construction activities, which are ineligible in CDBG. U.S. Department of Housing and Urban Development

54 2. The relationship: A grantee entrusts a developer with funds to complete a project. Developers are not providing specific goods or services back to the grantee. Developers must have site control (ownership or lease in some cases) and must plan, obtain permits, and manage the project from start to finish, not just serve as contractors. 3. For-profit entities are designated as developers. Private non-profits may also serve as developers. Public non-profits (Housing or Redevelopment Authorities) and public agencies may not act as developers (see below.) Grantees can designate an entity as a subrecipient using several guidelines: 1. In general, subrecipients act as an extension of the grantee and must follow all the same rules as grantees. 2. The limitation of 24 CFR (b)(1) to private individuals and entities means that public nonprofits such as housing authorities must be treated as subrecipients. This designation prohibits public authorities from earning fees, requires maintenance of more detailed records and entails using federal procurement procedures. The prohibition against public non-profits receiving fees, while embedded in CDBG rules, is based on OMB Circulars regarding Uniform Administrative Procedures and Cost Principles (24 CFR 85.22). This section allows Reasonable fees or profit to cost-type contractors but not any fee or profit (or other increment above allowable costs) to the grantee or subgrantee. HUD cannot waive this OMB standard. In the case of selecting a non-profit as a partner, a grantee must decide if the non-profit will be treated as a subrecipient or a developer or holds both roles [in this case there must be separate agreements]. For example, it is possible to engage a non-profit entity that provides housing counseling and does development. The grantee can designate the part of the non-profit organization that carries out the housing counseling as a subrecipient, because it is providing a service to the grantee and designate a different part of the same organization as a developer to carry out the acquisition and rehabilitation and receive a fee as a developer. Costs must be tracked carefully and developer fees cannot be assessed on the counseling services. Designation of non-profits as developers or subrecipients ENTITY Can be Developer Can be Subrecipient Private For-profit Yes No Private Non-Profit Yes Yes Public Non-Profit (Housing or Redevelopment Authority) Public Entity (State or local government agency) Once a grantee has designated each entity with which it works as either a subrecipient or a developer or both (separate sub-entities that belong the same non-profit), then the grantee will be able to determine the corresponding procurement requirements, which are summarized in a table on page 4. No No Yes Yes U.S. Department of Housing and Urban Development

55 Selecting developers Developers may be chosen by grantees or subrecipients based on qualifications. They do not need to go through a competitive process, just as a household that receives a rehabilitation loan is not competitively procured. Grantees negotiate both a fee and a process with developers, which are solidified in a developer agreement, and the developer assumes part of the risk of the project. Grantees (or subrecipients) then ensures that costs and developer fees are reasonable by underwriting the project. That is, they evaluate costs, estimate income and expenses, and weigh risks and rewards to determine the appropriate fees. However, it is ultimately a grantee s prerogative if it wishes to go through a procurement process to select a developer (see Part for procurement guidance), unless required by state or local. Eligible entities that are designated as developers are not required to follow certain CDBG [NSP] regulations such as the program income, procurement and reporting rules that typically apply to grantees and subrecipients. As a result, if grantees or subrecipients would like to impose these requirements on developers, they must specify them in the developer agreement. This is the primary legal document that developers must follow and often serves as the basis for evaluating program expenditures during monitoring reviews. Selecting subrecipients Subrecipients, such as non-profit organizations and public entities under (a) can also be designated by the NSP grantee without a procurement process. See also (c) for guidance. However, subrecipient agreements must conform to all the regulations under As with developers, grantees are not required by NSP/CDBG rules to use a procurement process to select subrecipients, but it may be required by state or local law. Developers selecting third parties Developers do not need to procure their contractors and do not follow OMB Cost Principles. However, in order for a grantee to meet its NSP requirements, it must ensure that the developer s costs are reasonable and have records to demonstrate how they made this determination. Appendix A to Part 570 Guidelines and Objectives for Evaluating Project Costs and Financial Requirements IV suggests that to determine the reasonableness of each cost element, a reviewer would compare the cost element with a third party, fair market price quotation for that cost element. If a reviewer does not use third party price quotations to verify cost elements, then the reviewer would need to conduct its own cost analysis using appropriate cost estimating manuals or services. The developer in turn must demonstrate that costs are reasonable and that any in-house staff or subcontractors with whom it works are employing principles of cost reasonableness. Price testing using quotes is one way to show that costs are reasonable; another is the use of published construction cost data. The developer does not need to demonstrate that a competitive bid process took place, because competitive bids stem from the procurement rules which do not apply to developers. The fact that a developer receives a fee does not trigger procurement rules. In the case of entities who are directly affiliated with a developer (an identity of interest situation) the grantee should be careful in reviewing the eligibility and reasonableness of costs, especially the developer s profit and overhead. The grantee should look at all of the types of return that the developer is earning (developer s fee, builder s profit, rental income, etc.) and ensure that, in sum, the return is reasonable for the type of construction and local market. U.S. Department of Housing and Urban Development

56 Subrecipients selecting third parties In contrast to developers, subrecipients must follow CDBG procurement rules at 24 CFR (b) and Office of Management and Budget (OMB) procurement rules (Part 84, A-122 for non-profit subrecipients and Part 85, A-87 for public entity subrecipients) to hire a contractor or for the purchase of goods and services. Consideration of state and local laws Summary of Procurement Requirements by Entity ENTITY Grantees and public subrecipients should follow relevant local and state laws regarding procurement requirements. Whereas Federal small purchase procedures allow contracts under $100,000 to be awarded without a full competitive bidding process, States and other localities may have requirements with lower thresholds. OMB generally recommends sealed bids for construction contract procurement. Many communities use the competitive proposal method of procurement to develop a pre-approved group of contractors, appraisers, etc., and then obtain price quotes for specific jobs as they are identified. This ensures a competitive procurement at the front end and still enables the grantee to secure contractors (or other services) in a timely manner. Additional related resources on procurement May be selected without federal procurement process? May select contractors/other partners without procurement process? For-profit Yes Yes Private Non-Profit acting as developer Yes Yes Private Non-Profit acting as subrecipient Yes No Public Non-Profit (Housing/Redevelopment. Authority) Public Entity (State or local government agency) Managing CDBG: A Guidebook for Grantees on Subrecipient Oversight, March 2005 CDBG Video Training Module: Admin Planning and Financial Management, February 2008 Basically CDBG Training Manual, November 2007: Chapter 11 (Financial Management) and Chapter 14 (Procurement) Yes Yes No No U.S. Department of Housing and Urban Development

57 NSP Policy Alert! May 18, 2012 Community Planning and Development Guidance on NSP Activity Delivery and Administrative Costs May 18, 2012 This Policy Alert focuses on how NSP grantees can distinguish between administrative and activity delivery costs, including the types of costs that are eligible under each category. The attached charts provide additional details on these costs and a comparison between the two categories. Development of NSP units typically requires three general types of costs: Direct development costs: these are the actual costs to acquire, rehabilitate or construct units. These costs are incurred by developers, whether nonprofit, for-profit or public. They include common development soft costs such as appraisals, closing costs, legal and fees. These costs are tied to a specific project or site and are included within the development budget for that project. Activity delivery costs: these are costs incurred by grantees and subrecipients to facilitate the development of specific units or projects. Examples of activity delivery costs include staff time to do environmental reviews, work write-ups, underwriting or applicant selection. The costs are not required to be tied to a specific address but must be tied to the development of eligible NSP units. Developers are not eligible for activity delivery costs but as indicated above, can charge projectrelated soft costs. Program administrative costs: are costs that the grantee or subrecipient must incur in order to administer or manage the overall NSP program. Examples of these types of costs include planning, monitoring, or financial management, such as periodic reporting. Developers and construction contractors are not eligible to charge program administrative costs but can charge a reasonable development fee, as well as overhead. Two previous NSP Policy Alerts have provided additional detail on eligible costs for developers, as follows: Allocating Development Costs, September 2011 Calculating Expenditures, September 2010 It can be complicated to determine whether an eligible cost should be considered an activity delivery cost or whether it must be an administrative cost for the grantee or subrecipient. Given that administrative costs are capped at 10% of the NSP grant plus program income, grantees would often prefer to charge costs under activity delivery and for many types of costs, this is acceptable. However, some types of costs are over-arching and not tied to a specific project or series of projects and thus cannot be considered activity delivery. U.S. Department of Housing and Urban Development

58 The attached charts provide two different approaches to evaluating whether a cost may be considered activity delivery. The first approach distinguishes the costs by phases or tasks in the development process. The second approach divides the costs by the functional role of the staff person at the grantee or subrecipient Grantees may use either approach to determine which costs may count as activity delivery and which as administration. Regardless of which approach is used, there are several tasks that the grantee must undertake when paying these types of costs: Documentation: all costs must have source documentation. For staff costs, this include a time card, time sheet or other time keeping mechanism that demonstrates that the time was spent on the eligible NSP activity. For contracted costs, the documentation might include invoices, legal agreements or cancelled checks. Incomplete projects: if a cost is an eligible activity delivery cost and the project is not completed, that cost may remain in activity delivery (attributed to the intended eligible use A through E). The cost is not required to be moved to administration. However, the grantee must ensure that the proportion of activity delivery costs to direct development costs is reasonable. There are no definitive rules for the ratio of direct to activity delivery costs and it will vary by the size and complexity of the grantee. Tie to NSP: whether an administrative or activity delivery cost, the cost must be tied to the provision of NSP units. For example, it is not acceptable to use NSP administrative funds to run state housing programs or other HUD programs. To the extent that those other funds are combined with NSP in projects, administrative and activity delivery costs can be pro-rated. If you have additional questions about NSP administrative or activity delivery costs or any other NSP topic, please contact your local HUD CPD Field Office or submit a question on-line on the NSP Resource Exchange at U.S. Department of Housing and Urban Development

59 Phases of Development APPROACH BASED ON DEVELOPMENT TASK NSP Grantee Tasks Example: RESIDENTIAL REHAB PROGRAM Activity Delivery General Administration (Program Admin Costs) Managing comprehensive project design issues, site acquisition, and relocation Analyze sub-market where project is proposed for need, rent levels, costs, etc. Analyze overall market conditions and develop financial guidelines. Pre-Development Promoting municipal NSP funded programs and activities Create and produce brochure for specific project. Present project to housing developers and notify them of upcoming request for proposals (general community promotion is ineligible). Design and oversee overall marketing plan. Announce marketing plan to elected officials and chief executive. Writing and processing loan agreements Negotiate specific loan terms and conditions for approved project; negotiate and close loan agreement for specific project. Negotiate with lenders community-wide to solicit participation in housing projects; develop standards and requirements for all loan agreements. Soliciting, reviewing and writing responses to request for approvals (RFP) Write and issue RFP, accept and process proposals. Manage staff development for selection process and provide necessary resources. Technical Review Direct technical analysts in evaluation of specific proposed projects. Ensure that staff or contracted technical support is in place, trained, and functional. Performing site visits for construction project design or implementation Staff person(s) responsible for reviewing and signing off on construction project design. Staff person(s) performing site visits for staff training purposes. Development Conducting and/or attending job walks, bid openings and pre-construction conferences for construction projects Attend bid openings to add value with specific technical advice and guidance not available to subrecipient through other sources. Attend subrecipient bid openings primarily as an observer or to oversee general performance of subrecipient organization. Underwriting/Financial Feasibility Analyze financial statements of submitted proposals to determine creditworthiness relative to established standards. Establish project financial standards, such as maximum loan to value and debt to equity. Reviewing and processing construction project budgeting issues, including change orders Develop and or evaluate construction project budget for a specific project. Review and process construction project budget and related issues. Subrecipient management with regard to conducting and/or attending construction project completion inspection and ground breaking ceremonies Coordinate regular inspections and analyze requests for construction change orders. Provide staff and other resources to monitor all approved projects. U.S. Department of Housing and Urban Development

60 Phases of Development APPROACH BASED ON DEVELOPMENT TASK (continued) NSP Grantee Tasks Writing and responding to correspondence related to construction issues Relocation activities Reviewing payroll reports, resolving labor standards issues and performing labor standards compliance reporting Example: RESIDENTIAL REHAB PROGRAM Activity Delivery Collect detailed data on individual projects and gather input from IDIS staff. Relocating existing residents in order to rehabilitate a specific housing project. Responsible for wage rate decisions and other personnel actions for a specific project. General Administration (Program Admin Costs) Meet with HUD officials, develop staff capacity for IDIS and other systems, provide reports to Mayor and Council. Budget setting, staff reviews Responsible for personnel actions related to grantee programs. Post-Development Evaluation Provide detailed analysis of individual projects for review by upper management. Assess overall progress of all individual projects for timeliness, quality housing, and compliance; visit sites for ceremonial activities such as ground breaking or grand opening. Asset Management Compliance Monitoring Not an activity delivery cost since it occurs after project completion. Not an activity delivery cost since it occurs after project completion. Hire staff to conduct financial analysis of projects in occupancy. Ensuring compliance with affordability periods, monitoring subrecipient files, interviewing property managers for compliance with HUD and local guidelines, and visiting sites to inspect physical condition of property and submit reports. U.S. Department of Housing and Urban Development

61 Grantee Representatives Grantee's NSP Management Designee Division/Program Director Project Managers Line Staff Support Staff Public or Nonprofit Subrecipient Unit of Local Government Subgrantee to the state Developer Third Party Contractor (e.g. construction contractor.) If hired by grantee/ subrecipient, must be procured APPROACH BASED ON JOB FUNCTION Eligible Expenditures Function General Administration Activity Delivery Admin Costs) To oversee planning, organization, implementation and reporting for the grantee's entire NSP program To oversee one or more NSP-funded program(s) that are identified in the grantee's consolidated plan To oversee NSP-funded projects To contribute to components of NSPfunded projects To support NSP-funded projects in various capacities To oversee NSP-funded projects on behalf of the grantee To facilitate NSP-funded projects located in the unit of local government's jurisdiction under the guidance of the state grantee To acquire, finance and develop affordable housing To perform NSP-funded construction tasks on behalf of the grantee, subrecipient or developer Verifiable time spent on detailed project implementation Verifiable time spent carrying out project level activities such as conducting the environmental review, administering the Davis Bacon requirements, or certifying incomes of beneficiaries Verifiable time spent overseeing day to day project activities such as processing contractor invoices, reviewing progress of construction, or evaluating change orders Performing project activities such as processing contractor invoices, reviewing progress of construction, or evaluating change orders Performing project activities such as processing contractor invoices, reviewing progress of construction, or evaluating change orders All project related activities in accordance with agreement between subrecipient and grantee All project related activities in accordance with agreement between unit of local government and state grantee No activity delivery costs. Developers may charge actual hard and soft project costs and earn a reasonable developer fee, as approved by the grantee in its contract. No activity delivery costs. Contractors may charge actual hard and soft project costs and earn a reasonable overhead profit, as approved by the grantee in its contract. (Program Almost all NSP-related activities Managing project staff and overseeing program activities Planning, analysis, monitoring, auditing, and reporting Planning, analysis, monitoring, auditing, and reporting Planning, analysis, monitoring, auditing, and reporting Oversight, reporting, and monitoring Oversight, reporting, and monitoring n/a n/a U.S. Department of Housing and Urban Development

62 NSP Policy Alert! March 29, 2012 Community Planning and Development Updated NSP2 Guidance on Reporting in FederalReporting.Gov March 29, 2012 FederalReporting.gov: The April Quarterly Reporting Period Is Here! Reporting will cover the period April 1-14, 2012, which is only 10 working days; you are encouraged to report as early as possible. If you are new to Federal Reporting, it is recommended that you visit the HUD Recovery Website at: Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub-recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub-recipients. When a grantee is handling all Federal Reporting data entry itself, the grantee is to review and verify the information provided to them by their sub-recipients prior to data entry. Grantees also need to enter or update their environmental review information in RAMPS. Expected Timetable: April 1-14 April April 20 (Subject to change by OMB) Grantees and sub-recipients report in FederalReporting.gov HUD will be able to view prime recipients reports and contact non-reporting recipients starting the week of April 1st. Prime Recipient Review Period (Prime Recipients Review Data Submitted by Sub-recipients(s)/Prime Recipients & Sub-recipients make corrections) Final deadline to report Environmental Review data into RAMPS. April HUD data review and comment period for data entered by grantees and subrecipients (Agency Review of Data Submitted/Prime Recipients & Sub- Recipients make corrections) April 30 Recovery Act Transparency Board posts recipient reports to Recovery.gov May 3 June 18 System re-opens to make error corrections to reports that were created from April 1-14th. HUD comments on grantee reports; grantees review subrecipients reports; prime recipients and sub-recipients correct reports Deadlines are as of midnight Eastern Time U.S. Department of Housing and Urban Development

63 Provide Clear and Descriptive Narratives: Some grantees need to provide greater clarity in their narrative descriptions in FederalReporting.gov. Award Description, Quarterly Activities/Project Description and Quarterly Job Description fields must provide clear, complete narratives that facilitate an understanding by the general public. If you have not already amended your narrative descriptions, please review them in FederalReporting.gov during the April Federal Reporting cycle to ensure that they provide concise, clear and detailed information before submitting your report. At a minimum, the narratives should include: a. Clear and complete information on the award s purpose, scope and nature of activities, outcomes, and status of activities; b. An explanation of all abbreviations or acronyms that may be unfamiliar to the general public; c. The names and location of specific projects, so it is clear how and where ARRA funds are being spent, within the character limitations; and, d. The grantee s website address and any additional websites that provide detailed grant or project level information will be listed. If you need to update your descriptions - below is suggested language with some highlighted notations of where you should add your own information. This suggested language is not meant to be all inclusive. Please provide as much detail as possible to reflect the work/progress of your NSP2 funds. Once you revise the Award Description you should not have to update this quarterly, only the Quarterly Description/Project Description will need updating each quarter. Below is a Sample Template: Award Description The Neighborhood Stabilization Program2 (NSP2) funds will invest in [Name of Project(s)]. The purpose of this project(s) is to. Quarterly Activities/Project Description NSP2 funds will assist xx [enter the number of projects NSP2 is funding] projects throughout the city/state [if possible provide the cities or counties, or at least some of them if there are too many locations] A listing of all xx projects receiving NSP2 funding is posted to our website at [provide website of where you have posted your NSP2 completed projects]. [You should describe what your Agency accomplished/worked on during the quarter. Provide as much detail as possible.] For example - This quarter, $xx,xxx were committed to xx of projects, $xx,xxx were expended for xx of projects, xx of written agreements were finalized, work began on xx of projects [list the project names], work is continuing at [list the project names], work was completed at [list general location of the projects]. Quarterly Job NSP2 funds were used to create/retain FTE jobs this U.S. Department of Housing and Urban Development

64 Description quarter. [Name type of jobs and the number of FTE jobs that were funded with ARRA dollars] If no jobs were created, state this and the reason. These reporting requirements represent an unprecedented transparency and accountability effort. Accordingly, we recognize that many grantees may encounter challenges and delays in the reporting process, and we appreciate your continued commitment to working with HUD toward the important goal of economic recovery. For additional help: The Service Desk is ready to help with reporting and review questions and can be reached by phone at 1 (877) The service desk hours of operation are 8 AM to 6 PM ET, Monday Friday during reporting months and 9 AM to 5 PM ET Monday Friday during non-reporting months beginning May 2, For more information regarding the Service Desk, please visit the Help section of FederalReporting.gov. HUD s Recovery Act Reporting Call Center, , is available to answer a wide variety of CDBG-R and NSP2 reporting questions. The call center is available 8:30am to 5:30pm EDT, Monday to Friday, with expanded hours April Previous Federal Reporting Guidance Quarterly Updates also contain information on a variety of reporting issues: How to Renew your city s CCR (Central Contractor Registration) Ensuring that Project Title and Primary Place of Performance fields provide transparent data in accordance with OMB M : Guidance Document M How to Avoid Saving a Draft Report Instead of a Final Report Minimizing Reporting Errors in FederalReporting.gov Correcting Errors in FederalReporting.gov Sub-Recipient Reporting Need to Ensure Correct DUNS number These resources can be found on the HUD Recovery Act website: This site also provides links to other resources, such as the CCR registration website and the Dun & Bradstreet registration website. U.S. Department of Housing and Urban Development

65 NSP Policy Alert! March 15, 2012 Community Planning and Development Guidance on NSP Appraisals: Voluntary Acquisitions Updated March 15, 2012 Note: The Guidance on NSP Appraisals was revised March 15, The original guidance was issued November 5, Acquisitions financed with NSP grant funds are subject to the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA) (42 U.S.C et seq.), its implementing regulations at 49 CFR part 24, and the requirements in the NSP Notices that HUD published in the Federal Register on October 6, 2008 as amended on October 19, 2010 and the NSP2 Notice of Funding Availability ( NSP Notices ). HUD anticipates that most of these transactions will qualify as voluntary acquisitions under 49 CFR (b)(1)-(3). The URA does not specifically require appraisals in connection with voluntary acquisitions which meet the applicable requirements of 49 CFR (b), as described below. However, NSP has program-specific appraisal requirements. These appraisal requirements apply to any NSPassisted acquisition of a foreclosed-upon home or residential property (including voluntary acquisitions). NSP Appraisal Requirements Section 2301(d)(1) of the Housing and Economic Recovery Act of 2008 requires that any NSP-funded purchase of a foreclosed-upon home or residential property be at a discount from the current market appraised value of the home or residential property, taking into account its current condition. Such discount shall ensure that purchasers are paying below-market value for the home or property. Any recipient of NSP funds must comply with these requirements; this document uses the term grantee to include subrecipients, consortium members, developers, or other participants. Due to this statutory discount requirement, the NSP Notices require appraisals to be performed with respect to NSP-funded acquisitions of foreclosed upon homes and residential properties. The current market appraised value must be established through an appraisal made in conformity with: (1) the URA appraisal requirements at 49 CFR , or (2) the Uniform Standards of Professional Appraisal Practice (USPAP), or (3) the appraisal requirements of the Federal Housing Administration (FHA) or a Government-Sponsored Enterprise (GSE); and the appraisal must be completed or updated within 60 days of a final offer made for the property by a grantee. If the real estate closing does not occur within this 60-day period, the grantee may use an updated appraisal for another 60 days only as described below. If the anticipated value of the proposed acquisition is $25,000 or less, the current market appraised value of the property may be established by a valuation of the property that is based on a review of available data and is made by a person the grantee determines is qualified to make the valuation. The following guidance on NSP appraisals pertains to acquisitions of foreclosed upon homes and residential properties if the anticipated value exceeds $25,000. U.S. Department of Housing and Urban Development

66 1. Market Appraised Value. If NSP funds are used to acquire a foreclosed upon home or residential property, the grantee must ensure that the purchase price includes a discount from the current market value established by an appraisal that meets either the URA appraisal requirements of 49 CFR or one of the other appraisal options specified in the October 19, 2010 NSP Notice: Option 1 An appraisal meeting the URA appraisal requirements of 49 CFR ; Option 2 An appraisal meeting the requirements of the Uniform Standards of Professional Appraisal Practice (USPAP); Option 3 An appraisal meeting the requirements of the Federal Housing Administration (FHA) or a Government-Sponsored Enterprise (GSE). 2. Current and Cost Reasonableness Requirements. The purchase price of foreclosed property must be at a discount from the current market appraised value of the property. The appraisal must be completed within 60 days of a final offer made for the property by the grantee. If closing does not take place before the 60 days has expired, the grantee may obtain an update to the initial appraisal. This update is not required to be a full appraisal and does not generally require an inspection of the interior of the structure unless damage is visible. In addition, if NSP funds are used to acquire properties, a grantee must also be guided by the applicable OMB cost principles when considering the current market value of a property. A fundamental requirement in the OMB Circulars is that costs charged to an NSP grant must be reasonable. Cost reasonableness takes into account factors such as prudence, sound business practices, and arms length bargaining. Given these considerations, reliance on an appraisal that is more than 120 days old at the time of closing would appear counter to the current market appraisal and cost reasonableness requirements. Beyond 120 days, the grantee is advised to obtain a new appraisal. URA Acquisition Requirements The URA voluntary acquisition requirements (49 CFR (b)(1)-(5)) apply to anyone who uses NSP funds to acquire real property including any Agency, nonprofit/for profit organization, or individual homebuyers who use a federally-funded down payment or other financial assistance. This includes both foreclosed upon residential properties subject to the NSP Appraisal Requirements and properties not subject the NSP Appraisal Requirements. Any acquisition of real property for an NSP-assisted project which does not meet the requirements of a voluntary acquisition under 49 CFR (b)(1)-(5) is subject to the requirements of 49 CFR part 24, subpart B, which includes rules governing appraisals and review appraisals, among other acquisition-related requirements (see 49 CFR ). 1. Voluntary Acquisition of Property Subject to NSP Appraisal Requirements. To meet the voluntary acquisition requirements, the owner of record must be notified in writing that Federal financial assistance will be used in the transaction, what the market value of the property is believed to be, and that if agreement cannot be reached through negotiation, the acquisition will not take place. Such notification is not required to be made to Federal, State, or State Agencies (FHA, for example), if the purchaser cannot acquire the property through condemnation (see 49 CFR (b)(3)). The specific URA voluntary acquisition requirements that must be met vary depending on whether the buyer has the power of eminent domain and will not use it (see 49 CFR (b)(1)(i)-(iv)) or does not have the power of eminent domain (see 49 CFR (b)(2)). Any acquisition under possible threat of eminent domain cannot be considered a voluntary acquisition (even if the seller is willing to negotiate). HUD has developed a number of sample guidance forms to assist NSP grantees in meeting these U.S. Department of Housing and Urban Development

67 requirements. The guidance forms and other information and resources are available on the NSP Acquisition and Relocation Resources page located at: 2. Voluntary Acquisition of Property Not Subject to NSP Appraisal Requirements. When acquiring property under NSP that does not meet the definition of foreclosed (generally, vacant or abandoned which are not subject to the NSP discount requirements) but which meets the applicable URA criteria for a voluntary acquisition under 49 CFR (b)(1)-(3), no specific URA appraisal requirement applies. Nonetheless, grantees must have a reasonable basis for their determination of market value. See 49 CFR part 24, Appendix A, (b)(1)(iv) and (2)(ii). While making such a determination of market value does not require an appraisal for these transactions, NSP grantees may still decide that an appraisal is necessary to support their determination of the market value of these properties. After a grantee has established an amount it believes to be the market value of the property and has satisfied the applicable written disclosure requirements, when required under 49 CFR (b)(1) & (2), a grantee may negotiate freely with the owner in order to reach agreement. When these transactions are voluntary and accomplished by a willing buyer and a willing seller, negotiations may result in an agreement for the amount of the original estimate, an amount exceeding it, or for a lesser amount. Although not required by the URA regulations, it would be appropriate for grantees to apply the administrative settlement concept and procedures in 49 CFR (i) to negotiate amounts that exceed the original estimate of market value. As with acquisitions subject to the NSP appraisal requirements, NSP grantees must also abide by the cost reasonableness requirements of the CDBG program and 2 CFR part 225 (formerly known as OMB Circular A-87) when incurring costs under a federally funded program. Grantees must be able to document the reasonableness of costs incurred (which may include an appraisal or other documented determination of value as support). This is especially critical in markets where values are still unstable and risk of overpayment is greater. Questions: Q. Can the lender s appraisal be used if it is reviewed for compliance with the appraisal requirements specified by HUD? A. Yes, if it meets the requirements in the October 19, 2010 NSP Notice. Q. If closing on the property is delayed beyond 60 days from the date of the appraisal, is an updated appraisal required? A. In order to meet the NSP statutory requirement that the purchase price of a foreclosed home or residential property acquired for an NSP-funded project be at a discount from the current market appraised value, seriously delayed closings must obtain an updated appraisal (particularly in volatile markets) if the closing takes place between 61 and 120 days from the date of the appraisal. Beyond 120 days, the grantee is advised to obtain a new appraisal. U.S. Department of Housing and Urban Development

68 NSP Policy Alert! January 3, 2012 Community Planning and Development Updated NSP2 Guidance on Reporting in FederalReporting.Gov January 3, 2012 FederalReporting.gov: The January Quarterly Reporting Period Is Here! Reporting will cover the period January 1-14, 2012, which is only 9 working days, due to the New Year s Holiday on Monday, Jan 2. You are encouraged to report as early as possible. Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub-recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub-recipients. When a grantee is handling all Federal Reporting data entry itself, the grantee is to review and verify the information provided to them by their sub-recipients prior to data entry. Grantees also need to enter or update their environmental review information in RAMPS. Expected Timetable: January 1-14 Reminder Only No specific date January 14 January January January 30 Feb 2 March 12 (Subject to change by OMB) Grantees and sub-recipients report in FederalReporting.gov HUD will be able to view prime recipients reports and contact non-reporting recipients starting the week of January 1st. Don t forget to report Environmental data into RAMPS for this quarter only. (Grantees ability to enter data is ongoing). HUD submits quarterly report on the status and progress of funded activities to Council on Environmental Quality, using RAMPS data. Prime Recipient Review Period (Prime Recipients Review Data Submitted by Sub-recipients(s)/Prime Recipients & Sub-recipients make corrections) HUD data review and comment period for data entered by grantees and subrecipients (Agency Review of Data Submitted/Prime Recipients & Sub- Recipients make corrections) Recovery Act Transparency Board posts recipient reports to Recovery.gov System re-opens to make error corrections to reports that were created from January 1-14th. HUD comments on grantee reports; grantees review subrecipients reports; prime recipients and sub-recipients correct reports Deadlines are as of midnight Eastern Time U.S. Department of Housing and Urban Development

69 Automated Change Requests As of April 1, 2011, prime recipients will now be able to request to make changes through a feature called automated data change (ADC) in Federal Reporting.gov for previous quarters only. ADC should not be used to make changes that can be made in the current quarter (e.g., updates to the award amount). The following changes may be requested: Deactivate report Link Reports Mark as Final Changes to any other data fields can be requested, except job numbers cannot be changed. Once a request has been approved by all evaluating parties, it will be processed into FR.gov and published on Recovery.gov according to the Recovery.gov publication schedule. If denied, the requester will be notified of the reason; a denial may require a new request for data change based on the information provided in the denial. The instructions on how to do automated change requests can be found on page (the last pages of Chapter 16) of the FederalReporting.gov User Guide. On the Home Page of FederalReporting.gov, click on downloads and then scroll down to Chapter 16 titled, How to Request a Change to a Prior Quarter Report. Regarding Project Title and Primary Place of Performance : A GAO report, Opportunities Exist to Increase the Public s Understanding of Recipient Reporting on HUD programs, recommended that HUD provide more clear guidance to grantees on reporting the Project Name or Project/Program Title and Primary Place of Performance in FederalReporting.gov. To ensure full transparency of how ARRA funds are being expended, HUD issued revised guidance on these two data elements in March Starting with the April 2011 reporting cycle, grantees need to ensure that their entries for these data fields comply with the guidance below. Grantees may also refer to the Recipient Reporting Data Model on the hud.gov/recovery page to see the new pop up definitions for these two terms. You may also see the GAO report at: Project Name or Project/Program Title (limit of 256 characters): NSP2: NSP2 grantees should list the DRGR Activity Titles (which correspond to the five NSP Eligible Uses) for which they are using funds. To list NSP or neighborhood stabilization as the Project Name or Project/Program Title is no longer sufficient. Primary Place of Performance (limit of 55 characters for each line): NSP2: The nature of the NSP2 program is such that grantees will be undertaking activities at dozens (or even hundreds) of scattered sites throughout a city or county; state, consortia and national recipients may carry out activities in dozens of localities or in multiple states. It would be impossible to list all activity locations in the Primary Place of Performance field. Therefore, NSP2 grantees should enter the U.S. Department of Housing and Urban Development

70 grantee s administrative office address as the Primary Place of Performance. Consortia recipients should list the lead entity s administrative office address as the grantee Primary Place of Performance. Grantees must list a Primary Place of Performance for all sub-recipients. Since other consortia members are to be reported as sub-recipients in FederalReporting.gov, each member s administrative office address should be entered as its Sub-recipient Primary Place of Performance. Provide Clear and Descriptive Narratives: Some grantees need to provide greater clarity in their narrative descriptions in FederalReporting.gov. NSP2 and NSPTA grantees Award Description, Quarterly Activities/Project Description and Quarterly Job Description fields must provide clear, complete narratives that facilitate an understanding by the general public. If you have not already amended your narrative descriptions, please review them in FederalReporting.gov during the January Federal Reporting cycle to ensure that they provide concise, clear and detailed information before submitting your report. At a minimum, the narratives should include: e. Clear and complete information on the award s purpose, scope and nature of activities, outcomes, and status of activities; f. An explanation of all abbreviations or acronyms that may be unfamiliar to the general public; g. The names and location of specific projects, so it is clear how and where ARRA funds are being spent, within the character limitations; and, h. The grantee s website address and any additional websites that provide detailed grant or project level information will be listed. If you need to update your descriptions - below is suggested language with some highlighted notations of where you should add your own information. This suggested language is not meant to be all inclusive. Please provide as much detail as possible to reflect the work/progress of your NSP2 funds. Once you revise the Award Description you should not have to update this quarterly, only the Quarterly Description/Project Description will need updating each quarter. Below is a Sample Template: Award Description The Neighborhood Stabilization Program2 (NSP2) funds will invest in [Name of Project(s)]. The purpose of this project(s) is to. Quarterly Activities/Project Description NSP2 funds will assist xx [enter the number of projects NSP2 is funding] projects throughout the city/state [if possible provide the cities or counties, or at least some of them if there are too many locations] A listing of all xx projects receiving NSP2] funding is posted to our website at [provide website of where you have posted your NSP2 completed projects]. [You should describe what your Agency accomplished/worked on during the quarter. Provide as much detail as possible.] For example - This quarter, $xx,xxx were committed to xx of projects, $xx,xxx were expended for xx of projects, xx of written agreements were finalized, work began on xx of projects [list the project names], work is continuing U.S. Department of Housing and Urban Development

71 at [list the project names], work was completed at [list general location of the projects]. Quarterly Job Descriprition [NSP2] funds were used to create/retain FTE jobs this quarter. [Name type of jobs and the number of FTE jobs that were funded with ARRA dollars] If no jobs were created, state this and the reason. These reporting requirements represent an unprecedented transparency and accountability effort. Accordingly, we recognize that many grantees may encounter challenges and delays in the reporting process, and we appreciate your continued commitment to working with HUD toward the important goal of economic recovery. Expiring Central Contractor Registrations (CCR s): Beginning with FY 2011, all CPD formula grantees need to be registered in CCR in order to receive their funding awards. OBGA Headquarters staff will contact grantees to remind them to renew their registrations. However, Field Offices are encouraged to follow up with these grantees as well. Grantees should be reminded that this affects their annual formula funding as well. Grantees are also reminded to update their point of contact s in CCR; the CCR system sends automatic reminder messages regarding impending expirations, but the system receives a large number of delivery failure replies because of outdated/incorrect addresses. Grantees can check the status of their CCR registration quickly and easily (without logging in) at CCR by going to selecting CCR Search the second tab from the left-then entering their DUNS number under the Simple Search. If all information contained in the CCR record is still valid and accurate, you may simply select Renew. If any information has changed please update it, then submit. If Field Offices have any questions regarding CCR updates, please contact Njeri Santana on the NSP Team (for NSP2). Please update or renew your city s CCR as soon as possible to ensure there will be no disruption to your grant payments or your ability to report. If you are unable or unsure how to update your record, you can print out the CCR user guide or contact the Federal Service Desk between 8am and 8pm Eastern Time at or If after consulting these resources you still have difficulty, please call HUD s Office of Departmental Grants Management and Oversight at For additional help: HUD s Recovery Act Reporting Call Center, , is available to answer a wide variety of NSP2 reporting questions. The call center is available 8:30am to 5:30pm ET, Monday to Friday, with expanded hours January You may also the help center at recovery@comcon.org. Previous Federal Reporting Guidance Quarterly Updates also contain information on a variety of reporting issues: How to Avoid Saving a Draft Report Instead of a Final Report Minimizing Reporting Errors in FederalReporting.gov Correcting Errors in FederalReporting.gov Sub-Recipient Reporting Need to Ensure Correct DUNS number U.S. Department of Housing and Urban Development

72 These resources can be found on the HUD Recovery Act website: This site also provides links to other resources, such as the CCR registration website and the Dun & Bradstreet registration website. U.S. Department of Housing and Urban Development

73 December 12, 2011 Community Planning and Development NSP Policy Alert! Guidance on NSP Draw Thresholds Updated December 12, 2011 Note: The Guidance on NSP Draw Thresholds was revised December 12, 2011 to reflect that Jim Yerdon and Ryan Flanery are approving over threshold draws for NSP. The original guidance was issued April 14, If a grantee submits a draw in DRGR that is over their draw threshold, HUD must review backup documentation for the draw and approve it in the system. These draw thresholds are daily limits, so once a grantee has gone over their threshold for the day all vouchers submitted after that must also be approved. Draw Thresholds are currently set up in the following ways: NSP1: $5,000,000 a day NSP2*: Units of general local governments and States: $1,000,000 a day Nonprofits: $500,000 a day NSP3: $5,000,000 a day If a grantee s draw request is over the threshold, they must submit back up documentation to their CPD/NSP Representative in the Field. It s always best to anticipate when you may submit a draw that will be over the threshold, so you can get documentation to your Rep as soon as possible (you can even do this in anticipation of entering a draw). The Field Office Rep will then review the documentation the grantee has to back up the draw request, making sure they can account for the following: 1. Evidence of the grantee s internal controls in approving the draw usually this means two signatures/initials/electronic confirmations; 2. Basic math the draw documentation adds up to the amount requested; and 3. The draw documentation is for the same activity shown on the DRGR voucher. Once the CPD/NSP Rep confirms the above information, they can send the confirmation to HQ which should include the voucher number(s), amount of the draw, and the grant number. Once HQ receives the confirmation from the Field, they will go in and approve the draw. Jim Yerdon and Ryan Flanery are approving over threshold draws for NSP, so Reps should send this information to them at James.Yerdon@hud.gov and Ryan.D.Flanery@hud.gov. There is no arbitrary upper limit on the amount a grantee may draw from its grant in a day. However, HUD must review documentation for draws over set thresholds. *NOTE: HUD is currently working with the NSP2 Fund Control plan to increase draw threshold limits for NSP2 but this process can take some time. If and when these thresholds are increased, HUD will notify the grantees. U.S. Department of Housing and Urban Development

74 November 16, 2011 Community Planning and Development NSP Policy Alert! Guidance on Developers, Subrecipients, and Contractors Updated November 16, 2011 Note: The NSP Program Administration Implications by Entity Type Table was revised November 16, 2011 to clarify guidance on housing counseling activities administered by developers. The original guidance was issued August 27, Neighborhood Stabilization Program (NSP) grantees may work with developers, subrecipients, contractors, or any combination of these entities to implement their programs. However, different sets of HUD and OMB rules apply to these entities in certain situations. Accordingly, an NSP grantee must carefully consider the implications of any decision to implement NSP-funded activities through one type of entity versus another. HUD has developed the following guidance to clarify the definitions of each of these entity types, as well as the requirements for NSP grantees which establish relationships with such entities. This guidance consolidates information that has been addressed in previous NSP policy alerts, and offers new guidance regarding developer fees based on more recent questions received from NSP grantees and affiliates. Definitions Subrecipient: A nonprofit or public agency that assists a grantee or another subrecipient to administer all or a portion of the NSP program. As provided in the NSP Bridge Notice, published on June 19, 2009, Subrecipient shall have the same meaning as at the first sentence of 24 CFR (c). This includes any nonprofit organization (including a unit of general local government) awarded funds by a state. The term also includes any land bank receiving NSP funds from a grantee or another subrecipient. Section (c) reads as follows: Subrecipient means a public or private nonprofit agency, authority, or organization, or a for-profit entity authorized under (o), receiving CDBG funds from the recipient or another subrecipient to undertake activities eligible for such assistance under subpart C of this part. Developer: A for-profit or private nonprofit individual or entity that the grantee provides NSP assistance to for the purpose of (1) acquiring homes and residential properties to rehabilitate for use or resale for residential purposes and (2) constructing new housing in connection with the redevelopment of demolished or vacant properties. Developers are program beneficiaries and thus distinct from subrecipients, grantee employees, and contractors. Developers may receive NSP funds from either the grantee or a subrecipient. Developer led rehabilitation is undertaken pursuant to 24 CFR (b)(1). New housing construction is undertaken pursuant to 24 CFR , or the NSP notice published on October 6, 2008, as amended. NSP grantees should note that they may but are not required to treat all third-party development entities as subrecipients. HUD regulations treat developers as private entities entitled to benefit under (b)(1). This is important in situations where a private for-profit or non-profit organization receiving U.S. Department of Housing and Urban Development

75 NSP funds is neither a contractor nor a subrecipient. In such instances, the developer is not an intermediary acting for the grantee, but is receiving assistance itself as a beneficiary under the program. Examples include a for-profit or nonprofit entity receiving a housing rehabilitation grant or loan to improve property it owns. Public nonprofits such as Housing Authorities or Redevelopment Authorities do not qualify as developers because (b)(1) requires them to be private entities. Both grantees and subrecipients can engage developers. However, to be treated as a developer, the entity must demonstrate ownership or control of the property to be rehabilitated or redeveloped. That is, a grantee or a subrecipient cannot designate an entity as a developer if it is simply providing construction services on a property owned by the grantee or subrecipient; such an entity would be classified as a contractor. Contractor: An entity that supply goods and services at an agreed-upon rate or price. When a grantee or subrecipient hires a contractor, the contractor must be procured pursuant to Part 84. Additional Considerations Regarding Developer Fees Questions pertaining to developer fees are among those most frequently asked by Neighborhood Stabilization Program (NSP) grantees and affiliates. This section is intended to provide grantees with a few additional points to keep in mind as they contemplate entering into agreements with private developers. Grantees and subrecipients may not earn a developer s fee. An entity may charge developer s fees only under 24 CFR (b)(1), which allows a grantee to provide CDBG funds (or NSP funds) to assist in the acquisition and rehabilitation/ reconstruction of property by private individuals or entities. The right to charge a developer s fee is available only to an entity that receives assistance from the grantee or the subrecipient and assumes some of the risk of the project, which the developer does by investing some of his/her own money in the project. Grantees and subrecipients are compensated for the actual costs of carrying out eligible activities, which reduces or eliminates any development risk if actual costs exceed estimates. Therefore, accounting principles and cost circulars do not allow grantees or subrecipients to collect a developer s fee. (Note that this is a CDBG policy that has existed for decades.) Public entities having an identity of interest with the grantee may only carry out NSP development activities for an NSP grantee under a subrecipient agreement, not under a developer agreement When negotiating a developer fee, it is crucial for grantees to clearly specify what project costs can and cannot be paid with NSP fees. For example, if a developer s budget called for directly paying a project manager and also a developer fee that would be double-dipping and would not be allowed. Direct costs or indirect costs of a developer related to project management should be paid only through the fee. Grantees may also require a developer to pay some of the holding costs and receive reimbursement through the fee. Though not required by NSP, such a provision is used to encourage developers to complete projects in a timely manner. If a developer agreement does not include specific property addresses, then the contract should include a detailed list of criteria describing eligibility for acquisition and include a list of NSP-related obligations that carry forward with the property. It is also advisable for grantees to retain the right to individually sign off on each acquisition by a developer U.S. Department of Housing and Urban Development

76 Federal Procurement Process? Revenue/Program Income CFR Activity Delivery and General Administration 24 CFR and OMB Cost Principles Obligations: Acquisition 24 CFR (a) Obligations: Rehabilitation 24 CFR Obligations: Homeownership Assistance (n) Obligations: Demolition 24 CFR (d) Obligations: Redevelopment; Public Facilities / Improvements 24 CFR , 24 CFR (c) Housing Counseling 24 CFR (e) Registration for First Look Program Allowed? NSP Program Administration Implications by Entity Type Must treat excess revenues as Program Income, to be used for other NSP-eligible activities 10% cap on admin and May receive a developer fee Program Income; no cap on which includes a reasonable activity delivery costs. profit margin. Part 85, A-87 Funds are obligated when there is a purchase agreement in place for a given property. Funds are obligated when there is a written agreement with a contractor in place. Execution of an instrument that awards homeownership assistance to an individual who will purchase a property pursuant to NSP eligible use (B) or (E). Funds are obligated when there is a contract for demolition activities. Funds are obligated when there is a written agreement with a contractor in place. Total dollar amount of an agreement is obligated when the agreement is executed with a provider of counseling services. May register for First Look May charge contractor fee or brokerage fee if performing these separate services. Doesn t have to follow OMB circulars N/A Funds are obligated when a developer s agreement is executed and a developer provides the grantee a detailed cost estimate for the rehab work. May not directly provide homeownership assistance. N/A When developers engage in new residential construction, the requirements for acquisition and rehabilitation apply. Developers may not construct public facilities. Must ensure that buyers have received 8 hours of housing counseling, but may not provide counseling through developer agreement. Developers with HUDapproved counseling programs may offer counseling services under a separate contract. REVISED NOV 16, 2011 Nonprofits: For-profit: May register Ineligible for for First Look First Look Grantee Developer Subrecipient Contractor Yes No Yes N/A (procured) Not required to return excess Must treat excess revenues N/A revenues. However, HUD as Program Income and (Contractors not strongly encourages grantees return to grantee, or if the subject to Program to implement mechanisms grantee wishes, Income requirements) which prevent undue subrecipients may keep enrichment. program income to implement other NSPeligible activities. May receive activity delivery costs and admin funds for all direct costs. Any indirect costs may only be charged to NSP with an approved indirect cost allocation plan. Nonprofits: Part 84, A- 122 Public Entities: Part 85, A-87 Funds are obligated when there is a purchase agreement in place. Funds obligated with a written agreement with a contractor. Execution of an instrument that awards homeownership assistance to an individual who will purchase a property pursuant to NSP eligible use (B) or (E). Funds are obligated when there is a contract for demolition activities. Funds are obligated when there is a written agreement with a contractor in place. May perform housing counseling directly or through contractor. Total dollar amount of an agreement is obligated when agreement is executed with a counseling services provider. May register for First Look All costs built into bid. Bids should incorporate costs and expected rate of return. N/A N/A Funds are obligated when rehab contract is signed. N/A N/A May build a public facility for a grantee or subrecipient. May perform housing counseling for either grantee or subrecipient. Must coordinate with grantee/subrecipient to access First Look. U.S. Department of Housing and Urban Development

77 October 6, 2011 Community Planning and Development NSP Policy Alert! Guidance on NSP2 Reporting in FederalReporting.Gov October 6, 2011 FederalReporting.gov: The October Quarterly Reporting Period Is Here! Reporting will cover the period October 1-14, You are encouraged to report as early as possible. Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub-recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub-recipients. When a grantee is handling all Federal Reporting data entry itself, the grantee is to review and verify the information provided to them by their sub-recipients prior to data entry. Grantees also need to enter or update their environmental review information in RAMPS. Expected Timetable: October 1-14 October 7 October 14 October October October 30 Nov 2 Dec 12 (Subject to change by OMB) Grantees and sub-recipients report in FederalReporting.gov HUD will be able to view prime recipients reports and contact non-reporting recipients starting the week of October 1st. Deadline to report Environmental data into RAMPS for this quarter only. (Grantees ability to enter data is ongoing). Those who are exempt from environmental reviews must still report that in RAMPS. HUD submits quarterly report on the status and progress of funded activities to Council on Environmental Quality, using RAMPS data. Prime Recipient Review Period (Prime Recipients Review Data Submitted by Sub-recipients(s)/Prime Recipients & Sub-recipients make corrections) HUD data review and comment period for data entered by grantees and subrecipients (Agency Review of Data Submitted/Prime Recipients & Sub- Recipients make corrections) Recovery Act Transparency Board posts recipient reports to Recovery.gov System re-opens to make error corrections to reports that were created from October 1-14th. HUD comments on grantee reports; grantees review subrecipients reports; prime recipients and sub-recipients correct reports Deadlines are as of midnight Eastern Time U.S. Department of Housing and Urban Development

78 September 29, 2011 Community Planning and Development NSP Policy Alert! Additional Performance Measurement September 29, 2011 A new NSP performance measurement is being added in DRGR to track very low-income ( VLI ) households (at or below 30% of area median income). This measurement is OPTIONAL, but is encouraged. Many grantees already track this data, but prior to this there was no way to share this information with Congress or the public. There appear to be some exciting activities serving the very lowincome with NSP funds, but without having the ability to track this data, there is no way that HUD can share your stories as accurately as they should be shared. As this is an optional performance measure, if selected it will appear in the data tables in the Quarterly Performance Reports as a row in the Proposed Accomplishments section, not in a column as the other household data does in the Proposed Beneficiaries section. Please note that this means that the achievements entered will not be added to other household data. No double-counting can occur, as the VLI input field is not tied to the other household income fields. Additionally, grantees will not have to track VLI Renters vs. Owners. U.S. Department of Housing and Urban Development

79 September 16, 2011 Community Planning and Development NSP Policy Alert! Guidance on Allocating Real Estate Development Costs in the Neighborhood Stabilization Program Updated September 16, 2011 Originally released January 13, 2011; updated September 16, 2011 Introduction Neighborhood Stabilization Program (NSP) grantees may work with developers, subrecipients, contractors, or any combination of these entities to implement their programs. However, different HUD and OMB rules regarding development costs apply to these entities. Accordingly, NSP grantees must carefully consider the implications of any decision to implement NSP-funded activities through one type of entity versus another. This guidance describes what is eligible and allowable as part of Total Development Costs, for grantees and subrecipients as well as for developers. Total Development Costs are those expenses which are integral and allocable to the design, construction, and occupancy of a real estate project. Many people sub-classify them as Hard Costs and Soft Costs, with Hard Costs including land and construction and Soft Costs including less tangible expenses such as architecture and engineering. Total Development Costs also form the basis for the potential sales price of the home and for developer s fees. Most NSP partners understand Hard Costs, but some confusion remains about Soft Costs, especially Developers Fees. This guidance uses the term program to refer to the community s NSP effort as a whole. Activity refers to an eligible activity category, such as housing rehabilitation or demolition. Project refers to work undertaken for a specific purpose; the term as used here refers to an individual property being built or rehabilitated or a similarly specific effort. Much of the text on this and the next page comes from a March 30, 2010 Policy Alert on administrative costs and applies to all NSP grants. Additional guidance on subrecipients and developers is contained in the Policy Alert on Obligations at U.S. Department of Housing and Urban Development

80 Activity Delivery Costs Charges for activity delivery are limited to costs incurred in carrying out a specific NSP-funded eligible activity. Examples of activity delivery costs are cited in the CDBG regulations. Section (a)(4)(iii) states that engineering and design costs related to a specific activity are eligible as part of the cost of such activity under Section notes that staff and overhead costs directly related to carrying out activities [are] eligible under through , since those costs are eligible as part of such activities. Program Administrative Costs The use of NSP funds to pay program administrative costs is authorized under 24 CFR , Program Administrative Costs, which permits NSP funds to be used for "reasonable administrative costs and carrying charges related to the planning and execution of community development activities assisted in whole or in part [with NSP2 funds]. These administrative costs satisfy the statutory requirement for meeting a national objective because the costs are incurred in support of generally eligible program activities that individually meet a national objective. Examples of program administrative costs include: Salaries of executive officers, Office space for program staff employed in carrying out the NSP program, Staff time spent developing policies and procedures for managing NSP activities, and Administrative services performed under third party contracts, such as general legal and audit services. OMB Circular A-87 (governmental entities) and Circular A-122 provide the principles for determining program administrative costs. In addition, HUD s publication: Playing by the Rules A Handbook for CDBG Subrecipients on Administrative Systems will also be useful to private non-profit NSP grantees in gaining a better understanding of requirements that apply when carrying out NSP activities. These can be found on the NSP Resource Exchange at Allocation of Costs As provided under OMB Circulars A-87 and A-122, the total cost of Federal awards is composed of the allowable direct cost of the program, plus its allocable portion of allowable indirect costs, less applicable credits. There is no universal rule for classifying certain costs as either direct or indirect under every accounting system. However, each item of cost must be accorded consistent treatment in order to be an allowable charge to a Federal grant. Thus, a cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. Where the following table denotes a cost as allowable, for the allocable portion, it means that such costs must be documented by the grantee, subrecipient, or for overhead, by the developer, as complying with the applicable cost principles. A cost is allocable to a particular cost objective, such as a grant, contract, project, service, or other activity, in accordance with the relative benefits received. U.S. Department of Housing and Urban Development

81 Direct costs Direct costs payable with NSP funds are those that can be identified specifically with the NSP grant. Typical direct costs chargeable to NSP grants are shown on the large table below, including predevelopment, development, and post-development cost elements. The table shows that direct costs are accounted for in the same way by all entities, and should be charged to the activity line item as part of the project costs. Indirect costs In addition to the direct charges discussed above, indirect costs may be charged to the NSP grant under an indirect cost allocation plan prepared in accordance with OMB Circular A-87 or A-122, as applicable. The ability to recover all costs, direct and indirect, is especially significant for those non-profit organizations that are accustomed to being compensated through a developer s fee. Indirect costs are those: Incurred for a common or joint purpose benefiting the NSP grant and one or more other cost objectives (e.g., contracts, grants, or other activities), AND Not readily assignable to the cost objectives specifically benefitted, without disproportionate effort. General administration and indirect costs are shown in the tables at the end, and are different for developers than for grantees and subrecipients. Developer fees include only overhead (allocable portion) and profit. Additional discussion on developer issues follows the last table. Developer s Fees Entities may charge developer s fees only when (i) activities are carried out pursuant to 24 CFR (b)(1), which allows a grantee to provide CDBG or NSP funds to private individuals and other entities to finance the acquisition and rehabilitation of property for use or resale for residential purposes, or (ii) NSP funds are provided to private individuals and other entities to finance construction of new housing in connection with the redevelopment of demolished or vacant properties. The purpose of allowing the developer s fee to be included in the cost of a project is to compensate the developer for related overhead expenses and to provide a return on the developer s investment (which return may be referred to as profit for simplicity s sake). The overhead expense intended to be defrayed by the developer s fee is very similar to the General Administrative costs in the grantee budget, and may include such indirect costs as rent, utilities, and other expenses that cannot be linked to a specific project. However, no comparable allowance for profit can be included in the grantee/subrecipient budget since OMB cost principles circulars do not provide for charges to a grant that include an increment above actual cost. When negotiating a developer s fee with a third party, it is critical for the grantee/subrecipient to clearly specify what project costs can and cannot be paid with NSP funds. Since a portion of the developer s fee is to defray overhead expenses, the development agreement should not include allowances for both the fee and items of cost that are properly classified as overhead. If the developer s fee includes an allowance for profit, the grantee/subrecipient should ensure that the return on the developer s investment is reasonable (taking into account the riskiness of the project). Grantees/subrecipients should consider the developer s total return in negotiating the profit component of the developer s fee. The developer s U.S. Department of Housing and Urban Development

82 return on investment will include not only the profit component of the developer s fee, but also the cash flow from operations and subsequent disposition of the property. Grantees will generally also retain a percentage of each payment to the developer. Though not required by NSP, such a provision is used to encourage developers to complete projects in a timely manner. If a developer agreement does not include specific property addresses, then the contract should include a detailed list of criteria describing eligibility for acquisition and include a list of NSP-related obligations that carry forward with the property. It is also advisable for grantees to retain the right to individually sign off on each acquisition by a developer. While NSP subrecipients may not receive a developer s fee and the related profit, many NSP projects, especially rental projects, use other financing. If an NSP project has multiple sources of funds, the grantee, consortium member, or subrecipient may collect developers fees on the portion of the project that is not funded with NSP dollars. For example, if the developer normally receives a 10% fee, then on a $100,000 project they would receive $10,000. If the project is 60% supported with other funds and 40% NSP-funded, the nonprofit could receive 10% of the $60,000 ($6,000) from the other sources of funding. On the $40,000 NSP funded portion, the nonprofit can receive all direct costs and any allowable indirect costs. However the nonprofit cannot simply charge the entire $10,000 to the non-nsp funding. Subrecipients may, however, charge overhead costs (the other component of the developer fee besides profit.) Staff costs may be allocated based on direct salaries by keeping records of time spent by executives or other non-project staff. The federal government collects timesheets for two weeks each quarter and allocates costs based on the relative distribution of work; such sampling is acceptable. Indirect costs such as rent and utilities may also be paid with grant funds. Subrecipients must develop an indirect cost plan; the best way to accomplish this is to have the plan prepared by a Certified Public Accountant according to OMB Circular A-122. The CPA should certify that the plan complies with A-122; when the subrecipient has no other federal funds, the City or State may approve the indirect cost allocation plan. Otherwise, the subrecipient should submit it to the HUD Field Office; HUD is the cognizant agency for NSP. For simple plans, HUD Headquarters will work with the Field Office to expedite approval. Once approved, indirect costs may be charged retroactive to the beginning of the program. U.S. Department of Housing and Urban Development

83 ALLOWABLE COSTS IN NEIGHBORHOOD STABILIZATION PROGRAMS WITH ACQUISITION AND REHABILITATION (OR NEW CONSTRUCTION) COST ELEMENTS Hard Costs shown in Italics ALLOWABLE GRANTEE OR SUBRECIPIENT COSTS ALLOWABLE DEVELOPER COSTS PRE-DEVELOPMENT PHASE Part of Total Development Cost Reimbursable by NSP Part of Total Development Cost Reimbursable by NSP Cost for Land Acquisition, appraisal, realtor and legal fees, title insurance, recording fees etc. Allowed Allowed Allowed Allowed Demolition Expenses Allowed Allowed Allowed Allowed Environmental: Inspection, engineering, remediation, abatement Allowed Allowed Allowed Allowed Architectural, engineering, etc. Allowed Allowed Allowed Allowed DEVELOPMENT PHASE Part of Total Development Cost Reimbursable by NSP Part of Total Development Cost Reimbursable by NSP Installation of Infrastructure (Streets, Water, Sewer) Allowed Allowed Allowed Allowed Cost of site development, including engineering, permitting and other fees attributable to the site Allowed Allowed Allowed Allowed Interest and Fees on Construction Loans Allowed Allowed Allowed Allowed Real Estate Taxes, Insurance and Property Maintenance During Development Allowed Allowed (taxes allowable if legally required to be paid) Allowed Allowed Legal Fees, Recording Fees, Surveys, Platting Cost, Testing, Engineering Costs and Architectural Cost Allowed Allowed Allowed Allowed U.S. Department of Housing and Urban Development

84 Construction materials and subcontractors Allowed Allowed Allowed Allowed Construction Staff Directly Allocable to the Project Allowed Allowed Allowed Allowed Permits, Licenses and insurance for Construction Allowed Allowed Allowed Allowed Construction Insurance, Bonding, Allocable to Project Allowed Allowed Allowed Allowed (allocable portion) (allocable portion) (allocable portion) (allocable portion) Transportation Cost, Phones used on construction sites, Construction Supplies and Tools, Dumpster, Site Security, Other Construction and Site Costs Allowed (allocable portion) Allowed (allocable portion) Allowed (allocable portion) Allowed (allocable portion) Construction supervisor, Construction Staff (including salary, taxes, benefits, insurance, and related expenses) Allowed (allocable portion) Allowed (allocable portion) Allowed (allocable portion) Allowed (allocable portion) Grantee or Subrecipient staff directly involved in any phase of development. Allowed (allocable portion) Allowed (allocable portion) N/A N/A POST-DEVELOPMENT PHASE Part of Total Development Cost Reimbursable by NSP Part of Total Development Cost Reimbursable by NSP Marketing Expenses (e.g. advertising sale of home) Allowed Allowed Allowed Allowed Legal Recording, Title, Documentation and other Fees Associated with Sale Allowed Allowed Allowed Allowed Appraisal for Slate to Homebuyer Allowed Allowed Allowed Allowed Mortgage Origination and Servicing Set-up Fees Allowed Allowed Allowed Allowed HUD Homeownership Counseling Allowed Allowed Not applicable Not applicable All costs above for Grantees/Subrecipients are Project Costs, which should be charged to the budget line item, not General Administration. All costs above for Developers are Project Costs, which should be charged to the budget line item. These are not part of the Developer s fee. It should be clear that these are identical for all three types of entities. The following page contains the only difference. U.S. Department of Housing and Urban Development

85 THIS SECTION REVISED SEPT. 14, 2011 ADMINISTRATIVE COSTS FOR GRANTEES AND SUBRECIPIENTS The following costs are considered either Indirect Costs or GENERAL ADMINISTRATION and cannot be charged as activity delivery costs. Planning NSP Program, Developing the Substantial Amendment (Application,) Oversight, Reporting, Evaluation, and other costs which cannot be linked to a specific project address. Part of Total Development Cost? Not Allowed Charged to Indirect Costs? Allocable portion only as part of an approved indirect cost plan. Reimbursable by NSP? Yes, if not as indirect then as general administrative costs.(up to 10% of the sum of NSP grant plus any program income.) Cost of grant compliance office ( including salary, taxes, benefits, insurance and related expenses) Not Allowed Allocable portion only as part of an approved indirect cost plan. Yes, if not as indirect then as general administrative costs.(up to 10% of the sum of NSP grant plus any program income.) Costs of general administrative staff, such as Executive Director or budget staff, not directly involved in activity delivery. Not Allowed Allocable portion only as part of an approved indirect cost plan. Yes, if not as indirect then as general administrative costs.(up to 10% of the sum of NSP grant plus any program income.) CONTRASTED WITH Grantees and subrecipients may charge activity delivery costs and administrative funds for all direct costs. Any indirect costs may only be charged to NSP with an approved indirect cost allocation plan or with time sheets or similar documentation for employees working in general administrative duties on more than one grant or activity. See OMB Circulars and NSP Policy Alert Dated March 30, 2010 for additional discussion OVERHEAD AND PROFIT (COVERED BY DEVELOPER S FEE) Overhead is similar to Indirect Costs and/or General Administration for grantees/subrecipients Profit. Should be considered together with cash flow from operations and proceeds from disposition in evaluating reasonableness. Allowed Allowed Developer s office expenses (staff, rent, utilities not attributable to a specific project.) Part of Overhead. Allowed (allocable portion) Allowed Developer s general business expenses (accounting, legal, travel, printing, etc.) Part of Overhead Allowed (allocable portion) Allowed A cost is allocable to a particular cost objective, such as a grant, contract, project, or other activity, in accordance with the relative benefits received. U.S. Department of Housing and Urban Development

86 September 16, 2011 Community Planning and Development NSP Policy Alert! Environmental Review, Options and Conditional Contracts September 16, 2011 A: Introduction The Neighborhood Stabilization Program (NSP) requires an environmental review be completed for every activity before funds (even non-nsp funds associated with the activity) are committed or spent. The level of environmental review (i.e., categorical exclusions subject to 58.5 or environmental assessment) depends upon the subsequent use or changes being proposed. In cases where an NSP grantee is acquiring real estate, the requirement to complete the environmental review process before making a choice-limiting action can complicate the process and sometimes lead to a failure of the sales agreement. B: Federal Funding and Environmental Review HUD s regulations at 24 CFR prohibit grant recipients and partners in the development process from committing or spending HUD or non-hud funds on any physical activity such as acquisition, rehab, leasing, site clearance, etc. once a project becomes federal. A project becomes federal for purposes of HUD s environmental review process when a recipient submits a project application for HUD funding. Sometimes HUD grant recipients utilize an application process to implement its NSP program. In such instances, where subrecipients apply for NSP funding from a HUD recipient, the project becomes federal and HUD s restrictions at 24 CFR apply when the subrecipient submits to the recipient a project application for NSP funds. In some cases, where a third party in good faith purchased properties as a private project, the party is not precluded from later applying for and using NSP funds for other activities, including rehabilitation, new construction, and demolition. After application for NSP funds, no party in the development process may commit or use HUD or non-hud funds on choice limiting actions such as rehabilitation, new construction, and demolition, until the Responsible Entity completes the environmental review. In the circumstance that a property acquired with NSP funds is subsequently transferred to different ownership, the requirements of environmental review still apply as long as the CDBG requirements apply to the transfers of title and/or the use of the property as a result of the transfer. Therefore, the environmental review needs to be completed before a commitment is made to another party for the sale or transfer of the property. Even after the project becomes federal, the grantee and partners can use Options and Conditional Contracts to gain site control while allowing time to complete the environmental review. (See Section C for more information on the use of these tools) U.S. Department of Housing and Urban Development

87 C: Options and Conditional Contracts: The contract to purchase an NSP property before the environmental review is completed is considered a choice limiting action and must be avoided until after the environmental review process is completed. However, there are two actions that may be taken beforehand that might conclude in acquisition once the environmental review process is completed: options and conditional contracts. Both options and conditional contracts are useful tools for grantees to obtain site control while allowing time to complete the environmental review. Option contracts have a broader use than conditional contracts. Conditional contracts are restricted to the acquisition of existing single family and multifamily residential properties that will be retained for the same use, with or without minor rehabilitation of the structure (or purchase and demolition of single family properties under limited circumstances). However, option contracts may be Options and Conditional Contracts are also allowed in the circumstances described below for NSP2 projects where HUD is conducting the environmental review under 24 CFR 50. used to gain site control of any type of property, including commercial, industrial, residential for any proposed activity or reuse, including demolition, new construction, conversion of use. Conditional and option contracts differ in their obligations upon the buyer and seller. In addition, HUD has different restrictions imposed upon the use of conditional purchase contracts and option contracts. 1. Options: A real estate option contract or agreement is a legal agreement between the potential buyer of real property and the owner of that property. The real estate option agreement gives the potential buyer the exclusive right to buy the property at a specific price within a specific time period. The option agreement does not impose any obligation upon the potential buyer to purchase the property. The option agreement does obligate the seller to sell at the specified price if the potential buyer exercises the option to buy in the manner described in the contract. HUD s regulations at 24 CFR 58.22(d) allow for an option agreement for any project prior to the completion of the environmental review when the following requirements are met: (1) the option agreement is subject to a determination by the recipient on the desirability of the property for the project as a result of the completion of the environmental review in accordance with 24 CFR Part 58; and (2) the cost of the option is a nominal portion of the purchase price. The provision allows flexibility regarding the term nominal and any reasonable interpretation is acceptable. For instance, it is reasonable to conclude that the nominal amount for option contracts will vary depending upon the local real estate market and the purchase price. Option contracts may be used to gain site control of any type of property, including commercial, industrial, residential for any proposed activity or reuse, including demolition, new construction, conversion of use. Effectively, the seller is agreeing to remove the property from the market for a specified period of time. 2. Conditional Contracts: A conditional contract is a legal agreement between the potential buyer of a real estate property and the owner of that property. The conditional contract includes condition(s) that must be met for the obligation U.S. Department of Housing and Urban Development

88 to purchase to become binding. Specifically a conditional contract binds the buyer to purchase the property if and when the condition(s) contained in the sales contract are met. HUD has set very specific restrictions for the use of conditional contracts. Conditional contracts can be used in more limited circumstances than option contracts. In the past, HUD only allowed conditional contracts for single family properties (1-4 units); this guidance expands the use to multifamily residential properties. The use of conditional contracts is limited to the acquisition of existing single family and multifamily residential units as described below. The Responsible Entity (RE) must complete the environmental review of the property pursuant to HUD regulations at 24 CFR Part 58 and receive approval of a Request for Release of Funds before the RE provides its written determination that the purchase of the property may proceed. For conditional contracts, HUD does not allow for flexibility for a non-refundable deposit if a deposit is nonrefundable, it must be $1000 or less for single family property and 3% of the purchase price for multifamily projects. If the environmental review requires conditions to mitigate any environmental impacts, then the RE (if it is not the Purchaser) should enter into an agreement with the Purchaser to ensure that the conditions will be undertaken. a. Single Family (1-4 units) A Responsible Entity may allow a recipient, subrecipient, or third party to enter into a conditional purchase contract for an existing single family home (one to four units) before the HUD environmental review of the property is complete when the action is limited to acquisition and/or rehabilitation 1 or demolition 2 of the home, provided that: (1) the purchase contract includes the appropriate language for a conditional contract (see below); (2) no transfer of title to the purchaser or removal of the environmental conditions in the purchase contract occurs unless and until the RE determines, on the basis of the environmental review, that the transfer to the homebuyer should go forward, and the RE (or recipient) has obtained approval of a Request for Release of Funds and environmental certification, where applicable; and (3) deposit using HUD funds or other funds is a reasonable amount and refundable if the conditions are not met, or if non-refundable, is nominal ($1000 or less). b. Multifamily Residential A Responsible Entity (RE) may allow a recipient, sub-recipient, or third party to enter into a conditional purchase contract for an existing multifamily residential property before the HUD environmental review of the property is complete when HUD or non-hud funds will be used for acquisition 3 and/or rehabilitation 4 of the multifamily structure, provided that: (1) the structure is not located within a Special Flood Hazard Area; (2) the purchase contract includes the appropriate language for a conditional contract (see below); 1 Rehabilitation that meets the requirements of 24 CFR 58.35(a)(3)(i) 2 Demolition of existing single family home, provided that the end use of the property is limited to vacancy, reconstruction of single family house or is unknown at the time of acquisition. 3 Acquisition of existing multifamily residential structure provided that the structure will be retained for multifamily residential use 4 Rehabilitation that meets the requirements of 24 CFR 58.35(a)(3)(ii) U.S. Department of Housing and Urban Development

89 (3) no transfer of title to the purchaser or removal of the environmental conditions in the purchase contract occurs unless and until the RE determines, on the basis of the environmental review, that the transfer to the buyer should go forward, and the RE (or recipient) has obtained approval of a Request for Release of Funds and environmental certification, where applicable; and (4) deposit using HUD funds or other funds is a reasonable amount and is refundable if the conditions are not met, or if non-refundable, is nominal (3% of purchase price or less). If the conditions described above are met, then the following language, or similar language, must be included in the purchase contract: Notwithstanding any other provision of this Contract, Purchaser shall have no obligation to purchase the Property, and no transfer of title to the Purchaser may occur, unless and until [Responsible Entity] has provided Purchaser and/or Seller with a written notification that: (1) it has completed a federally required environmental review and its request for release of federal funds has been approved and, subject to any other Contingencies in this Contract, (a) the purchase may proceed, or (b) the purchase may proceed only if certain conditions to address issues in the environmental review shall be satisfied before or after the purchase of the property; or (2) it has determined that the purchase is exempt from federal environmental review and a request for release of funds is not required. [Responsible Entity] shall use its best efforts to conclude the environmental review of the property expeditiously. Tiered Review If neither the described option nor conditional agreement is suitable, as an alternative, the grantee should consider a tiered environmental review as a possible option for streamlining the environmental review process (24 CFR Part 58.15). In short, a tiered review focuses on a targeted geographic area (e.g., census tract, neighborhood, etc.) to address and analyze environmental impacts related to the proposed activities that might occur on a typical project site within that area. Once individual project sites are located, any remaining environmental compliance issues that could not be resolved until project locations became known are now completed, according to standards for approval previously established for the target area. U.S. Department of Housing and Urban Development

90 Below is a table that compares and contrasts Conditional and Option Contracts: Types of projects/activities Amount Option Contract: Obligates seller only Any New construction, rehabilitation and/or demolition of single family or multifamily or non-residential Cost of option must be reasonable may vary depending upon local real estate market Usually nonrefundable Conditional Contract: Obligates both buyer and seller after conditions are met Purchase of existing single family (1-4 units) with or without Demolition of existing single family home, provided that the end use of the property is limited to vacancy, reconstruction of single family house or is unknown at the time of acquisition; or $1000 or less for non-refundable deposit Reasonable amount for refundable deposit Rehabilitation when density is not increased beyond 4 units, the land use is not changed and the footprint of the building is not increased in a floodplain or in a wetland Purchase of existing multifamily residential if the structure is not located in a Special Flood Hazard Area with or without Rehabilitation when the unit density is not changed more than 20%, the project does not involve changes in land use from residential to nonresidential, and the estimated cost of rehabilitation is less than 75% of the total estimated cost of replacement after rehabilitation. 3% or less of purchase price for non-refundable deposit Reasonable amount for refundable deposit U.S. Department of Housing and Urban Development

91 September 1, 2011 Community Planning and Development NSP Policy Alert! Updated Guidance on Meeting the 25% Set-Aside Requirement September 1, 2011 The Department of Housing and Urban Development wishes to remind NSP1 and NSP3 grantees of a policy statement in the combined NSP 1 and 3 Notice, Notice of Formula Allocations and Program Requirements for Neighborhood Stabilization Program Formula Grants, published October 19, 2010 (75 Fed. Reg ). Some grantees may not have realized that the October 19th Notice amended the NSP1 Notice published October 6, 2008 (73 Fed. Reg ), regarding the manner in which grantees must meet the statutory 25% set-aside. Section 2301(f)(3)(A)(ii) of the Housing and Economic Recovery Act of 2008 (HERA), as amended, requires that not less than 25 percent of the funds appropriated or otherwise made available under this section shall be used to house individuals or families whose incomes do not exceed 50 percent of area median income. The 2008 NSP1 Notice stated that Grantees must document that an amount equal to at least 25 percent of a grantee s NSP grant (initial allocation plus any reallocations) has been budgeted in the initial approved action plan substantial amendment for activities that will provide housing for income-qualified individuals or families. (73 Fed. Reg. at and 74 Fed. Reg. at ) Reallocations refer to any funds recaptured from NSP grantees by HUD and redistributed to other NSP grantees in accordance with a reallocation formula. The October 19, 2010, Combined Notice says that Grantees must document that an amount equal to at least 25 percent of a grantee s NSP grant (initial allocation plus any program income) has been budgeted in the initial approved action plan substantial amendment or abbreviated plan for activities that will provide housing for income-qualified individuals or families. (75 Fed. Reg ) For example: Assume NSP1 grant: $10,000,000 Assume NSP1 program income prior to 10/19/10: $500,000 NSP1 program income earned 10/19/10 and forward: $1,200,000 Minimum LH25 expenditure at close-out: $2,800,000 ($10,000,000+$1,200,000 X 25%) HUD made this change for several reasons. First, low-income families and individuals have been especially hard hit by the economic downturn and need more help than ever finding decent affordable housing. NSP offers an excellent way to meet that need in a variety of ways that are adaptable to local market conditions. Second, the Department determined that this interpretation would conform more closely to Congressional intent. Third, HUD believes that sufficient time and budget capacity remain to allow communities to adjust to the change. The requirement that 25 percent of a grantee s program income must also be used in accordance with the HERA provision was effective upon publication of the October 19th Notice. Thus, the requirement impacts any program income received after October 18, The attached spreadsheet details by U.S. Department of Housing and Urban Development

92 community how much program income had been received by that date. The Department will work closely with grantees to ensure that they can meet this requirement. Grantees do not have to meet the requirement by the expenditure deadline. The new standard must be met by program closeout, not with receipt of every increment of income. This allows time to plan and budget for the set-aside. Grantees can request technical assistance to help meet the requirement. HUD will continue to offer training and webinars on the topic. Please contact your HUD Field Office or Headquarters representative should you require assistance with this requirement. The Department will address the set-aside for NSP2 grantees in separate guidance. U.S. Department of Housing and Urban Development

93 September 1, 2011 Community Planning and Development NSP Policy Alert! Using Option and Conditional Contracts for Purchase of Real Property September 1, 2011 Guidance on Options and Conditional Contracts for Purchase of Real Property for Environmental Reviews Conducted by a Responsible Entity under 24 CFR 58 The purpose of this memorandum is to provide guidance on when it is appropriate for grantees to use conditional and option contracts for purchase of real property. Both conditional and option contracts are useful tools for grantees to obtain site control while allowing time to complete the environmental review. Option contracts have a broader use than conditional contracts. Conditional contracts are restricted to the acquisition of existing single family and multifamily residential properties. The use of conditional contracts is restricted to the purchase of existing structures that will be retained for the same use, with or without minor rehabilitation of the structure (or purchase and demolition of single family properties under limited circumstances). Conditional and option contracts differ in their obligations upon the buyer and seller. In addition, HUD has different restrictions imposed upon the use of conditional purchase contracts and option contracts. Option Contract or Agreement A real estate option contract or agreement is a legal agreement between the potential buyer of real property and the owner of that property. The real estate option agreement gives the potential buyer the exclusive right to buy the property at a specific price within a specific time period. The option agreement does not impose any obligation upon the potential buyer to purchase the property. The option agreement does obligate the seller to sell at the specified price if the potential buyer exercises the option to buy in the manner described in the contract. HUD s regulations at 24 CFR 58.22(d) allow for an option agreement for any project prior to the completion of the environmental review when the following requirements are met: 1) The option agreement is subject to a determination by the recipient on the desirability of the property for the project as a result of the completion of the environmental review in accordance with 24 CFR Part 58; and 2) The cost of the option is a nominal portion of the purchase price. The provision allows flexibility regarding the term nominal and any reasonable interpretation is acceptable. For instance, it is reasonable to conclude that the nominal amount for option contracts will vary depending upon the local real estate market and the purchase price. U.S. Department of Housing and Urban Development

94 Conditional Contract A conditional contract is a legal agreement between the potential buyer of a real estate property and the owner of that property. The conditional contract includes condition(s) that must be met for the obligation to purchase to become binding. Specifically a conditional contract binds the buyer to purchase the property and when the condition(s) contained in the sales contract are met. HUD has set very specific restrictions for the use of conditional contracts. Conditional contracts can be used in more limited circumstances than option contracts. In the past, HUD only allowed conditional contracts for single family properties (1-4 units); this guidance expands the use to multifamily residential properties. The use of conditional contracts is limited to the acquisition of existing single family and multifamily residential units as described below. The Responsible Entity (RE) must complete the environmental review of the property pursuant to HUD regulations at 24 CFR Part 58 and receive approval of a Request for Release of Funds before the RE provides its written determination that the purchase of the property may proceed. For conditional contracts, HUD does not allow for flexibility for a non-refundable deposit if a deposit is nonrefundable, it must be $1,000 or less for single-family property and 3% of the purchase price for multifamily projects. If the environmental review requires conditions to mitigate any environmental impacts, then the RE (if it is not the Purchaser) should enter into an agreement with the Purchaser to ensure that the conditions will be undertaken. Single-Family (1 4 units) This memorandum clarifies that a Responsible Entity may allow a recipient, subrecipient, or third party to enter into a conditional purchase contract for an existing single family home (one to four units) before the HUD environmental review of the property is complete when the action is limited to acquisition and/or rehabilitation 5 or demolition 6 of the home, provided that: 1) The purchase contract includes the appropriate language for a conditional contract (see below); 2) No transfer of title to the purchaser or removal of the environmental conditions in the purchase contract occurs unless and until the RE determines, on the basis of the environmental review, that the transfer to the homebuyer should go forward, and the RE (or recipient) has obtained approval of a Request for Release of Funds and environmental certification, where applicable; and 3) Deposit using HUD funds or other funds is a reasonable amount and refundable if the conditions are not met, or if non-refundable, is nominal ($1,000 or less) Multifamily Residential A Responsible Entity (RE) may allow a recipient, sub-recipient, or third party to enter into a conditional purchase contract for an existing multifamily residential property before the HUD environmental review of the property is complete when HUD or non-hud funds will be used for acquisition 7 and/or rehabilitation 8 of the multifamily structure, provided that: 5 Rehabilitation that meets the requirements of 24 CFR 58.35(a)(3)(i) 2 Demolition of existing single family home, provided that the end use of the property is limited to vacancy, reconstruction of single family house or is unknown at the time of acquisition. 7 Acquisition of existing multifamily residential structure provided that the structure will be retained for multifamily residential use 4 Rehabilitation that meets the requirements of 24 CFR 58.35(a)(3)(ii) U.S. Department of Housing and Urban Development

95 (1) the structure is not located within a Special Flood Hazard Area; (2) the purchase contract includes the appropriate language for a conditional contract (see below); (3) no transfer of title to the purchaser or removal of the environmental conditions in the purchase contract occurs unless and until the RE determines, on the basis of the environmental review, that the transfer to the buyer should go forward, and the RE (or recipient) has obtained approval of a Request for Release of Funds and environmental certification, where applicable; and (4) deposit using HUD funds or other funds is a reasonable amount and is refundable if the conditions are not met, or if non-refundable, is nominal (3% of purchase price or less). If the conditions described above are met, then the following language, or similar language, must be included in the purchase contract: Notwithstanding any other provision of this Contract, Purchaser shall have no obligation to purchase the Property, and no transfer of title to the Purchaser may occur, unless and until [Responsible Entity] has provided Purchaser and/or Seller with a written notification that: (1) it has completed a federally required environmental review and its request for release of federal funds has been approved and, subject to any other Contingencies in this Contract, (a) the purchase may proceed, or (b) the purchase may proceed only if certain conditions to address issues in the environmental review shall be satisfied before or after the purchase of the property; or (2) it has determined that the purchase is exempt from federal environmental review and a request for release of funds is not required. [Responsible Entity] shall use its best efforts to conclude the environmental review of the property expeditiously. If you have any questions, please contact Danielle Schopp at Danielle.L.Schopp@hud.gov or U.S. Department of Housing and Urban Development

96 Below is a table that compares and contrasts Conditional and Option Contracts: Option Contract: Obligates seller only Conditional Contract: Obligates both buyer and seller after conditions are met Types of projects/activities Any New construction, rehabilitation and/or demolition of single family or multifamily residential or non-residential structure Purchase of existing single family (1-4 units) with or without Demolition of existing single family home, provided that the end use of the property is limited to vacancy, reconstruction of single family house or is unknown at the time of acquisition; or Rehabilitation when density is not increased beyond 4 units, the land use is not changed and the footprint of the building is not increased in a floodplain or in a wetland Amount Cost of option must be reasonable may vary depending upon local real estate market Usually non-refundable $1000 or less for nonrefundable deposit Reasonable amount for refundable deposit Purchase of existing multifamily residential if the structure is not located in a Special Flood Hazard Area with or without Rehabilitation when the unit density is not changed more than 20%, the project does not involve changes in land use from residential to non-residential, and the estimated cost of rehabilitation is less than 75% of the total estimated cost of replacement after rehabilitation. 3% or less of purchase price for non-refundable deposit Reasonable amount for refundable deposit U.S. Department of Housing and Urban Development

97 July 13, 2011 Community Planning and Development NSP Policy Alert! Program Income in the Neighborhood Stabilization Program July 13, 2011 Many NSP grantees will generate program income. While its use is largely regulated by rules from the CDBG program, some questions have arisen about NSP situations that are less common in the Block Grant Program. This guidance addresses some of those questions and clarifies program income policy on the distribution of Net Operating Income in rental projects. Three appendices include: 1. Examples of NSP program income issues (p. 7); 2. Relevant regulatory citations (p. 10); and 3. Program income in DRGR (p. 15) Definition and Examples Program income is defined as gross income received by the recipient or a subrecipient directly generated from the use of NSP or CDBG funds. The NSP Program follows the CDBG regulations on program income, which can be found in their entirety at the end of this Policy Alert. The Department's policy since 2008 is that NSP program income must be spent on NSP-eligible activities only. Common sources of NSP program income are: Payments of principal and interest on loans made with NSP funds; Proceeds from the sale of properties acquired and/or improved with NSP funds; Recapture of NSP subsidies if an assisted home is sold before the end of the affordability period; Interest earned on program income pending its disposition; Repayments of liens placed on privately owned property that was demolished using NSP money; Gross income from the use or rental of real property constructed or improved with NSP funds, less the costs incidental to the generation of that income. The following revenues are NOT program income: Proceeds from fundraising by subrecipients; Funds collected through special assessments on public improvements (unlikely in NSP ); Subrecipient proceeds from disposition of real property five years or more after grant close-out; Income received in a single calendar year by the recipient and all its subrecipients (combined) if the total amount of such income does not exceed $25,000. This is unlikely to occur in NSP; U.S. Department of Housing and Urban Development

98 Interest earned on cash advances from the grantee or funds held in a revolving loan fund account (except for funds in approved lump-sum drawdown accounts). Such interest must be returned to HUD for transmittal to the Treasury. Regulatory and Functional Requirements The general rule in drawing NSP and CDBG funds is that funds must only be requested for immediate cash needs. Program income works on a first-in, first-out basis. It must be used before drawing down additional grant funds, unless the program income is in an approved revolving fund. In that case it must be used for the specified purpose of the revolving fund before further drawdowns for that specified activity. Program income may earn interest while being held for the next subsequent cash requirement of the grantee; that interest is also program income. Section defines the use of program income, and is available for reference at the end of this policy. Program income must be used for the immediate cash needs of the grantee, regardless of the next activity. That is, program income may not be held, or accumulated, for a specific activity. These activities will receive funding from available program income and grant funds at the time these funds are needed. Example A. Funds on hand in grantee/subrecipient account: Program income received from sale of completed NSP home: $35,000 B. Funds currently needed for ongoing demolition and land bank projects: $85,000 Request for funds from Line of Credit (B minus A): $50,000 Note that the source of the program income was different from the activity it was used to fund. Funds on hand from program income must always be disbursed for the next activity. Program income cannot be reserved for a major cost in the future but must always be disbursed when next drawing down funds, except for income in revolving loan funds. Within a revolving fund, program income must similarly be disbursed for the next activity of the fund. When income is generated by an activity that is only partially assisted with NSP funds, the income must be prorated to reflect the percentage of NSP funds used to determine the portion that is program income. Note that NSP grants are not subject to the requirement at 24 CFR (b)(2)(iii) that program income on hand at the end of the program year that is in excess of one-twelfth of the most recent entitlement grant be remitted to HUD. In all three phases of NSP, program income that is obligated or expended in this way will count toward obligation or expenditure requirements. The requirement to use program income first will not hinder the grantee's ability to meet spending deadlines. For NSP, policies for disposition of program income received after grant close-out have not yet been determined. Grantees should continue to follow the current requirement to use program income only on NSP-eligible activities. Program income retains its character as NSP funding indefinitely unless otherwise provided by HUD in an applicable requirement. In NSP, funds may be spent and returned several times through the cycle of acquisition, rehab, and resale. Grantees must track program income from NSP1, NSP2 or NSP3 separately and use the funds in accordance with the relevant Notices and rules. If a project meets the U.S. Department of Housing and Urban Development

99 rules of multiple programs (e.g. location, beneficiaries, uses,) then program income may be combined in that project. Note that the initial requirement in the Housing and Economic Recovery Act (HERA) that program income earned after July 30, 2013 be returned to the Treasury has been rescinded. As in CDBG, program income will remain with the grantee. Unless modified in a closeout or other agreement with HUD, all such funds must be documented when received and expended and must be used for NSP-eligible activities. NSP program income must follow all other cross-cutting requirements such as environmental, fair housing and labor laws and must be used in approved target areas or areas of greatest need unless otherwise approved by HUD. The NSP Notices allow 10% of program income to be used for administrative purposes. In general, program income is calculated in proportion to the amount of the total cost that is paid with NSP funds. Gross revenues of $20,000 on the sale of an NSP-assisted house that is financed with 50% NSP funds and 50% other funds would result in NSP program income of $10,000 ($20,000 X 50%.) Subrecipients and Developers When subrecipients are involved, the grantee and subrecipient may negotiate the disposition of program income in their agreement; there is substantial flexibility in its allocation, subject to the grantee's approval. This applies to members of consortia as well. The written subrecipient agreement must specify whether any program income received by the subrecipient is to be returned to the grantee or retained by the subrecipient. If the latter, the agreement must describe which NSP-eligible activities such program income will fund. Subrecipients are described at 24 CFR (c). Section describes the rules for subrecipient agreements. These sections are reproduced in full in Appendix 2. The financial records of the subrecipient (as well as the grantee) must include complete information on the receipt and expenditure of program income. At the end of the term of the Agreement, program income on hand or subsequently received by a subrecipient must be returned to the grantee unless otherwise specified in the subrecipient agreement. Grantees may designate a different subrecipient for use of program income, but should specify in the first agreement that program income will be returned to the grantee. In accordance with the first use rules, though, this program income may not be held for the disbursement to the second subrecipient. Rather, funding of the second subrecipient will be available from future program income or grant funds remaining in the line of credit. Revenues received by developers are NOT considered program income. This is because developers are treated in NSP as end users, not intermediaries like subrecipients. Households receiving financial assistance are also considered end users and are not required to operate like grantees or subrecipients, either. This determination derives from the CDBG regulation below; for NSP, it also applies to new construction. Assistance to private individuals and entities, including profit making and nonprofit organizations, to acquire for the purpose of rehabilitation, and to rehabilitate properties, for use or resale for residential purposes; 24 CFR (b)(1) Although revenues received by developers are not considered program income, grantees and subrecipients may negotiate terms for transactions which result in the return of some revenues to the grantee or subrecipient. To avoid unduly enriching third parties such as developers, NSP funds must be carefully underwritten. Depending on the underwriting analysis, grantees may require developers to treat the NSP funds as a loan, or may negotiate the return of a percentage of the revenues from rents. U.S. Department of Housing and Urban Development

100 Income from Rental Properties Program income is defined as gross income less costs incidental to generation of the income. Since this definition corresponds to the calculation of Net Operating Income (NOI) and NOI is a commonly used calculation, this guidance will use program income and NOI interchangeably in connection with income generated by rental properties. In NSP, NOI is program income if it is received by grantees and subrecipients. Net operating income received by developers is NOT program income, as noted above. Example: Gross Rents $100,000 Less: Vacancies ( $7,000) Effective Gross Income $ 93,000 LESS: Replacement Reserves ( $4,000) Operating Expenses ($45,000) (Maintenance, insurance, utilities, management, etc.) Net Operating Income $44,000 Net operating income from rental properties owned by grantees and subrecipients is calculated prior to debt service payments. In the example above, the NOI of $44,000 would be program income. However, in many cases, there is more than one source of funds and treatment of program income as a proportional share of NOI could leave insufficient funds for debt service. In the case above, if NSP paid for 50% of the project, NSP program income would be 50% of NOI, or $22,000. If debt service on the private loan that financed the other 50% were $25,000, calculating program income prior to debt service would leave $22,000 for debt service, not enough to keep the loan current. In NSP, HUD allows the use of program income to be applied to debt service under the following conditions: 1. The private loan(s) was used solely to finance the costs of the approved project and was made at the same time as the NSP loan (i.e. was not a existing mortgage); 2. The private loan was made by an external lender (not the grantee or subrecipient); 3. Loan proceeds were used in accordance with all applicable NSP requirements (e.g. environmental, Davis Bacon); 4. Use of the program income for debt service payments was contemplated when the project was approved. Typical Problems with Program Income Improper collection or retention of program income Subrecipient retains program income without grantee permission, or uses it in violation of terms of Agreement. Program income in a revolving fund account is not used prior to drawing down additional funds for that activity. U.S. Department of Housing and Urban Development

101 Subrecipient improperly disposes of property a year after purchase and fails to ensure sale at fair market value (the amount of program income due the grantee is the current fair market value of the property). When property that is only partially financed with NSP funds is rented or sold, the NSP program does not receive its proportional share of proceeds generated. Program income is not returned at expiration of a subrecipient agreement. Grantee or subrecipient treats interest earned on cash advances or on funds in a revolving account as program income, rather than remitting such interest income to the U.S. Treasury. Failure to repay NSP funds for property acquired or improved with NSP funds in excess of $25,000 when use changes and when new use is ineligible or does not meet a National Objective for the required time period. Improper utilization of program income Program income is treated by subrecipient as unrestricted funds. Program income is spent on an activity that is not eligible under NSP rules. Program income is used for an activity that the grantee has not approved via the Agreement. Program income is not used in compliance with all applicable regulations. The subrecipient draws down program funds without using program income first. Improper recording and reporting of program income Subrecipient's financial records do not describe receipt and use of program income in an accurate, complete, and timely fashion. Subrecipient has an inadequate system to monitor repayment or sale of loans that it has made with NSP funds. Information on the status and use of program income reported to grantee by subrecipient is inaccurate or untimely. Useful Strategies for Avoiding Problems with Program Income (1) Have a detailed explanation of program income requirements in a written Agreement with each subrecipient. (2) Provide technical assistance to subrecipients in setting up their record-keeping systems to capture data on program income. (3) For those subrecipients operating loan programs, provide technical assistance to ensure adequate loan documentation and loan servicing systems. (4) Require detailed program income information as part of regular progress reports and drawdown requests from subrecipients, with periodic on-site spot-checking of records by the grantee to confirm the reported data. (5) Have an accurate and useful way to track program income as it is received and expended, and ensure that program income earned by NSP1, NSP2 and NSP3 is kept separate. U.S. Department of Housing and Urban Development

102 Technical assistance with early intervention to identify problems while they are still quite small is particularly important with respect to program income. In the event that the subrecipient has misspent program income, a grantee may have no option other than to disallow the related expenses. A disallowance is likely to represent a severe burden to a subrecipient and can impose a serious strain on the grantee's relationship with the subrecipient. Ideally, any program income issues encountered with subrecipients will be of a minor and correctable nature. However, if the subrecipient is not responsive to directed corrective action, and/or persists in viewing the program income as its own money, the grantee must act expeditiously to curtail the subrecipient's authority to retain and use such funds. U.S. Department of Housing and Urban Development

103 APPENDIX 1: PROGRAM INCOME EXAMPLES Question: Assume that the grantee decided to pay for closing costs out of its NSP proceeds. For example, total development costs are $120,000, of which $40,000 is a private loan and $80,000 is a NSP loan. The house sells for $90,000 and there are $5,000 in closing costs. The $40,000 construction loan is repaid with the sales proceeds, leaving $50,000 to come back to the grantee. Of that $50,000, $5,000 is left in the deal to pay for the closing costs and thus only $45,000 comes back to the grantee. What is the program income - $50,000 or $45,000? Answer: Only the $45,000 is NSP program income as this is the amount that is actually returned to the grantee. The $5,000 is a cost of the transaction, because program income is gross revenues less costs incidental to the transaction. Question: Assume a deal where there are mixed sources of financing for the construction and acquisition, including NSP. At sale of the home, the other financing sources are paid off with loan proceeds. For example, assume that a deal has acquisition and construction costs of $120,000, of which an NSP loan paid $70,000 and a private loan paid $50,000. At closing, the house is sold for $90,000 (its market value). The private loan for $50,000 is paid off and $40,000 is repaid to the NSP grantee. How much is considered NSP program income in this case? Answer: The $40,000 that is repaid to the grantee is considered to be program income. The other $30,000 that NSP invested in this deal is a development subsidy and is not considered program income. In addition, the $50,000 repaid to the private lender is not program since the lender is not the grantee or a subrecipient. Question: Assume that a grantee provides all its NSP funds to three subrecipients, who manage direct homebuyer assistance programs. The subrecipients provide loans to homebuyers for downpayment and closing cost assistance in the amount of $10,000 per household. These deferred payment loans are not repaid until the homebuyer re-sells the unit during the affordability period. In 2011, a homebuyer funded by subrecipient A sold their home and paid $10,000 back to the subrecipient. Also in 2011, a second homebuyer sold and repaid $10,000 to subrecipient B. No other income was received by the grantee or any of these subrecipients in How much is NSP program income? Answer: None of the $20,000 is considered program income because the total of the funds returned to the grantee and its subrecipients (in total) is less than $25,000 in a single year. The $20,000 is considered as miscellaneous revenue and the grantee can determine in its agreement with the subrecipients how these funds may be used. The funds are not subject to the NSP rules. As soon as the total reaches $25,000, then ALL of the funds are program income. Question: Assume the same grantee with the NSP downpayment and closing cost program operated through subrecipients. In 2012, assume that two homebuyers sold their units and each repaid $10,000 (total $20,000) to subrecipient A. Three homebuyers sold and repaid subrecipient C $10,000 each (total $30,000). How much is program income? U.S. Department of Housing and Urban Development

104 Answer: Because the total funds back to the grantee and its subrecipients exceed $25,000, the entire $50,000 is considered program income subject to the NSP rules. It is important to note that once the $25,000 threshold is exceeded, the entire amount becomes program income not just the amount that exceeds the threshold. Question: Assume that a NSP-assisted homebuyer project has a 5 year affordability period. The home is sold by the assisted homeowner in year 7 and the $40,000 NSP soft second loan is repaid to the grantee. How much is program income? Answer: Even though the sale occurs after the end of the period of affordability, the entire $40,000 is considered NSP program income. HUD will be issuing further guidance on the rules covering program income received after the close-out of the NSP program but the current policy is that the funds must follow the CDBG rules. Question: Assume that a grantee uses NSP funds to pay for construction on a unit. When the unit is sold, the grantee gets $50,000 back as program income. That $50,000 of program income is then invested to construct a second unit and the grantee gets $40,000 back when the second unit is sold. How much of the $40,000 is NSP program income? Answer: NSP funds remain program income in perpetuity, regardless of the number of revolutions. Thus, the entire $40,000 is NSP program income subject to the NSP rules. Question: Assume that a grantee provides $30,000 in NSP funds to a developer to assist them to acquire and rehabilitate a unit. When the unit is sold to a buyer, the developer pays off their private construction loans and retains $10,000 as its developer fee. No additional funds are repaid to the grantee. Is the $10,000 program income or does it need to be repaid the grantee? Answer: No, if the $10,000 is retained by the developer and not repaid to the grantee or a subrecipient, it is not considered program income. The developer is not required to return these funds to the grantee but the grantee must ensure that the funds it allows the developer to keep constitute a reasonable developer fee. Question: Assume that a grantee invests both HOME and NSP money in a project. Total development costs are $140,000, of which $60,000 is a private loan, $50,000 is a HOME loan and $30,000 is a NSP loan. The house sells for $110,000 and the private loan is paid off. The remaining $50,000 is repaid to the grantee. How much of the $50,000 is NSP program income and how much is HOME program income? Answer: The grantee would need to pro-rate the program income between HOME and NSP in proportion to their investment. Since HOME was 63% of the grantee s investment ($50,000/$80,000), 63% of the program income or $31,250 would be HOME PI and $18,750 would be NSP program income. Note that the private funds are not relevant when determining the pro-ration. It is based on the relative amounts of the grantee s investment. Question: Assume that a grantee has chosen to leave some money in a deal as homebuyer U.S. Department of Housing and Urban Development

105 financing. Total development costs are $160,000, of which $90,000 is a private loan and $70,000 is a NSP loan. The house sells for $130,000, of which $100,000 is a private mortgage and $30,000 is a soft second loan left in the deal by the grantee, with a mortgage note for the homebuyer. Of the $100,000 in private loan proceeds, $90,000 goes into paying back the private construction loan and $10,000 comes back to the grantee. What would be considered the NSP program income? Answer: Only the $10,000 that is returned to the grantee is NSP program income. The $30,000 that was left in the deal as homebuyer financing is a cost of the deal and is not program income. The $90,000 that was paid to the private construction lender is also not program income. Finally, the $40,000 of NSP funds that is not repaid ($70,000 investment - $30,000 left as a soft second) is a development subsidy and is not program income. Question: Assume a multi family project with both HOME and NSP in the deal. Total development costs are $500,000 of which $300,000 is NSP loan and $200,000 is HOME loan from the local PJ. Every year, the project will earn approximately $50,000 in NOI before payment of debt service. The HOME and the NSP loans are cash flow loans which are repaid to the HOME PJ and the NSP subrecipient. How much of the $50,000 is program income and how is it divided between HOME and NSP? Answer: In general, the $50,000 of NOI should generally be pro-rated based on the initial investments. NSP is 60% of the initial public investment and HOME is 40%. Thus $30,000 is NSP PI (60% of $50,000) and $20,000 is cash flow that the local PJ could either allow the owner to keep or pay back some or all to it as HOME program income. Note, however, that this is a general answer as it is possible that the PJ or grantee may be getting other types of returns which could be used to compensate for their fair share of the return. U.S. Department of Housing and Urban Development

106 APPENDIX 2: RELEVANT EXCERPTS FROM CDBG REGULATIONS 24 CFR Definitions. For the purposes of this subpart, the following terms shall apply: (a) Program income means gross income received by the recipient or a subrecipient directly generated from the use of CDBG funds, except as provided in paragraph (a)(4) of this section. (1) Program income includes, but is not limited to, the following: (i) Proceeds from the disposition by sale or long-term lease of real property purchased or improved with CDBG funds; (ii) Proceeds from the disposition of equipment purchased with CDBG funds; (iii) Gross income from the use or rental of real or personal property acquired by the recipient or by a subrecipient with CDBG funds, less costs incidental to generation of the income; (iv) Gross income from the use or rental of real property, owned by the recipient or by a subrecipient, that was constructed or improved with CDBG funds, less costs incidental to generation of the income; (v) Payments of principal and interest on loans made using CDBG funds, except as provided in paragraph (a)(3) of this section; (vi) Proceeds from the sale of loans made with CDBG funds; (vii) Proceeds from sale of obligations secured by loans made with CDBG funds; (viii) [Reserved] (ix) Interest earned on program income pending its disposition; and (x) Funds collected through special assessments made against properties owned and occupied by households not of low and moderate income, where the assessments are used to recover all or part of the CDBG portion of a public improvement. (2) Program income does not include income earned (except for interest described in ) on grant advances from the U.S. Treasury. The following items of income earned on grant advances must be remitted to HUD for transmittal to the U.S. Treasury, and will not be reallocated under section 106(c) or (d) of the Act: (i) Interest earned from the investment of the initial proceeds of a grant advance by the U.S. Treasury; (ii) Interest earned on loans or other forms of assistance provided with CDBG funds that are used for activities determined by HUD either to be ineligible or to fail to meet a national objective in accordance with the requirements of subpart C of this part, or that fail substantially to meet any other requirement of this part; and U.S. Department of Housing and Urban Development

107 (iii) Interest earned on the investment of amounts reimbursed to the CDBG program account prior to the use of the reimbursed funds for eligible purposes. (3) The calculation of the amount of program income for the recipient's CDBG program as a whole (i.e., comprising activities carried out by a grantee and its subrecipients) shall exclude payments made by subrecipients of principal and/or interest on CDBG-funded loans received from grantees if such payments are made using program income received by the subrecipient. (By making such payments, the subrecipient shall be deemed to have transferred program income to the grantee.) The amount of program income derived from this calculation shall be used for reporting purposes, for purposes of applying the requirement under (b)(2)(iii), and in determining limitations on planning and administration and public services activities to be paid for with CDBG funds. (4) Program income does not include: (i) Any income received in a single program year by the recipient and all its subrecipients if the total amount of such income does not exceed $25,000; and (ii) Amounts generated by activities that are financed by a loan guaranteed under section 108 of the Act and meet one or more of the public benefit criteria specified at (b)(2)(v) or are carried out in conjunction with a grant under section 108(q) in an area determined by HUD to meet the eligibility requirements for designation as an Urban Empowerment Zone pursuant to 24 CFR part 597, subpart B. Such exclusion shall not apply if CDBG funds are used to repay the guaranteed loan. When such a guaranteed loan is partially repaid with CDBG funds, the amount generated shall be prorated to reflect the percentage of CDBG funds used. Amounts generated by activities financed with loans guaranteed under section 108 which are not defined as program income shall be treated as miscellaneous revenue and shall not be subject to any of the requirements of this part, except that the use of such funds shall be limited to activities that are located in a revitalization strategy area and implement a HUD approved area revitalization strategy pursuant to (e) of this title. However, such treatment shall not affect the right of the Secretary to require the section 108 borrower to pledge such amounts as security for the guaranteed loan. The determination whether such amounts shall constitute program income shall be governed by the provisions of the contract required at (b)(1). (5) Examples of other receipts that are not considered program income are proceeds from fund raising activities carried out by subrecipients receiving CDBG assistance (the costs of fundraising are generally unallowable under the applicable OMB circulars referenced in 24 CFR 84.27), funds collected through special assessments used to recover the non-cdbg portion of a public improvement, and proceeds from the disposition of real property acquired or improved with CDBG funds when the disposition occurs after the applicable time period specified in (b)(3) for subrecipient-controlled property, or in for recipient-controlled property. 24 CFR (c): Subrecipients defined Subrecipient means a public or private nonprofit agency, authority, or organization, or a for-profit entity authorized under (o), receiving CDBG funds from the recipient or another subrecipient to undertake activities eligible for such assistance under subpart C of this part. The term excludes an entity receiving CDBG funds from the recipient under the authority of , unless the grantee explicitly designates it as a subrecipient. The term does not include contractors providing supplies, equipment, construction, or services subject to the procurement requirements in 24 CFR or 84.40, as applicable. U.S. Department of Housing and Urban Development

108 Agreements with subrecipients. (a) Before disbursing any CDBG funds to a subrecipient, the recipient shall sign a written agreement with the subrecipient. The agreement shall remain in effect during any period that the subrecipient has control over CDBG funds, including program income. (b) At a minimum, the written agreement with the subrecipient shall include provisions concerning the following following items: (1) Statement of work. The agreement shall include a description of the work to be performed, a schedule for completing the work, and a budget. These items shall be in sufficient detail to provide a sound basis for the recipient effectively to monitor performance under the agreement. (2) Records and reports. The recipient shall specify in the agreement the particular records the subrecipient must maintain and the particular reports the subrecipient must submit in order to assist the recipient in meeting its recordkeeping and reporting requirements. (3) Program income. The agreement shall include the program income requirements set forth in (c). The agreement shall also specify that, at the end of the program year, the grantee may require remittance of all or part of any program income balances (including investments thereof) held by the subrecipient (except those needed for immediate cash needs, cash balances of a revolving loan fund, cash balances from a lump sum drawdown, or cash or investments held for section 108 security needs). (4) Uniform administrative requirements. The agreement shall require the subrecipient to comply with applicable uniform administrative requirements, as described in (5) Other program requirements. The agreement shall require the subrecipient to carry out each activity in compliance with all Federal laws and regulations described in subpart K of these regulations, except that: (i) The subrecipient does not assume the recipient's environmental responsibilities described at ; and (ii) The subrecipient does not assume the recipient's responsibility for initiating the review process under the provisions of 24 CFR part 52. (6) Suspension and termination. The agreement shall specify that, in accordance with 24 CFR 85.43, suspension or termination may occur if the subrecipient materially fails to comply with any term of the award, and that the award may be terminated for convenience in accordance with 24 CFR (7) Reversion of assets. The agreement shall specify that upon its expiration the subrecipient shall transfer to the recipient any CDBG funds on hand at the time of expiration and any accounts receivable attributable to the use of CDBG funds. It shall also include provisions designed to ensure that any real property under the subrecipient's control that was acquired or improved in whole or in part with CDBG funds (including CDBG funds provided to the subrecipient in the form of a loan) in excess of $25,000 is either: (i) Used to meet one of the national objectives in (formerly ) until five years after expiration of the agreement, or for such longer period of time as determined to be appropriate by the recipient; or U.S. Department of Housing and Urban Development

109 (ii) Not used in accordance with paragraph (b)(7)(i) of this section, in which event the subrecipient shall pay to the recipient an amount equal to the current market value of the property less any portion of the value attributable to expenditures of non-cdbg funds for the acquisition of, or improvement to, the property. The payment is program income to the recipient. (No payment is required after the period of time specified in paragraph (b)(7)(i) of this section.) [53 FR 8058, Mar. 11, 1988, as amended at 53 FR 41331, Oct. 21, 1988; 57 FR 27120, June 17, 1992; 60 FR 56915, Nov. 9, 1995; 68 FR 56405, Sept. 30, 2003] Program income. (a) Recording program income. The receipt and expenditure of program income as defined in (a) shall be recorded as part of the financial transactions of the grant program. (b) Disposition of program income received by recipients. (1) Program income received before grant closeout may be retained by the recipient if the income is treated as additional CDBG funds subject to all applicable requirements governing the use of CDBG funds. (2) If the recipient chooses to retain program income, that program income shall be disposed of as follows: (i) Program income in the form of repayments to, or interest earned on, a revolving fund as defined in (b) shall be substantially disbursed from the fund before additional cash withdrawals are made from the U.S. Treasury for the same activity. (This rule does not prevent a lump sum disbursement to finance the rehabilitation of privately owned properties as provided for in ) (ii) Substantially all other program income shall be disbursed for eligible activities before additional cash withdrawals are made from the U.S. Treasury. (iii) At the end of each program year, the aggregate amount of program income cash balances and any investment thereof (except those needed for immediate cash needs, cash balances of a revolving loan fund, cash balances from a lump-sum drawdown, or cash or investments held for section 108 loan guarantee security needs) that, as of the last day of the program year, exceeds one-twelfth of the most recent grant made pursuant to shall be remitted to HUD as soon as practicable thereafter, to be placed in the recipient's line of credit. This provision applies to program income cash balances and investments thereof held by the grantee and its subrecipients. (This provision shall be applied for the first time at the end of the program year for which Federal Fiscal Year 1996 funds are provided.) (3) Program income on hand at the time of closeout shall continue to be subject to the eligibility requirements in subpart C and all other applicable provisions of this part until it is expended. (4) Unless otherwise provided in any grant closeout agreement, and subject to the requirements of paragraph (b)(5) of this section, income received after closeout shall not be governed by the provisions of this part, except that, if at the time of closeout the recipient has another ongoing CDBG grant received directly from HUD, funds received after closeout shall be treated as program income of the ongoing grant program. (5) If the recipient does not have another ongoing grant received directly from HUD at the time of closeout, income received after closeout from the disposition of real property or from loans outstanding at the time of closeout shall not be governed by the provisions of this part, except that such income shall be U.S. Department of Housing and Urban Development

110 used for activities that meet one of the national objectives in and the eligibility requirements described in section 105 of the Act. (c) Disposition of program income received by subrecipients. The written agreement between the recipient and the subrecipient, as required by , shall specify whether program income received is to be returned to the recipient or retained by the subrecipient. Where program income is to be retained by the subrecipient, the agreement shall specify the activities that will be undertaken with the program income and that all provisions of the written agreement shall apply to the specified activities. When the subrecipient retains program income, transfers of grant funds by the recipient to the subrecipient shall be adjusted according to the principles described in paragraphs (b)(2) (i) and (ii) of this section. Any program income on hand when the agreement expires, or received after the agreement's expiration, shall be paid to the recipient as required by (b)(3). (d) Disposition of certain program income received by urban counties. Program income derived from urban county program activities undertaken by or within the jurisdiction of a unit of general local government which thereafter terminates its participation in the urban county shall continue to be program income of the urban county. The urban county may transfer the program income to the unit of general local government, upon its termination of urban county participation, provided that the unit of general local government has become an entitlement grantee and agrees to use the program income in its own CDBG entitlement program. U.S. Department of Housing and Urban Development

111 APPENDIX 3: PROGRAM INCOME IN DRGR U.S. Department of Housing and Urban Development

112 U.S. Department of Housing and Urban Development

113 DRGR does not, as a system, assist grantees in complying with the first-in/first-out rule for program income. It is a grantee s responsibility to track the timing of drawing program income versus program funds in a separate internal system. Additionally, there is currently no separate module in DRGR for tracking Program Income. Grantees are to track PI received in the current quarter s QPR on the activity that generated it. Receipting PI in the QPR will add to the sum of all PI for the entire grant; thus, the sum of all PI not drawn to date may be selected as a source of funds per activity when creating a voucher in the drawdown module. U.S. Department of Housing and Urban Development

114 The two points at which program income must be tracked in DRGR are 1) program income received and 2) program income dispersed. PI received is reported in the QPR in the quarter in which it was received and should be entered in the DRGR activity generating the program income. A grantee only needs to SAVE the QPR after entering the program income amounts to enable the user to select PI as a source when creating a voucher in the drawdown module. To track program income disbursed, a grantee uses the same protocol when drawing down program funds through the creation of a voucher. However, it will select program income as the source of funds. Importantly, available PI is the SUM of all PI a grantee has generated across all activities on that grant that has not yet been processed as drawdown. U.S. Department of Housing and Urban Development

115 The Reports Module in DRGR enables the user to create standard reports that display easy-to-read information based on the data a grantee has entered into DRGR. To view a comprehensive report regarding information submitted on Program Income a user may pull FinReport: Program Income Activity Level. This report may assist a user in identifying discrepancies between internal records and DRGR entries. U.S. Department of Housing and Urban Development

116 This screenshot demonstrates in a QPR, at the Activity, where to enter the most current in-quarter estimate of program income received. A user may demonstrate a receipt of the PI within a quarter by saving the QPR and, then, submitting the QPR by the deadline. U.S. Department of Housing and Urban Development

117 Program income disbursements are recorded in the Drawdown module. This screenshot captures a user in the first steps of creating a voucher. When creating a voucher, a user must select the source of funds program income or program funds for each line item of the voucher. U.S. Department of Housing and Urban Development

118 This screenshot captures the second page of creating a voucher. The grantee has chosen in the first page to include five line items in the voucher: three for program funds and two for program income (see column titled Fund Type in the Voucher Items table). For both line items using program income, there is $204, available (see column titled Available Amount in the Voucher Items table). This is the total amount of program income available for the entire grant; therefore, the sum of drawdown amount of both line items cannot exceed $204, For simple DRGR math rules: Available Amount of PI = Sum of All Program Income Received (-PI drawn amount) U.S. Department of Housing and Urban Development

119 U.S. Department of Housing and Urban Development

120 In the case study example outlined in this slide, the grantee has recorded, in the QPR module, receipt of $304,426 of program income. The grantee has drawn $100,000 thus far. Therefore, based on the DRGR math rule, a total of $204,426 can still be drawdown. The grantee s next draw will include program income as a source of funding. With a total of $204,426 available of PI funds, the grantee will draw $154,426 from one activity and $50,000 from a second activity: thus, demonstrating that PI can be receipted against one activity but drawn from other activities. To determine which activities to draw the PI funds against, a grantee must follow the first-in, first-out rules. U.S. Department of Housing and Urban Development

121 Q.1. To demonstrate a revolving loan fund (RLF) in DRGR, the grantee will enter a new activity in the DRGR Action Plan, but the program funds will have a budget of zero dollars. The grantee will utilize the same DRGR protocol for demonstrating receipt and disbursement of PI funds for funds associated with the RLF: therefore, it will receipt the RLF funds in the QPR module for the RLF activity in the cell marked Program Income Received and report disbursements through the Drawdown module by selecting Program Income as the source of funds when creating the voucher. In establishing the RLF activity in DRGR, the same protocol is used in establishing any new DRGR activity: enter narratives, complete data entries including national objectives, performance measures, etc. U.S. Department of Housing and Urban Development

122 Q.2. First, a grantee will record the PI received for the acquisition/rehabilitation activity in the QPR module for that activity. Then, the grantee will create a voucher by establishing two line items of program income funds one for each Activity to bill the draw against. The screenshot demonstrates an example of PI funds that were receipted in one particular activity, but partially drawn from two activities (BEDCLH25 and EHabitatLH25). As per first-in/first-out protocol, the program income funds that are sitting on hand must be used for the next eligible NSP expense prior to drawing new grant funds. Thus, the grantee had received $325, from activities under BEDCHL25 and entered that amount in the current QPR. Then, the next draw was to cover expenses for BEDCLH25 (totaling $ ) and for EHabitatLH25 (totaling $35,985.24) and, therefore, drew down the program income funds first. U.S. Department of Housing and Urban Development

123 Q.3. For the third question, the grantee is still going to use the first in first out rule to disperse funds. The grantee can decrease the activity budget for which the program income was received and increase the activity budget in which the program income is going to be designated for. This occurs because activity draws down plus program income draw down equals the total activity draw. U.S. Department of Housing and Urban Development

124 The above slide, and the following slide, capture an example of tracking the movement of funds when an Activity has a capped budget. For Activity #EHabitat LH25, the budget is $824,000, grant funds disbursed is $169, and program income funds disbursed is $35, Total funds drawn to date is $204,986.59, or the sum of program funds drawn and PI drawn. In this scenario, the grantee has chosen to allow only $824,000 as the total amount to be drawn against Habitat for Humanity s Activity #EHabitatLH25. And, the grantee has chosen to use the funds generated as program income for their BEDCLMMI activity. Therefore, the grantee must decrease the EHabitatLH25 s budget by the PI disbursed against that activity and, subsequently, increase the budget of BEDCLMMI by the same amount. U.S. Department of Housing and Urban Development

125 To continue from the previous slide, this screenshot demonstrates the changes in the Activities budgets. EHabitat LH25 s budget has been reduced from $824,000 by the PI disbursed ($35,965.24) to equal $788, Subsequently, the budget for BEDCLMMI category has been increased to $4,588, by adding the value of the program income disbursed amount from EHabitatLH25 ($35,965.24). U.S. Department of Housing and Urban Development

126 U.S. Department of Housing and Urban Development

127 U.S. Department of Housing and Urban Development

128 June 16, 2011 Community Planning and Development NSP Policy Alert! NSP2 Recovery Act Reporting Update June 29, 2011 The July 2011 Quarterly Reporting Period Draws Near! Reporting will cover the period July 1-10, There will be an extended reporting period from July th, during which time grantees will not be considered late, but we encourage you to report by July 10th. Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub-recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub-recipients. When a grantee is handling all Federal Reporting data entry itself, the grantee is to review and verify the information provided to them by their sub-recipients prior to data entry. Grantees also need to enter or update their environmental review information in RAMPS. Expected Timetable: July 1-10 (Subject to change by OMB) Grantees and sub-recipients report in FederalReporting.gov. HUD will be able to view prime recipients reports and contact non-reporting recipients starting the week of July 1st. July 1 July July 15 July July Deadline to report Environmental data into RAMPS for this quarter only. (Grantees ability to enter data is ongoing). Those who are exempt from environmental reviews must still report that in RAMPS. Extended Reporting Cycle HUD submits quarterly report on the status and progress of funded activities to Council on Environmental Quality, using RAMPS data. Prime Recipient Review Period (Prime Recipients Review Data Submitted by Subrecipients(s)/Prime Recipients & Sub-recipients make corrections) HUD data review and comment period for data entered by grantees and subrecipients (Agency Review of Data Submitted/Prime Recipients & Sub-Recipients make corrections) July 30 Aug 2 Sept 19 Deadlines are as of midnight Eastern Time Recovery Act Transparency Board posts recipient reports to Recovery.gov System re-opens to make error corrections to reports that were created from July 1-14th. HUD comments on grantee reports; grantees review sub-recipients reports; prime recipients and sub-recipients correct reports U.S. Department of Housing and Urban Development

129 New Guidance New Feature in FederalReporting.gov Automated Data Change Request (ADC) As of April 1, 2011, prime recipients will now be able to request to make changes through a new feature called automated data change (ADC) in Federal Reporting.gov for previous quarters only. ADC should not be used to make changes that can be made in the current quarter (e.g., updates to the award amount). The following changes may be requested: Deactivate report Link Reports Mark as Final Changes to any other data fields can be requested, except job numbers cannot be changed. Once a request has been approved by all evaluating parties, it will be processed into FederalReporting.gov and published on Recovery.gov according to the Recovery.gov publication schedule. If denied, the requester will be notified of the reason; a denial may require a new request for data change based on the information provided in the denial. The instructions on how to do automated change requests can be found on page (the last pages of Chapter 16) of the FederalReporting.gov User Guide. On the Home Page of FederalReporting.gov, click on downloads and then scroll down to Chapter 16 titled, How to Request a Change to a Prior Quarter Report. Regarding Project Title and Primary Place of Performance A GAO report, Opportunities Exist to Increase the Public s Understanding of Recipient Reporting on HUD programs, recommended that HUD provide more clear guidance to grantees on reporting the Project Name or Project/Program Title and Primary Place of Performance in FederalReporting.gov. To ensure full transparency of how ARRA funds are being expended, HUD is rescinding the guidance it initially provided to grantees on these two data elements, in favor of the following guidance. Starting with the April 2011 reporting cycle, grantees need to amend their current entries for these data fields in accordance with the guidance below. Grantees may also refer to the Recipient Reporting Data Model on the hud.gov/recovery page to see the new pop up definitions for these two terms. You may also see the GAO report at: Project Name or Project/Program Title (limit of 256 characters) NSP2 NSP2 grantees should list the DRGR Activity Titles (which correspond to the five NSP Eligible Uses) for which they are using funds. To list NSP or neighborhood stabilization as the Project Name or Project/Program Title is no longer sufficient. U.S. Department of Housing and Urban Development

130 Primary Place of Performance (limit of 55 characters for each line) NSP2 The nature of the NSP2 program is such that grantees will be undertaking activities at dozens (or even hundreds) of scattered sites throughout a city or county; state, consortia and national recipients may carry out activities in dozens of localities or in multiple states. It would be impossible to list all activity locations in the Primary Place of Performance field. Therefore, NSP2 grantees should enter the grantee s administrative office address as the Primary Place of Performance. Consortia recipients should list the lead entity s administrative office address as the grantee Primary Place of Performance. Grantees must list a Primary Place of Performance for all sub-recipients. Since other consortia members are to be reported as sub-recipients in FederalReporting.gov, each member s administrative office address should be entered as its Sub-recipient Primary Place of Performance. Provide Clear and Descriptive Narratives Some grantees need to provide greater clarity in their narrative descriptions in FederalReporting.gov. NSP2 and NSPTA grantees Award Description, Quarterly Activities/Project Description and Quarterly Job Description fields must provide clear, complete narratives that facilitate an understanding by the general public. If you have not already amended your narrative descriptions, please review them in FederalReporting.gov during the July Federal Reporting cycle to ensure that they provide concise, clear and detailed information before submitting your report. At a minimum, the narratives should include: a. Clear and complete information on the award s purpose, scope and nature of activities, outcomes, and status of activities; b. An explanation of all abbreviations or acronyms that may be unfamiliar to the general public; c. The names and location of specific projects, so it is clear how and where ARRA funds are being spent, within the character limitations; and, d. The grantee s website address and any additional websites that provide detailed grant or project level information will be listed. If you need to update your descriptions - below is suggested language with some highlighted notations of where you should add your own information. This suggested language is not meant to be all inclusive. Please provide as much detail as possible to reflect the work/progress of your NSP2 funds. Once you revise the Award Description you should not have to update this quarterly, only the Quarterly Description/Project Description will need updating each quarter. U.S. Department of Housing and Urban Development

131 Below is a sample template: Award Description Quarterly Activities/Project Description The Neighborhood Stabilization Program2 (NSP2) funds will invest in [Name of Project(s)]. The purpose of this project(s) is to. NSP2 funds will assist xx [enter the number of projects NSP2 is funding] projects throughout the city/state [if possible provide the cities or counties, or at least some of them if there are too many locations] A listing of all xx projects receiving [NSP2] funding is posted to our website at [provide website of where you have posted your NSP2 completed projects]. Quarterly Job Description [You should describe what your Agency accomplished/worked on during the quarter. Provide as much detail as possible.] For example - This quarter, $xx,xxx were committed to xx of projects, $xx,xxx were expended for xx of projects, xx of written agreements were finalized, work began on xx of projects [list the project names], work is continuing at [list the project names], work was completed at [list general location of the projects]. NSP2] funds were used to create/retain FTE jobs this quarter. [Name type of jobs and the number of FTE jobs that were funded with ARRA dollars] If no jobs were created, state this and the reason. These reporting requirements represent an unprecedented transparency and accountability effort. Accordingly, we recognize that many grantees may encounter challenges and delays in the reporting process, and we appreciate your continued commitment to working with HUD toward the important goal of economic recovery. Expiring Central Contractor Registrations (CCRs) All NSP2 grantees need to be registered in CCR in order to receive their FY2011 funding. OBGA Headquarters staff will contact grantees to remind them to renew their registrations. However, Field Offices are encouraged to follow up with these grantees as well. Grantees should be reminded that this affects their annual formula funding as well. Grantees are also reminded to update their point of contact s in CCR; the CCR system sends automatic reminder messages regarding impending expirations, but the system receives a large number of delivery failure replies because of outdated/incorrect addresses. Grantees can check the status of their CCR registration quickly and easily (without logging in) at CCR by going to selecting CCR Search the second tab from the left-then entering their DUNS number under the Simple Search. If all information contained in the CCR record is still valid and accurate, you may simply select Renew. If any information has changed please update it, then submit. If Field Offices have any questions regarding CCR updates, please contact Njeri Santana on the NSP Team (for NSP2). Please update or renew your city s CCR as soon as possible to ensure there will be no disruption to your grant payments or your ability to report. If you are unable or unsure how to update your record, you can print out the CCR user guide or contact the Federal Service Desk between 8am and 8pm Eastern Time at or If after consulting these resources you still have difficulty, please call HUD s Office of Departmental Grants Management and Oversight at U.S. Department of Housing and Urban Development

132 Invitation for NSP2 Grantees to Post ARRA feedback Please find here the HUD Ideas in Action website, with a new invitation for ARRA recipients to post feedback from their implementation experiences: For additional help HUD s Recovery Act Reporting Call Center, , is available to answer a wide variety of NSP2 reporting questions. The call center is available 8:30am to 5:30pm EDT, Monday to Friday, with expanded hours July You may also the help center at recovery@comcon.org. Previous Federal Reporting Guidance Quarterly Updates also contain information on a variety of reporting issues: How to Avoid Saving a Draft Report Instead of a Final Report Minimizing Reporting Errors in FederalReporting.gov Correcting Errors in FederalReporting.gov Sub-Recipient Reporting Need to Ensure Correct DUNS number These resources can be found on the HUD Recovery Act website: This site also provides links to other resources, such as the CCR registration website and the Dun & Bradstreet registration website. U.S. Department of Housing and Urban Development

133 June 16, 2011 Community Planning and Development NSP Policy Alert! Guidance on Applying Davis-Bacon to NSP-Funded Activities June 16, 2011 Introduction The Department of Housing and Urban Development has awarded $7 billion dollars in grants through three rounds of funding to states, local governments and non-profits to administer the Neighborhood Stabilization Program (NSP). NSP was established for the purpose of stabilizing communities that have suffered from foreclosure and abandonment. Through the purchase and redevelopment of foreclosed and abandoned homes and residential properties, NSP seeks to stabilize and revitalize communities hit hardest by the nation s economic decline and housing market collapse. As recipients of NSP funding, NSP grantees must ensure compliance with all applicable federal labor standards provisions including the payment of no less than prevailing wages determined under the Davis Bacon Act. The Davis-Bacon Act requires the payment of no less than the wages that prevail in the locality to all construction laborers and mechanics employed on the covered project. In this way, the local economy is supported and local contractors and sub-contractors are ensured a level playing field in competitive bidding. Federal labor standards provisions (collectively, Davis-Bacon) apply to NSP activities related to construction and redevelopment work that are financed in whole or in part with NSP funds. This guidance will provide an overview of Davis-Bacon requirements applicable to NSP. It will also address how Davis-Bacon applies to special circumstances in NSP as well as instances of where Davis-Bacon is not applicable. Lastly, this guidance will address enforcement responsibilities, documentation requirements, and provide additional resources on navigating Davis-Bacon compliance issues that apply to NSP. Davis-Bacon Overview All federal government construction contracts and most contracts for federally-assisted construction over $2,000 must include provisions for paying workers on-site no less than the local prevailing wages and benefits paid on similar projects. For NSP projects, residential properties containing fewer than 8 units are exempt from Davis-Bacon (see Section 110(a), Housing and Community Development Act (HCDA) of 1974). The eight-unit threshold applies to the number of units on a property; not the number of units being rehabilitated or constructed nor the number of units funded by NSP dollars. A property is defined as one or more buildings on an undivided lot or on contiguous lots or parcels which are commonly-owned and operated as one rental, cooperative, or condominium project. Single-family, homeowner properties are generally exempt from Davis-Bacon. There are three key requirements under the Federal labor standards including: Payment of not less than prevailing (Davis-Bacon) wage rates to all laborers and mechanics employed by contractors and subcontractors; U.S. Department of Housing and Urban Development

134 Compensation for overtime hours (hours worked over 40 in a work week at the site of the covered work) at no less than 1½ the regular basic rate of pay; The certification and submission of weekly payroll reports for each week work is performed at the site of the covered work. Below are several examples to help grantees, subrecipients and developers understand when the use of NSP funds to finance construction work will trigger Davis-Bacon: This building has more than 7 units and any rehab above $2k would trigger Davis-Bacon. A property with eight or more units must comply with Davis-Bacon. A property is defined as one or more buildings on an undivided lot or on contiguous lots or parcels which are commonly-owned and operated as one rental, cooperative or condominium. Davis-Bacon is triggered even if fewer than 8 units in this building are being rehabilitated. In the same building, if windows were being installed in only three units for a total cost of $2,000 or less, then Davis- Bacon would not be triggered. If the cost were to exceed $2,000, Davis-Bacon would be triggered. Construction work performed on this four-unit apartment building would not trigger Davis-Bacon. The single-family home in this example is exempt from Davis-Bacon because it is a single residential structure that is owner-occupied, i.e., 1 property containing 1 unit. However, in this example Davis-Bacon would apply if these 8 houses, highlighted in white, were owned and operated by the same person/entity and were operated as a single project. Even though they are separate residential structures, if they are commonly-owned and operated as a single project, Davis-Bacon would apply because this represents 1 property with 8 units. U.S. Department of Housing and Urban Development

135 Davis-Bacon and Special NSP Circumstances If a project is using both NSP funds and funding from another federal source(s) (e.g., HOME, CDBG, TCAP), grantees, subrecipient or developers must adhere to the most restrictive rules. The lowest Davis- Bacon threshold applies on projects using funds from multiple programs with differing rules. For example, the HOME program exempts construction contracts that contain 11 or fewer HOME-assisted units. NSP exempts residential properties containing less than 8 units. A HOME/NSP project where the construction contract contains a property containing 10 units would be subject to Davis-Bacon. Davis-Bacon does not apply to a project where NSP funds are used for demolition under Eligible Use D. However, if subsequent construction on the site is planned as part of the same contract or if subsequent construction is contemplated as part of a future construction project (which would likely be conducted under Eligible Use), then the demolition work is considered to be a part of the overall construction project. In such cases if the subsequent construction work is subject to Davis-Bacon requirements, then the demolition would likewise be covered. NSP Exceptions to Davis-Bacon Davis-Bacon does not apply if NSP funds are used solely for non-construction costs. Non-construction costs may include real property acquisition; architectural/engineering fees; legal or accounting services; and real estate taxes. Davis-Bacon would not be triggered if a grantee, subrecipient or developer uses only private funds for rehabilitation or construction. Davis-Bacon does not apply when a contractor is hired to maintain NSP properties. Davis-Bacon does not apply retroactively to a project funded with Recovery Act NSP funds for which the construction contract was awarded, and for which construction started prior to notice of Recovery Act Funding. This is true only for projects funded with Recovery Act NSP funds. Davis-Bacon Enforcement HUD has delegated labor standards administration and enforcement responsibilities to grantees. These responsibilities include designation of appropriate staff to manage the requirements; incorporation of the applicable Davis-Bacon wage decision and labor standards clauses in each covered contract; and compliance inspections including on-site interviews with laborers and mechanics employed at the covered site of work. Grantee responsibilities are described more fully in our Practical Guide for States, Indian Tribes and Local Agencies; and HUD Handbook : Federal Labor Standards Provisions Compliance in Housing and Community Development Programs. Basic labor standards compliance requirements are described in our Contractors Guide to Prevailing Wage Requirements for Federally-Assisted Construction Projects. Documenting and Complying with Davis-Bacon Grantees must maintain documentation demonstrating the following: Covered projects are correctly identified; The applicable Davis-Bacon wage decision and labor standards provisions are incorporated into each covered construction contract; U.S. Department of Housing and Urban Development

136 The eligibility of the principal contractor was verified (i.e., the contractor is not on the Federal debarred list); The applicable wage decision and Davis-Bacon poster are displayed at the job site and accessible to the laborers and mechanics; Contractor/subcontractor certified payroll reports are required, received and reviewed, and any discrepancies and violations are detected, noted and fully resolved; Confidential interviews are conducted with laborers and mechanics at covered job sites, and data collected during interviews are compared to corresponding payroll reports with discrepancies and violations noted and fully resolved; and Required labor standards enforcement reports are accurate, complete and submitted timely. An inventory of all projects/activities assisted with NSP funds and the bases on which Davis-Bacon applicability determinations were made; Copies of construction contracts and relevant data, e.g., bid opening dates, award dates; contractor eligibility verifications; Project payroll files including payroll reports, on-site interview records, verification of job site posting, payroll review notes and evidence of corrections, if needed; Copies of labor standards enforcement reports. Additional Resources HUD Handbook , Federal Labor Standards Compliance in Housing and Community Development Programs Making Davis-Bacon Work: A Practical Guide for States, Indian Tribes and Local Agencies A Contractor s Guide to Prevailing Wage Requirements Labor Relations Letters and On the Mark! series U.S. Department of Housing and Urban Development

137 April 8, 2011 Community Planning and Development NSP Policy Alert! Possible Government Shutdown Does Not Affect April FederalReporting.Gov Deadlines for NSP2 and NSP-TA Grantees April 8, 2011 FederalReporting.gov: The April Quarterly Reporting Period Draws Near! Any potential Federal government shutdown will not affect the operation of the FederalReporting.gov system. All NSP2 and NSPTA grantees are still expected to report their data by midnight Thursday, April 14 th. The following reminder has been posted on the FederalReporting.gov website: The Recovery Act requires ARRA recipients to report quarterly. FederalReporting.gov and the Help Desk will not be impacted by any possible shutdown of the Federal government and will remain open for reporting through April 14, and then for the Continuous QA period. As of Friday, April 8, 2011, the eighth day of this reporting cycle, 23 percent of NSP grantees have reported. Fifty-six of the 73 NSP2 and NSP-TA grantees have not yet reported. We suggest that NSP2 and NSP-TA grantees report by Sunday, April 10 th to avoid the high volume of Federal Reporting traffic from April We also ask that grantees take note of the new guidance on Project Title, Primary Place of Performance, and narratives in the NSP Policy Alert dated March 30, 2011: Guidance on Amendment Procedures. Grantees experiencing problems submitting their reports should contact the HUD Reporting Call Center or the FederalReporting.gov help desk. HUD s Recovery Act Reporting Call Center at , or by at recovery@comcon.org. The Call Center is available 8:30am to 5:30pm Eastern time, Monday to Friday and will remain open if the Federal Government closes. The FederalReporting.gov Service Desk at , or by at Support@FederalReporting.gov. The Service Desk is available 9 a.m. to 6:00 p.m. EDT Monday-Friday and will remain open if the Federal Government closes. For more information on reporting deadlines, please refer to the expected timetable on the next page. U.S. Department of Housing and Urban Development

138 Expected Timetable: (Subject to change by OMB) April 1-10 April 4 April April 15 April 15 April April 30 Grantees and sub-recipients report in FederalReporting.gov HUD will be able to view prime recipients reports and contact non-reporting recipients starting the week of April 1st. Deadline to report Environmental data into RAMPS for this quarter only. (Grantees ability to enter data is ongoing). Those who are exempt from environmental reviews must still report that in RAMPS. Extended Reporting Cycle HUD submits quarterly report on the status and progress of funded activities to Council on Environmental Quality, using RAMPS data Prime Recipient Review Period (Prime Recipients Review Data Submitted by Sub-recipients(s)/Prime Recipients & Sub-recipients make corrections) HUD data review and comment period for data entered by grantees and subrecipients (Agency Review of Data Submitted/Prime Recipients & Sub- Recipients make corrections) Recovery Act Transparency Board posts as-reported data to Recovery.gov May 3 - June 20 Deadlines are as of midnight Eastern Time System re-opens to make error corrections to reports that were created from April 1 April 14. HUD comments on grantee reports; grantees review subrecipients reports; prime recipients and sub-recipients correct reports U.S. Department of Housing and Urban Development

139 - March 30, 2011 Community Planning and Development NSP Policy Alert! Updated CDBG-R and NSP2 Guidance on Reporting in FederalReporting.gov March 30, 2011 FederalReporting.gov: The April Quarterly Reporting Period Draws Near! The regular reporting period, which covers the first period of 2011, will run from April 1-10, There will be an extended reporting period from April th, during which time grantees will not be considered late, but we encourage you to report by April 10th. Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub-recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub-recipients. When a grantee is handling all Federal Reporting data entry itself, the grantee is to review and verify the information provided to them by their sub-recipients prior to data entry. Grantees also need to enter or update their environmental review information in RAMPS. Expected Timetable: (Subject to change by OMB) April 1-10 Grantees and sub-recipients report in FederalReporting.gov HUD will be able to view prime recipients reports and contact non-reporting recipients starting the week of April 1st. April 4 April April 15 April 15 April April 30 May 3 June 20 Deadline to report Environmental data into RAMPS for this quarter only. (Grantees ability to enter data is ongoing). Those who are exempt from environmental reviews must still report that in RAMPS. Extended Reporting Cycle HUD submits quarterly report on the status and progress of funded activities to Council on Environmental Quality, using RAMPS data Prime Recipient Review Period (Prime Recipients Review Data Submitted by Subrecipients(s)/Prime Recipients & Sub-recipients make corrections) HUD data review and comment period for data entered by grantees and subrecipients (Agency Review of Data Submitted/Prime Recipients & Sub-Recipients make corrections) Recovery Act Transparency Board posts as-reported data to Recovery.gov System re-opens to make error corrections to reports that were created from April 1 April 14. HUD comments on grantee reports; grantees review sub-recipients reports; prime recipients and sub-recipients correct reports U.S. Department of Housing and Urban Development

140 New Guidance Project Title and Primary Place of Performance A recent GAO report, Opportunities Exist to Increase the Public s Understanding of Recipient Reporting on HUD programs, recommended that HUD provide more clear guidance to grantees on reporting the Project Name or Project/Program Title and Primary Place of Performance in FederalReporting.gov. To ensure full transparency of how ARRA funds are being expended, HUD is rescinding the guidance it initially provided to grantees on these two data elements, in favor of the following guidance. Starting with the April 2011 reporting cycle, grantees will need to amend their current entries for these data fields in accordance with the guidance below. Grantees may also refer to the Recipient Reporting Data Model on the hud.gov/recovery page to see the new pop up definitions for these two terms. You may also see the GAO report at: Project Name or Project/Program Title (limit of 256 characters): CDBG-R: In the Project Name/Program Title field in FederalReporting.gov, CDBG-R grantees with a small number of activities should list the title of the activity/activities that that are being implemented with CDBG-R. HUD recommends that grantees use the IDIS Matrix Code Names, to the extent space permits. CDBG-R grantees with a large number of activities (including most states) may not have sufficient space to list all individual activities. They may list broader categories of activities (e.g. housing, public facilities, public services, economic development) in the Project Name/Program Title field, along with the activity titles for the largest activities (to the extent space permits), provided that the remaining specific activity titles are listed in the Prime Recipient Award Description field (limit of 4,000 characters). To list CDBG-R or community development as the Project Name or Project/Program Title is no longer sufficient. NSP2: NSP2 grantees should list the DRGR Activity Titles (which correspond to the five NSP Eligible Uses) for which they are using funds. To list NSP or neighborhood stabilization as the Project Name or Project/Program Title is no longer sufficient. Primary Place of Performance (limit of 55 characters for each line): CDBG-R: CDBG-R grantees should provide the address and/or location of where 50% or more of the funding is being spent, or the location where the main activity is being undertaken. For activities such as water, sewer and road construction that do not have one specific address, FederalReporting.gov will accept a range of addresses such as Wilson Street. If there is no concentration of funds being spent in one location and activities are scattered throughout the grantee s jurisdiction (e.g. a city-wide housing rehabilitation program), enter the address of the grantee s administrative office. Then provide the locations of the activities in the Award Description field (limit of 4,000 characters). If all of a grantee s activities (other than general administration) are being carried out by a sub-recipient (and the grantee is not carrying out any activities itself), the grantee should list its administrative office address as the Primary Place of Performance. The primary place of performance for all activities should be listed at the sub-recipient level instead, using the guidance below. If a grantee is carrying out some activities itself and sub-recipients are carrying out other activities, the grantee-level Primary Place of Performance should be the location where the main grantee- U.S. Department of Housing and Urban Development

141 administered activity is being undertaken. The grantee s administrative office address should be listed only if the grantee-implemented activities are scattered throughout the jurisdiction, with no concentration of funding in one location; the locations of those activities should be listed in the Award Description field. The primary place of performance for the sub-recipient-implemented activities should be reported in the Sub-recipient Primary Place of Performance field as described below. Grantees should avoid entering specific addresses in the Primary Place of Performance or Award Description fields for activities where privacy considerations are an issue. Examples of such activities include owner-occupied housing rehabilitation assistance, down payment assistance activities and shelters for domestic violence/child abuse victims. State CDBG-R: States fund multiple activities in multiple units of local government, but do not carry out activities directly. States should provide their administrative office address as the Primary Place of Performance. The primary place of performance for individual activities should be listed at the sub-recipient level instead, using the guidance in the paragraphs above and below. Sub-recipient Primary Place of Performance: Grantees must list a Primary Place of Performance for all sub-recipients. In general, the guidance described above for grantees also applies at the sub-recipient level. Provide the address and/or location of where 50% or more of a sub-recipient s funding is being spent, or the location where their main activity is being undertaken. For activities such as water, sewer and road construction that do not have one specific address, FederalReporting.gov will accept a range of addresses such as Wilson Street. If there is no concentration of funds being spent in one place by a sub-recipient and activities are scattered throughout the jurisdiction, enter the address of the sub-recipient s administrative office as the Sub-recipient Primary Place of Performance. Then provide the locations of the activity(ies) in the Award Description field (limit of 4,000 characters) on the prime recipient page. NSP2: The nature of the NSP2 program is such that grantees will be undertaking activities at dozens (or even hundreds) of scattered sites throughout a city or county; state, consortia and national recipients may carry out activities in dozens of localities or in multiple states. It would be impossible to list all activity locations in the Primary Place of Performance field. Therefore, NSP2 grantees should enter the grantee s administrative office address as the Primary Place of Performance. Consortia recipients should list the lead entity s administrative office address as the grantee Primary Place of Performance. Grantees must list a Primary Place of Performance for all sub-recipients. Since other consortia members are to be reported as sub-recipients in FederalReporting.gov, each member s administrative office address should be entered as its Sub-recipient Primary Place of Performance. Provide Clear and Descriptive Narratives Some grantees need to provide greater clarity in their narrative descriptions in FederalReporting.gov. CDBG-R, NSP2 and NSPTA grantees Award Description, Quarterly Activities/Project Description and Quarterly Job Description fields must provide clear, complete narratives that facilitate an understanding by the general public. If you have not already amended your narrative descriptions, please review them in FederalReporting.gov during the April Federal Reporting cycle to ensure that they provide concise, clear and detailed information before submitting your report. At a minimum, the narratives should include: i. Clear and complete information on the award s purpose, scope and nature of activities, outcomes, and status of activities; j. An explanation of all abbreviations or acronyms that may be unfamiliar to the general public; U.S. Department of Housing and Urban Development

142 k. The names and location of specific projects, so it is clear how and where ARRA funds are being spent, within the character limitations; and, l. The grantee s website address and any additional websites that provide detailed grant or project level information will be listed. If you need to update your descriptions - below is suggested language with some highlighted notations of where you should add your own information. This suggested language is not meant to be all inclusive. Please provide as much detail as possible to reflect the work/progress of your CDBG-R or NSP2 funds. Once you revise the Award Description you should not have to update this quarterly, only the Quarterly Description/Project Description will need updating each quarter. Below is a sample template: Award Description The Community Development Block Program Recovery (CDBG-R) / The Neighborhood Stabilization Program2 (NSP2) funds will invest in [Name of Project(s)]. The purpose of this project(s) is to. Quarterly Activities/Project Description CDBG-R /NSP2 funds will assist xx [enter the number of projects CDBG-R /NSP2 is funding] projects throughout the city/state [if possible provide the cities or counties, or at least some of them if there are too many locations] A listing of all xx projects receiving [CDBG-R/NSP2] funding is posted to our website at [provide website of where you have posted your CDBG-R/NSP2 completed projects]. [You should describe what your Agency accomplished/worked on during the quarter. Provide as much detail as possible.] For example - This quarter, $xx,xxx were committed to xx of projects, $xx,xxx were expended for xx of projects, xx of written agreements were finalized, work began on xx of projects [list the project names], work is continuing at [list the project names], work was completed at [list general location of the projects]. Quarterly Job Description [CDBG-R/NSP2] funds were used to create/retain FTE jobs this quarter. [Name type of jobs and the number of FTE jobs that were funded with ARRA dollars] If no jobs were created, state this and the reason. These reporting requirements represent an unprecedented transparency and accountability effort. Accordingly, we recognize that many grantees may encounter challenges and delays in the reporting process, and we appreciate your continued commitment to working with HUD toward the important goal of economic recovery. U.S. Department of Housing and Urban Development

143 Central Contractor Registrations (CCR) Extended for Some Grantees: All active CCR registrations expiring between now (mid-march) and April 15 have been extended 60 days due to delays that CCR is experiencing in processing new registrations and updates. This only applies to active registrations and to renewals that have already been submitted but are caught in the backlog. (There are four CDBG and NSP grantees whose registrations are already expired; HUD Headquarters is contacting these grantees directly regarding their situation.) All CPD formula grantees need to be registered in CCR in order to receive their FY2011 funding. Grantees are also reminded to update their point of contact s in CCR; the CCR system sends automatic reminder messages regarding impending expirations, but HUD has learned that the system receives a large number of delivery failure replies because of outdated/incorrect addresses. Grantees can check the status of their CCR registration quickly and easily (without logging in) at CCR by going to selecting CCR Search the second tab from the left then entering their DUNS number under the Simple Search. If all information contained in the CCR record is still valid and accurate, you may simply select Renew. If any information has changed please update it, then submit. Please update or renew your city s CCR as soon as possible to ensure there will be no disruption to your grant payments or your ability to report. If you are unable or unsure how to update your record, you can print out the CCR user guide or contact the Federal Service Desk between 8am and 8pm Eastern Time at or If after consulting these resources you still have difficulty, please call HUD s Office of Departmental Grants Management and Oversight at Final CDBG-R Reports and Grant Closeouts: As grantees progress toward the end of their CDBG-R grant period, they should keep the following in mind. 1. Pursuant to the May 4, 2009, Federal Register Notice on the CDBG-R program, grantees must draw down all CDBG-R funds by September 30, The Line of Credit Control System (LOCCS) will automatically withdraw any funds that remain in your CDBG-R grant by midnight (Eastern Standard Time) September 30, 2012, and will return those funds to the Treasury Department. In practical terms, this means that, by 09/30/12, all costs to be paid with CDBG-R funds must be incurred and either be expended or be ready for disbursement upon receipt of the final draw of funds. In the case of activities which are being funded exclusively with CDBG-R funds, this also means that the activity must also be physically complete by September 30, For activities which are only partially funded with CDBG-R funds, this may have slightly different implications. If CDBG-R funds are going exclusively for one discrete segment of a larger activity (e.g. paying only for engineering work for a sewer project), construction of the entire activity may not necessarily have to be physically complete. On the other hand, if CDBG-R funds are paying for a percentage of the entire activity, and a grantee is expending CDBG-R funds on a pro-rata basis based on the completion percentage of the entire activity, the grantee may not be able to make its final disbursement of CDBG-R funds until the entire activity is physically complete. 2. HUD expects that all CDBG-R grants should be ready for grant closeout no later than six months after this expenditure deadline, or March 31, HUD is determined not to repeat its experience with the CDBG Jobs Bill funding in the 1980s, when completion and closeout of Jobs Bill grants dragged on for years. U.S. Department of Housing and Urban Development

144 3. Grantees will need to submit their final report to FederalReporting.gov before they can proceed to closeout. For grantees that do not make their final draw of funds until July-September 2012, their final report is likely to be submitted during the October 2012 reporting cycle. The FederalReporting.gov portal will remain operative well after October 1, 2012, as some other Recovery Act programs have different expenditure deadlines. Even if a grantee fails to draw down all of its funds prior to 09/30/12 and has funds recaptured from its Line of Credit, it will still need to submit a final report. (Of course, the sooner a grantee completes all of its CDBG-R activities, the sooner it can be done with the quarterly reporting requirement.) 4. Grantees need to start thinking about documenting national objective compliance for activities that will not be obligated or completed until late in the grant period. A CDBG-R grant cannot be closed out until all activities comply with national objective requirements. Therefore, given the above discussion points, grantees should ensure that all activities will have met national objective criteria requirements by March 31, This may be of particular importance for housing activities and activities designed to create jobs. In many situations, jobs will not be created, or housing units will not be occupied, for some time after the activity is physically completed and all funds have been expended. Grantees should keep these timelines in mind as they draft language for agreements with recipients of funding concerning how long the recipient has to demonstrate that job creation/retention or housing occupancy requirements are met. Some grantees normal policy for economic development activities is to allow up to 18, 24 or even 36 months for a business to create the promised jobs. Grantees that are still obligating funds to individual activities late in 2011 and on into 2012 may need to shorten their national objective compliance deadlines on recipients, to ensure timely closeout of their CDBG-R grant. Grantees should keep in mind that their grant is not entirely completed if their project activity does not reflect that. For Federal Reporting purposes, a CDBG-R report cannot be final until: CDBG-R activities are physically complete and are input as 100% complete under project status in Federal Reporting. All FTE jobs, created or retained with Recovery funds, are reported in FederalReporting.gov All CDBG-R funds are expended or if there are unspent funds in LOCCS (which will be returned to the Department of Treasury), then a note should be sent in the FR comment box that no more money will be spent and that the report is indeed final. All CDBG-R activities have been entered into IDIS and complied with all program requirements. Also note that if a grantee has unspent CDBG-R funds, the Federal Reporting system will most likely flag it as Not Final because their award amount and their Total Federal Amount ARRA received/invoiced will not be the same. As long as the grantee posts a comment in Federal Reporting, indicating that they are indeed finished, no further error messages will be sent. HUD is currently developing closeout instructions guidance for CDBG-R (and NSP, among other programs), for issuance later in Amendments to Approved CDBG-R Programs: A number of CDBG-R grantees have apparently amended their programs after initial approval, but have not provided HUD with a revised activity spreadsheet. Please take a minute to check HUD s Recovery Act website, to see if your posted spreadsheet is current. (Grantees whose spreadsheet has been revised since initial U.S. Department of Housing and Urban Development

145 posting appear on this page with a dash after the grantee name.) If we do not have your current spreadsheet of activities posted, please submit your revised spreadsheet, in Excel spreadsheet format only, by to CDBG-R@hud.gov and to your field office. Invitation for CDBG-R and NSP2 to Post ARRA feedback Please find here the HUD Ideas in Action website, with a new invitation for ARRA recipients to post feedback from their implementation experiences: For Additional Help: HUD s Recovery Act Reporting Call Center, , is available to answer a wide variety of CDBG-R and NSP2 reporting questions. The call center is available 8:30am to 5:30pm EDT, Monday to Friday, with expanded hours April You may also the help center at recovery@comcon.org. Previous Federal Reporting Guidance Quarterly Updates also contain information on a variety of reporting issues: How to Avoid Saving a Draft Report Instead of a Final Report Minimizing Reporting Errors in FederalReporting.gov Correcting Errors in FederalReporting.gov Sub-Recipient Reporting Need to Ensure Correct DUNS number These resources can be found on the HUD Recovery Act website: This site also provides links to other resources, such as the CCR registration website and the DUN & Bradstreet registration website. U.S. Department of Housing and Urban Development

146 January 28, 2011 Community Planning and Development NSP Policy Alert! Guidance on Updating NSP Action Plans in DRGR January 28, 2011 ACTION ITEM: Update every NSP Action Plan in DRGR by February 4, (Updated summary data will be presented to the Secretary of HUD in mid-february) Part 1: HUD is requiring every NSP grantee to modify its DRGR Action Plan entries for all housing activities. Open the Action Plan, and complete the following 3 steps for each housing activity: Update tenure. Click the box to indicate whether each NSP housing activity in the Action Plan provides direct benefit to renters or homeowners. The instructions are here: DRGR for NSP Users (scroll down to Guidance for Entering Direct Benefit Data). If the box has already been clicked in your activity, check to make sure it is correct and change it if necessary. Update SF/MF. Click the box to indicate whether each NSP housing activity is single family (1-4 unit structures) or multi-family (5+ units). The instructions are here: DRGR for NSP Users (scroll down to Guidance for Entering Direct Benefit Data). If the box has already been clicked in your activity, check to make sure it is correct and change it if necessary. Update performance measures. Make sure that projected performance measures are entered for every activity. For a housing activity, at a minimum, include a projection for Households AND a projection for Housing Units. The new NSP production snapshot will track projected performance and cost per unit using these numbers. Also, without them, national objective compliance cannot be tracked properly in the QPR. Remember to save the Action Plan frequently while working. When finished updating every activity, submit the updated Action Plan. Part 2: HUD is reminding NSP grantees to only report numbers and addresses in the QPR for completed units that have met a national objective. DO NOT report numbers of households and housing units or addresses for units that have not met a national objective. Typically, a housing unit meets a national objective at initial occupancy. (For landbank acquisitions, a unit meets the national objective when the property is acquired, if the LMMI area benefit criteria are met.) Please keep in mind that all of these updates are designed to let the public and congressional leaders know how much you are accomplishing with NSP funds. When you enter correct and complete data, it gives the public a better picture of your overall performance and your success. We want to brag about your success, and we need your help to do it! U.S. Department of Housing and Urban Development

147 January 24, 2011 Community Planning and Development NSP Policy Alert! Guidance on Joint Agreements for NSP3 Grantees January 24, 2011 Introduction The NSP3 Notice permits an entitlement or non-entitlement community that is eligible to receive an NSP3 allocation to enter into a joint agreement with its state [Section B.5.]. In addition, the NSP3 Notice also permits contiguous metropolitan cities and urban counties to have joint agreements with one another. Additional information regarding the requirements for entering into either of these joint agreements is presented below. For joint agreements under NSP3, HUD will follow a process similar to that used for joint agreements between metropolitan cities and urban counties in the CDBG entitlement program. Grantees interested in pursuing a joint agreement should familiarize themselves with CPD Notice 10-02, which is the current Urban County Qualification Notice. The following guidance consists of key excerpts from CPD-10-02, as revised to fit the requirements of NSP3. An NSP3 grantee with concerns about its capacity to administer these funds is encouraged to consider entering into a joint agreement with either its state or a contiguous entitlement grantee in its metropolitan area to further the purpose of the Dodd-Frank Act, which is to stabilize neighborhoods whose viability has been, and continues to be, damaged by the economic effects of properties have been foreclosed upon and abandoned. Forming a joint agreement with a larger grantee such as a state or large entitlement community may help provide a smaller grantee with the expertise or personnel support needed to carry out the NSP3-funded activities. NSP3 grantees who have not received CDBG funding as entitlement communities may want to consider this option carefully. Types of Joint Agreements Metropolitan City/State Joint Recipients Any entitlement or non-entitlement community that is eligible to receive an NSP3 grant may enter into a joint agreement with its state. The state shall be the lead entity and must assume responsibility for administering the NSP3 grant on behalf of the entitlement community in compliance with applicable program requirements. The substantial amendment to the state s action plan will include the amount of originally allocated funds of any participating entitlement or non-entitlement community that elects to have a joint agreement with the state. Metropolitan City/Urban County Joint Recipients Two or more contiguous entitlement communities (metropolitan cities or urban counties) that are eligible to receive an NSP3 allocation and are located (in whole or in part) in the same metropolitan area may ask HUD for approval to implement a joint community development and housing assistance program for U.S. Department of Housing and Urban Development

148 purposes of the NSP3 program. Since NSP3 allocations were made to non-entitlement communities, they may also enter in to a joint agreement with entitlement communities in their metropolitan area. All members to the joint agreement must be eligible to receive a direct NSP3 allocation from HUD; one unit of general local government must be designated as the lead entity. When multiple local governments enter into a joint agreement, the lead entity becomes the grant recipient. The grant amount is the sum of the amounts authorized for the individual metropolitan cities and urban counties. The lead entity must execute the NSP3 grant agreement with HUD. Consistent with24 CFR , the lead entity must assume responsibility for administering the NSP3 grant on behalf of all members in compliance with applicable program requirements. The substantial amendment to the lead entity s action plan will include all participating entitlement communities. The citizen participation process must include citizens of all jurisdictions participating in the joint NSP3 program, not just those of the lead entity. Executing a Joint Agreement HUD will consider approving a joint request only if it is signed by the chief executive officers of all participating local governments and/or their states and is submitted as soon as possible and must be submitted prior to March 1, A joint request will be considered approved unless HUD notifies the entitlement communities, non-entitlement communities, and the state otherwise within 30 days following submission of the joint request and an executed cooperation agreement meeting the requirements specified below. Upon receipt of these documents, Field Counsel will conduct a review and notify the Office of Community Planning and Development if there are any problems or concerns with the documents. Grantees are encouraged to submit their requests as soon as possible so that there will be time to correct deficiencies (if there are any) discovered in the HUD review process. Upon HUD approval of the joint request and cooperation agreement, the participating units of general local government become a part of the lead entity s (the state or another entitlement community) program for purposes of program planning and implementation for the lifetime of the NSP3 grant. Existing cooperation agreements governing regular CDBG FY 2010 funding between a unit of general local government and an urban county, concerning either participation in an urban county s CDBG program or a joint agreement are considered to incorporate and apply to NSP3 funding. These cooperation agreements will continue to apply to the use of NSP3 funds until the NSP3 funds are expended and the NSP3 grant is closed out. Certain provisions in existing cooperation agreements that govern 2010 CDBG funding may be inconsistent with parts of the Dodd-Frank Act and the NSP3 Notice. Therefore, conforming amendments should be made to existing cooperation agreements as necessary to comply with Dodd-Frank and the Notice. Examples of Joint Agreements 1. City of Adams is located inside Washington County, but has chosen to receive its own regular CDBG Entitlement grant rather than participate in Washington County s Urban County program. Both jurisdictions qualify to receive an NSP grant. City of Adams and Washington County can decide to enter into a joint agreement for the NSP3 program with the County as the lead entity. City of Adams will continue to receive its own regular CDBG entitlement grants. HUD will make a grant to Washington County for the combined amount of City of Adams and Washington County s NSP3 allocations. Washington County will remain responsible for administering the NSP3 funds, including any NSP3 funds it might choose to give to City of Adams to administer as a subrecipient, until its NSP3 grant is closed out. Washington County will also be responsible for ensuring that NSP3 program requirements (such as program income or rent affordability) are complied with after grant closeout. Program income will belong to the County s NSP3 program, U.S. Department of Housing and Urban Development

149 not to City of Adam s CDBG program, even if it is generated from activities undertaken within or by City of Adams. 2. Both City of Burr and Jefferson County qualify to receive an NSP3 grant. City of Burr accepted its entitlement status in 2003 but has a joint agreement with Jefferson County N s Urban County program. The current joint agreement covers grants for FFY City of Burr has decided to end its joint agreement after FFY 2010 and receive its own regular CDBG grant starting in FFY Because NSP3 funding was appropriated during FFY 2010, the existing joint agreement between City of Burr and Jefferson County will govern the NSP3 funds; HUD will make a grant to Jefferson County for the combined amount of City of Burr and Jefferson County s NSP3 allocations. Jefferson County will remain responsible for administering the NSP3 funds, including any NSP3 funds it might choose to give to City of Burr to administer as a subrecipient, until its NSP grant is closed out. Jefferson County will also be responsible for ensuring that NSP3 program requirements (such as program income or rent affordability) are complied with after grant closeout. Program income will belong to the County s NSP3 program, not to City of Burr s CDBG program, even if it is generated from activities undertaken within or by City of Burr. 3. City of Calhoun has been eligible to receive an entitlement grant, but has declined its entitlement status in order to be a participating jurisdiction in Jackson County s Urban County program. Jackson County s current qualification period and cooperation agreements cover FFY City of Calhoun is therefore not eligible to receive its own NSP3 allocation. Jackson County s existing CDBG Urban County cooperation agreements will be considered to cover the County s NSP3 allocation as well. 4. Town of Stevenson is located within Cleveland County, but has never participated in Cleveland County s Urban County program; it chooses instead to participate in the State of Bryan s CDBG program. Town of Stevenson was notified by HUD that it now qualifies for entitlement funding starting in FFY2011 because its population is now more than 50,000. For purposes of the NSP3 program, Town of Stevenson is not included in Cleveland County s NSP3 program allocation because it is not a participating jurisdiction. Town of Stevenson s needs are included in the State of Bryan s NSP3 allocation, and Town of Stevenson should apply to the state for NSP3 funds. The Town of Stevenson cannot now join Cleveland County s Urban County program for purposes of participating in the County s NSP3 program. Cleveland County may, however, be able to undertake NSP3-funded activities located inside the Town of Stevenson, if the Cleveland County determines under 24 CFR that doing so will meet its identified housing and community development needs, and that reasonable benefits will accrue to the residents of the portions of the Cleveland County that participate in the Urban County program. Subrecipient Agreements The execution of cooperation agreements between a state and entitlement NSP3 grantee(s), between two or more entitlement communities receiving NSP3 funds, or between a non-entitlement community and the state or an entitlement community for purposes of a joint agreement does not in itself satisfy the requirement for a written subrecipient agreement required by the regulations at 24 CFR Where a participating unit of general local government carries out an eligible NSP3 activity funded by the state or lead entitlement grantee, these entities are responsible for executing a written subrecipient agreement with the units of government containing the minimum requirements found at 24 CFR before disbursing any NSP3 funds for any such activity or project. The subrecipient agreement must remain in effect during any period that the unit of local government has control over NSP3 funds and activities, including program income. U.S. Department of Housing and Urban Development

150 Requirements for Cooperation Agreements All cooperation agreements must meet the following standards in order to be found acceptable: A. The governing body of the lead entity (state or designated entitlement grantee) and the governing body of the cooperating unit of general local government shall authorize the agreement. The chief executive officer of the lead entity and the chief executive officer of each unit of general local government shall execute the agreement. B. The agreement must contain, or be accompanied by, a legal opinion from the state's or lead entitlement grantee s counsel that the terms and provisions of the agreement are fully authorized under State and local law and that the agreement provides full legal authority for the state or lead entitlement grantee. Where the state or lead entitlement grantee does not have such authority, the legal opinion must state that the participating jurisdiction has the authority to undertake, or assist in undertaking, essential community renewal and lower income housing assistance activities. A mere certification by the state or lead entitlement grantee s counsel that the agreement is approved as to form is insufficient and unacceptable. C. The agreement must state that it covers the NSP3 program. The agreement must also provide that it remains in effect until the NSP3 funds and program income received are expended and the funded activities completed, and that the state and participating units of general local government or the lead entitlement grantee and other participating entitlement communities cannot terminate or withdraw from the cooperation agreement while it remains in effect D. The agreement must contain a provision obligating the state and the cooperating unit of general local government or lead entitlement grantee and other participating entitlement communities to take all actions necessary to assure compliance with the certification required by section 104(b) of Title I of the Housing and Community Development Act of 1974, as amended, including Title VI of the Civil Rights Act of 1964, the Fair Housing Act, section 109 of Title I of the Housing and Community Development Act of 1974, and other applicable laws. The agreements shall also contain a provision prohibiting NSP3 funding for activities in, or in support of, any cooperating unit of general local government that does not affirmatively further fair housing within its own jurisdiction or that impedes the lead entity s actions to comply with its fair housing certification. This provision is required because noncompliance by a unit of general local government included in a state or a lead entitlement grantee participating in a joint agreement with one or more other entitlement communities may constitute noncompliance by the grantee that can, in turn, provide cause for funding sanctions or other remedial actions by the Department. E. The agreement must expressly state "that the cooperating unit of general local government has adopted and is enforcing: 1. A policy prohibiting the use of excessive force by law enforcement agencies within its jurisdiction against any individuals engaged in non-violent civil rights demonstrations; and 2. A policy of enforcing applicable State and local laws against physically barring entrance to or exit from a facility or location which is the subject of such nonviolent civil rights demonstrations within jurisdictions." U.S. Department of Housing and Urban Development

151 F. The agreement may not contain a provision for veto or other restriction that would allow any party to the agreement to obstruct the implementation of the approved Consolidated Plan during the period covered by the agreement. The state or lead entitlement grantee has final responsibility for selecting NSP3 activities and submitting the Consolidated Plan to HUD. G. The agreement must contain language specifying that, pursuant to 24 CFR (b), the unit of local government is subject to the same requirements applicable to subrecipients, including the requirement of a written agreement as described in 24 CFR (see Section VIII, Special Considerations, paragraph B). H. A state or lead entitlement grantee may also include in the cooperation agreement any provisions authorized by State and local laws that legally obligate the cooperating units to undertake the necessary actions, as determined by the state or lead entitlement grantee, to carry out a NSP3 program and the approved Consolidated Plan and/or meet other applicable laws. Grantees considering entering into joint agreements should contact their Field Office CPD Division for further guidance. Alternative Approaches NSP3 grantees with capacity concerns may also wish to consider another alternative approach, should they determine that a joint agreement approach is not feasible in their situation. Eligible NSP3 grantees may apply for their grant and then enter into an agreement with another entity to administer its grant in whole or in part. Such agreements must comply with applicable program requirements. This approach does not require advance HUD approval; however, the grantee still retains legal responsibility for ensuring that its grant is carried out in compliance with all program requirements, so this approach does not relieve a grantee of its implementation and oversight responsibilities. U.S. Department of Housing and Urban Development

152 January 12, 2011 Community Planning and Development NSP Policy Alert! Guidance for Habitat for Humanity Affiliates January 12, 2011 Overview Habitat for Humanity utilizes a unique development model to create homeownership opportunities for low- and very-low income families. As Habitat has emerged as a major implementer of NSP programs nationwide, its interaction with HUD s has increased significantly. Many Habitat for Humanity affiliates are administering CDBG/NSP funds for the first time. This guidance seeks to address some of the most common concerns that Habitat for Humanity Affiliates have expressed regarding compliance with Neighborhood Stabilization Program rules and requirements. Unless otherwise specified, this guidance applies generally to NSP subrecipients and developers from other organizations. Designation of entities carrying out NSP-eligible activities NSP and CDBG regulations establish definitions of developers and subrecipients which may differ from the usage of these terms amongst Habitat affiliates in the field. Habitat affiliates must be aware of the differences between developers and subrecipients, as defined by HUD, since different sets of HUD and OMB regulations apply to each entity type. This section clarifies these definitions for Habitat affiliates, as well as the implications of each designation. The designation of a Habitat Affiliate as either a developer or a subrecipient has important implications for: The types of NSP-eligible activities the entity may carry out, Procurement procedures, The eligibility of certain costs, How program and administrative costs are charged, The allowability of developer fees, and The treatment of revenue generated by NSP activities. The full range of implications are discussed in the NSP Policy Alert: Guidance on Developers, Subrecipients, and Contractors, released August 27, This guidance is available on the Resource Exchange website at: U.S. Department of Housing and Urban Development

153 Subrecipient: A nonprofit or public agency that assists a grantee or another subrecipient to administer all or a portion of the NSP program. As provided in the NSP Bridge Notice, published on June 19, 2009, Subrecipient shall have the same meaning as at the first sentence of 24 CFR (c). This includes any nonprofit organization (including a unit of general local government) awarded funds by a state. The term also includes any land bank receiving NSP funds from a grantee or another subrecipient. Section (c) reads as follows: Subrecipient means a public or private nonprofit agency, authority, or organization, or a for-profit entity authorized under (o), receiving CDBG funds from the recipient or another subrecipient to undertake activities eligible for such assistance under subpart C of this part. Habitat affiliates which are members of NSP2 consortia may only be designated as subrecipients. NSP2 nonprofit consortium members may not be designated as developers. Developer: A for-profit or private nonprofit individual or entity that the grantee provides NSP assistance to for the purpose of (1) acquiring homes and residential properties to rehabilitate for use or resale for residential purposes and (2) constructing new housing in connection with the redevelopment of demolished or vacant properties. Developers are program beneficiaries and thus distinct from subrecipients, grantee employees, and contractors. Developers may receive NSP funds from either the grantee or a subrecipient. Developer-led rehabilitation is undertaken pursuant to 24 CFR (b)(1). New housing construction is undertaken pursuant to 24 CFR , or the NSP notice published on October 6, 2008, as amended. Both grantees and subrecipients can engage developers. However, to be treated as a developer, the entity must demonstrate ownership or control of the property to be rehabilitated or redeveloped. That is, a grantee or a subrecipient cannot designate an entity as a developer if it is simply providing construction services on a property owned by the grantee or subrecipient; such an entity would be classified as a contractor. Revenue Implications Habitat affiliates must also be aware that NSP grantees and subrecipients are required to treat revenues generated by an assisted activity as program income that may only be used for NSP-eligible activities. Note that costs incidental to the generation of income from real property acquired or improved with NSP funds may be deducted from gross revenues for the purpose of determining the amount of program income. Unless otherwise negotiated in its agreement with the grantee, a Habitat affiliate designated as a subrecipient is required to return any program income to the grantee. This requirement does not apply to affiliates designated as developers, though a grantee may require a developer to return all or a portion of any such income. A significant implication of this policy is that a portion of the mortgage loan payments received by a Habitat affiliate designated as a subrecipient will constitute program income. The portion that constitutes program income is based on the percentage of NSP participation in the total development cost. An NSP grantee and Habitat affiliate that anticipate program income from the affiliate s NSP activities must include terms in their subrecipient agreement which clearly specify how much of any program income generated by the project will be kept by the subrecipient and how it will be used. This will avoid problems at the time of audit or close-out. U.S. Department of Housing and Urban Development

154 Habitat affiliates designated as subrecipients: Must follow federal procurement rules May not charge developer fees Must follow cost principles at 24 CFR Part 84 and OMB Circular A-122 Must treat revenues as Program Income and return to grantee. However, if the grantee wishes, subrecipients may keep program income to implement other NSP eligible activities. Habitat affiliates designated as developers: Do not have to follow federal procurement rules May charge developer fees. Do not have to follow OMB Circulars. Are not required to treat revenues as program income. Homeownership Assistance Habitat affiliates frequently request guidance on the use of various forms of homeownership assistance. Within NSP, homeownership assistance encompasses many approaches to closing the gap between the sale price of a home and what a prospective homebuyer can afford to pay. The Housing and Community Development Act, in Section 105(a), recognizes 5 ways in which NSP funds may be used to provide homeownership assistance (i.e. close the affordability gap) for prospective low and moderate income homeowners: 1) Subsidizing interest rates and mortgage principal amounts (including payment of private mortgage insurance) (generally secured by a second mortgage, which may be forgiven) 2) Financing the acquisition by low- and moderate-income homebuyers of housing that is occupied by the homebuyers 3) Paying initial mortgage insurance premiums 4) Downpayment assistance up to 50 percent of the amount required by the mortgage lender. 5) Payment of reasonable closing costs. How can a Habitat affiliate provide homeownership assistance? A key consideration for Habitat affiliates is that entities designated as developers may not provide direct homeownership assistance. However, developers may use secondary financing as a form of homeownership assistance. So while a developer could not provide a buyer with downpayment assistance, assistance could be provided through interest rate or principal buy-down secured through a second mortgage. Alternately, a direct NSP grantee could provide homeownership assistance that a developer may not; this would be more likely when the Habitat affiliate serves as a developer for a direct NSP grantee that is a unit of government. U.S. Department of Housing and Urban Development

155 Sales Price Valuation The Habitat development model relies extensively on gifts-in-kind, donations, and volunteer skilled and unskilled labor. Many Habitat affiliates have expressed concern about how to properly value such contributions when setting the sales price of a NSP-assisted unit. Section 2301(d)(2) of HERA directs that, if an abandoned or foreclosed-upon home or residential property is purchased, redeveloped, or otherwise sold to an individual as a primary residence, then such sale shall be in an amount equal to or less than the cost to acquire and redevelop or rehabilitate such home or property up to a decent, safe, and habitable condition. Sales and closing costs are eligible NSP redevelopment or rehabilitation costs. Note that the maximum sales price for a property is determined by aggregating all costs of acquisition, rehabilitation, and redevelopment (including related activity delivery costs, which generally may include, among other items, costs related to the sale of the property). The cost of donated materials and professional services may also be included in the base for determining the maximum sales price under section 2301(d)(3) of HERA. The cost of the donated materials must be based on their fair market value at time of donation. Estimates of the value of unskilled or sweat-equity labor may not be included in the total development cost. Moreover, the costs of donated professional services and materials may not be reimbursed by the NSP grant. On a related topic, when Habitat acts as a lender and forecloses on a loan secured by real property and takes title to the property, the property is then valued on the lender s books at fair market value less the cost to sell the property. For example, if the defaulted loan balance is $100,000 and the mortgaged property s fair market value at the time of foreclosure is $75,000, the new cost basis for the property is $75,000 less the estimated cost to sell the property. (In other words, the amount of the loan has no bearing on the current market value.) If the estimated cost to sell the property is $4,000, then Habitat s cost basis in the property is $71,000 ($75,000 less $4,000). If Habitat makes improves the property following its taking title, the cost of those improvements is added to the cost basis. The property cannot be sold for more than its cost basis (or market value, if lower.) Thus, if Habitat spends $40,000 in NSP funds on the rehabilitation of the property described above, Habitat can sell the property for no more than $111,000 ($71,000 plus $40,000). Development Subsidy In some instances, the total development cost of rehabbed and/or newly constructed NSP units will be greater than the current market value of the unit. This is particularly prevalent in markets where housing values have declined substantially. In such situations, NSP funds can be used to fill the appraisal gap, and will be considered a development subsidy. Grantees may not apply affordability instruments to NSP funds used as a development subsidy. This subsidy will be considered a sunk cost and is considered an eligible use of NSP funds. In this case, the lender (Habitat) should not impose liens in amounts above the value, and may only do so if the lien is made without recourse to the borrower. A non-recourse requires no future payment by the borrower. U.S. Department of Housing and Urban Development

156 Affordability Requirements This section discusses affordability requirements and the related compliance issues Habitat affiliates face when utilizing NSP funds to achieve affordability goals. After providing homeownership assistance to a homebuyer whether in the form of a mortgage buy-down, downpayment assistance, closing cost assistance, etc. an NSP participant must ensure that the unit remains affordable for the minimum period of affordability (5, 10, 15, or 20 years, depending on the level of subsidy.) NSP participants may choose one of the following two approaches to ensure continued affordability: Resale: Habitat affiliates may ensure continued affordability of an NSP-assisted unit by placing a lien or deed restriction on a property when it is sold to an income eligible homebuyer at resale. The resale option requires that the borrower sell the property to a buyer who meets income eligibility requirements for the program (low, moderate, or middle income.) This method allows the borrower to earn a fair return on the property, but ensures that it remains in use as affordable housing. It is especially effective in markets with rising prices, where loan proceeds from the sale would be insufficient for the community to acquire a similar unit. When the costs exceed the selling price, as discussed above, the excess cost is a development subsidy and the resale method must be used. This is because there is no direct subsidy to the borrower and thus nothing on which to place a lien. Recapture: Alternatively, Habitat affiliates may utilize the Habitat Soft-Second mortgage as an instrument for the recapture of NSP funds. If using a soft second, the Habitat affiliate may not also use a resale mechanism. The Recapture method is used when there is a Direct subsidy to the borrower, usually secured by a non-amortizing second mortgage. Such loans often have forgiveness provisions, typically tied to the affordability period. If an affiliate is classified as a subrecipient, any income received from interest on a soft second mortgage is considered program income. This does not apply to affiliates designated as developers. The key issue for Habitat affiliates is to determine in advance whether a resale or recapture mechanism will be used, and to explicitly detail whichever mechanism is chosen to HUD. Another Policy Alert, on Accounting for Real Estate Development Costs in NSP, has more detailed information on what is allowable and how to record it correctly. U.S. Department of Housing and Urban Development

157 December 29, 2010 Community Planning and Development NSP Policy Alert! Guidance on Mapping and Needs Data for State NSP3 Action Plans December 29, 2010 States that plan to apply for Neighborhood Stabilization Program funds in early 2011 (NSP3) have informed HUD that final mapping and needs data are difficult to produce by the deadline. Most States cannot complete a subrecipient selection process before the deadline of March 1, Some States have hundreds of eligible tracts; submission of potential target area maps and data becomes unwieldy. The Department has developed the following guidance for needs and location data in State submissions. State grantees have two options to submit an NSP3 substantial amendment: 1. States may conduct a competitive process to select subrecipients or developers and submit their substantial amendment (via DRGR or a paper submission to their HUD field office) in the format indicated in the NSP3 application instructions prior to the March 1, 2011 deadline. 2. Alternatively, states may submit a description of the criteria they will use to select subrecipients or developers, which must include: Identification of potential target areas of greatest need (States are encouraged to require subapplicants to use the HUD NSP3 mapping tool, so that final needs data will automatically be available to HUD), Market analysis supporting the activities of the identified target area, Discussion of the intended program impact, Summary of subapplicant capacity, and Timeline for the selection process such that the State will submit a second amendment with the final needs and target area mapping data and selections by June 30, Given the low NSP3 grant amounts, HUD continues to recommend narrowing the field of potential areas in advance. The Department has technical assistance providers available at any time to help state or other grantees with the process. HUD also reminds States that direct action is allowed in NSP, giving States the option of operating programs at the State level. U.S. Department of Housing and Urban Development

158 December 28, 2010 Community Planning and Development NSP Policy Alert! Guidance on CDBG-R and NSP2 Reporting in FederalReporting.Gov Updated December 28, 2010 FederalReporting.gov: The Next Quarterly Reporting Period Draws Near! Reporting will cover the period Jan 1-10, 2011, which allows for only 6 business days to report. There will be an extended reporting period from Jan 11-14th, but grantees should provide the reason for reporting late, so we encourage you to report by the Jan 10th. Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub recipients. When a grantee is handling all Federal Reporting data entry itself, the grantee is to review and verify the information provided to them by their sub recipients prior to data entry. Grantees also need to enter or update their environmental review information in RAMPS. Expected Timetable: Jan 1-10 Jan 5 Jan Jan 14 Jan 15 Jan Jan 30 (Subject to change by OMB) Grantees and sub recipients report in FederalReporting.gov. HUD will be able to view prime recipients reports and contact non-reporting recipients starting the week of Jan 1st. (Note - only 6 business days to report). Deadline to report Environmental data into RAMPS for this quarter (Grantees ability to enter data is ongoing). Extended Reporting Cycle - Grantees should provide the reason for reporting late. HUD submits quarterly report on the status and progress of funded activities to Council on Environmental Quality, using RAMPS data. Grantees review data submitted by sub recipients; grantees and sub recipients revise data; HUD has view only access to data. HUD data review and comment period for data entered by grantees and sub recipients. Recovery Act Transparency Board posts as-reported data to Recovery.gov. Jan 31-March 3 Deadlines are as of midnight Eastern Time System re-opens to make error corrections to reports that were created from Jan 1 - Jan 10. HUD comments on grantee reports; grantees review sub recipients reports; prime recipients and sub recipients correct reports. U.S. Department of Housing and Urban Development

159 Guidance is Forthcoming Regarding Project Title and Primary Place of Performance : A recent GAO report, Opportunities Exist to Increase the Public s Understanding of Recipient Reporting on HUD programs, recommended that HUD provide more clear guidance to grantees on reporting the Project Name or Project/Program Title and Primary Place of Performance in FederalReporting.gov. HUD will send out guidance shortly on the new definitions, though this guidance may or may not be finalized in time for the January quarterly reporting cycle. You can see the GAO report at: Provide Clear and Descriptive Narratives: Grantees need to provide greater clarity in their Award, Project and Job descriptions in Federal Reporting.gov. As outlined in OMB memorandum and 10-34, there is a greater need for transparency in Federal Reporting. CDBG-R, NSP2 and NSPTA grantees Award Description and Quarterly Activities/Project Description and Quarterly Job Description fields must provide clear, complete narratives that facilitate an understanding by the general public. If you have not already amended your narrative descriptions, please review them in FederalReporting.gov during the January Federal Reporting cycle to ensure that they provide concise, clear and detailed information before submitting your report. At a minimum, the narratives should include: 1. Clear and complete information on the award s purpose, scope and nature of activities, outcomes, and status of activities; 2. Explanation of all abbreviations or acronyms must be spelled out, that may be unfamiliar to the general public; 3. The names and location of specific projects, so it is clear how and where ARRA funds are being spent, within the character limitations; and, 4. The grantee s website address and any additional websites that provide detailed grant or project level information will be listed. If you need to update your descriptions - below is suggested language with some notations throughout the descriptions (these are the highlighted) of where you should add your grantee s information. This suggested language is not meant to be all inclusive. Please provide as much detail as possible to reflect the work/progress of your grantee s CDBG-R or NSP2 funds. Once you revise the Award Description you should not have to update this quarterly, only the Quarterly Description/Project Description will need updating each quarter. Below is a sample Template: Award Description The Community Development Block Program Recovery (CDBG-R) / The Neighborhood Stabilization Program2 (NSP2) funds will invest in [Name of Project(s)]. The purpose of this project(s) is to. Quarterly Activities/Project Description CDBG-R /NSP2 funds will assist xx [enter the number of projects CDBG-R /NSP2 is funding] projects throughout the city/state [if possible provide the cities, or at least some of them if there are too many locations then perhaps list counties] A listing of all xx projects receiving [CDBG-R/NSP2] funding is posted to our website at [provide website of where you have posted your CDBG-R/NSP2 projects]. U.S. Department of Housing and Urban Development

160 [You should describe what your Agency accomplished/worked on during the quarter. Provide as much detail as possible. For example - ] This quarter, $xx,xxx were committed to xx of projects, $xx,xxx were expended for xx of projects, xx of written agreements were finalized, work began on xx of projects [list the project names], work is continuing at [list the project names], work was completed at [list general location of the projects]. Quarterly Job Description [CDBG-R/NSP2] funds were used to create/retain FTE jobs this quarter. [Name type of jobs and the number of FTE jobs that were funded with ARRA dollars] If no jobs were created, state this and the reason. These reporting requirements represent an unprecedented transparency and accountability effort. Accordingly, we recognize that many grantees may encounter challenges and delays in the reporting process, and we appreciate your continued commitment to working with HUD toward the important goal of economic recovery. Amendments to Approved CDBG-R Programs: A number of CDBG-R grantees have apparently amended their programs after initial approval, but have not provided HUD with a revised activity spreadsheet. Please take a minute to check HUD s Recovery Act website, ivities, to see if your posted spreadsheet is current. (Grantees whose spreadsheet has been revised since initial posting appear on this page with a dash after the grantee name.) If we do not have your current spreadsheet of activities posted, please submit your revised spreadsheet, in Excel spreadsheet format only, by to CDBG-R@hud.gov and to your field office. Expiring Central Contractor Registrations (CCR): Grantees may be unaware that their CCR registrations expire and must be renewed. Grantees must maintain current, active registration at CCR in order to receive federal grant funding from HUD and to submit required reports to FedReporting.gov. HUD recommends that all grantees check to see when their current registration expires, and update their registration in a timely manner before the expiration date. HUD HHQ staff has directly notified CDBG-R and NSP2 grantees that have Central Contractor Registrations which will expire in the next few weeks. Please ensure that your CCR is renewed if it expires before January 15, Grantees can check the status of their CCR registration quickly and easily (without logging in) at CCR by going to selecting CCR Search the second tab from the left, then entering their DUNS number under the Simple Search. If all information contained in the CCR record is still valid and accurate, you may simply select Renew. If any information has changed please update it, then submit. Please note that CCR changed its login procedure in December If you have not logged in since December, you may need to create a User Account and link it to your Agency Profile in CCR. CCR has developed a helpful user guide to creating a User Account that is available on the Help pages of the CCR web site. U.S. Department of Housing and Urban Development

161 Please update or renew your city s CCR as soon as possible and no later than next week to ensure there will be no disruption to your grant payments or your ability to report. If you are unable or unsure how to update your record, you can print out the CCR user guide or contact the Federal Service Desk between 8am and 8pm Eastern Time at or If after consulting these resources you still have difficulty, please call HUD s Office of Departmental Grants Management and Oversight at How to Avoid Saving a Draft Report Instead of a Final Report: Before hitting the submit button, make sure that the report is not showing up as a draft report! The system will generate a successfully submitted message, but a draft report will not actually be sent to HUD. To ensure that you are submitting a Final Report, you must do the following: As a Prime Recipient, go to the Prime Recipient tab to submit your Initial Submission and do the following: Click Submit. If there are any errors in your report, you will receive an error notification. Correct the errors and click Submit. You will be prompted to enter the FRPIN for the DUNS number for which you are reporting. Enter the FRPIN in the FRPIN field. Click Submit to submit your report as Initial Submission status. Similarly, hitting the submit button for a report that contains incorrect data (like a wrong grant number or wrong Awarding Agency Code) will generate a successfully submitted message, but the inaccurate data may prevent the report from being sent to HUD, or HUD may not be able to identify which grantee the report belongs to. Once your report has been submitted, you will receive the Report Submission Confirmation page. Note that there is no requirement for you to enter data as Draft. If you have all of the data you need for Initial Submission, you can bypass the Draft status and submit your report directly as Initial Submission at any time prior to the end of the Initial Submission phase of the January reporting cycle. Reminder to Correct Data Errors prior to using the Copy Forward Feature 1. The Copy Forward feature allows grantees to use the previous quarter s report to populate the next report. Instructions on how to use this feature can be found on FederalReporting.gov at: Gov%20User%20Guide%20Chapter%2010%20Copy%20Forward%20and%20Copy%20Func tions.pdf. This document also contains instructions on the Change Key Business Information function that allows grantees to change key grantee data like the Award ID number or DUNS number for the current reporting period. 2. Grantees that did not correct error messages during the correction period will get a new round of the same error messages for their January reports. All grantees should go into FederalReporting.gov and review any review comments/error messages that HUD sent on their October report to ensure that these errors are not copied forward to the January report. Special attention should be focused on data errors that are not open to debate, like grant number, CFDA number, award amount, etc. We suggest that the grantees make the necessary corrections before copying forward if possible, or if not, correct before sending the new report. 3. Updated OMB instructions indicate that grantees must use the copy forward feature if they ve reported in a prior quarter and are reporting again now. This is particularly important if a grantee is making any changes to the award ID or DUNS number. However, if they are correcting the award type (Contract to Grant), they cannot use the copy forward feature. Note that the U.S. Department of Housing and Urban Development

162 recipients will now be asked to confirm that the new report is intended to be a continuation of the prior report. Recipients can ONLY copy forward reports from the most recent quarter. (Recipients who reported in April but failed to report in October will need to create a new report.) 4. If a grantee accidentally de-activates its correct report instead of de-activating an incorrect or duplicate report, the grantee should immediately contact HUD s Recovery Act Reporting help desk. A grantee cannot recover a de-activated report on its own. Minimizing Reporting Errors in FederalReporting.gov: Among the most common and easily avoidable errors observed are: Submitting duplicate reports (or failing to deactivate an erroneous report upon submitting a corrected report) Entering an Invalid Award Type (incorrectly reporting as a contractor rather than as a grantee Entering an Invalid Award ID, (entering something other than your grant number, or mistyping the grant number, e.g. entering 001 instead of 0010 ) Entering an Invalid Award Amount, (e.g. the Amount Received does not match the amount of your CDBG-R grant) Incorrectly computing or entering job creation/retention figures Entering an Award Date other than the one on your Grant Agreement Entering an incorrect DUNS number Entering the wrong Catalog of Federal Domestic Assistance (CFDA) number, Treasury Accounting Symbol (TAS) number, or Awarding Agency Code number Checking Yes on the Final Report Indicator even though all activities are not completed and all funds have not yet been drawn down HUD has provided an Excel spreadsheet, Grantee Specific Data for CDBG-R, with pre-populated standard data elements for all grantees, to assist grantees in reporting the correct information, and to reduce the frequency of errors. Please contact your HUD Field Office CPD staff if you have not seen this spreadsheet. Before submitting their January report, grantees should ensure that the information on this spreadsheet is correct, and should compare this information with what the grantee reported in their October report. Blank data cells on this spreadsheet represent situations in which grantee data was missing at the time the spreadsheet was prepared in December. Grantees should verify that this information is now correctly entered in their report. If a grantee already entered the missing data for their October report, nothing further needs to be done. If a grantee feels its data is in error, contact the FederalReporting.gov help desk or HUD's Recovery reporting help desk for assistance in changing information. U.S. Department of Housing and Urban Development

163 Correcting Errors in FederalReporting.gov: Grantees should keep the following pointers in mind as they prepare their January reports. 1. There is now a post-reporting-deadline Continuous Quality Assurance Period. All October reports were unlocked from October 1- Dec 6th for grantees and federal agencies to perform Quality Assurance (QA) checks and error corrections. The same process will be available during Jan 31- Feb 3. This Quality Assurance Period has now become the principal time period for grantees to correct reports; the January grantee data review period is only two days. 2. During the Agency review period and again during the Quality Assurance Period, HUD may enter review comments on grantee reports. Some comments will note an erroneous entry that the grantee needs to fix; other comments may concern data flagged as possibly inaccurate. Grantees should check FederalReporting.gov for any HUD error messages during these periods. If you have received an error message comment, please post an appropriate response comment, either verifying that the information is correct as entered or acknowledging that the erroneous entry will be corrected. 3. Grantees cannot de-activate a duplicate report during the Quality Assurance Period. After the Jan 15 initial grantee data review day ends, only OMB can de-activate duplicate reports. Please contact the HUD Recovery Reporting call center should you need a report de-activated after Jan There is no way to correct a report that has been inaccurately submitted with the Award Type of Contractor instead Grantee after the initial submission phase of the reporting cycle has ended (Jan 10). Because the reporting requirements for grantees and contractors are fundamentally different, the only thing a grantee can do is to make sure they report as a Grantee during the next Reporting Cycle. Sub-Recipient Reporting Need to Ensure Correct DUNS number: Grantees need to ensure that their sub recipients have entered their correct DUNS numbers or that their DUNS number has not expired. If a sub recipient s number is incorrect or expired, then that one sub recipient s DUNS number jeopardizes the remaining sub recipients from being able to submit their data in Federal Reporting (due to the inability to perform an Excel bulk upload). Please ensure that your sub recipients are current in maintaining their DUNS numbers. Also, we have cases where the sub recipients DUNS number is not linked to their prime recipients. It is important that they are linked to ensure that we don t end up with orphan sub recipient reports. Payments to 1 st tier vendors (direct contract with HUD prime recipient) less than $25,000 may be reported in aggregate, as a single number on the Prime Recipient Tab, so there is no need at this time for the vendor to have a DUNS registered in CCR. Note that the ARRA requirement addresses payment size, not total payment in a quarter. Even if a vendor received 26 separate payments of $1000 in a quarter, those payments could still be reported in aggregate on the prime recipient tab. Final CDBG-R Reports and Grant Closeouts: Grantees should keep in mind that their grant is not entirely completed if their project activity does not reflect that. For Federal Reporting purposes, a CDBG-R report cannot be final until: U.S. Department of Housing and Urban Development

164 CDBG-R activities are physically complete and are input as 100% complete under project status in Federal Reporting. All FTE jobs created or retained with Recovery funds must be reported in FederalReporting.gov All CDBG-R funds must be expended or if there are unspent funds in LOCCS (which will be returned to the Department of Treasury), then a note should be sent in the FR comment box that no more money will be spent and that the report is indeed final. All CDBG-R activities have been entered into IDIS and complied with all program requirements. Keep in mind that if a grantee has unspent CDBG-R funds, the Federal Reporting system will most likely flag it as Not Final because their award amount and their Total Federal Amount ARRA received/invoiced will not be the same. As long as the grantee posts a comment in Federal Reporting, indicating that they are indeed finished, no further error messages will be sent. HUD will issue final program specific close out procedures to ensure that each grantee has properly met their program requirements. Invitation for CDBG-R and NSP2 to Post ARRA Feedback: Please find here the HUD Ideas in Action website, with a new invitation for ARRA recipients to post feedback from their implementation experiences: For Additional Help: HUD s Recovery Act Reporting Call Center, , is available to answer a wide variety of CDBG-R reporting questions. The call center is available 8:30am to 5:30pm EDT, Monday to Friday, with expanded hours Jan 1-10 and for late reporters, Jan You may also the help center at recovery@comcon.org. HUD has posted a variety of resources about reporting on the HUD Recovery Act website: This site also provides links to other resources, such as the CCR registration website and the Dun & Bradstreet registration website. U.S. Department of Housing and Urban Development

165 December 7, 2010 Community Planning and Development NSP Policy Alert! Guidance on NSP Loan Loss Reserves December 7, 2010 Overview When banks make loans to individuals and businesses, they know from experience a certain amount of those loans will not be repaid, so banks cover those potential losses by setting up a loan loss reserve. For example, if a financial institution gives out 100 loans a year, and on average 1% of those loans is not repaid, then their loan loss reserve would have funds to cover that 1% potential loss. In the Neighborhood Stabilization Program (NSP), a loan loss reserve can be created under Eligible Use A: Establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties. This reserve can provide partial risk coverage to motivate financial institutions to offer loan products to potential NSP home-buyers and developers. It also allows NSP grantees to get more bang for their buck, for example setting up a loan loss reserve with a lender of $600,000 could result in $6,000,000 in loan products to NSP homebuyers (of course the actual amount of the loan loss reserve would depend on the net loss of loans). Required Documentation A grantee must be able to demonstrate that the methodology used to determine the loss rate that would be applied to individual loans would be indicative of the net cost of losses on the loans. HUD prefers a methodology that reflects the following approach: the loss rate applied to loans should be developed based on estimates of future defaults (including timing), recovery rates (including timing of recoveries), and other factors (e.g., costs of recovery) that would affect the estimates of future losses. The loss rate used to determine the amount disbursed into the loss reserve as each loan is made should be derived by discounting net cash flows (i.e., losses-recoveries+/- other receipts/disbursements) to the present and dividing the result by the net present value of loan disbursements over the period that loans will be made. The estimates of future losses would normally be based on historical data for comparable loans. Also keep in mind that once NSP funds are deposited in the loan loss reserve, the proceeds of the resulting loan must be used in accordance with the requirements that would apply if NSP funds had been used directly on that property (Environmental Review requirements, Davis-Bacon requirements, etc.). Obligating Loan Loss Reserves Under NSP1 Under applicable Federal cash management requirements, NSP grant funds cannot be withdrawn from the U.S. Treasury until those funds are needed to pay the costs of activities. Thus, NSP funds cannot be drawn down and deposited with the administrator of the credit facility in advance of need except as permitted under the lump sum drawdown regulations at 24 CFR U.S. Department of Housing and Urban Development

166 Also note that the lump sum drawdown of NSP funds to establish a loan loss reserve fund does not itself constitute an obligation or expenditure of NSP funds for specific activities. Whether included in a lump sum drawdown or not, NSP funds that are to be contributed to a loss reserve cannot be deposited except as related loans are made by the third party lender(s). Note that the disbursement of NSP funds into the loss reserve occurs when loans are made, not as defaults occur on the loans for which the loss reserve was established. However, we have provided grantees some latitude in applying the NSP requirement that funds must be used within 18 months (defined in the NSP Notice as an obligation of NSP funds for a specific activity) when the NSP funds are used for loss reserves related to the origination of a portfolio of loans. The latitude exists when a lender contractually obligates itself to make loans to finance NSP eligible activities (e.g., the purchase of foreclosed upon property) under specified conditions and the grantee agrees to fund expected losses on that portfolio. It is permissible for the grantee to obligate NSP funds for the loss reserves related to loans to be made by the lender if the lender can require the grantee to fund the reserves and the grantee can enforce the lender s commitment to make loans to borrowers meeting NSP eligibility criteria. The amount of each disbursement into the loss reserve should be based on a rate that reflects the expected future losses on the loans (explained above), taking into account expected default rates and recoveries from liquidation of collateral. Reporting Loan Loss Reserves in DRGR As noted above, it is permissible for a grantee to obligate NSP funds for the loss reserve related to loans to be made by the lender if the lender can require the grantee to fund the reserve and the grantee can enforce the lender s commitment to make loans to borrowers meeting NSP eligibility criteria. In such case, the amount of the obligation is based on the total reserve required for a portfolio of loans to be made by a lender. If the lender is going to make loans for more than one purpose (e.g., acquisition and rehabilitation), the City must estimate the amount to be spent on each purpose when recording the obligation in DRGR. For example, if a grantee has $600,000 budgeted for the loss reserve, and the grantee projects that 75% of the related loan amount will be used to finance acquisition of real property and 25% will be used for rehabilitation, it would record an obligation of $450,000 for acquisition and $150,000 for rehabilitation. As each loan is made by the lender, the grantee would then disburse NSP funds into the loss reserve to cover the expected losses on that loan. That disbursement (expenditure) should reflect the end use of the loan. For example, if a grantee makes a contribution to a loss reserve in connection with a loan that is to be used to acquire a foreclosed upon property, the disbursement (expenditure) should be classified as acquisition of property. If the grantee makes a contribution to the loss reserve for a loan made to finance rehabilitation work, the disbursement (expenditure) should be classified as rehabilitation. It may be necessary for grantee to adjust the obligation of the loss reserve to reflect the purposes for which the loans were actually made. Subsequent disbursements from the loss reserve (i.e., as defaults occur) are not recorded in DRGR. Closing out a Loan Loss Reserve While grantees are required to document their methodology used to determine the loss rate for their reserve, it is possible that grantees may find that they had fewer loans default than their methodology estimated this could be a result of strong underwriting or efficient housing counseling. This would mean that the grantee would have funds in the loss reserve that were never used to cover defaulted loans. U.S. Department of Housing and Urban Development

167 HUD has determined that when a grantee closes out a loan loss reserve any remaining funds will be treated as program income to their NSP grant. At this time, the rules governing program income after NSP grants have been closed are still pending further review. Grantees will be provided guidance on this at a future date. U.S. Department of Housing and Urban Development

168 September 3, 2010 Community Planning and Development NSP Policy Alert! Guidance on Calculating Expenditures for NSP2 and NSP3 September 3, 2010 The Department has evaluated its application of the NSP2 (and NSP3) expenditure deadlines as they are implemented by grantees. Grantees that expect to earn substantial program income in NSP2 are experiencing difficulty launching their programs as a result of the existing requirement and have asked that the NSP2 expenditure deadline be calculated in the same manner as the expenditure deadline in NSP1. In particular, the difference in the expenditure calculations created uncertainty about how NSP2 grantees should phase their receipt of program income and whether other financial structures would help to avoid problems. NSP program income stays in the NSP program, is used for additional NSP eligible activities, and can help many more households to benefit from NSP assistance. On review of the rule and the underlying law, HUD believes that it may be possible to apply a different interpretation, in which an NSP2 or NSP3 grantee would have to spend the required amount of NSP funds (a term that combines grant funds plus program income) by the applicable deadlines. This approach would be similar to the rule for NSP1. The Department expects to issue guidance in the near future and requests that NSP2 grantees avoid making program decisions that are primarily intended to reduce or defer program income. U.S. Department of Housing and Urban Development

169 September 3, 2010 Community Planning and Development NSP Policy Alert! Guidance on the National First Look Program and the FHA First Look Sales Method September 3, 2010 U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan this week announced an unprecedented agreement with the nation's top mortgage lenders to offer selected state and local governments, and nonprofit organizations a "first look" or right of first refusal to purchase foreclosed homes before making these properties available to private investors. Click to see the press release. The National First Look Program is a first-ever public-private partnership agreement between HUD and the National Community Stabilization Trust (NCST). In collaboration with national lenders and servicers, Fannie Mae, and Freddie Mac, the First Look program is intended to give communities participating in HUD's Neighborhood Stabilization Program (NSP) a brief exclusive opportunity to purchase bank-owned properties in certain neighborhoods so these homes can either be rehabilitated, rented, resold or demolished. How does the FHA First Look Sales Method differ from the National First Look Program? 1. Under the National First Look Program, NSP grantees partnering with NCST can view bankowned properties held by multiple financial institutions, all in one place. The properties shown by NCST will now also include the FHA First Look properties. 2. HUD s requirements and procedures for FHA First Look Sales Method differ from the requirements of other financial institutions participating in the National First Look Program. NSP grantees interested in FHA First Look properties should review the Federal Register notice published on July 15th, 2010, and HUD s guidance on how to apply to become eligible to purchase these properties. 3. Important Note: NCST is developing their online mapping tool, REO Match, to be compatible with FHA First Look. In the meantime, partners of NCST may see FHA First Look properties that are not available for their purchase. As detailed in the notice, NSP grantees that are approved to purchase during the FHA First Look period, are only allowed to purchase those properties within their designated NSP areas as approved by HUD. These areas may differ substantially from the areas shown on REO Match which are drawn by partners of NCST on an ad hoc basis. Therefore, REO Match will show all FHA First Look properties, and partners eligible to purchase them must log into the FHA First Look website to verify that these properties are within their HUDapproved NSP areas. U.S. Department of Housing and Urban Development

170 August 26, 2010 Community Planning and Development NSP Policy Alert! Guidance on the NSP1 Recapture and Reallocation Notice August 26, 2010 What is the effect of this Notice? This Notice amends the recapture provisions in the Oct. 6, 2008 NSP Notice, which required NSP funds not obligated (not under contract) by the 18 month deadline to be recaptured and returned to the Disaster Fund. What is the purpose of this Notice? The Department has been gratified by the effort of NSP1 grantees to obligate funds by the 18 month deadline. HUD s goal is to help distressed grantees deal with the effects of the foreclosure crisis. This Notice creates a new procedure to allow recaptured funds to be reallocated to other communities with high needs. The only funds currently targeted for recapture are the $19.6 million minimum state allocation, which was awarded regardless of need. The Notice also permits HUD to use other corrective actions, such as grant conditions, to ensure that the NSP funds are spent by the original grantees. The Department will assess all city and county grantees that have not obligated 100% of their grant amounts by the deadline and make a determination on necessary corrective actions. Every community with unobligated funds will be locked out of making further obligations in DRGR, until HUD Field Offices complete a review of the program. Even grantees with 100% obligations may have their obligations frozen for a few days while HUD conducts a spot check of a small number of transactions to verify accuracy. These reviews will include a sample of obligation documentation, open audit or monitoring findings, and the dollar amount of unobligated funds. Grantees may continue to spend previously obligated funding and Program Income. For many grantees, the Department will impose grant conditions and for high need, low capacity grantees, the Department may require technical assistance to make certain that unobligated funds will quickly be placed under contract. Failure to carry out the conditions, accept technical assistance and achieve that goal could lead to recapture of unobligated funds. HUD s corrective actions, based the entitlement and State CDBG regulations, will match the action to the level of the deficiency. Grantees with small unobligated balances (under $250,000) and no findings will receive a warning and 60 days to complete obligations. Grantees with large balances and/or audit and monitoring findings will receive progressively more stringent corrective actions. These actions might include: required obligation schedules, required technical assistance, contracting with an experienced subrecipient or development partner, cancellation of lagging activities, and similar steps. U.S. Department of Housing and Urban Development

171 The only funds subject to immediate recapture are the portion of state grants that were not allocated based on need. Congress initially allocated minimum grants to all states; 0.5% of the appropriation of $3.92 billion went to each state. Therefore, up to $19.6 million in unobligated funds per state will be recaptured and reallocated to high-need communities. Unobligated state balances above that level will be treated the same as city and county grants, with technical assistance and grant conditions to ensure performance. As of August 23, states had about $300 million in unobligated balances under $19.6 million. The following chart summarizes these procedures graphically: Grantee Category All grantees with 100% of funds obligated and 25% obligated for setaside Cities or counties under 100% obligated States with unobligated balances over $19.6M States with unobligated balances under $19.6M Corrective Action No corrective action. Limited corrective actions, based on unobligated amount, including grant conditions and deadlines for 100% obligation. Grantee may continue to expend previously obligated funds and use Program Income. Progressively more serious corrective actions as noncompliant amount increases, such as required schedules for obligations, technical assistance, etc. HUD will recapture all balances up to $19.6M and reallocate to communities with high need. States will retain funds in excess of $19.6 M, subject to conditions, technical assistance, etc. HUD will recapture all balances and reallocate to high need communities. States may continue to expend previously obligated funds and use Program Income. How will reallocation work? Obligation deadlines for almost all NSP1 grantees will have passed by October 1. Each grantee will have thirty days to correct its obligation figures before a final assessment. At that time, HUD will know how much funding will be recaptured. HUD will inform communities that are eligible to receive recaptured funds approximately how much funding they may receive. It is likely that most of the communities receiving recaptured NSP1 funds will also be eligible for NSP3 grants. Thus, the NSP3 and recaptured NSP1 funds can be planned in coordination, but must be applied for in two Substantial Amendments. Eligible grantees will be required to prepare separate Amendments for recaptured NSP1 funds and NSP3 funds because the sources of funds are different. NSP3 funds will probably become available for award sooner than the recaptured NSP1 funds, but both the application processes and program operations will complement each other and minimize duplication to the extent possible. U.S. Department of Housing and Urban Development

172 What is the timeline for recaptured/reallocated NSP1 funding? The following chart indicates the best current estimate of the NSP1 reallocation funding process. October 1: November 1: November 15: December 1: After Jan. 1: After March 1: Most NSP1 grantees reach 18 month obligation deadline Grantees complete 30 day period to verify obligations HUD announces tentative grant awards from recaptured funds and begins OMB process NSP1 grantees expecting recaptured funds start planning process (in conjunction with NSP3 in dual funded locations) HUD receives reallocated funds from OMB and starts accepting applications HUD begins to make grant awards At this time, HUD anticipates that NSP3 funds may be available 2 to 3 months before NSP1 recaptured funds. Reallocated NSP1 funds will have a new 18 month obligation deadline. U.S. Department of Housing and Urban Development

173 August 24, 2010 Community Planning and Development NSP Policy Alert! Guidance on Recovery Act Reporting Updated August 24, 2010 Quarterly FederalReporting.gov Results Reports were to be submitted by grantees by July 20. The NSP2 and NSP-TA programs achieved 96% reporting success, with only 3 non-reporters. The has contacted all nonreporting grantees to find out why they did not report. Warning letters will be sent to non-reporting grantees from Assistant Secretary Márquez, reminding them of their statutory requirement to submit timely reports. There were no double non reporters in either program (grantees who failed to submit for a second consecutive quarter). Correcting Reporting Errors The incidence of significant errors in reports continues to decline. Potential job over- or under-counting was a major focus of review this quarter; many grantees responded to the report review comments submitted to them by HUD, either correcting erroneous entries or corroborating that the figures entered were correct. If you as a grantee received a review comment from HUD on your FederalReporting.gov jobs numbers, and have not yet responded, please do so - and if necessary, please correct your jobs numbers. It is in your best interest to respond to HUD review comments. If your jobs numbers are correct and you respond to confirm their accuracy, or if you correct your numbers, you won t continue to get error messages! We continue to see a scattering of other errors (such as incorrect grant numbers, inadequate narratives, etc.); grantees are urged to review their most recent reports and review comments, and to correct these errors prior to submission of the October reports. Given that HUD provided all grantees with standard data elements such as grant number, CFDA number, TAS number, etc., the only explanations for most of these types of errors still occurring is either data entry errors by the grantee or a grantee s continued failure to correct errors even after notification from HUD. In addition NSP2 grantees are reminded to update their contact information in the Federal Reporting system if there is staff turnover. This will cut down on late and non-reporters. During the last quarter, several grantees either could not submit or submitted reports late because no current staff person had system access. HUD also suggests that each grantee should have more than one person with access to and knowledge of the FederalReporting.gov system. If only one person is able to submit reports, and that person goes on vacation, takes another job, gets sick, etc., then the grantee would be unable to report (or worse, not even know that a report is due)! Don t Let your CCR Registration Expire! NSP2 grantees need to have an updated Central Contractor Registration number in order to report their data to Federal Reporting each quarter. Their CCR s expire on an annual basis and need to be updated U.S. Department of Housing and Urban Development

174 in time for each reporting cycle. Please ensure that your grantees renew their CCR s. An Excel spreadsheet showing NSP2 and NSP-TA recipients whose Central Contractor Registry (CCR) registrations expire before the end of October is available at: CDBG-R grantees are shaded orange, NSP grantees are shaded green. Grantees particularly those expiring in the next 6 weeks - should take steps to renew their registration at least a week before their expiration date, so that they do not encounter problems in submitting their next Federalreporting.gov report. Updating Environmental Review Status in RAMPS Every quarter you are asked to update the status of your environmental review in the RAMPS (Recovery Act Management Performance System). If it has not been done recently, please ensure that your appointed person does this. If the environmental review status for your project(s) has not changed in at least one quarter, you are prompted by the RAMPS system to verify the current, correct status of the project. Please also make sure you have not accidentally mis-reported that your project requires an Environmental Impact Statement. Each quarter, HUD must submit a report to the Council on Environmental Quality regarding projects that require an EIS and on projects for which there has been no apparent change in review status. If you still need access to RAMPS, you need to do the following: To request a Grantee RAMPS Account: Register for access to RAMPS at To request a HUD RAMPS Account: All HUD employees are required to use the CHAMP process at Question & Answer: Vendors and DUNS Numbers Q: Does a vendor need a DUNS number for Federal Reporting? If they do, is there an amount of CDBG- R dollars that they must spend in order to be required to get a DUNS number? If they don t, can the grantee simply enter the grantee s name and zip code? A: Payments to 1 st tier vendors (direct contract with HUD prime recipient) less than $25,000 may be reported in aggregate, as a single number on the Prime Recipient Tab, so there is no need at this time for the vendor to have a DUNS registered in CCR. Note that the ARRA requirement addresses payment size, not total payment in a quarter. Even if a vendor received 26 separate payments of $1000 in a quarter, those payments could still be reported in aggregate on the prime recipient tab. All HUD prime recipients are required to have active registration in CCR. Registration in CCR requires a DUNS number from Dun & Bradstreet. If a business has been in business any length of time it is likely to already have a DUNS number. A small business can search to see if it has a DUNS number at: U.S. Department of Housing and Urban Development

175 Here is guidance from OMB on the reporting requirements regarding vendors: CLARIFICATION OF M GUIDANCE (December 18, 2009) 1. What information are prime recipients and subrecipients with delegated reporting responsibility required to report for vendor payments? All vendor payments must be reported. Individual payments greater than $25,000 must be reported separately with the following data elements for each payment: Vendor identity either through DUNS number OR the Vendor Name and the zip + 4 digit code of the vendor s headquarters. Payment description and payment amount (required to be reported by prime recipients; optional for subrecipients) Recipients may report individual payments less than $25,000 either separately or aggregated. The aggregated record should not duplicate information reported in separate records. 2. How are aggregated payments reported over more than one quarter? Include the total number and dollar amounts for payments to vendors under $25,000 for the current reporting quarter and all past reporting quarters in the PRIME RECIPIENT TAB. Question & Answer: Real Estate Brokers in the NSP program Q: Are appraisers or real estate brokers involved in NSP purchase and sale transactions considered to be vendors? A: If a grantee (prime recipient) has hired/selected an appraiser or real estate broker to work with them on their grant activities, then they can be considered a vendor. If an appraiser or real estate broker is working for the buyer and has no contractual relationship with the grantee/prime recipient then they are their own entity - i.e. small business owner. Whether or not they need a DUNS number and must be reported on in FederalReporting depends on the amount of payments received, as described in the previous question. U.S. Department of Housing and Urban Development

176 August 19, 2010 Community Planning and Development NSP Policy Alert! Guidance on New Monthly Reporting Requirements for NSP1 Grantees August 19, 2010 The NSP1 Notice requires grantees to begin reporting on obligations on a monthly basis starting at the end of the 15 th month after receipt of funds (June 30, 2010). Page 58341, Section O. 1.b.i. of the NSP1 Notice states: In addition to this quarterly performance reporting, each grantee will report monthly on its NSP obligations and expenditures beginning 30 days after the end of the 15th month following receipt of funds, and continuing until reported total obligations are equal to or greater than the total NSP grant. After HUD has accepted a report from a grantee showing such obligation of funds, the monthly reporting requirement will end and quarterly reports will continue until all NSP funds (including program income) have been expended and those expenditures are included in a report to HUD, or until HUD issues other instructions pursuant to paragraph b.ii. below. How to Report: This new reporting requirement only applies to NSP1 grantees that are not 100% obligated. If you have obligated 100% of your grant funds you can continue to report on a quarterly basis as usual. If you have not reached 100% obligations yet, grantees should open the QPR for the next quarter (July- Sept), and begin reporting on expenditures right away. You should also note receipt of program income and show its disbursement. Remember that every time you enter new information you should save the QPR, and then your CPD Rep will be able to open the document at the end of the month and note the recorded expenditures. U.S. Department of Housing and Urban Development

177 August 12, 2010 Community Planning and Development NSP Policy Alert! Guidance on NSP Tenant Protection Requirements under the Recovery Act Updated August 12, 2010 Note: This is a revision to the guidance issued in May QUESTION: What methods should grantees use to determine compliance with the NSP tenant protection requirements under the Recovery Act? Overview Congress has expressed concern about evictions of tenants from foreclosed properties. New laws have been passed recently to address this issue. The American Recovery and Reinvestment Act of 2009 (Recovery Act), Pub. L. No , imposes requirements on Neighborhood Stabilization Program (NSP) grantees to ensure that bona fide tenants in NSP-affected properties receive proper treatment. 9 Additional amounts made available for NSP pursuant to Section 1497 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L , are subject to Recovery Act tenant protection requirements. Please note that the Recovery Act tenant protection requirements do not preempt any federal, tribal, state or local law that provides greater protections for tenants, including, but not limited to the Protecting Tenants at Foreclosure Act of 2009 (PTFA) and the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA). See the Resource Links section of this guidance document for links to more information on PTFA and URA. NSP recipients have requested information on complying with the Recovery Act tenant protections, which are included in the NSP Bridge Notice of June 19, 2009 and the NSP2 Notice of Fund Availability of May 4, The revised definition of foreclosed published in the Federal Register on April 9, 2010 expands the properties considered acquired through foreclosure for NSP purposes. NSP grantees, subrecipients, developers or homebuyers need to be mindful of the NSP 9 Another law, the Protecting Tenants at Foreclosure Act of 2009 (PTFA), Pub. L. No , also provides protections for tenants facing eviction as a result of foreclosure on virtually all mortgaged rental properties in the US. PTFA requirements, though similar to Recovery Act requirements in some respects, are separate and distinct obligations that are not affected in any way by the revised definition of foreclosed or this guidance document. PTFA may provide greater protection in certain instances. PTFA requirements, where applicable, must be fully satisfied independently of any obligations arising under the Recovery Act. HUD has published a notice in the Federal Register providing additional information on PTFA. See 74 FR 30,106 (Jun. 24, 2009). PTFA is not discussed further in this guidance document. 10 Please note that links to all Notices cited are available in the Resource Links section of this document. U.S. Department of Housing and Urban Development

178 tenant protection requirements under the Recovery Act (and, where applicable, the PTFA) in acquiring foreclosed properties under the NSP program. The following highlights methods grantees can use to determine compliance with the NSP tenant protection requirements under the Recovery Act. Grantees should direct questions on these requirements to not to HUD Regional Relocation Specialists. SUMMARY OF NSP TENANT PROTECTION REQUIREMENTS UNDER THE RECOVERY ACT PERSONS AFFECTED IMPLICATIONS EXCEPTION Any bona fide tenant occupying certain residential property under a lease in effect on or before the date of notice of foreclosure. Initial successor in interest (ISII) (see key terms) must allow such tenants to remain to end of the lease term* and provide a minimum 90 days notice to vacate. These periods may overlap but cannot be less than 90 days. Any bona fide tenant occupying certain residential property without a lease or with a lease terminable at will under state law at the time of foreclosure ISII (see key terms) must provide such tenants a minimum 90 days notice to vacate. *An ISII selling the property to a person occupying the home as the primary place of residence MAY terminate the lease, but MUST allow at least 90 days to vacate. Grantees need to be aware that the NSP tenant protection requirements under the Recovery Act are separate and apart from the obligations imposed on grantees by the URA. The revised NSP definitions do not supersede or affect in any way protections available to property owners or tenants under the URA. The URA applies to any person displaced as a direct result of acquisition, rehabilitation, and/or demolition of real property for a federally-assisted project. Eligibility determinations under the URA and the required notices and relocation assistance requirements are separate and distinct from the NSP tenant protections in the Recovery Act. Grantees cannot assume that a person entitled to the NSP tenant protections under the Recovery Act is also eligible for assistance under the URA (or vice versa). Any tenant lawfully occupying the property evicted by the owner/mortgagor in order to facilitate an acquisition under the NSP program (including short sales) is most likely eligible for URA relocation assistance and payments as a displaced person. Key Terms Bona Fide lease or tenancy: For purposes of this section, a lease or tenancy shall be considered bona fide only if: (i) the mortgagor under the contract is not the tenant; (ii) the lease or tenancy was the result of an arm s-length transaction; and (iii) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property. A lease does not have to be written, but either the lease or tenancy must meet the requirements of the Recovery Act. Foreclosed: A home or residential property has been foreclosed upon if any of the following conditions apply: (a) the property s current delinquency status is at least 60 days delinquent under the Mortgage Bankers of America delinquency calculation and the owner has been notified of this delinquency, or (b) the property owner is 90 days or more delinquent on tax payments, or (c) under state, local, or tribal law, foreclosure proceedings have been initiated or completed, or (d) foreclosure proceedings have been completed and title has been transferred to an intermediary aggregator or servicer that is not an NSP grantee, subrecipient, contractor, developer, or end user. U.S. Department of Housing and Urban Development

179 Initial Successor in Interest (ISII): Typically, the ISII in property acquired through foreclosure is the successful purchaser at foreclosure, such as the lender or trustee for holders of obligations secured by mortgage liens. Grantees should note that the revised NSP definition of foreclosed now includes the beginning stages of the foreclosure process as well as the end. For example, when a NSP grantee purchases a rental property directly from the mortgagor via a short sale as a foreclosed property, the grantee may become the ISII for NSP purposes. Options for grantees to document compliance with NSP tenant protection requirements under the Recovery Act: 1. Purchase properties that were foreclosed and title transferred on or before February 17, 2009, and obtain evidence of the date of foreclosure; such properties are not covered by the NSP tenant protection provisions of the Recovery Act. 2. If purchasing properties after February 17, 2009, that meet the revised NSP definition of foreclosed, keep adequate documentation of compliance (or inapplicability) of NSP tenant protection requirements under the Recovery Act, such as: a. Information that only the former mortgagor currently occupies and/or occupied the property at the time of the notice of foreclosure (NSP Recovery Act Tenant Protections do not apply); b. Copies of the tenant s lease and any notice to vacate to substantiate compliance; c. Where a tenancy existed without a written lease or at will, information on the tenancy and any notice to vacate to substantiate compliance; d. Documentation of compliance with the NSP Recovery Act tenant protection provisions (or their inapplicability) from the ISII. 3. If the ISII will not or cannot demonstrate compliance with the NSP tenant protections under the Recovery Act, abandon the transaction. 4. If the property is still desired, and no documentation of compliance can be obtained from the ISII, perform due diligence to determine whether any bona fide tenant occupied the property on or before the date of the notice of foreclosure. If so, determine if they were allowed to remain through the end of the lease term or tenancy (as applicable) and received any required notices. 5. Grantees that purchase tenant-occupied property can choose to assume the Recovery Act tenant protection obligations and/or may continue to operate occupied units as rental properties. 6. If the grantee knows that the ISII did not comply with the NSP tenant protection requirements under the Recovery Act and vacated the property contrary to the NSP requirements, abandon the transaction. NSP funds cannot be used for such properties. 7. In structuring its NSP acquisition and homebuyer assistance programs, grantees should educate potential subrecipients, developers, and homebuyers (and/or their real estate agents or other representatives) on the broader implication of how the NSP program defines foreclosed and the NSP tenant protection requirements under the Recovery Act (as well as tenant protection requirements arising under PTFA). The grantee may also adopt other procedures designed to minimize displacement of bone fide tenants. NOTE: There is no assurance that these steps will eliminate potential lawsuits or other liability. These steps do not address compliance with tenant protection requirements under PTFA. U.S. Department of Housing and Urban Development

180 Notice of Foreclosure Consistent with the NSP Bridge Notice of June 19, 2009, the grantee s determination whether the ISII complied with the NSP Tenant Protection requirements under the Recovery Act includes identifying the notice of foreclosure. Pursuant to Section 1497 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L , the date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust, or security deed. Resource Links - Notice of Allocations, Application Procedures, Regulatory Waivers Granted to and Alternative Requirements for Emergency Assistance for Redevelopment of Abandoned and Foreclosed Homes Grantees Under the Housing and Economic Recovery Act, 2008, 73 FR (Oct. 6, 2008). nspnotice.pdf - NSP2 Notice of Funding Availability, 74 FR (May 7, 2009). pdf/nsp2_nofa.pdf - NSP Bridge Notice, 74 FR (June 19, 2009). pdf/nsp1_bridgenotice.pdf - Protecting Tenants at Foreclosure: Notice of Responsibilities Placed on Immediate Successors in Interest Pursuant to Foreclosure of Residential Property, 74 FR (June 24, 2009). - Notice of Change in Definitions and Modification to Neighborhood Stabilization Program, 75 FR (Apr. 9, 2010). - Eligibility for URA assistance and payments must be determined in accordance with the URA statute and regulations on a case by case basis. Questions on the URA requirements should be directed to the nearest HUD Regional Relocation Specialist. See Contacts at - Bulletin published by the Office of the Comptroller of the Currency regarding PTFA, Aug. 13, U.S. Department of Housing and Urban Development

181 The following materials are optional and were designed to assist grantees. Questionnaire on Compliance with NSP Tenant Protection Requirements under the Recovery Act (To be completed on each property prior to acquisition. Proceed down the list unless directed otherwise.) Date of NSP grantee s inquiry regarding status of the property: 1. On (date), became the Initial Successor in Interest (ISII) of foreclosed **** residential property located at: (If property became foreclosed under state, tribal or local law on or before 02/17/09, Tenant Protections under the Recovery Act do not apply.) 2. On or after the date of notice of foreclosure, was the property occupied? Yes No (If property was NOT occupied, Tenant Protections under the Recovery Act do not apply.) 3. If the property was occupied, is the lease or tenancy bona fide? A. The occupant was the former mortgagor? Yes No (If occupant IS or WAS the current or former mortgagor, stop here. Tenant Protections under the Recovery Act do NOT apply.) B. The occupant was a tenant (that was NOT the former mortgagor)? Yes No Name: C. Was lease or tenancy the result of an arms-length transaction? Yes No Another law, the Protecting Tenants at Foreclosure Act of 2009 (PTFA), Pub. L. No , also provides protections for tenants facing eviction as a result of foreclosure on virtually all mortgaged rental properties in the US. PTFA requirements, though similar to Recovery Act requirements in some respects, are separate and distinct obligations that are not affected in any way by the revised definition of foreclosed or this guidance document. PTFA may provide greater protection in certain instances. PTFA requirements, where applicable, must be fully satisfied independently of any obligations arising under the Recovery Act. HUD has published a notice in the Federal Register providing additional information on PTFA. See 74 FR 30,106 (Jun. 24, 2009). PTFA is not discussed further in this guidance document. Please note that under the NSP definition of foreclosed, as revised on April 9, 2010, ISII can now refer to a wider group of persons, including NSP program participants acquiring foreclosed properties from mortgagors through short sales. **** Foreclosed as used in this Questionnaire, is defined under the revised NSP definition of foreclosed. The date of a notice of foreclosure shall be deemed to be the date on which complete title to a property is transferred to a successor entity or person as a result of an order of a court or pursuant to provisions in a mortgage, deed of trust, or security deed. U.S. Department of Housing and Urban Development

182 D. Was the rent required in an amount that is not substantially less than fair market rent for the property? Yes No (If ANY answer to B-D is NO, Tenant Protections under the Recovery Act do NOT apply.) (If ALL answers to B-D are YES, you have a bona fide tenant. Continue.) 4. Was the tenant occupying the property under a lease in effect on or before the date of notice of foreclosure? Yes No A. If YES: i. What was the remaining term? (end date) ii. Has tenant vacated the property? Yes No Date tenant moved: iii. Did the ISII allow the tenant to stay until the end of the lease term? Yes No (If YES, skip to v. If NO, answer iv.) iv. If ISII did not allow tenant to stay through lease term, are they selling the property to an NSP-assisted purchaser who will occupy the unit as a primary residence? Yes No (If YES, go to v. If NO, abandon transaction; ineligible for NSP funding.) v. Did the ISII provide tenant at least 90 days notice to move? Yes No When did/will that 90-day notice expire? vi. vii. Based on these facts, did ISII comply with NSP tenant protection requirements under the Recovery Act? Yes No If the ISII did not comply and the tenant is still in occupancy will the grantee assume this responsibility? Yes No I B. If NO: i. Has tenant vacated the property? Yes No Date tenant moved: ii. Did the ISII provide tenant at least 90 days notice to move? Yes No When did/will that 90-day notice expire? iii. iv. Based on these facts, did ISII comply with NSP tenant protection requirements under the Recovery Act? Yes No If the ISII did not comply and the tenant is still in occupancy will the grantee assume this responsibility? Yes No 5. The use of NSP funds is subject to a determination by the grantee that the ISII complied with the tenant protection requirements of the Recovery Act, that the grantee will assume this responsibility if they did not, or that the tenant protections are not applicable. If the grantee If rent was subsidized, determine market rate as total of the tenant s portion and the subsidy paid on their behalf. U.S. Department of Housing and Urban Development

183 learns that the ISII did not comply with the NSP tenant protection requirements under the Recovery Act and a bona fide tenant was required to vacate the property contrary to the NSP requirements, abandon the transaction. NSP funds cannot be used for such properties. 6. If the property is occupied, or was vacated for the NSP-assisted project, the grantee must also determine if the tenant occupant would be eligible as a displaced person under the URA. (Note: Owner-occupants, who are displaced as a result of voluntary acquisitions under the URA, are not generally eligible for URA relocation assistance and payments.) U.S. Department of Housing and Urban Development

184 Peer Experiences: How Other Grantees Are Managing This Requirement NSP grantees have asked what they can do to meet the tenant protection provisions of the Recovery Act. Grantee practices and tenants rights laws vary from state to state. Not all solutions will work in every situation, but several NSP grantees have informed HUD of their practices. No amount of due diligence can eliminate the possibility that an improperly evicted bona fide tenant will appear later. A Northeastern city with strong tenant laws follows these procedures: This problem is especially difficult if there is a tenant at will, that is a legal tenant but with no lease. In this state, lenders who have purchased a property at sheriff s sale have the right to evict tenants in 30 days, so the new law is more restrictive. We get a list of evictions from the Housing Court on a regular basis in order to track activity should we acquire the property. Some owners carry out evictions that may be illegal in this state, known as Cash for keys, paying tenants $500 to leave; this can be done by the prior owner or by the lender. Our city has worked with lenders and explicitly asked them not to evict tenants. We try to intervene at the point of the foreclosure petition by tracking legal notices and responding quickly. This gives us a chance to prevent problems at an early stage. When acquiring a property, the city sends a notice to the former owner and also to any residents by addressing it to the property. This does not guarantee that we will find out about protected tenants, but does show good faith should problems arise later. Other suggestions include: Contacting the local public housing authority to determine whether a tenant receiving Section 8 or Housing Choice Voucher assistance is occupying the property. Asking the local Legal Aid Office to determine whether any of its clients might have a claim involving the property. NOTE: Simply because a property has been vacant for 90 days does not mean that it satisfies these requirements. The law protects bona fide tenants occupying the foreclosed property. Any bona fide tenant must receive at least 90 days notice to vacate. In addition, any bona fide tenant occupying residential property under a lease in effect on or before the date of notice of foreclosure must be allowed to stay for the remainder of the lease term. The only exception occurs in the case of a sale to a purchaser who will occupy the property as a primary residence, although the tenant still must have at least 90 days to vacate. U.S. Department of Housing and Urban Development

185 August 5, 2010 Community Planning and Development NSP Policy Alert! Guidance on Documenting the Sales Price on NSP-Assisted Acquisitions August 5, 2010 QUESTION: How should grantees document the sales price on NSP-assisted acquisitions? Introduction There are some Neighborhood Stabilization Program (NSP) grantees and affiliates that have taken an aggressive approach to negotiating price deductions in an effort to use NSP funds in the most efficient manner possible. Many lenders have welcomed the price deductions due to the level of savings realized in NSP-assisted acquisitions of REO assets. However, grantees have expressed two related concerns (1) from a regulatory standpoint, these entities are concerned with how the price deductions should be recorded and what terminologies should be used in referencing these deductions; and (2) from a property value stand point, grantees are concerned that negotiating price deductions could aid in decreasing property values in the communities that NSP funds serve. In an effort to address these concerns and ensure compliance with NSP acquisition requirements, HUD developed the following guidance which references language used in the NSP regulations and offers acceptable methods of verifying that all NSP rules and regulations are being met in NSP-assisted acquisitions. Applicable Regulatory Language The June 19, 2009 Federal Register Notice (aka NSP1 Bridge Notice) states grantees are encouraged to negotiate with lenders to obtain price reductions commensurate with the avoided costs of holding, marketing and selling the homes. Grantees are also encouraged to take reasonable steps to ensure disclosure of any discount/price reduction resulting from compliance with HERA or other applicable legal requirements. Such steps may include posting sales data on individual acquisitions (sales price, current market appraised value, and discount/price reduction) on the grantee s Web site, providing such data to multiple listing services, and including the information in the deed transferring title to the purchaser (if permitted under state or local laws or regulations). HUD-1 Settlement Statement On a property by property basis, the HUD-1 Settlement Statement will typically be used to record actual charges and adjustments paid by the borrower and the seller, to be given to the parties in connection with the settlement. In the event there are price deductions negotiated between the buyer and seller, the contract sales price specified in the HUD-1 (or purchase agreement) may not reflect the actual price paid by the NSP-assisted homebuyer. As a result, the price reductions would have to be subtracted from the contract sales price to determine the actual price paid by the NSP-assisted homebuyer. See example on the next page. U.S. Department of Housing and Urban Development

186 Contract sales price: $100,000 Adjustment to sales price: holding costs of insurance, taxes and maintenance transaction costs of brokerage and sellers internal supervision and administration avoided capital costs due to early receipt of proceeds minimized decline in value over holding period possible rehabilitation required for code enforcement and marketing Total Savings: $15,000 Actual price: $85,000 Compliance with NSP Rules and Regulations NSP requires each foreclosed-upon home or residential property purchased with NSP assistance to be purchased at a discount of at least one percent from the current market-appraised value of the home. NSP also requires that homes and residential properties purchased with NSP assistance cannot be sold for more than the total costs, which is determined by aggregating all costs of acquisition, rehabilitation, and redevelopment (including costs related to the sale of the property). Using the example described above, if the current market appraised value is $100,000, NSP would require the home to be purchased for a maximum of $99,000. Since the actual price paid for the house was $85,000, the NSP-assisted homebuyer has more than satisfied the purchase discount requirement. Provided the HUD-1 Settlement Statement clearly specifies the amount paid by the purchaser, it can be used together with a copy of the appraisal (or other permitted documentation of property value) to verify compliance. Further, since the actual price paid was $85,000, the resale price would be limited to $85,000 plus any rehabilitation and other related costs to the sale of the property. For additional guidance on calculating the resale price please see NSP1 Federal Register Notice page under Sale of Homes. U.S. Department of Housing and Urban Development

187 July 23, 2010 Community Planning and Development NSP Policy Alert! Guidance on Amendments to the 25 Percent Set-Aside Requirement July 23, 2010 QUESTION: How does the Dodd-Frank Wall Street Reform and Consumer Protection Act (Publ. L ) amend the 25 percent set-aside requirement? The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (Publ. L ) includes amendments to and a third appropriation for the Neighborhood Stabilization Program. HUD will establish the funding formula for new NSP funding of one billion dollars within 30 days of the law s enactment (July 21, 2010). Public Law amends a requirement that has caused some difficulties for NSP grantees. Previously, the Housing and Economic Recovery Act of 2008 (HERA) required NSP grantees to use not less than 25 percent of their NSP grant for the purchase and redevelopment of abandoned or foreclosed upon homes or residential properties that will be used to house individuals or families whose incomes do not exceed 50 percent of area median income. Public Law amends this requirement by removing the restriction that allows only abandoned or foreclosed upon homes or residential properties to be used to meet this requirement. Grantees may now use vacant or demolished property to meet the setaside as well. This language also allows non-residential property to be used if the project is undertaken under Eligible Use E, though such sites might require rezoning to allow the development of housing. In addition, the new law states that this new flexibility shall apply with respect to any unexpended or unobligated balances, including recaptured and reallocated funds made available under the NSP1 and NSP2 enabling legislation. Current grantees that are developing housing for families with incomes below 50% of area median income on land that was not foreclosed or abandoned residential property may now be able to claim set-aside credit for some or all of those costs. There are three possibilities: 1. Projects for which funds have not been obligated or for which funds have been obligated with no expenditures will be able to apply all of the costs toward the set-aside. 2. Projects for which funds have been obligated and fully expended will not be able to claim this credit retroactively. 3. For projects for which funds have been obligated, but only partially expended, HUD will allow credit for any expenditures made after July 21, This option is voluntary, not required. This option will require the grantee to make some changes in the DRGR accounting for the project. U.S. Department of Housing and Urban Development

188 For each project under implementation option 3 for which a grantee wants to get 25% Low-income setaside credit in DRGR, the grantee must create a duplicate of the activity in DRGR. The original activity, which will have an LMMI national objective, must be adjusted to show the share of obligations that relate to all expenditures made before July 21, 2010, plus those disbursements and expenditures. The duplicate activity, which will have an LH25 national objective, will show the share of obligations related to all expenditures made on or after July 21, 2010, plus the counterpart disbursements and expenditures. Any grantee choosing to make such an adjustment should contact its local HUD field representative first, as this will entail an Action Plan change. The DRGR Help Desk is also available to help, as needed. U.S. Department of Housing and Urban Development

189 June 21, 2010 Community Planning and Development NSP Policy Alert! Guidance on NSP2 Reporting in FederalReporting.Gov Updated June 21, 2010 FederalReporting.gov: The Next Quarterly Reporting Period Draws Near! Reporting will cover the period April 1 - June 30, Section 1512 of the Recovery Act requires that all recipients, sub-recipients and contractors of Recovery Act funding report on a number of data elements, such as jobs and dollars spent. Timetable references to sub recipient reporting refer to situations where the grantee (prime recipient) has delegated direct reporting responsibility in FederalReporting.gov to sub recipients. When a grantee is handling all FederalReporting data entry itself, the grantee is to review and verify the information provided to them by their sub recipients prior to data entry. Note that the reporting period is longer this quarter due to the 4 th of July Holiday. Grantees also need to enter or update their environmental review information in RAMPS. Expected Timetable: (Subject to change by OMB) July 1-14 Grantees and sub recipients report in FederalReporting.gov New Feature - HUD will be able to view prime recipients reports and contact nonreporting recipients starting July 1st. July 7 July 15 July July July July 30 Deadline to report Environmental data into RAMPS for this quarter (Grantees ability to enter data is ongoing) HUD submits quarterly report on the status and progress of funded activities to Council on Environmental Quality, using RAMPS data Recipients may report, but reports will be marked late. Grantees review data submitted by sub recipients; grantees and sub recipients revise data; HUD has view only access to data. HUD data review and comment period for data entered by grantees and sub recipients Recovery Act Transparency Board posts as-reported data to Recovery.gov Aug 3-Sept 13 System re-opens to make error corrections to reports that were created from April 1- July 14. HUD comments on grantee reports; grantees review sub recipients reports; prime recipients and sub recipients correct reports Deadlines are as of midnight Pacific Tim U.S. Department of Housing and Urban Development

190 Minimizing Reporting Errors in FederalReporting.gov: Thanks to the dedicated efforts of HUD grantees and field office staff, the NSP2 program achieved an impressive success rate in April s initial round of reporting. Thank you! Among the most common and easily avoidable errors observed are: Submitting duplicate reports (or failing to deactivate an erroneous report upon submitting a corrected report) Entering an Invalid Award Type (incorrectly reporting as a contractor rather than as a grantee Entering an Invalid Award ID, (entering something other than your grant number, or mistyping the grant number, e.g. entering 001 instead of 0010 ) Entering an Invalid Award Amount, (e.g. the Amount Received does not match the amount of your NSP2 grant) Entering an Award Date other than the one on your Grant Agreement Incorrectly computing or entering job creation/retention figures Entering an incorrect DUNS number Entering the wrong Catalog of Federal Domestic Assistance (CFDA) number, Treasury Accounting Symbol (TAS) number, or Awarding Agency Code number Checking Yes on the Final Report Indicator even though all activities are not completed and all funds have not yet been drawn down If you need assistance entering the data for your grant, please click on the following link for guidance: HUD has developed an Excel spreadsheet, Grantee Specific Data for NSP2, with pre-populated standard data elements for all grantees, to assist grantees in reporting the correct information, and to reduce the frequency of errors. Please contact Njeri Santana at HUD Headquarters, Njeri.A.Santana@hud.gov or , if you have not seen this spreadsheet. Before submitting their July report, grantees should ensure that the information on this spreadsheet is correct, and should compare this information with what the grantee reported in their April report. Blank data cells on this spreadsheet represent situations in which grantee data was missing at the time the spreadsheet was prepared in December. Grantees should verify that this information is now correctly entered in their report. If a grantee already entered the missing data for their April report, nothing further needs to be done. If a grantee feels its data is in error, contact the FederalReporting.gov help desk or HUD's Recovery reporting help desk for assistance in changing information. U.S. Department of Housing and Urban Development

191 Correcting Errors in FederalReporting.gov: Grantees should keep the following pointers in mind as they prepare their July reports. 1. There is now a Copy Forward feature that allows grantees to use the previous quarter s report to populate the next report. Instructions on how to use this feature can be found on FederalReporting at: Scroll down to Chapter 10: Copy Forward and Copy Functions. This document also contains instructions on the Change Key Business Information function that allows grantees to change key grantee data like the Award ID number or DUNS number for the current reporting period. 2. Updated OMB instructions indicate that grantees must use the copy forward feature if they ve reported in a prior quarter and are reporting again now. This is particularly important if a grantee is making any changes to the award ID or DUNS number. However, if they are correcting the award type (Contract to Grant), they cannot use the copy forward feature. Note that the recipients will now be asked to confirm that the new report is intended to be a continuation of the prior report. Recipients can ONLY copy forward reports from the most recent quarter. (Recipients who reported in January but failed to report in April will need to create a new report.) 3. If a grantee is using the copy forward feature of FederalReporting.gov, any data elements that a grantee incorrectly entered in April will be copied as is into the July report. Grantees will need to manually correct the inaccurate elements in their July report before submitting it. 4. If a grantee accidentally de-activates its correct report instead of de-activating an incorrect or duplicate report, the grantee should immediately contact HUD s Recovery Act Reporting help desk. A grantee cannot recover a de-activated report on its own. 5. There is now a post-reporting-deadline Continuous Quality Assurance Period. All April reports were unlocked from May 3-June 14 for grantees and federal agencies to perform Quality Assurance (QA) checks and error corrections. The same process will be available during Aug 3 Sept 13. This Quality Assurance Period has now become the principal time period for grantees to correct reports; the late-july grantee data review period is only two days. 6. During the Agency review period and again during the Quality Assurance Period, HUD may enter review comments on grantee reports. Some comments will note an erroneous entry that the grantee needs to fix; other comments may concern data flagged as possibly inaccurate. Grantees should check FederalReporting.gov for any HUD error messages during these periods. If you have received an error message comment, please post an appropriate response comment, either verifying that the information is correct as entered or acknowledging that the erroneous entry will be corrected. 7. Grantees cannot de-activate a duplicate report during the Quality Assurance Period. After the July initial grantee data review period ends, only OMB can de-activate duplicate reports. Please contact the HUD Recovery Reporting call center should you need a report de-activated after July 22. U.S. Department of Housing and Urban Development

192 8. There is no way to correct a report that has been inaccurately submitted with the Award Type of Contractor instead Grantee. Because the reporting requirements for grantees and contractors are fundamentally different, the only thing a grantee can do is to make sure they report as a Grantee the next time. 9. Before hitting the submit button, make sure that the report is not showing up as a draft report! The system will generate a successfully submitted message, but a draft report will not actually be sent to HUD. Hitting the submit button does not trigger any data review/error checking function in FederalReporting.gov. 10. Similarly, hitting the submit button for a report that contains incorrect data (like a wrong grant number or wrong Awarding Agency Code) will generate a successfully submitted message, but the inaccurate data may prevent the report from being sent to HUD, or HUD may not be able to identify which grantee the report belongs to. Jobs reporting: HUD has issued a revised Jobs Calculator as an optional aid to grantees in computing and reporting on jobs created/retained with Recovery Act funding. This new calculator is consistent with OMB s December 18, 2009 revised job counting guidance, and has been approved for use by OMB. The current version is posted to the HUD.gov/recovery webpage at: Block%20Grants%20-%20Recovery%20Reporting. Grantees should NOT use previous versions of the job calculator, as they do not comply with the current OMB jobs guidance. In reviewing grantees reports, HUD focuses on grantees whose reported jobs numbers suggest significant undercounting or over counting, grants that are more than 50% expended but reported 0 jobs, and reports with missing or insufficiently-detailed narratives regarding job creation/retention. All grantees should make sure they follow OMB's December 18, 2009 job reporting guidance memo, M This is available on the FederalReporting.gov site, and on OMB s website at: Instructions for grantees begin with part 2 on page 10. This memorandum makes several notable changes from the previous (June 22, 2009) Recovery Act job counting guidance: Grantees now report on jobs created or retained for that quarter only, based on all hours worked during that quarter. Job reporting is no longer cumulative over the life of the grant. The instructions for computing jobs on a quarterly basis have been simplified and clarified. The guidance provides definitions of jobs considered to be created or retained. A job is to be counted as created or retained only if the wages or salaries are either paid for or will be reimbursed with Recovery Act funding. Where an activity is funded by multiple funding sources, the job creation/retention figures funding are to be prorated based on the proportion of the activity funded with Recovery Act funds. A jobs over count error message will be generated if the award amount divided by your number of FTE jobs results in a cost per job hour rate below the federal minimum wage. A jobs undercount error message will be generated if the number of FTE jobs reported is much lower than expected based on your award amount and project completion status. U.S. Department of Housing and Urban Development

193 Expiring Central Contractor Registrations (CCR): Grantees may be unaware that their CCR registrations expire and must be renewed. Grantees must maintain current registration at CCR to report on Recovery Act funds in FederalReporting.gov. HUD recommends that all grantees check to see when their current registration expires, and update their registration in a timely manner before the expiration date. HUD, through its CPD Field Offices, has notified NSP2 grantees whose Central Contractor Registrations will expire in the next few months. Grantees can check the status of their CCR registration quickly and easily (without logging in) at CCR by going to selecting CCR Search the second tab from the left, then entering their DUNS number under the Simple Search. If all information contained in the CCR record is still valid and accurate, you may simply select Renew. If any information has changed please update it, then submit. Please update or renew as soon as possible and no later than next week to ensure there will be no disruption to your grant payments or your ability to report. If you are unable or unsure how to update your record, you can print out the CCR user guide at or contact the Federal Service Desk between 8am and 8pm Eastern Time at or If after consulting these resources you still have difficulty, please call HUD s Office of Departmental Grants Management and Oversight at Sub-Recipient Reporting: Co-grantees or consortium members are considered as sub-recipients in federalreporting.gov. Therefore, the lead member in the consortium has the discretion to either enter information on behalf of the other members or to designate the sub-recipient (co-grantee) to enter their own. If the lead member allows a sub-recipient access to enter their own data like other (consortia) members, then the lead entity has only a brief period, July 21-22, to look at their data and make sure that it is correct. Grantees need to ensure that their subrecipents have entered their correct DUNS numbers or that their DUNS number has not expired. If a subrecipient s number is incorrect or expired, then that one subrecipient s DUNS number jeopardizes the remaining subrecipients from being able to submit their data in Federal Reporting (due to the inability to perform an Excel bulk upload). Please ensure that your subrecipients are current in maintaining their DUNS numbers. For additional help: HUD s Recovery Act Reporting Call Center, , is available to answer a wide variety of NSP2 reporting questions. The call center is available 8:30am to 5:30pm EDT, Monday to Friday, with expanded hours July You may also the help center at recovery@comcon.org. HUD has posted a variety of resources about reporting on the HUD Recovery Act website: This site also provides links to other resources, such as the CCR registration website and the Dun & Bradstreet registration website. U.S. Department of Housing and Urban Development

194 May 23, 2010 Community Planning and Development NSP Policy Alert! Guidance on FHA Mortgage Insurance for NSP Grantees May 23, 2010 QUESTION: How can NSP grantees work within the guidelines set in the FHA memo Neighborhood Stabilization Program and FHA Financing dated March 24, 2010? Key Issues FHA Mortgage insurance can work with NSP programs to achieve local goals Recent guidance from FHA informs staff of flexibility to adapt rules Specific FHA guidance answers questions about: Loan-to-Value Ratios Multiple Liens and Limits on Reducing Rehabilitation Escrows Maximum Income Levels Downpayment Assistance Limitations Overview Neighborhood Stabilization Program (NSP) grantees have expressed strong interest in using Federal Housing Administration (FHA) mortgage insurance. NSP grantees typically buy and rehabilitate foreclosed and abandoned homes, and then sell them to low-, moderate-, and middle-income people. Because it has become harder to find mortgage lenders, demand has grown for FHA s mortgage insurance programs. The standard 203(b) insurance program and the 203(k) program, which insures homes requiring rehabilitation, are both valuable tools in community stabilization. However, especially since NSP is new, combining these programs has generated many questions about implementing them properly. This memorandum summarizes FHA instructions to the Homeownership Centers (HOCs) dated March 24, 2010 (attached) and explains how NSP grantees can work within FHA s guidelines. The Director of the Office of Single Family Program Development recently asked all Processing and Underwriting Directors and Program Support Directors to support NSP by applying the following guidance when determining eligibility for FHA financing. Following each FHA policy, there is a discussion of its effect on NSP programs. U.S. Department of Housing and Urban Development

195 FHA Policy 1 Combined Loan-to-Value: If a government entity is engaged in development or revitalization efforts, the combined loan-to-value for the 203(k) Program may exceed 110 percent [24 CFR (g)]. NSP Implications: The 203(k) program provides insurance for a mortgage that covers both acquisition and rehabilitation costs. This insurance enables the lender to escrow funds for the rehabilitation, based on an after-rehab valuation. The actual costs might cause the loan-to-value ratio to exceed standard FHA limits, so this guidance clarifies that this is not an impediment. However, because NSP requires that a property be sold for the LESSER OF appraised value or total development cost, this FHA policy will have little effect on NSP grantees. FHA Policy 2 Multiple Liens: When local governments are combining the 203(k) program with NSP or other HUD funds, it is permissible for the use of these funds to result in more than two liens against the property. NSP Implications: Some NSP grantees have encountered resistance on the part of lenders to accept multiple liens on FHA-insured properties. Because NSP requires long-term affordability, and because this is typically secured with a lien, this misunderstanding created problems. FHA has made clear that such financial structures are acceptable. Although FHA allows 203(k) escrow funds to be reduced as the work is completed or to have remaining funds applied to the principal balance, escrowing NSP/CDBG funds for future rehabilitation work is not allowed because of Treasury Department prohibitions against drawing in advance of immediate need. Therefore, in 203(k) projects, the NSP grantee should provide its subsidy as part of the purchase price, not as part of the rehabilitation cost. This may make calculation of the correct subsidy level somewhat more difficult. However, as discussed below, there are other means of introducing subsidies later in the financing to offset any underestimates. These include assistance with downpayment and closing costs. FHA Policy 3 Area Median Income: NSP programs that use an Area Median Income in excess of 115 percent are acceptable provided that they do not exceed 140 percent [24 CFR (a)(1)]. (This applies to both the 203(b) and 203(k) insurance programs.) NSP Implications: The standard FHA limit of 115% of Area Median Income is slightly lower than NSP s limit of 120% of AMI. FHA has stated that this limit can be adjusted. NSP grantees should keep in mind that the NSP limit remains at 120% of AMI. U.S. Department of Housing and Urban Development

196 FHA Policy 4 Downpayment Assistance: Regardless of the source of funds provided by the local government, it cannot provide downpayment assistance to meet FHA s cash investment requirement if it is also the seller of the subject property [12 U.S.C. 1709(b)(9)]. However, should a local unit of local government transfer title of the property to another entity (such as a nonprofit organization) prior to the sale, it is then permissible for that unit of local government to provide downpayment assistance in conjunction with FHA financing. (This applies to both the 203(b) and 203(k) insurance programs.) NSP Implications: This FHA requirement is based on legislation and cannot be waived. However, FHA will allow a public NSP grantee (city, county, or state) to work with another entity, such as a non-profit, to make the downpayment assistance. Only the public entity may provide the downpayment assistance on an FHA-insured mortgage, provided that the non-profit is not an instrumentality of that public entity, holds title to the subject property, and will be the seller of record. NSP grantees should further note the CDBG/NSP limit of providing no more than 50% of a downpayment. NSP grantees should expect that, in FHA-insured financings, the borrower will pay at least half of the 3.5% minimum downpayment. If this approach proves cumbersome, grantees have options. For example, NSP grantees may pay closing costs without limitation; FHA permits such costs to total 6% of the sales price. In addition, section 5305 (a) 24 of the Housing and Community Development Act provides other forms of Homeownership Assistance, including: A. subsidizing interest rates and mortgage principal amounts; B. acquiring guarantees for mortgage financing obtained by low- and moderateincome homebuyers from private lenders (usually up to one year of premiums); and C. paying reasonable closing costs (normally associated with the purchase of a home) incurred by a low- or moderate-income homebuyer; NSP grantees should also know that government agencies are not required to obtain FHA approval as lenders in order to provide the type of CDBG/NSP assistance listed above under A, B, and C for FHAinsured loans. However, non-profit subrecipients or non-profit developers working in the NSP program are required to register and be approved to make second mortgages, pay closing costs, or other forms of NSP Homeownership Assistance in conjunction with FHA insurance. (For-profit developers may not offer financial assistance under FHA.) FHA is working on ways to streamline the process. Non-profit lenders should initiate the steps for approval as soon as possible. Follow this link for instructions: Finally, NSP grantees that encounter problems with an FHA lender or other participant should contact the NSP Resource Exchange to submit a question. Community Planning and Development staff will then contact FHA staff to address the problem. The Resource Exchange is at U.S. Department of Housing and Urban Development

197 Attachment 1 DATE: March 24, 2010 MEMORANDUM FOR: FROM: SUBJECT: All Processing and Underwriting Division Directors All Program Support Division Directors Margaret E. Burns, Director, Office of Single Family Program Development, HUP Neighborhood Stabilization Program and FHA Financing Local governments are using their Neighborhood Stabilization Program (NSP) funds in a variety of ways involving FHA financing, most notably but not limited to the 203(k) program. To support NSP, which is administered by the Office of Community Planning and Development, the following guidance should be used when determining eligibility for FHA financing. Combined Loan-to-Value: If a government entity is engaged in development or revitalization efforts, the combined loan-to-value for the 203(k) Program may exceed 110 percent [24 CFR (g)]. Multiple Liens: When local governments are combining the 203(k) program with NSP or other HUD funds, it is permissible for the use of these funds to result in more than two liens against the property. Area Median Income: NSP programs that use an Area Median Income in excess of 115 percent are acceptable provided that they do not exceed 140 percent [24 CFR (a)(1)]. Downpayment Assistance: Regardless of the source of funds provided by the local government, it cannot provide downpayment assistance to meet FHA s cash investment requirement if it is also the seller of the subject property [12 U.S.C. 1709(b)(9)]. However, should a local unit of local government transfer title of the property to another entity (such as a nonprofit organization) prior to the sale, it is then permissible for that unit of local government to provide downpayment assistance in conjunction with FHA financing. If you should have questions regarding this memorandum, please contact Susan Cooper at or Deanna DiMarino at U.S. Department of Housing and Urban Development

198 April 23, 2010 Community Planning and Development NSP Policy Alert! Guidance on Tracking and Reporting the Use of NSP Funds: Obligations for Specific Activities April 23, 2010 QUESTION: What action(s) must grantees take to obligate funds for specific activities? Overview Section 2301(c)(1) of the Housing and Recovery Act of 2008 (HERA) requires grantees to use NSP funds within 18 months of the receipt of those funds. The NSP Notice published on October 6, 2008, provides that NSP funds are used for the purposes of section 2301(c)(1) when they are obligated by a grantee (or its subrecipient) for a specific NSP activity. Thus, compliance with the statutory use requirement requires the grantee (or subrecipient) to document the following: an obligation was incurred, and the obligation can be linked to a NSP specific activity. Definition The term obligation means the amounts of orders placed, contracts awarded, goods and services received, and similar transactions during a given period that will require payment by the grantee (or subrecipient) during the same or a future period. Note that none of these actions would constitute a use for NSP purposes unless the action is related to a specific NSP activity. Except for certain activities (which are discussed below), HUD does not consider NSP funds obligated for a specific activity unless the obligation can be linked to a specific address and/or household. The NSP Notice explicitly provides that funds are not obligated for an activity when subawards (e.g., grants to subrecipients or to units of general local government) are made. Obligations for Eligible NSP Activities The following guidance is intended to aid grantees and subrecipients in understanding the action(s) necessary to obligate funds for specific activities. The guidance is provided for selected eligible activity categories under the CDBG entitlement regulations. Guidance is also provided for obligations related to new housing construction. Guidance is provided within this eligible activity framework because grantees must report obligations of NSP 1 funds by eligibility category, i.e.: (1) the correlated eligible activity specified in the NSP notice for the applicable NSP-eligible use, (2) general administration/planning, or (3) new housing construction pursuant to NSP-eligible use (E). Listed below are activities that NSP 1 grantees and subrecipients will undertake followed by guidance on obligating NSP funds for these activities. U.S. Department of Housing and Urban Development

199 1. Acquisition of real property by a grantee or its subrecipient 16 (24 CFR (a)) Acquisition costs may be reported as obligated when the grantee/subrecipient makes a purchase offer and it is accepted by the seller. Any activity delivery costs that are estimated to be incurred in connection with the acquisition (including those costs incurred after the 18 month obligation period) may also be recorded as obligated at the time the purchase offer is accepted by the seller. Activity delivery costs include the salary and overhead costs that are incurred by the grantee/subrecipient in carrying out the acquisition activity. Other costs expected to be incurred in connection with the specific acquisition (e.g., appraisal and inspection fees) may also be recorded as obligated when the purchase offer is accepted. To avoid the risk that funds will not be available if a purchase offer is accepted after the deadline for obligating NSP funds, grantees/subrecipients are well advised to condition purchase offers on acceptance by the obligation deadline. 2. Rehabilitation (24 CFR ) NSP funds may be used to rehabilitate property owned by the grantee (or its subrecipient) and property owned by a third party (e.g., an individual or a developer). a. Property owned by grantee/subrecipient: NSP funds may be reported as obligated when a construction contract is awarded with respect to a specific property or other action is taken with respect to a specific property that is legally binding on the grantee/subrecipient (e.g., notice to proceed pursuant to an existing contract). Any activity delivery costs that are estimated to be incurred in connection with the rehabilitation may also be recorded as obligated at the time the contract is awarded or other obligating action is taken. Activity delivery costs include the salary and overhead costs that are incurred by the grantee/subrecipient in carrying out the rehabilitation activity. Other costs expected to be incurred in connection with the rehabilitation of the specific property (e.g., legal fees) may also be recorded as obligated when the contract is awarded or other obligating action is taken. b. Property owned by a third party: As provided at 24 CFR (b)(1), NSP funds may be provided to private individuals and entities (including profit making and non-profit organizations) to acquire for the purpose of rehabilitation, and to rehabilitate properties, for use or resale for residential purposes. (1) Individual/occupant - The grantee/subrecipient may record an obligation when it awards rehabilitation assistance (e.g., executes a grant or loan agreement) to an individual who will rehabilitate and occupy the property as a primary residence. (2) Developer 17 - If the grantee/subrecipient provides assistance to a developer, the obligation may be recorded by the grantee/subrecipient when the developer s agreement is executed and the developer has identified specific properties to be acquired and/or rehabilitated. Therefore, NSP funds are not obligated if the grantee/subrecipient has entered into a non-specific agreement with a third party developer to finance acquisition and/or rehabilitation. HUD will consider NSP funds obligated for a specific activity only when the developer furnishes the grantee/subrecipient with information identifying specific properties and providing documented cost estimates (acquisition, construction, and related costs, such as appraisal fees) for each identified property. Note that the 16 See definition for subrecipient in Notes section. 17 See description of developer below. U.S. Department of Housing and Urban Development

200 grantee/subrecipient may record an obligation for components of project costs as the developer furnishes cost estimates (e.g., if the developer furnishes information regarding the cost of acquisition, it can be recorded by the grantee/subrecipient as obligated even though estimates of rehabilitation costs may not yet be available). 3. New housing construction (24 CFR or pursuant to NSP-eligible use (E)) Although this activity is not otherwise eligible under the CDBG program, except when undertaken by a community based development organization (CBDO), the NSP notice published on October 6, 2008, authorizes new construction of housing as part of NSP-eligible use (E) to redevelop demolished or vacant property. The new housing construction activity may be undertaken by a grantee/subrecipient or a third party (CBDO or developer): a. Grantee/subrecipient: NSP funds may be reported as obligated when a construction contract is awarded with respect to a demolished or vacant property. Any activity delivery costs that are estimated to be incurred in connection with the new construction may also be recorded as obligated at the time the contract is awarded. Activity delivery costs include the salary and overhead costs that are incurred by the grantee/subrecipient in carrying out the rehabilitation activity. Other costs expected to be incurred in connection with the new construction (e.g., architectural and inspection fees) may also be recorded as obligated when the contract is awarded. b. CBDO or developer: An obligation may be recorded by the grantee/subrecipient when an agreement is executed with a CBDO or developer that has control of the demolished or vacant property and has furnished the grantee/subrecipient with documented cost estimates (construction, and related costs, such as fees for architectural and engineering services, permits, inspections, etc.). 4. Clearance/demolition costs (24 CFR (d)) - Demolition costs should be reported as obligated when the grantee/subrecipient awards a demolition contract for a specific property. 5. Costs related to land-banked properties There are two categories of costs: a. Acquisition costs (24 CFR (a)) These costs should be reported as obligated when the requirements described under 1 above have been met. Note that a land bank falls within the definition of a subrecipient. b. Disposition costs (24 CFR (b)) On-going site security, other maintenance costs and disposition costs may be recorded as obligated when a contract has been signed for these services. When these services are carried out by the grantee or subrecipient directly, security and other maintenance costs can be charged as project delivery costs based on detailed cost estimates of expenses expected to be incurred. 6. Loss reserves for third party loans (typically undertaken pursuant to 24 CFR (n), , or in connection with new housing construction) - If a grantee/subrecipient enters into an agreement with a third party lender under which the lender is required to make loans (e.g., for rehabilitation of foreclosed/abandoned properties) meeting prescribed lending and eligibility criteria and the grantee/subrecipient is required to deposit an amount into a loss reserve as each loan is made, the total amount expected to be deposited in the loss reserve may be obligated upon execution of the agreement. The amount to be obligated for the loss reserve shall be based on the expected future losses on the loans, taking into account expected default rates U.S. Department of Housing and Urban Development

201 7. and recoveries from liquidation of collateral. The grantee/subrecipient shall maintain the methodology and related documentation used in developing the loss reserve estimates in its records. Note that NSP funds obligated for a loss reserve are expended (i.e., deposited in the reserve) loan by loan, not in a lump sum. 8. Planning/program administration (24 CFR and ) - The grantee/subrecipient may obligate the planning and general program administrative costs expected to be incurred in administering its NSP grant program. The costs may include those expected to be incurred after the 18 month obligation period. The amount obligated for general program administration should be based on cost estimates for the items listed under 24 CFR (e.g., salary, travel, administrative services performed under third party contracts, indirect costs, and rent); provided, however, the aggregate amount obligated for planning and general program administrative costs by the grantee and its subrecipients shall not exceed 10% of the NSP grant amount plus 10% of program income earned. The obligation recorded for general program administrative costs shall not include the staff and other costs directly related to carrying out NSP activities. As noted above, these activity delivery costs are obligated as specific activities are carried out. 9. Housing counseling (24 CFR (e) or, to the extent permitted by the NSP notice, as an activity delivery cost of a correlated eligible activity) Grantees/subrecipients may record the total dollar amount of an agreement as obligated when the agreement is executed with a provider of counseling services. 10. Homeownership assistance (24 CFR (n)) The grantee/subrecipient may record an obligation when it executes an instrument (e.g., commitment letter) that awards homeownership assistance (e.g., downpayment assistance or a mortgage loan) to an individual who will purchase a property pursuant to NSP-eligible use (B) or (E). Grantees are reminded that at the end of the 18-month use period, each grantee s accounting records and DRGR information must reflect outlays (expenditures) and unliquidated obligations that, in the aggregate, are at least equal to the NSP allocation. (The term unliquidated obligations means obligations incurred by the grantee/subrecipient for which an expenditure has not been recorded.) Obligations that are recorded erroneously or for activities that will not be carried out should be reduced accordingly. U.S. Department of Housing and Urban Development

202 Notes Definition of subrecipient: As provided in the NSP Bridge Notice, published on June 19, 2009, Subrecipient shall have the same meaning as at the first sentence of 24 CFR (c). This includes any nonprofit organization (including a unit of general local government) that a state awards to. The term also includes any land bank receiving NSP funds from the grantee or another subrecipient. Section (c) reads as follows: Subrecipient means a public or private nonprofit agency, authority, or organization, or a for-profit entity authorized under (o), receiving CDBG funds from the recipient or another subrecipient to undertake activities eligible for such assistance under subpart C of this part. Developers: Note that the grantee/subrecipient is not required to treat certain third party development entities as subrecipients. The development entities may be private individuals or other entities, including profit making and nonprofit organizations. These development entities (or developers ) receive NSP funds from the grantee/subrecipient to (1) acquire for the purpose of rehabilitation and/or to rehabilitate properties for use or resale for residential purposes and (2) construct new housing in connection with the redevelopment of demolished or vacant properties The rehabilitation is undertaken pursuant to 24 CFR (b)(1) and the new housing construction is undertaken pursuant to 24 CFR or the NSP notice published on October 6, In order to be treated as a developer, the entity must acquire site control of the property to be rehabilitated or redeveloped. That is, a grantee/subrecipient cannot designate an entity as a developer if it is simply providing construction services in connection with a property owned by the grantee/subrecipient. U.S. Department of Housing and Urban Development

203 April 2, 2010 Community Planning and Development NSP Policy Alert! Guidance on the Impact of New Definitions for NSP-Eligible Properties April 2, 2010 QUESTION: How do the changes in the definitions to abandoned and foreclosed affect funding of NSP projects? Overview v. A wider universe of properties should qualify for NSP funding vi. vii. viii. ix. Achieving the 25% low-income set-aside requirement should be more attainable Properties that may have only qualified under Eligible Use E may now qualify under Eligible Use B Grantees will need to ensure that short-sale purchases comply with URA Relocation Requirements under URA and Tenant Protections still apply to NSP-assisted acquisitions x. The changes are retroactive to the submission of NSP1 Action Plans, if acquisitions met all NSP rules xi. Intermediary aggregators and servicers may sell foreclosed properties to NSP grantees for a modest fee Change in Definitions The Neighborhood Stabilization Program has had two funding cycles, often known as NSP1 and NSP2. On April 2, 2010, HUD issued a new Notice (5321-N-04) for the NSP2 Program and on April 9, 2010 (5321-N-03) HUD issued a similar Notice for the NSP Program. These Notices changed the definitions of foreclosed and abandoned for the purposes of identifying eligible properties for NSP1 and NSP2. The new definitions are: Abandoned A home or residential property is abandoned if either a) mortgage, tribal leasehold, or tax payments are at least 90 days delinquent, or b) a code enforcement inspection has determined that the property is not habitable and the owner has taken no corrective actions within 90 days of notification of the deficiencies, or c) the property is subject to a court-ordered receivership or nuisance abatement related to abandonment pursuant to state or local law or otherwise meets a state definition of an abandoned home or residential property. U.S. Department of Housing and Urban Development

204 All factors must be present Only ONE factor must be present All factors must be present Only ONE factor must be present Foreclosed A home or residential property has been foreclosed upon if any of the following conditions apply: a) the property s current delinquency status is at least 60 days delinquent under the Mortgage Bankers of America delinquency calculation and the owner has been notified of this delinquency, orb) the property owner is 90 days or more delinquent on tax payments, or c) under state, local, or tribal law, foreclosure proceedings have been initiated or completed, or d) foreclosure proceedings have been completed and title has been transferred to an intermediary aggregator or servicer that is not an NSP grantee, subrecipient, contractor, developer, or end user. There are several implications of these new definitions that grantees should take into consideration as they move forward with program execution. This guidance clarifies issues of discount and appraisal requirements, short sales, Uniform Relocation Act implications, retroactive applicability, and other interpretations. Policies involving the application of Tenant Protection provisions are being addressed in a separate guidance memorandum that will be published in the near future. Grantees are encouraged to utilize the NSP Resource Exchange at for additional guidance or to submit questions on NSP related issues. Differences between the Old Definitions and the New Definitions Abandoned Defined under October 6, 2008 Federal Register Notice Mortgage foreclosure proceedings have been initiated OR Mortgage payments are at least 90 days delinquent Tax foreclosure proceedings have been initiated OR Tax payments are at least 90 days delinquent Property has been vacant for at least 90 days Defined under April 10, 2010 Federal Register Notice Mortgage or tribal leasehold payments are at least 90 days delinquent Tax payments are at least 90 days delinquent Code enforcement: uninhabitable and no corrective actions within 90 days of notification Property is subject to court-ordered receivership or nuisance abatement related to abandonment or meets state definition of an abandoned home Defined under October 6, 2008 Federal Register Notice Mortgage foreclosure proceedings have been completed Tax foreclosure proceedings have been completed Deed in lieu of foreclosure has been completed Foreclosed Defined under April 10, 2010 Federal Register Notice Delinquency status at least 60 days delinquent Tax payments are at least 90 days delinquent Foreclosure proceedings have been initiated or completed Foreclosure proceedings completed and title transferred to an aggregator or servicer U.S. Department of Housing and Urban Development

205 Discount and Appraisal Requirements for Foreclosed Properties Section 2301(d)(1) of Housing and Economic Recovery Act (HERA) requires NSP-assisted acquisitions of foreclosed upon homes and residential properties to be at a discount from their current market appraised value. With some exceptions, the appraisals must also meet the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (URA) appraisal requirements of 49 CFR (even in cases of voluntary acquisitions). However, considering the revised definitions of foreclosed and abandoned there may be situations in which a property may be defined by either term. If the property meets both the definition of foreclosed as well as abandoned, NSP considers it foreclosed and the discount and appraisal requirements apply. Properties defined exclusively as abandoned or vacant are not subject to the appraisal and discount requirements. HUD s Community Planning and Development policy has long held that, in cases of overlapping requirements, the more restrictive standard applies. As an example, a house on which the owner is more than 90 days delinquent on tax payments can now be classified as foreclosed. The same circumstance also allows the house to be classified as abandoned. The grantee would not be allowed to avoid the discount and appraisal requirements by listing this property as abandoned in its reports. Every property defined as foreclosed must be appraised (and receive a discount) in accordance with HUD s NSP Appraisal Guidance at nce/index.cfm Short Sales Under NSP The new definitions of abandoned and foreclosed allow the potential use of short-sale procedures for the grantee to acquire property directly from the owner. A short sale involves a sale of real property in which a lender agrees to accept the proceeds of the sale in satisfaction of an outstanding mortgage loan when the sale amount is less than the amount the borrower owes on the loan. Note that the lender s acceptance of the offered short sale price may not release the mortgagor from all other obligations. Short Sales and NSP Tenant Protection Requirements under the Recovery Act The American Recovery and Reinvestment Act of 2009 (Recovery Act) imposes requirements on the Neighborhood Stabilization Program to ensure that bona fide tenants in certain foreclosed properties receive proper treatment. These requirements were described in the NSP Bridge Notice of June 19, 2009 and the NSP2 Notice of Fund Availability of May 4, The tenant protection requirements directly affect initial successors in interest who take title to property through foreclosure. Typically, the initial successor in interest (ISII) in property acquired through foreclosure is the successful purchaser at foreclosure, such as the lender or trustee for holders of obligations secured by mortgage liens. The revised definition of foreclosed includes the beginning stages of the foreclosure process as well the end. As result, when a NSP grantee purchases a foreclosed rental property directly from the mortgagor via a short sale, the grantee may become the ISII. NSP grantees should ensure acquisitions of foreclosed properties through short sales are properly categorized and satisfy NSP Tenant Protection Requirements. See separate guidance for more discussion of these requirements. Short Sales and the URA URA regulations governing real property acquisition, found at 49 CFR part 24, Subpart B, make a distinction between voluntary acquisitions, which meet the criteria in 49 CFR (b)(1)-(5) and other acquisitions, commonly referred to as involuntary acquisitions. Those acquisitions that qualify as U.S. Department of Housing and Urban Development

206 voluntary are exempted from the procedural requirements of Subpart B and must instead comply with requirements specifically set out at 49 CFR (b). NSP-assisted acquisitions of foreclosed and abandoned homes and residential properties through a short sale are expected to be voluntary acquisitions and subject to the URA. However, there may be instances where such acquisitions cannot meet all criteria to qualify as voluntary. In such cases, the acquisition should be treated as an involuntary and will be subject to full URA Real Property Acquisition requirements. Grantees should ensure any NSP-assisted acquisition through a short sale is properly categorized and satisfies all applicable requirements of the URA. (See table below for more on voluntary and involuntary acquisitions.) Relocation Requirements under the URA Generally, in the case of a voluntary acquisition under the URA, an owner-occupant is not eligible for relocation assistance and payments. However, tenant-occupants (residential or nonresidential) who are displaced as a result of a voluntary acquisition may be eligible for relocation assistance and payments under the URA. In cases of involuntary acquisitions under the URA, both owner-occupants and tenantoccupants who are displaced as a direct result of the acquisition may be eligible for relocation assistance and payments under the URA. For URA relocation requirements, see the government-wide regulations at 49 CFR part 24 and guidance in HUD Handbook 1378 Tenant Assistance, Relocation and Real Property Acquisition.. Under an optional relocation assistance policy adopted in accordance with 24 CFR (d), an NSP grantee could provide optional relocation assistance to owner-occupants who are not covered by the URA or section 104(d) who voluntarily sell their property for an NSP-funded project (short sale). Such a policy could provide a moving cost allowance (flat rate, scaled, or other method determined by the grantee), and pay for security deposits and/or first month s rent, or other assistance determined appropriate to enable the former owner to find rental housing. Retroactivity for NSP1 The Notice states that NSP grantees may apply the new definitions as of the date of submission of their Substantial Amendment and Action Plan to HUD, regardless of the current status of acquisition, redevelopment or disposition activities already undertaken (Background, page 3). However, any such activities must have met all NSP requirements at the time of purchase. These changes apply to the initial NSP1 Amendment and Action Plan, generally submitted no later than Dec. 1, They were deemed unnecessary for NSP2 because most programs are just getting underway. This means, for example, that grantees that acquired a property via short sale in 2009 may now use NSP funds to reimburse themselves for the purchase of that property. It could also mean that residential properties acquired as vacant, but not foreclosed or abandoned, may now count toward the 25% lowincome set-aside under the new definitions. For retroactive purchases to be eligible, they must have met all NSP requirements at the time of purchase. This would include such requirements as environmental reviews, lead-based paint and appraisals, where applicable. Because of this, HUD does not expect to see numerous cases of retroactive action. U.S. Department of Housing and Urban Development

207 Aggregators and Servicers The Notices also allow the purchase of properties on which foreclosure proceedings have been completed and for which title has been transferred to an intermediary aggregator or servicer that is not an NSP grantee, contractor, subrecipient, developer, or end user. To date, only wholly-owned subsidiaries or organizations acting as agents for the REO seller, which retained title, were eligible to sell properties to NSP grantees. It may take some time to learn whether and how different organizations offer aggregation services. Some possibilities are local non-profits or redevelopment authorities who bundle purchases to facilitate the process, or national non-profits which have heretofore only acted as clearinghouses. HUD does not expect many private firms to provide this service, due to fee limits, but they are not prohibited from acting in this capacity. The preamble differentiates such entities from investors who normally will seek to maximize their profits. Eligible aggregators and servicers will typically charge a modest fee but not try to earn substantial profits. For example, an aggregator might charge actual costs or costs plus a nominal fee, in contrast to flipping a property for a 20% profit. As more large financial institutions develop mechanisms for selling properties, this could grow in significance. Grantees and HUD staff should contact Headquarters for guidance if questions arise. U.S. Department of Housing and Urban Development

208 GENERAL URA ACQUISITION PROCESS (Refer to 49 CFR 24 Subpart B for detailed acquisition requirements) Appendix 23, HUD Handbook Tenant Assistance, Relocation, and Real Property Acquisition VOLUNTARY ACQUISITIONS 49 CFR (b)(1)-(5) Determine if proposed acquisition satisfies criteria and requirements of (b)(1)-(5). If acquisition doesn t meet criteria (e.g., is subject to threat or use of eminent domain), refer to involuntary acquisition process and comply with 49 CFR 24 Subpart B requirements (b)(1) - Agencies with eminent domain authority but will not use: must meet all conditions of (b)(1)(i) (iv). (see esp (b)(1)(i) & (ii)) * Agency will not acquire property if negotiations fail, and owner is so informed in writing (see (b)(1)(iii)) * Agency informs owner in writing of property s estimated market value (see (b)(iv)) * Owner/s & owner occupants not eligible for relocation assistance / displaced tenants may be eligible (see 24.2(a)(9)(ii)) (b)(2) Agencies or persons without eminent domain authority: * Prior to offer, inform owner unable to acquire if negotiations fail (see (b)(2)(i)) * Inform owner of property s estimated market value (see (b)(2)(ii)) * Owner/s & owner occupants not eligible for relocation assistance / displaced tenants may be eligible (see 24.2(a)(9)(ii)) (b)(3) Acquisition from a Federal agency, State, or State agency, if acquiring agency without eminent domain authority: * Owner/s & owner occupants not eligible for relocation assistance / displaced tenants may be eligible (see 24.2(a)(9)(ii)) INVOLUNTARY ACQUISITIONS 49 CFR (a) & (b) Determine if proposed acquisition is subject to threat or use of eminent domain. If not subject to eminent domain, refer to voluntary acquisition process and comply with applicable requirements of 49 CFR (b)(1)-(5). * Notify owner of agency s interest in acquiring property and protections under the Uniform Act (see (b)) (Optional: issue Notice of Intent to Acquire (see (d)) * Appraise property and invite owner to accompany appraiser (see (c)) * Review the appraisal (see ) * Establish estimate of just compensation for property (see (d)) * Provide owner with written offer and summary statement for property (see (e)) * Negotiate with owner for purchase of property (see (f)) * If negotiations successful, complete sale and reimburse property owner for related incidental expenses (see ) * If negotiations unsuccessful, consider an administrative settlement (see (i)) * If negotiations still unsuccessful, consider acquiring property through eminent domain. * Displaced persons eligible for relocation assistance (see 24.2(a)(9)(i)) U.S. Department of Housing and Urban Development

209 March 24, 2010 Community Planning and Development NSP Policy Alert! Guidance on Charging Administrative Costs Incurred by NSP2 Grantees March 24, 2010 QUESTION: Can private non-profits organizations who are members of NSP2 consortium applications, receive a developer fee? Overview If a private non-profit organization applied for Neighborhood Stabilization Program2 (NSP2) as part of a consortium or individually, the entity is considered a grantee. Therefore, the NSP2 grantee s compensation is limited to recovery of activity delivery costs, when applicable, and program administrative costs. This guide is intended to help private non-profit NSP2 grantees understand the procedures that apply when charging costs incurred by the grantee in carrying out NSP2 activities. Understanding the Compensation Structure As mentioned above, private non-profit NSP2 grantees can be compensated for activity delivery costs and program administrative costs. For those non-profit organizations that have previous experience working with the Community Development Block Grant (CDBG) program, recovery of administrative costs will be governed by the same requirements that CDBG grantees apply to subrecipients. NSP2 Consortium Members and Developer Fees If a non-profit organization is a member of a consortium, it is part of the grantee and is thus subject to the requirements that apply to grantees, including the cost principles applicable to all grantees. (The cost principles are discussed in detail below.) These principles include specific guidelines for cost allowability, reasonableness, and allocability. As a result, a consortium member that is accustomed to receiving a fee as compensation for its staffing/overhead costs must now base its compensation on costs that are determined in accordance with the applicable cost principles. Further, because the cost principles do not provide for a profit or other increment above cost, a consortium member cannot charge a fee, or other allowance, for the purpose of earning a return as compensation for its risk associated with the development of property. In any event, the development risk of a grantee (including a consortium member) is substantially reduced as a consequence of the provision of NSP2 assistance as a grant. State s Direct Action Under the CDBG program, a state that is a grantee must distribute its CDBG funds to small cities, towns, and rural counties as sub-grantees and cannot directly conduct eligible activities. Under NSP2, however, a state receiving NSP funds may carry out NSP activities directly for some or all of its assisted grant U.S. Department of Housing and Urban Development

210 activities. Thus, a state is permitted to undertake the traditional activities of a developer and use NSP2 funds to pay the related activity delivery or program administrative costs as described below. However, for the reasons stated above, a state is not permitted to charge a developer s fee to the NSP2 grant as compensation for its staffing/overhead costs and/or its development risk. Activity Delivery Costs Charges for activity delivery are limited to costs incurred in carrying out a specific NSP2-funded eligible activity. Examples of activity delivery costs are cited in the CDBG regulations. Section (a)(4)(iii) states that engineering and design costs related to a specific activity are eligible as part of the cost of such activity under Section notes that staff and overhead costs directly related to carrying out activities [are] eligible under through , since those costs are eligible as part of such activities. Program Administrative Costs The use of NSP funds to pay program administrative costs is authorized under 24 CFR , Program Administrative Costs, which permits NSP funds to be used for "reasonable administrative costs and carrying charges related to the planning and execution of community development activities assisted in whole or in part [with NSP2 funds]. These administrative costs satisfy the statutory requirement for meeting a national objective because the costs are incurred in support of generally eligible program activities that individually meet a national objective. Examples of program administrative costs include: xii. xiii. xiv. xv. Salaries of executive officers, Office space for program staff employed in carrying out the NSP2 program, Staff time spent developing policies and procedures for managing NSP2 activities, and Administrative services performed under third party contracts, such as general legal and audit services. OMB Circular A-87 (governmental entities) and Circular A-122 provide the principles for determining program administrative costs. In addition, HUD s publication: Playing by the Rules A Handbook for CDBG Subrecipients on Administrative Systems will also be useful to private non-profit NSP2 grantees in gaining a better understanding of requirements that apply when carrying out NSP2 activities. Note that the amount of NSP2 funds that may be used for planning and general program administrative costs incurred by the grantee and its subrecipients shall not exceed 10% of the NSP grant amount plus 10% of program income earned. Allocation of Costs As provided under OMB Circulars A-87 and A-122, the total cost of Federal awards is composed of the allowable direct cost of the program, plus its allocable portion of allowable indirect costs, less applicable credits18. There is no universal rule for classifying certain costs as either direct or indirect under every accounting system. However, each item of cost must be accorded consistent treatment in order to be an allowable charge to a Federal grant. Thus, a cost may not be assigned to a Federal award as a direct cost if any other cost incurred for the same purpose in like circumstances has been allocated to the Federal award as an indirect cost. 18 Applicable credits typically include: purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, and adjustments of overpayments or erroneous charges. U.S. Department of Housing and Urban Development

211 Direct costs Direct costs payable with NSP funds are those that can be identified specifically with the NSP grant. Typical direct costs chargeable to NSP grants are: xvi. xvii. xviii. xix. Compensation of employees for the time devoted and identified specifically with general program administration, planning, or carrying out NSP activities (i.e., activity delivery). Note that if employees work on activities funded with NSP funds and activities funded from non-nsp sources, they are required to maintain time distribution records if their time is charged on a direct basis. Cost of materials acquired, consumed, or expended specifically for NSP purposes. Equipment and other approved capital expenditures. Travel expenses incurred specifically to carry out the NSP program. Indirect costs In addition to the direct charges discussed above, indirect costs may be charged to the NSP 2 grant under an indirect cost allocation plan prepared in accordance with OMB Circular A-87 or A-122, as applicable. The ability to recover all costs, direct and indirect, is especially significant for those non-profit organizations that are accustomed to being compensated through a developer s fee. Indirect costs are those: xx. xxi. Incurred for a common or joint purpose benefiting the NSP grant and one or more other cost objectives (e.g., contracts, grants, or other activities), and Not readily assignable to the cost objectives specifically benefitted, without disproportionate effort. For example, if a non-profit organization is a member of a consortium and it carries out activities/projects under another Federal grant, it must decide whether it can directly link its program administrative costs to each of the grant programs. If it can document such a direct linkage, all costs would be charged on a direct basis. However, if it cannot directly link all of its costs to each grant program, it can still recover the costs that jointly benefit both programs by preparing an indirect cost allocation plan that allocates the indirect costs to the benefitting grant program. The procedures for developing indirect cost allocation plans for non-profit organizations are described in OMB Circular A-122. Although these procedures will vary from organization to organization, depending upon the relative complexity of the administrative structure, the process for recovering indirect costs can be summarized as follows. The allocation of indirect costs may be accomplished by (i) separating the organization's total costs for the base period as either direct or indirect, and (ii) dividing the total allowable indirect costs by an equitable distribution base. (The essential consideration in selecting a distribution base is that it is the one having a traceable cause and effect relationship with the indirect costs.) The most common distribution bases are (i) the direct salaries and wages incurred by the organization and (ii) total direct costs under each grant program (less any capital expenditures, subwards, etc.). The result of this process is an indirect cost rate which is used to distribute indirect costs to individual awards. The rate should be expressed as the percentage which the total amount of allowable indirect costs bears to the base selected. Note that OMB Circular A-122 provides alternative allocation methods. For example, the Multiple allocation base method may be more appropriate for larger organizations. This method would be appropriate where an organization's indirect costs benefit its major functions in varying degrees. Circular A-122 provides that the organization must submit its indirect cost proposal to the cognizant agency for the negotiation and approval of the indirect cost rates. This proposal provides the basis for U.S. Department of Housing and Urban Development

212 the review and negotiation leading to the establishment of the organization's indirect cost rate. Typically, the Federal agency with the largest dollar value of awards with an organization will be designated as the cognizant agency. HUD recognizes that some organizations may find the procedures for developing indirect cost allocation plans too complex to be undertaken with existing staff. For that reason, HUD will make available technical assistance resources for assistance in this area. U.S. Department of Housing and Urban Development

213 March 3, 2010 Community Planning and Development NSP Policy Alert! Guidance on NSP-Eligible Appliance Purchases March 3, 2010 Some Neighborhood Stabilization Program (NSP) grantees have requested approval to use NSP funds to purchase high-efficiency clothes washers and dryers, and dishwashers, in NSP-assisted housing units that are being acquired, rehabilitated, and resold to income eligible beneficiaries. While the NSP October 6, 2008 Federal Register Notice encourages energy efficiency and notes the water savings and cost savings to low-, moderate-, or middle-income (LMMI) households participating in the program, it does not specify whether or not NSP funds can be used for this purpose. Previous Policy CDBG policy has heretofore guided NSP s treatment of appliances. This has limited use to stoves, refrigerators, and central air conditioning, where appropriate. CDBG has not allowed dishwashers, nor clothes washers and dryers. This policy was based on the concept that only appliances necessary to make the house functional should be allowed. The CDBG regulations at 24 CFR (b)(1)(iii) generally prohibit the purchase of equipment that is not an integral structural fixture. Prior programs also tended to support improvements that are part of the real property, but not personal property. However, the language in the CDBG regulations on Rehabilitation, at 24 CFR (b)(4) and (5), does provide for improvements to increase the efficient use of energy and water. The examples cited include equipment, some of which is not a permanent part of the real estate. In addition, the NSP Notice reinforces the Department s interest in promoting energy conservation. The NSP Rehabilitation Standards, in Section (I), state that Any rehabilitation of a foreclosed home under this section may include improvements to increase the energy efficiency of such homes or properties. The has also conferred with the Office of Affordable Housing. That office permits installation of washers and dryers through the HOME Program, in both ownership and rental programs. HOME Program guidance says: Suitable amenities may differ somewhat by locality. However, amenities in HOME-assisted housing should be comparable to amenities in the area's unassisted housing as long as they do not constitute luxury items. HOME-assisted housing may include non-luxury amenities such as washer/dryer, dishwasher, and air conditioner. Washers and dryers are commonly installed in affordable and starter homes that are not subsidized, as well. If it conforms with the local housing market demands, then it is logical to install clothes washers and dryers to improve the quality, habitability and marketability of NSP-rehabilitated or constructed homes for sale. U.S. Department of Housing and Urban Development

214 New Policy Therefore, in consideration of the changes in the marketplace and in applicable regulations, the Department is allowing the use of certain appliances in the NSP Program. This policy permits grantees to install energy efficient (compliant with Energy Star standards) clothes washers, dryers, and dishwashers when done in conjunction with housing rehabilitation and/or sale projects in the NSP program. Clothes washers, dryers and dishwashers are permitted in the NSP1 and NSP2 when all of the following conditions are met: NSP funds have rehabilitated or constructed the homes; Installation of such appliances is comparable to unassisted homes in the local housing market (see HOME Program standards); Deed restrictions or covenants ensure that the appliances remain in the home, if appropriate; and Qualifying appliances meet or exceed Energy Star standards. Additional Guidance The Department strongly recommends the use of high-efficiency appliances. High-efficiency models (above Energy Star) provide the following benefits: xxii. xxiii. xxiv. Washers save 7,000 gallons of Water per year and use 50% less energy and detergent; Dryers use 58 percent less energy; both produce longer clothes life; Home installation reduces the costs of Laundromats on LMMI occupants. High-efficiency appliances meet the following standards: xxv. Clothes washers a. CEE Tier 2 or higher b. Minimum Energy Factor or 2.0 or greater c. Water Factor 6.0 or less xxvi. Clothes dryers a. Minimum 7.0 cubic feet capacity - Shortens drying time due to maximizing air flow b. Sensor Dry System Measures moisture in drum, then automatically adjusts drying time and temperature. c. Five Temperature Levels High, Medium High, Medium, Low & Ultra Low xxvii. Dishwashers a. CEE Tier 2 b. Minimum Energy Factor of 0.68 or greater c. Maximum annual energy use of 325 kilowatt-hours or less U.S. Department of Housing and Urban Development

215 February 1, 2010 Community Planning and Development NSP Policy Alert! Guidance on Conditional Purchase Agreements for NSP-Assisted Acquisition and Rehabilitation of Single-Family Properties (1-4 units) February 1, 2010 QUESTION: Can a Responsible Entity (RE) allow a recipient, subrecipient, or third party to purchase an existing single family home (one to four units) before the HUD environmental review of the property is complete when NSP funds will be used for acquisition and/or rehabilitation 19 or demolition 20 of the home? An RE can allow a recipient, subrecipient, or third party to enter into a purchase contract for an existing 1- to 4-unit house before the RE has completed the environmental review, provided that: 1) the purchase contract includes the appropriate language for a conditional contract (see below); 2) no transfer of title to the purchaser or removal of the environmental conditions in the purchase contract occurs unless and until the RE determines, on the basis of the environmental review, that the transfer to the homebuyer should go forward, and the RE has obtained approval of a Request for Release of Funds and environmental certification; and 3) any deposit using NSP funds or other funds is refundable if the conditions are not met, or if nonrefundable, is nominal ($1000 or less). The following language, or similar language, must be included in the purchase contract: Notwithstanding any other provision of this Contract, Purchaser shall have no obligation to purchase the Property, and no transfer of title to the Purchaser may occur, unless and until [Responsible Entity] has provided Purchaser and/or Seller with a written determination, on the basis of a federally required environmental review and an approved request for release of federal funds, that purchase of the property by Purchaser may proceed, subject to any other Contingencies in this Contract, or may proceed only if certain conditions to address issues in the environmental review shall be satisfied before or after the purchase of the property. [Responsible Entity] shall use its best efforts to conclude the environmental review of the property expeditiously. The RE must complete the environmental review of the property pursuant to HUD regulations at 24 CFR Part 58 and receive approval of a Request for Release of Funds before the RE provides its written determination that the purchase of the property may proceed. If the environmental review requires conditions to mitigate any environmental impacts, then the RE (if it is not the Purchaser) should enter into an agreement with the Purchaser to ensure that the conditions will be undertaken. 19 Rehabilitation that meets the requirements of 24 CFR 58.35(a)(3)(i) 20 Demolition of existing single family home, provided that the end use of the property is limited to vacancy, reconstruction of single family house or is unknown at the time of acquisition. U.S. Department of Housing and Urban Development

216 January 1, 2010 Community Planning and Development NSP Policy Alert! Guidance on Section 106 for NSP Land Banking January 1, 2010 Neighborhood Stabilization Program (NSP) recipients (Responsible Entities (REs) under 24 CFR Part 58) are strongly encouraged to enter into a Section 106 Programmatic Agreement with the State/Tribal Historic Preservation Officer (SHPO/THPO) covering their NSP program activities before acquiring properties under the NSP program. 21 However, where the RE does not have an executed Programmatic Agreement, the RE may determine that where residential property that has been foreclosed on is acquired by the RE or a subrecipient (or acquired by the RE and subsequently transferred to a subrecipient) for the purpose of establishing land banks, the mere acquisition of the property has no potential to cause effects to historic properties, in accordance with 36 CFR 800.3(a)(1), as long as all of the following conditions are met: xxviii. xxix. The properties to be acquired are not being acquired with intent to demolish existing structures on the property. The RE has completed the first tier of a tiered environmental review on its NSP program activities (see text box); Historic Preservation and Tiering Tiering is appropriate when there is a requirement to evaluate a proposal in the early stages of development and a more focused analysis is better done at a later date. The broad review should establish the policy, standard, or process to be followed in the site specific review. See 24 CFR Section 106 compliance needs to be incorporated into the tiered review as follows: The broad review needs to describe the process for complying with Section 106 throughout the land bank program including acquisition of properties, the identification of historic properties acquired, mitigation measures for holding historic properties, and the reuse of these properties (rehabilitation, demolition, disposition, etc). The site specific review(s) will follow the process in the broad review and may include multiple site specific analyses for the various stages of the land bank program. 21 See HUD s NSP Section 106 Toolkit U.S. Department of Housing and Urban Development Source: Office of Environment & Energy, Environmental Planning Division, CPD 216

217 xxx. xxxi. xxxii. xxxiii. The completed tier of the environmental review describes the process of property-specific historic preservation consultation that will be conducted in accordance with this policy guidance; HUD (or the State) has approved the RE s Request for Release of Funds and certification (HUD Form ) for the use of the NSP funds; Immediately upon closing on the acquired property, the RE will submit to the SHPO/THPO an adequately documented finding regarding the action of holding the property (see attached sample letter) and will commence any necessary actions to prevent demolition by neglect of a historic property (see below); and When a subrecipient will acquire and/or hold the property, the RE will impose appropriate environmental controls on the subrecipient through execution of a grant agreement or similar contract, to meet the conditions herein. In this context, acquisition or the mere transfer of title to a property into the RE s (or subrecipient s) control or ownership, in and of itself, can be determined to have no potential to cause effects to historic properties provided that the conditions above are met. Under 36 CFR 800.3(a)(1), the RE then has no further obligations under section 106 or [36 CFR part 800], in regard to the acquisition itself. The holding of property, or land banking, however, may potentially affect historic properties and is thus subject to Section 106 review per 36 CFR through This review will entail an initial determination and consultation with the SHPO/THPO, as described above. After its own determination or after its consultation with the SHPO/THPO, the RE may find that it has acquired some historic properties. Mitigation for the holding of property that is eligible for or listed on the National Register of Historic Places (NRHP) must include: xxxiv. xxxv. Taking any actions necessary to prevent demolition by neglect of the property, unless and until the RE determines that the property is not historic and either the SHPO does not object to this determination or the Section 106 consultation process is otherwise completed. These preventive actions would include mothballing any vacant property per the National Park Service s Preservation Brief 31, Mothballing Historic Buildings. Other mothballing procedures, such as locally approved security and maintenance plans, may be employed, but the RE s decision to use them must be made only after completing consultation per 36 CFR through Completing additional Section 106 review in the future with regard to reuse or disposition of the property, when the RE (or subrecipient) initiates development of reuse/disposition plans. This guidance applies only to the NSP land banking activities described in Sec. 2301(c)(3)(C) of the Housing and Economic Recovery Act of U.S. Department of Housing and Urban Development Source: Office of Environment & Energy, Environmental Planning Division, CPD 217

218 SAMPLE SECTION 106 LETTER [Return address] [Date] [SHPO/THPO mailing address] (See: or Dear [SHPO/THPO]: In accordance with Section 106 of the National Historic Preservation Act of 1966, as amended (16 U.S.C. 470f), and its implementing regulation, 36 CFR Part 800, Protection of Historic Properties, and as authorized by the U.S. Department of Housing and Urban Development (HUD) under 24 CFR Part 58, we are submitting for your review information regarding the proposed [xxx project] (ex. holding of 123 Elm Street, Anytown, AB). Please find enclosed the necessary documentation per Based on our initial research, we have made the required determinations and findings, which we now ask you to review. Please respond in writing within the thirty-day time period as noted at 800.3(c)(4). If we haven t heard back from you within thirty days, we will assume you concur with our findings. If you concur with the findings in this submission, you may simply sign and date on the line below and return to the address noted above. If you do not concur, we request that you express your specific concerns and/or objections clearly in writing so that we may continue the consultation process as needed. Please also indicate in your response if there are other sources of information that we should check, and if there are other parties, Indian tribes, or members of the public we should include in the consultation process. Thank you for your prompt attention to this matter. Sincerely, [NSP Recipient] CONCURRENCE: State/Tribal Historic Preservation Officer Date Source: Office of Environment & Energy, Environmental Planning Division, CPD, January

219 [See (d), (e) & (f) for details] Description of the Undertaking [xxx] (Specify federal involvement; include photographs, drawings, location map, etc). Area of Potential Effect We define the Area of Potential Effect for this proposed project as [xxx] (written boundary description). Please see the attached map marked with the APE boundary. We made this determination for the following reason(s): [xxx] RE Option #1: Basis for Determining No Historic Properties Affected To obtain background information on the APE and to identify any potential historic properties, we researched and contacted the following sources: [xxx] (List surveys, National Register data, research at SHPO office or local government, etc.) Based on our initial information search, it is our determination that no historic properties will be affected by this project. We base this finding on: [xxx]. OR RE Option #2: Basis for Determining Historic Properties Affected / No Adverse Effect To obtain background information on the APE and to identify any potential historic properties, we researched and contacted the following sources: [xxx] (List surveys, National Register data, research at SHPO office or local government, etc.) Based on our initial information search, it is our determination that historic properties will be affected by this project and that additional consultation will be required to assess/resolve effects. We base this finding on: [xxx]. OR We have determined that the undertaking will have no adverse effect on historic property because we will implement the following conditions: [See guidance above regarding preventing demolition by neglect ] Source: Office of Environment & Energy, Environmental Planning Division, CPD, January

220 December 11, 2009 Community Planning and Development NSP Policy Alert! Guidance on NSP-Eligible Acquisition & Rehabilitation Activities December 11, 2009 QUESTION: How do I determine whether or not a property is eligible for acquisition and/or disposition with NSP funds? This NSP Policy Guidance describes how to determine whether or not a property is eligible for acquisition and or rehabilitation with NSP funds. The following criteria will help determine eligibility: the NSP Notice published in the Federal Register on October 6, 2008 (statutory program requirements, waivers granted, and alternative requirements applied), timing parameters, acquisition protocols, a written agreement with any Third Party Entities (see page 3 for definition) prior to obligation of funds, and options for NSP acquisition assistance. NSP Notice The NSP Notice provides the criteria for acquiring and rehabilitating property under NSP. The Notice states that properties must have been abandoned, foreclosed upon, or vacant to qualify for NSP acquisition assistance (see Attachment). In purchasing homes and residential properties that have been foreclosed upon with NSP assistance, such properties must be acquired out of foreclosure, meaning directly from the entities that obtained title to the properties through foreclosure (e.g., the lender or trustee for holders of obligations secured by mortgage liens). The acquisition of properties that have been abandoned with NSP assistance must occur while they are in abandonment status. Timing Parameters NSP acquisitions are not authorized to begin until the grantee has submitted an action plan amendment to HUD. For most NSP grantees, the earliest acquisition start date would be December 1, 2008, but for those grantees that submitted an action plan amendment prior to December 1, 2008, an earlier date could be acceptable. For subgrantees, subrecipients, and other Third Party Entities (see definition on page 3), other requirements must first be met, as described in the Matrix on page 4. Acquisition Procedures In addition to submitting an action plan amendment, NSP grantees and Third Party Entities alike must comply with the environmental review, purchase discount and appraisal (if foreclosed) and other eligible-use criteria discussed in the Guidance on Eligible Uses prior to acquiring properties under NSP. U.S. Department of Housing and Urban Development

221 Agreements to Use NSP Funds If the acquisition is performed by an outside entity, the grantee must give permission or enter into an agreement with the outside entity prior to the acquisition in order to qualify for NSP assistance under Eligible Use B. Properties acquired out of foreclosure before these requirements have been met are no longer foreclosed or abandoned and therefore are only eligible for NSP assistance activities identified under Eligible Use E (if vacant). This agreement may take the form of a contract, written commitment, preliminary commitment or other form that clearly describes the responsibilities and the requirements of each party. See the Attachment for a more extensive discussion of agreements with Third Party Entities. Options for NSP Acquisition Assistance There are a variety of options that can be used to acquire property under NSP. HUD regulations distinguish eligible entities based on those identified in (a), (b), (n) and Depending on which category your entity falls into there are different requirements that must be followed to ensure compliance with NSP regulations. Listed below is a chart that explains the revenue implications, selection criteria and OMB Circular requirements that apply for acquisitions under NSP. Detailed explanations follow on page 3. C Competitive NC Non-competitive NA Not applicable GD Grantee determination CBDO Community-Based Development Organization Individual Beneficiary a homeowner who will occupy an NSP home as a primary residence See following page for more detailed discussion of terms and regulatory bases. U.S. Department of Housing and Urban Development

222 Definition of Third Party Entities Third Party Entities include subrecipients, individuals, and other private entities such as for-profit developers, non-profit developers or other entities. How they are selected, generate revenue, and keep records, summarized in the Table above, is described more fully below. Public Entity or Private Nonprofit as subrecipient Non-profit organizations and public entities under (a) can be designated by the NSP grantee as subrecipients, without a procurement process (See (c) for guidance). However, subrecipient agreements must conform to all the regulations under Any revenues exceeding costs captured from properties sold or leased are classified as program income and must be used for NSP-eligible activities. At their option, grantees may allow subrecipients to retain Program Income, subject to and 504. Private Nonprofit, a For-profit organization, or an Individual as developer (not a subrecipient) Non-profit organizations, For-profit organizations or individuals under (b)(1) can be given assistance to acquire residential property for the purposes of rehabilitation, resale, or use. The sales price of properties sold to NSP income-eligible individuals cannot exceed total costs (acquisition, rehabilitation, and development costs). Therefore, entities treated as developers must work within these parameters to generate a profit. If engaged in rehabilitation, or for acquisition prior to rehabilitation, entities treated as developers may be selected through a competitive procurement process or may be designated as grant recipients without a procurement process. See for procurement guidance. For rental projects or others not sold to individuals for use as a primary residence, revenues are not considered Program Income. In addition, such entities are not subject to recordkeeping or audit requirements that do apply to subrecipients. This flexibility creates a burden on the grantee to underwrite all such transactions to avoid undue enrichment. Community-Based Development Organizations (CBDO) CBDOs are governed by the regulations in and can be either nonprofit or for-profit entities. CBDOs can be treated as developers or subrecipients and would be subject to the same rules applied above depending on the grantee s determination of the relationship (whether the NSP grantee chooses to treat the CBDO as a developer or as a subrecipient). Timeline Matrix The following Matrix describes the recommended sequence of events for grantees carrying out NSP activities directly and for those grantees that carry out NSP activities in collaboration with Third Party Entities. These examples assume a simple transaction under Eligible Use B, in which property is acquired, rehabilitated, and sold, but the principles of these examples apply to all NSP assisted acquisitions and rehabilitation activities. The requirements under B can be undertaken in any order, but MUST be performed prior to a commitment of funds or a choice-limiting action as described in the Environmental regulations at 24 CFR Part 58. HUD encourages grantees to undertake tiered reviews, which can generally be completed for a group of properties in advance of the other steps in the process. Starting early also reduces the potential for delays at State Historic Preservation Offices. U.S. Department of Housing and Urban Development

223 U.S. Department of Housing and Urban Development

224 DEFINITIONS AND EXPLANATIONS NSP-Eligible Acquisition Property Types From Housing and Economic Recovery Act, Sec (c)(3) and (f)(3)): (A) purchase and redevelopment of foreclosed upon homes and residential properties, (B) purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon, (C) land banks for homes that have been foreclosed upon, (E) redevelop demolished and vacant properties, and (From the 25% set-aside for low-income families), purchase and redevelopment of abandoned or foreclosed upon homes and residential properties. Potential Considerations for Agreements with Third Party Entities The Agreement may include, but is not limited to, these considerations: Effective start and completion dates, Appropriate locations in which to purchase (areas of greatest need), Property types (abandoned, foreclosed, vacant, homes and/or residential properties), If foreclosed, need for appraisal and purchase discount, Selection criteria (quality, price, level of repairs needed, terms), Need for complete environmental review and release of funds prior to closing, Estimated/maximum amounts of NSP funds per unit and number of units, Financial considerations (loan, grant, reimbursement process, etc.), Responsibility for rehabilitation, if required, Eligible purchasers/tenants, affordable rents, continued affordability, Deadlines for completion, disposition procedures, Financial records, Recordkeeping and documentation requirements; see especially (h) for developers. Ineligible Acquisitions and Subsequent Participation If a participant has acquired a property before meeting all the requirements above, the building is generally considered ineligible for NSP acquisition assistance under Eligible Use B because it is no longer foreclosed or abandoned. However, acquisition is an option for vacant properties identified under Eligible Use E and if the grantee planned to rehabilitate the home, the grantee (or Third Party Entity, with grantee approval) may eligibly use NSP funding for financing and rehabilitation. U.S. Department of Housing and Urban Development

225 December 3, 2009 Community Planning and Development NSP Policy Alert! Guidance on Property Types Under Each Eligible Use December 3, 2009 QUESTION: What are eligible uses for various property types? What property types are required to satisfy the 25% set-aside requirement? Note: This guidance contains the original definitions of foreclosed and abandoned as defined in the original NSP1 and NSP2 Notices. On April 2, 2010, HUD issued a new Notice (5321-N-04) for the NSP2 Program, and on April 9, 2010 (5321-N-03) HUD issued a similar Notice for the NSP1 Program. These Notices changed the definitions of foreclosed and abandoned for the purposes of identifying eligible properties for NSP1 and NSP2. Guidance on the Impact of New Definitions for NSP-Eligible Properties is available here: Introduction The Housing and Economic Recovery Act (HERA) uses different terms for each of the five Eligible Uses of funds in the Neighborhood Stabilization Program (NSP). HUD wishes to clarify these terms and explain how this affects what grantees can do with different types of property. Attachment A NSP Eligible Uses by Property Type, was developed to serve as a visual aid to show the limitations and requirements that apply to NSP funds. The legislative language on Eligible Uses shows the terms that will be discussed in underline. This memorandum also discusses the property types required to satisfy the requirement that 25% of NSP funds are used to house individuals or families whose incomes do not exceed 50% of area median income. In general, grantees must limit their activities in any Eligible Use only to those property types specifically cited. When combining uses (e.g. Acquisition and Rehabilitation under B with Financing under A), the more restrictive classification applies. All definitions should be understood to apply primarily to areas of greatest need or to constitute an improvement benefiting such areas as part of the overall NSP program. In addition, all activities must meet the national objective of benefiting low-, moderate-, or middle-income persons; NSP grantees may not use slum and blight removal or urgent needs as national objectives. Subsequent guidance will further define the correlated eligible activities from the CDBG entitlement regulations. Terms to be Discussed Housing and Economic Recovery Act Title III Sec (c): (3) ELIGIBLE USES. Amounts made available under this section may be used to U.S. Department of Housing and Urban Development

226 (A) establish financing mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties, including such mechanisms as soft-seconds, loan loss reserves, and shared-equity loans for low- and moderate- income homebuyers; (B) purchase and rehabilitate homes and residential properties that have been abandoned or foreclosed upon, in order to sell, rent, or redevelop such homes and properties;(c) establish land banks for homes and residential properties that have been foreclosed upon; (D) demolish blighted structures; and (E) redevelop demolished or vacant properties. Housing and Economic Recovery Act Title III Sec (f) (3) (A): Discussion (ii) not less than 25 percent of the funds appropriated or otherwise made available under this section shall be used for the purchase and redevelopment of abandoned or foreclosed upon homes or residential properties that will be used to house individuals or families whose incomes do not exceed 50 percent of area median income. A. Financing Mechanisms: For foreclosed-upon homes and residential properties : HUD interprets homes as any type of permanent residential dwelling unit, such as detached single family structures, townhouses, condominium units, multifamily rental apartments (covering the entire property), and manufactured homes where treated under state law as real estate (not personal property). The NSP Notice defines foreclosed ; see excerpt below. Residential properties includes all of the above plus vacant land that is currently designated for residential use, e.g. through zoning. NSP Notice Definition: Foreclosed. A property has been foreclosed upon at the point that, under state or local law, the mortgage or tax foreclosure is complete. HUD generally will not consider a foreclosure to be complete until after the title for the property has been transferred from the former homeowner under some type of foreclosure proceeding or transfer in lieu of foreclosure, in accordance with state or local law. Appropriate Uses of Financing Mechanisms: NSP grantees should be aware that many financial subsidy functions can be accomplished under Eligible Uses B and E. These rely on the highly flexible activity of Direct Homeownership Assistance and on the financing that may be undertaken as part of housing rehabilitation (both single- and multi-family) under 24 CFR (b). Homeownership Assistance, for example, not only allows downpayment assistance, but also reduction of principal amounts, in order to make the unit affordable to the LMMI purchaser. See the Policy Guidance on Homeownership Assistance page 9 for more details on Direct Homeownership Assistance. Despite the flexibility in Eligible Uses B and E with direct homeownership assistance and Rehabilitation, there are some strategies that require Eligible Use A. One such strategy is a large pool of loans for other activities. For example, one grantee used NSP1 funds and local funds to U.S. Department of Housing and Urban Development

227 establish a revolving loan fund. This could only be done under Eligible Use A because it would not qualify as a form of direct homeownership assistance. Similarly, the larger and more purely financial strategies, although rare, would fall under Eligible Use A. These include lump sum drawdowns, loan loss reserve funds and similar mechanisms in which pools of money are utilized. In terms of Redevelopment, it is true that most redevelopment could be done under E. However, there might be a need to use NSP as a credit enhancement for housing revenue bonds. That part of the transaction would be a financing mechanism. B. Purchase and Rehabilitation: For homes and residential properties that have been abandoned or foreclosed upon : As above, HUD interprets homes as any type of permanent residential dwelling unit, including detached single family structures, townhouses, condominium units, multifamily rental apartments (covering the entire property), and manufactured homes where treated under state law as real estate (not as personal property). The NSP Notice defines abandoned and foreclosed ; see excerpts below. Residential properties includes all of the above plus vacant land that is currently designated for residential use, e.g. through zoning. NSP Notice Definition: Abandoned. A home is abandoned when mortgage or tax foreclosure proceedings have been initiated for that property, no mortgage or tax payments have been made by the property owner for at least 90 days, AND the property has been vacant for at least 90 days. NSP Notice Definition: Foreclosed. A property has been foreclosed upon at the point that, under state or local law, the mortgage or tax foreclosure is complete. HUD generally will not consider a foreclosure to be complete until after the title for the property has been transferred from the former homeowner under some type of foreclosure proceeding or transfer in lieu of foreclosure, in accordance with state or local law. C. Land Banks: For homes and residential properties that have been foreclosed upon : The Recovery Act added foreclosed residential properties to this category. This additional language is part of the NSP1 Bridge Notice. The Bridge Notice also allows grantees to establish and operate land banks. Operations of a land bank include maintenance expenses as project delivery costs eligible under disposition and interim uses that comply with an eligible activity. Also see the discussion below under Demolition for explanation of meeting a national objective under landbanking. D. Demolition: For blighted structures : U.S. Department of Housing and Urban Development

228 The NSP Notice defines blighted structures, as shown below. HUD has taken the position that any type of structure that is blighted may be demolished with NSP funds. This means that commercial, industrial or other types of structures may be demolished in addition to homes and residential structures in areas of greatest need. In general, demolition must have an end use that meets a national objective. There are a couple of cases in which the demolition can be an end in itself. First, in a LMMI area, if the property creates an extreme danger to public health or safety (like a meth lab or collapsing structure), then it can be considered an area benefit (LMMA). Second, if the demolition is done in concert with a coordinated program of redevelopment and/or rehab and/or new construction and/or other improvements, including other demolition, in a target area, which together can reasonably be expected to improve the area, then it can also qualify as LMMA. In all other cases, as with property in a land bank, it should lead to an end use that is eligible and meets a national objective in NSP. In this respect, land banked property and demolished property are just interim uses for which end uses must be planned. Such eligible end uses could include housing (redeveloped on the property), sale (or donation) of the property as side lots to LMMI neighbors, donation of the property to a community garden group, or use of the property as a public facility like a park (in NSP1 only). If the property is acquired, it could temporarily be placed in a land bank, but the same requirements will ultimately apply to both types of property. NSP Notice Definition: Blighted structure. A structure is blighted when it exhibits objectively determinable signs of deterioration sufficient to constitute a threat to human health, safety, and public welfare. E. Redevelopment: For demolished or vacant properties : This Eligible Use allows communities to address the broadest range of property types. Because the legislation does not limit this use to homes and/or residential properties, HUD will permit grantees to acquire and redevelop ANY property type. This includes commercial or industrial property in addition to all types of residential property. Note that property acquired under Redevelopment need not be abandoned or foreclosed upon. However, it MUST be vacant. Vacant properties includes both vacant land and properties with vacant structures on the land. However, HUD understands redevelopment to imply that properties were once developed or are surrounded by existing development. Therefore undeveloped or greenfield sites, at the edge of development, may not be acquired under Eligible Use E. Previously undeveloped in-fill sites are generally eligible. HUD expects that, unlike land banks, properties acquired and improved under Eligible Use E must proceed expeditiously to construction. Properties that are eligible to be land banked with unknown end uses, or for which the end use is not imminent, should be considered for Land Banks (assuming that they have been foreclosed upon). Some corollary considerations also merit discussion, which follows the next section on housing for low-income persons. The NSP1 Bridge Notice did not apply the Recovery Act s limitation on redevelopment to housing activities. Therefore, NSP1 funds may still be used for public facilities and area benefit economic development projects. U.S. Department of Housing and Urban Development

229 Title III Sec (f) (3) (A): Housing for individuals or families whose incomes do not exceed 50% of area median income: For purchase and redevelopment of abandoned or foreclosed upon homes and residential properties : HERA requires that grantees allocate 25% of their NSP funds for housing that serves lower income persons. Note that this is limited to abandoned or foreclosed upon homes or residential properties. The NSP definitions of abandoned and foreclosed, listed above, apply here also. HUD takes the position that this section refers to permanent housing; thus, such uses as homeless shelters cannot count toward the 25% requirement. Related Considerations The following discussion concerns implications of the preceding clarifications, or instances in which more than one set of requirements apply. First, new housing construction (benefiting low-, moderate-, or middle-income persons) is permitted under Eligible Use E, and ONLY under Eligible Use E. This supersedes the limitation on new construction of housing in the CDBG program and is described in Sec. II H. 3.c of the NSP Notice (see excerpt below on page 5). Second, housing rehabilitation has been added by the Recovery Act as a CDBG-correlated eligible activity under Eligible Use E. Third, grantees may wish to construct new housing for persons at or below 50% of median income, especially affordable rental housing. In this case, the law requires that the property be abandoned or foreclosed upon. The Notice limits new construction to Eligible Use E, which can take place only on vacant or demolished property. Therefore, to meet the 25% requirement, new housing construction can occur only on demolished or vacant land that is either abandoned or foreclosed upon. After publication of the Technical Correction Notice, rehabilitation of vacant residential structures will be permissible, but to meet the 25% requirement the property must also have been abandoned or foreclosed upon. Fourth, the NSP1 Bridge Notice removes LMMI Jobs as a national objective. Therefore, only economic development activities that qualify under LMMI Area, such as retail stores, now meet a national objective. Finally, as defined in the CDBG regulations below, shelters for persons with special needs (such as homeless shelters and halfway houses) are public facilities. Renovation or new construction of such structures is eligible as a public facility under Eligible Use E. However, because they are not defined as permanent housing, they cannot count towards the requirement that 25% of the NSP funds be used to house individuals or families whose incomes do not exceed 50% of area median income. On a related topic, the Bridge Notice clarifies that housing counseling, required for all potential homebuyers, is allowed under all Eligible Uses. HUD notes that, while all participants in counseling must be prospective purchasers of NSP homes, payments for housing counseling are eligible even if the trainee does not ultimately purchase a home. This is because a major objective of such counseling is to screen out people who may not be ready to make this substantial commitment. U.S. Department of Housing and Urban Development

230 Additional References NSP Notice Dated Oct. 6, 2008 II. H. Eligibility and Allowable Costs c. New construction of housing is eligible as part of eligible-use (E) to redevelop demolished or vacant properties. Housing and Economic Recovery Act Title III Sec. 2301(f) (3) LOW AND MODERATE INCOME REQUIREMENT. (A) IN GENERAL. Notwithstanding the authority of the Secretary under paragraph (1) (i) all of the funds appropriated or otherwise made available under this section shall be used with respect to individuals and families whose income does not exceed 120 percent of area median income; and (ii) not less than 25 percent of the funds appropriated or otherwise made available under this section shall be used for the purchase and redevelopment of abandoned or foreclosed upon homes or residential properties that will be used to house individuals or families whose incomes do not exceed 50 percent of area median income. (emphasis added) CDBG regulations 24 CFR (c): Shelters for persons with special needs. Excerpt Facilities designed for use in providing shelter for persons having special needs are considered public facilities. Such facilities include shelters for the homeless; convalescent homes; hospitals, nursing homes; battered spouse shelters; halfway houses for run-away children, drug offenders or parolees; group homes for mentally retarded persons and temporary housing for disaster victims. NSP1 Federal Register Bridge Notice dated June 19, 2009 [74 FR 29223] Adds rehabilitation and preservation activities to the correlated eligible activities from the CDBG regulations to Eligible use E. U.S. Department of Housing and Urban Development

231 U.S. Department of Housing and Urban Development

232 November 1, 2009 Community Planning and Development NSP Policy Alert! Guidance on State NSP Plans November 1, 2009 Recognizing the difference between NSP funding and regular State CDBG funding, HUD provides the following guidelines to States. This information supplements Section B2 of the NSP Notice entitled Contents of an NSP Substantial Amendment. 1. Many states use a Method of Distribution to distribute State CDBG funds. States can still use this model (see Section G of the notice), but due to the time limits contained in the HERA law, it is unlikely that this methodology would allow the state sufficient time to use (obligate) funds. 2. States have questioned whether they may conduct a competition to narrow the pool of applicants to meet the areas of greatest need, requirement listed in the NSP Notice. This is acceptable, but some initial narrowing of the field of potential localities must occur (and these potential recipients must be identified) prior to the submission of the application. States should also indicate what they will do with the funds, for example, will there be a competition among 3 nonprofits, or the actual neediest communities? The State should name the neediest communities that will be competing for the funds. For this competition, the state can consider capacity issues for example, a very needy community with limited administrative capacity may have to partner with another community prior to being funded. States should remember that holding a competition puts them at risk of not meeting the 18 month obligation deadline. 3. States have also questioned how specific the plan must be. In other words, do individual properties need to be identified? The answer is no. Needs may be grouped together by activity, but the eligible use, expected benefit, areas, etc. must be defined. A simple breakout of 25% of the money to demolish vacant properties, 25% for land banks, etc. is unacceptable. States should provide as much information as possible in the substantial amendment. 4. States must include a narrative on how the distribution and use of NSP funds will meet the requirements of the States greatest need including entitlements that do not receive NSP grants, and entitlements that do receive NSP grants. 5. The State should include information on how their plan addresses the requirement that 25% of the funds benefit persons or families whose incomes do not exceed 50% of area median income. 6. States can implement activities on their own, and also contract with non-profits to implement activities. The State can contract with a state-wide non-profit or can contract with multiple regional non-profits. States can also partner with entitlement cities. A state could contract with that entitlement city to implement the State s program. Likewise, the notice allows joint agreements between entitlements and the State with the State as the lead entity. The State amendment needs to specifically identify any joint program participants and what activities they will directly carry out or contract with an entity to implement. 7. Questions/comments are always welcome and encourage U.S. Department of Housing and Urban Development

233 November 1, 2009 Community Planning and Development NSP Policy Alert! Guidance on NSP, Lead Hazard Control, and Healthy Homes Interventions November 1, 2009 The HUD Office of Healthy Homes and Lead Hazard Control (OHHLHC) is highlighting key provisions in recently passed legislation for the redevelopment of abandoned and foreclosed homes, which created the Neighborhood Stabilization Program (NSP). In particular, there are opportunities to enhance the control of lead paint hazards and make housing safe from other health and safety concerns. On October 6, 2008, HUD published a notice in the Federal Register advising the public of the NSP s allocation formula and allocation amounts, the list of grantees, alternative requirements, and waivers of certain regulations. (You can access information about the NSP from HUD s front page, by clicking on the NSP hotlink in the right column. From the NSP s home page, you can obtain the NSP Federal Register Notice by clicking its hotlink, also in the right column.) The Notice identifies the specific requirements and restrictions for NSP: xxxvi. xxxvii. xxxviii. xxxix. Each State or locality eligible for an NSP grant must complete and submit to HUD a substantial amendment to its annual action plan on or before December 1, At least 25% of funds available to each grantee must be used for housing activities that benefit households with incomes are at or below 50% of area median income. All activities funded by NSP must benefit households with income at or below 120% of area median income. Activities to "prevent or eliminate slums and blight" or "address urgent community development needs" objectives are not applicable to the NSP. The application process includes an opportunity for public participation. We want to highlight three key areas in relation to OHHLHC programs: 1) Compliance with the Lead Safe Housing Rule 2) Coordination with the Lead Hazard Control Grant Programs 3) Opportunity to include Healthy Homes interventions Compliance with Lead Rules Lead Hazard Control grantees (in the OHHLHC s Lead-Based Paint Hazard Control, Lead Hazard Reduction Demonstration, and Lead Elimination Action Program grant programs) may assist NSP programs through education, outreach and many direct services, including evaluating housing units for lead-based paint hazards and controlling these hazards. U.S. Department of Housing and Urban Development

234 It is critical to note that NSP allocations may be combined with HUD Lead Hazard Control Grants to renovate vacant and abandoned or foreclosed homes intended to be used as housing for lowincome households. Most of the household income limits for the Lead Hazard Control grants for assisting both rental and owner-occupied housing are more stringent than the NSP requirements and, therefore, meet the NSP requirements. The NSP program imposes additional restrictions regarding affordability of housing assisted with NSP funds, specifically a cap on family incomes of 120% of the area median income level. xl. xli. For rental housing: a. As with the Lead Hazard Control grant program, at least 50% of the units must be for households with incomes at or below 50% of the area median income level. b. As with the Lead Hazard Control grant program, all households must have incomes at or below 80% of the area median income level, with an exception for multifamily housing of five or more units. c. For multifamily housing of five or more units, under the Lead Hazard Control grant program, buildings may have up to 20% of the units occupied by families with incomes over 80% of the area median income level. In NSP-assisted buildings using Lead Hazard Control grant funds, those families with incomes over 80% of the area median income level must have incomes at or below 120% of the area median income level. For owner-occupied housing: a. All households must have incomes at or below 80% of the area median income level, and at least 90% of the units must be occupied by a child under the age of six years (72 months) or have a child under the age of six years spending a significant amount of time visiting. Where Lead Hazard Control grant funds are used, the landlord must give priority in renting units for not less than 3 years following completion of lead hazard control work, to families with a child under the age of six years. Housing-related Health Hazard Interventions ( Healthy Homes Interventions) For NSP, rehabilitation of homes and properties includes improvements to increase their energy efficiency or energy conservation or to provide renewable energy source(s). HUD has encouraged grantees to use NSP funds not only to stabilize neighborhoods in the short-term, but to strategically incorporate modern, green building and energy-efficiency improvements in all NSP activities to provide for long-term affordability and increased sustainability and attractiveness of housing and neighborhoods. Specifically, we believe this is an excellent opportunity for incorporating healthy homes interventions into the neighborhood stabilization effort. The seven steps for these interventions are listed below. As you prepare your NSP grant submission, which includes your NSP Substantial Amendment to the Action Plan, you are asked to, Describe housing rehabilitation standards that will apply to NSP assisted activities at item C(4). Including healthy homes interventions in your description enhances your amendment, furthers the NSP objectives for rehabilitation, and provides increased marketability of acquired properties. If you are an entitlement or State CDBG grantee, please consider incorporating healthy and green features into your NSP grant. If you are not an entitlement or State CDBG grantee, please consider encouraging the grantee you are partnering with to incorporate these features. Through the efforts of our grantees and partners, we have developed seven essential principles for creating a healthy home, and U.S. Department of Housing and Urban Development

235 have developed prescriptive methods for achieving this goal. HUD's Healthy Homes program has demonstrated that including these principles as part of rehab can be cost effective and improve the health of the occupants. These seven steps include ensuring that housing is made and kept: 1) Dry: Ensure proper drainage away from housing; clean and repair gutters and downspouts; repair leaks; seal roofs and windows. 2) Safe: Install safety devices on doors, cabinets, window blinds and outlets; store all poisonous items out of reach of children and labeled in their proper containers; install smoke detectors and carbon monoxide detectors; have appropriate fire extinguisher available. 3) Well-ventilated: Service and maintain heating and cooling systems; provide exhaust fans for kitchens, bathrooms, and dryers to the outside to reduce mold; change furnace filters regularly. 4) Pest-free: Provide proper storage and disposal for food products; caulk and seal holes; use least toxic pest management methods 5) Contaminant-free: Remove lead based paint hazards properly; provide test kits for radon; reduce volatile organic compounds in paint, carpet, etc. 6) Clean: Install dust walk-off systems in entry ways; provide smooth, cleanable surfaces; provide effective storage space and containers; choose flooring that is easy to clean; provide vacuum with HEPA filters; implement weekly cleaning regimen; 7) Well-maintained: Implement maintenance calendar for inspecting, cleaning, repairing, replacing, housing components/systems. NSP provides a tremendous opportunity for our Nation s communities to become stable and vibrant once again. The NSP will help protect families from preventable disease and injuries, reduce operating expenses for the housing, and improve the vitality of the surrounding community. The OHHLHC hopes that you will combine Lead Hazard Control efforts with NSP efforts to ensure that all available resources are used to their maximum benefit. The list of OHHLHC s Healthy Homes Representatives is below; please let any of us know if we can assist you. Contact Name Region(s) Phone Location Martin Nee Region Boston, MA Susan Horowitz Region New York, NY Edward Thomas Region Philadelphia, PA Eileen Carroll Region Atlanta, GA Paul Diegelman Region Cleveland, OH x7232 Michael McGreevy Region Richmond, VA Michelle M. Miller Region Kansas City, KS Tara Jordan Regions 8 & x2258 Minneapolis, MN Radosevich 10 Karen Griego-West Region Los Angeles, CA U.S. Department of Housing and Urban Development

236 November 1, 2009 Community Planning and Development NSP Policy Alert! Guidance on Joint Agreements for NSP Grantees November 1, 2009 The NSP Notice permits an entitlement community that is eligible to receive an NSP allocation to enter into a joint agreement with its state [Section B.5.]. In addition, the NSP Notice also permits contiguous metropolitan cities and urban counties to have joint agreements with one another. Additional information regarding the requirements for entering into either of these joint agreements is presented below. For joint agreements under NSP, HUD will follow a process similar to that used for joint agreements between metropolitan cities and urban counties in the CDBG entitlement program. Grantees interested in pursuing a joint agreement should familiarize themselves with CPD Notice 08-04, which is the current Urban County Qualification Notice. The following guidance consists of key excerpts from CPD-08-04, as revised to fit the requirements of NSP. An NSP grantee with concerns about its capacity to administer these funds are encouraged to consider entering into a joint agreement with either its state or a contiguous entitlement grantee in its metropolitan area to further the purpose of the HERA, which is to redevelop abandoned and foreclosed homes and residential properties. Forming a joint agreement with a larger grantee such as a state or large entitlement community may help provide a smaller grantee with the expertise or personnel support needed to carry out the NSP funded activities. Types of Joint Agreements Metropolitan City/State Joint Recipients Any entitlement community that is eligible to receive an NSP grant may enter into a joint agreement with its state. The state shall be the lead entity and must assume responsibility for administering the NSP grant on behalf of the entitlement community in compliance with applicable program requirements. The substantial amendment to the state s action plan will include any participating entitlement community that elects to have a joint agreement with the state. Metropolitan City/Urban County Joint Recipients Two or more contiguous entitlement communities (metropolitan cities or urban counties) that are eligible to receive an NSP allocation and are located (in whole or in part) in the same metropolitan area may ask HUD for approval to implement a joint community development and housing assistance program for purposes of the NSP program. All members to the joint agreement must be eligible to receive a direct NSP allocation from HUD; one unit of general local government must be designated as the lead entity. When multiple local governments enter into a joint agreement, the lead entity becomes the grant recipient. The grant amount is the sum of the amounts authorized for the individual metropolitan cities and urban counties. The lead entity must execute the NSP grant agreement with HUD. U.S. Department of Housing and Urban Development

237 Consistent with 24 CFR , the lead entity must assume responsibility for administering the NSP grant on behalf of all members in compliance with applicable program requirements. The substantial amendment to the lead entity s action plan will include all participating entitlement communities. The citizen participation process must include citizens of all jurisdictions participating in the joint NSP program, not just those of the lead entity. Executing a Joint Agreement HUD will consider approving a joint request only if it is signed by the chief executive officers of all participating local governments and/or their states and is submitted as soon as possible. CPD Field offices will begin accepting joint requests on November 14, A joint request will be considered approved unless HUD notifies the entitlement communities and the state otherwise within 30 days following submission of the joint request and an executed cooperation agreement meeting the requirements specified below. Upon receipt of these documents, Field Counsel will conduct a review and notify the Office of Community Planning and Development if there are any problems or concerns with the documents. Grantees are encouraged to submit their requests as soon as possible so that there will be time to correct deficiencies (if there are any) discovered in the HUD review process. Upon HUD approval of the joint request and cooperation agreement, the participating units of general local government become a part of the lead entity s (the state or another entitlement community) program for purposes of program planning and implementation for the lifetime of the NSP grant. Existing cooperation agreements governing regular CDBG FY 2008 funding between a unit of general local government and an urban county, concerning either participation in an urban county s CDBG program or a joint agreement are considered to incorporate and apply to NSP funding. These cooperation agreements will continue to apply to the use of NSP funds until the NSP funds are expended and the NSP grant is closed out. Certain provisions in existing cooperation agreements that govern 2008 CDBG funding may be inconsistent with parts of the Housing Economic Recovery Act of 2008 (HERA) and the NSP Notice. Therefore, conforming amendments should be made to existing cooperation agreements as necessary to comply with HERA and the Notice. Examples of Joint Agreements 5. City A is located inside County M, but has chosen to receive its own regular CDBG Entitlement grant rather than participate in M s Urban County program. Both jurisdictions qualify to receive an NSP grant. City A and County M can decide to enter into a joint agreement for the NSP program with the County as the lead entity. City A will continue to receive its own regular CDBG entitlement grants. HUD will make a grant to County M for the combined amount of City A and County M s NSP allocations. County M will remain responsible for administering the NSP funds, including any NSP funds it might choose to give to City A to administer as a subrecipient, until its NSP grant is closed out. County M will also be responsible for ensuring that NSP program requirements (such as program income or rent affordability) are complied with after grant closeout. Program income will belong to the County s NSP program, not to City A s CDBG program, even if it is generated from activities undertaken within or by City A. 6. Both City B and County N qualify to receive an NSP grant. City B accepted its entitlement status in 2003 but has a joint agreement with County N s Urban County program. The current joint agreement covers grants for FFY City B has decided to end its joint agreement after FFY 2008 and receive its own regular CDBG grant starting in FFY Because NSP funding was appropriated during FFY 2008, the existing joint agreement between City B and County N will govern the NSP funds; HUD will make a grant to County N for the combined amount of City B and County N s NSP allocations. County N will remain responsible for administering the NSP U.S. Department of Housing and Urban Development

238 funds, including any NSP funds it might choose to give to City B to administer as a subrecipient, until its NSP grant is closed out. County N will also be responsible for ensuring that NSP program requirements (such as program income or rent affordability) are complied with after grant closeout. Program income will belong to the County s NSP program, not to City B s CDBG program, even if it is generated from activities undertaken within or by City B. 7. City C has been eligible to receive an entitlement grant, but has declined its entitlement status in order to be a participating jurisdiction in County Q s Urban County program. County Q s current qualification period and cooperation agreements cover FFY City C is therefore not eligible to receive its own NSP allocation. The County s existing CDBG Urban County cooperation agreements will be considered to cover the County s NSP allocation as well. 8. Town D is located within County R, but has never participated in County D s Urban County program; it chooses instead to participate in the State Z CDBG program. Town D was notified by HUD that it now qualifies for entitlement funding starting in FFY2009 because its population is now over 50,000. For purposes of the NSP program, Town D is not included in County R s NSP program allocation because it is not a participating jurisdiction. Town D s needs are included in the State NSP s allocation, and Town D should apply to the State for NSP funds. Town D cannot now join County R s Urban County program for purposes of participating in the County s NSP program. County R may, however, be able to undertake NSP-funded activities located inside Town D, if the County determines under 24 CFR that doing so will meet its identified housing and community development needs, and that reasonable benefits will accrue to the residents of the portions of the County that participate in the Urban County program. Subrecipient Agreements The execution of cooperation agreements between a state and entitlement NSP grantee(s) or between two or more entitlement communities receiving NSP funds for purposes of a joint agreement does not in itself satisfy the requirement for a written subrecipient agreement required by the regulations at 24 CFR Where a participating unit of general local government carries out an eligible NSP activity funded by the state or lead entitlement grantee, these entities are responsible for executing a written subrecipient agreement with the units of government containing the minimum requirements found at 24 CFR before disbursing any NSP funds for any such activity or project. The subrecipient agreement must remain in effect during any period that the unit of local government has control over NSP funds and activities, including program income. Requirements for Cooperation Agreements All cooperation agreements must meet the following standards in order to be found acceptable: I. The governing body of the lead entity (state or designated entitlement grantee) and the governing body of the cooperating unit of general local government shall authorize the agreement. The chief executive officer of the lead entity and the chief executive officer of each unit of general local government shall execute the agreement. J. The agreement must contain, or be accompanied by, a legal opinion from the state's or lead entitlement grantee s counsel that the terms and provisions of the agreement are fully authorized under State and local law and that the agreement provides full legal authority for the state or lead entitlement grantee. Where the state or lead entitlement grantee does not have such authority, the legal opinion must state that the participating jurisdiction has the authority to undertake, or assist in undertaking, essential community renewal and lower income housing U.S. Department of Housing and Urban Development

239 assistance activities. A mere certification by the state or lead entitlement grantee s counsel that the agreement is approved as to form is insufficient and unacceptable. K. The agreement must state that it covers the NSP program. The agreement must also provide that it remains in effect until the NSP funds and program income received are expended and the funded activities completed, and that the state and participating units of general local government or the lead entitlement grantee and other participating entitlement communities cannot terminate or withdraw from the cooperation agreement while it remains in effect L. The agreement must contain a provision obligating the state and the cooperating unit of general local government or lead entitlement grantee and other participating entitlement communities to take all actions necessary to assure compliance with the certification required by section 104(b) of Title I of the Housing and Community Development Act of 1974, as amended, including Title VI of the Civil Rights Act of 1964, the Fair Housing Act, section 109 of Title I of the Housing and Community Development Act of 1974, and other applicable laws. The agreements shall also contain a provision prohibiting NSP funding for activities in, or in support of, any cooperating unit of general local government that does not affirmatively further fair housing within its own jurisdiction or that impedes the lead entity s actions to comply with its fair housing certification. This provision is required because noncompliance by a unit of general local government included in a state or a lead entitlement grantee participating in a joint agreement with one or more other entitlement communities may constitute noncompliance by the grantee that can, in turn, provide cause for funding sanctions or other remedial actions by the Department. M. The agreement must expressly state "that the cooperating unit of general local government has adopted and is enforcing: 3. A policy prohibiting the use of excessive force by law enforcement agencies within its jurisdiction against any individuals engaged in non-violent civil rights demonstrations; and 4. A policy of enforcing applicable State and local laws against physically barring entrance to or exit from a facility or location which is the subject of such nonviolent civil rights demonstrations within jurisdictions." N. The agreement may not contain a provision for veto or other restriction that would allow any party to the agreement to obstruct the implementation of the approved Consolidated Plan during the period covered by the agreement. The state or lead entitlement grantee has final responsibility for selecting NSP activities and submitting the Consolidated Plan to HUD. O. The agreement must contain language specifying that, pursuant to 24 CFR (b), the unit of local government is subject to the same requirements applicable to subrecipients, including the requirement of a written agreement as described in 24 CFR (see Section VIII, Special Considerations, paragraph B). P. A state or lead entitlement grantee may also include in the cooperation agreement any provisions authorized by State and local laws that legally obligate the cooperating units to undertake the necessary actions, as determined by the state or lead entitlement grantee, to carry out a NSP program and the approved Consolidated Plan and/or meet other applicable laws. U.S. Department of Housing and Urban Development

240 Grantees considering entering into joint agreements should contact their Field Office CPD Division for further guidance. Alternative Approaches NSP grantees with capacity concerns may also wish to consider another alternative approach, should they determine that a joint agreement approach is not feasible in their situation. Eligible NSP grantees may apply for their grant and then enter into an agreement with another entity to administer its grant in whole or in part. Such agreements must comply with applicable program requirements. This approach does not require advance HUD approval; however, the grantee still retains legal responsibility for ensuring that its grant is carried out in compliance with all program requirements, so this approach does not relieve a grantee of its implementation and oversight responsibilities. U.S. Department of Housing and Urban Development

241 March 3, 2009 Community Planning and Development NSP Policy Alert! Guidance on NSP-Supported Homeownership: Affordability, Financial Structure, and Program Income March 3, 2009 Purpose This memorandum seeks to clarify issues that are separate but related in the Neighborhood Stabilization Program (NSP). These include initial affordability, continued affordability, financial structures, and program income. Providing definitions and examples should reduce potential confusion for grantees. Overview NSP funds are allocated to the grantee a city, urban county, or state. The grantee acquires foreclosed or abandoned homes directly, or through subrecipients or private parties. If necessary, the grantee can also arrange for rehabilitation to local standards. A family with income that qualifies for NSP wishes to buy the home. The family applies for NSP assistance from the grantee. The home will be the family s principal place of residence. The grantee reviews income documentation for the family and calculates an affordable rent (or mortgage payment) for the home. In many cases, this will require a subsidy in the form of a reduced sales price, downpayment assistance, and/or a second mortgage at favorable terms in order to make the transaction initially affordable for the family. U.S. Department of Housing and Urban Development

242 The amount of the subsidy to make the house affordable initially (above) becomes the basis for determining continued affordability. Based on HOME Program or stricter standards, the grantee requires the house to remain affordable for 5, 10, 15, or more years. The grantee places a lien or covenant on the house to enforce this requirement. When the family sells the house, the grantee determines whether the period of continued affordability is completed. If the affordability terms have been met, the family owes no more money and may sell the house free of NSP conditions. If the affordability terms have not been met, the grantee may recapture some or all of the subsidy funds or require that the house be resold to an income-eligible family. If any funds are returned to the grantee at sale, these funds are considered Program Income to the NSP and must be used for NSP-eligible activities in accordance with CDBG Program Income procedures. Background Congress established the NSP to stabilize neighborhoods by addressing problems created by the abandonment and foreclosure of homes and residential properties. NSP activities are carried out through five Eligible Uses: A. Financing Mechanisms for foreclosed homes and residential properties; B. Acquisition and rehabilitation to sell rent or redevelop abandoned or foreclosed homes and residential properties; C. Establishment of land banks for foreclosed homes; D. Demolition of blighted structures; and E. Redevelopment of demolished or vacant properties. Separate Policy Guidance on Eligible Uses describes the terms used under each eligible activity and under the 25 percent set-aside for low income housing. The terminology and applicability varies slightly between Eligible Uses, so grantees must exercise care. See Guidance on Eligible Uses at the URL below: pdf The NSP Notice requires grantees to ensure affordability to LMMI by: U.S. Department of Housing and Urban Development

243 Calculating affordable rents to ensure that purchasers and renters of NSP-assisted structures do not have problems making mortgage or rent payments. A common standard is that housing payments should not exceed 31% of adjusted family income; and Adopting standards that ensure that the units will continue to remain affordable. The NSP Notice allows grantees flexibility in meeting this standard, but says that grantees using the HOME program standards at 24 CFR (for renters) and (for owners) must meet the minimum compliance standards. These standards link the amount of funding to the length of time that the units must remain affordable and offer methods of ensuring affordability. HUD will allow grantees to impose more restrictive standards, but not less restrictive ones. For rental properties, the standards are: For owner-occupied units, the standards are: Initial Affordability NSP grant recipients also have options for meeting initial affordability through different Eligible Uses. Grantees may offer multiple types of homeownership assistance or utilize different subrecipients. The following strategies can be applied using each of the five Eligible Uses: A. Financing Mechanisms for purchase and redevelopment of foreclosed upon homes and residential properties may include soft-second mortgages, loan loss reserves, and shared equity loans. This use must involve some form of loan or credit enhancement and might include a pool of low interest loans for individuals who purchase and rehabilitate homes for use as their primary residence. Loan forgiveness is allowed, based on performance by the borrower according to terms set by the grantee. Such Financing Mechanisms are distinct from the type of subsidies used below in B or E. B. In purchasing and rehabilitating homes and residential properties that have been foreclosed upon or abandoned, grantees can finance rehabilitation with loans or grants to make housing affordable, provide direct homeownership assistance, reduce the price of the home being sold, or offer downpayment assistance and other support. See last page for details on options under Homeownership Assistance allowed by law. C. Land banking will not be discussed here, but properties that have been landbanked may use any of the strategies mentioned above under A or B when they are put back onto the market, then renovated and/or sold. D. Demolition of blighted properties generally does not involve financing and is not discussed here. E. Redevelopment of demolished or vacant properties could include many of the activities noted above in A and B, as well as new construction of housing for LMMI. These would include loans and grants for homeowners and rental housing providers, homeownership assistance, and other similar forms of assistance. U.S. Department of Housing and Urban Development

244 This homeownership guidance is based on the assumption that families receiving assistance occupy the home as their primary residence. Note that some of these forms of assistance may be combined, although in such cases, the more restrictive standards will apply. However, because of the different property types described in each eligible use, combinations are not always possible. For example, Eligible Use A, Financing Mechanisms, applies only to foreclosed upon homes and residential properties, not to abandoned homes. Continued Affordability Grantees must ensure that, regardless of the repayment terms, the home remains affordable for at least the minimum period shown on the charts above, generally five to fifteen years. Options for Continued Affordability The HOME regulations cited in the NSP Notice provide options for continued affordability including the following: Resale of the home to the grantee or to another income-eligible buyer; Recapture all or part of the initial subsidy, via full repayment of the loan, forgiveness of a portion of the principal, or equity-sharing. With recapture, the subsidy funds can be used for another home. Such recaptured funds become Program Income to the NSP Program; Presumed affordability of homes in affected neighborhoods. Using analysis of market conditions, the grantee may show that houses will continue to be affordable to LMMI purchasers with conventional mortgage financing. This allows the grantee to avoid requiring repayment of the initial housing subsidy. To ensure continued affordability, grantees often structure financing terms to mirror the periods of affordability, but this is not required. More often, however, grantees impose financing requirements that tie the amount of subsidy to the term of affordability. If properties are sold before the period of affordability ends, the seller must reimburse the grantee for some or all of the initial subsidy. This revenue is Program Income and must be used by the grantee or approved subrecipient for other NSP-eligible uses. The hyperlink below provides related policy guidance on Program Income to determine how the funds are distributed after the calculation is made. m_income_guidance.doc U.S. Department of Housing and Urban Development

245 Note that the affordability period is calculated differently under the resale and recapture provisions. For example, assume that $50,000 in NSP funds were used to purchase and rehabilitate a home and the purchaser repaid $30,000 to the grantee at the time of sale. $20,000 would remain as the direct subsidy to the owner (via grant, deferred loan, or other terms). Under the Resale Provisions, ALL $50,000 used in the project would become the amount used to calculate the period of affordability, in this case 15 years. Under the Recapture Provisions, only the $20,000 direct subsidy would count toward the affordability period calculation, resulting in a term of 10 years. However, with all types of assistance, the NSP grantee cannot require the beneficiary (usually a homeowner) to repay more than the original amount of NSP assistance, nor can it recover any more than the amount of the net sales proceeds. This mirrors a similar requirement in the HOME Program. Homeownership Assistance Examples The following pages come directly from a HOME Program handbook called Using HOME Funds for Homebuyer Programs: Structuring Recapture and Resale Provisions. The handbook is available at the hyperlink below: These are suggestions, because grantees may develop their own programs. However, since the NSP Notice allows HOME to be used as a base for affordability issues, these tested models should be helpful. There are also excerpts about the presumption of affordability and about definitions of recapture and resale, as well as a chart of pros and cons of each, that may prove useful. HUD is posting this entire handbook on the NSP website for more detailed reference. From this point until the last page on Homeownership Assistance, all material is from the HOME guidebook. The Program Income referred to in the HOME guide will, of course, become NSP Program Income in this program. U.S. Department of Housing and Urban Development

246 HOME definitions of recapture and resale. Note that the affordability period is calculated differently under the resale and recapture provisions. In a resale situation, ALL NSP funds that have been used in the project count toward the period of affordability. Under the recapture provisions, only the net amount of subsidy remaining in the transaction would count toward the affordability period calculation. U.S. Department of Housing and Urban Development

247 Grantees may wish to adopt similar provisions to bring buyers to areas with limited appreciation. U.S. Department of Housing and Urban Development

248 This method of ensuring continued affordability requires some analytical capabilities and can only work in areas with stable or declining property values. However, it can make the program more attractive to purchasers and result in less monitoring in the future. U.S. Department of Housing and Urban Development