U.S. Department of Housing and Urban Development Rental Housing Compliance for the NSP Development & Affordability Period May 17, 2011
Speakers and Format Speakers David Noguera, HUD Virginia Sardone, HUD Marsha Tonkovich, ICF How to ask questions Change status in Live Meeting from green to purple Press *1 to ask a question through Premiere Conference Provide Name and Organization If question already answered, press *2 to remove from queue Change status back to green after question answered 2
Agenda Presentation on key NSP rental compliance topics Approach to monitoring for rental compliance Open session to take your questions! 3
Successful NSP-Assisted Rental Projects Owner/manager understand & comply with applicable programmatic regulations Project can repay loans Project revenue covers operating costs over long term Attractive and well-maintained Public agency/owner/manager know early warnings & prevent problems from occurring 4
Points In Rental Project Compliance Continuum N SP has series of requirements related to rental projects 1. Begins at program set-up & project selection & continues during construction 2. Must meet requirements during affordability period Document compliance at each step Grantee is required to demonstrate subrecipient/developer/partner compliance [24 CFR 570.501(b), 24 CFR 85 Subpart J] 5
Section 1: Compliance During Set- Up & Development Organizational Structure Other Federal Requirements Policies and Procedures Property Standards Project Eligibility National Objectives Underwriting Eligible & Reasonable Costs Written Agreement 6
Organizational Structure Grantee s organizational structure should enable it to: Manage rental compliance workload, including providing sufficient trained staff Track, manage and document monitoring process and results Provide staff & partner development and training 7
Policies And Procedures Grantees must have written policies and procedures to guide staff & partners to ensure rental compliance: Rental project selection criteria Affordability, rents and income targeting Income definition Admissions and tenant selection Lease provisions and occupancy rules Affirmative marketing Property standards and inspection protocols 8
Eligible Rental Project Selection Must document [FR-5255-N-01, FR-5447-N-01]: Eligible use A-E Includes eligible activity type (i.e. rehabilitation, acquisition, new construction) Eligible land/unit type (foreclosed, abandoned, vacant) Tie to activities described in Action Plan Location in Area of Greatest Need 9
Project Underwriting Many long term rental compliance issues rooted in initial project underwriting Must underwrite to ensure: Proper number of NSP-assisted units Proper mix of tenant incomes Sufficient cash flow to operate property and maintain units 10
Written Agreements A written agreement MUST be executed before NSP funds are disbursed [24 CFR 570.503] Need written agreement with: Subrecipients Owners, developers, and sponsors Contractors performing services (i.e., competitively procured) Beneficiaries of assistance Any other entity receiving NSP assistance 11
Written Agreements (cont) Typical elements (varies by partner type) [24 CFR 570.503]: Statement of work Budget Records and reports Program income (subrecipients) Affordability period restrictions Uniform administrative & other federal requirements Suspension/termination & reversion of assets Conditions for religious organizations 12
Eligible & Reasonable Costs Must document compliance with two types of requirements: NSP (CDBG) eligible costs [FR-5255-N-01, FR-5447-N-01] OMB Cost Circulars [24 CFR 570.610] NSP eligible costs: Document eligible hard and soft costs Document activity delivery costs Do not need to tie to specific projects 13
OMB Cost Circulars A-87/A-122 Identifies allowable and unallowable costs [OMB A-87, OMB A-122]: Some costs are never allowed Examples of unallowable costs: entertainment, alcohol, bad debts Some costs are allowed but with certain conditions Some costs depend on the federal funding source 14
OMB Cost Circulars (cont) Criteria for allowability [OMB A-87, OMB A-122]: Must be reasonable Must be in accordance with GAAP Must not be included under another federally funded program Must be adequately documented 15
Source Documents Eligible costs must be supported by source documents [OMB A-87, OMB A-122]: Explain basis of costs incurred Actual dates of expenditure Examples include cancelled checks, paid bills, payroll, etc. 16
National Objective All NSP rental projects must document meeting a national objective [FR-5255-N-01, FR-5447-N-01]: Defined differently than CDBG Low/moderate/middle income (LMMI) = 120% of median All rental housing must meet LMMH Slum/blight and urgent need national objectives not allowed Be sure to document if unit is counted toward LH25 17
National Objective (cont) LMMH document [FR-5255-N-01, FR-5447-N-01, 24 CFR 570.208]: Single-unit structure must be occupied by LMMI household In a duplex, one unit occupied by an LMMI household If 3+ units = General rule - 51% of units occupied by LMMI households Alternative requirement: Number of assisted units equal to proportion of total development cost paid by NSP Example: if 10 unit total development cost = $1,000,000 and NSP funds are $400,000, must have 40% (4 units) occupied by LMMI, rest can be upper income 18
LMMH Income Documentation Annual income definitions, options [24 CFR 570.3]: Section 8 Annual Income (24 CFR Part 5) Census Long Form IRS 1040 Series (Long Form) Same definition must be used within programs or activities Income is that of all household members for upcoming 12-month period 19
LMMH Income Documentation (cont) Several options for documentation [24 CFR 570.506]: Full 3 rd party documentation (e.g., an employer) Evidence of qualification under another program at least as restrictive as CDBG Evidence that assisted person is homeless Verifiable self-certification from assisted person WARNING on using this method: If self-certification determined to be incorrect or fraudulent, project may be ineligible Referral from state, county or local employment agency or other entity that agrees to determine income and maintain documentation for grantee 20
Property Standards NSP3 imposes mandatory safety, quality, and habitability standards for new construction and rehabilitation [FR-5255-N-01, FR-5447-N-01] NSP1, NSP2, NSP3 must comply with local codes, laws, requirements NSP3 also mandatory green rehabilitation and new construction standards [FR-5447-N-01] Must meet Energy Star standards Grantee may impose additional requirements Establish inspection and work specifications procedures in order to ensure compliance 21
Other Federal Requirements S everal key other federal requirements may apply to NSP projects must document compliance when applicable [24 CFR 570 subpart K, FR-5255-N-01, FR-5447-N-01]: Environmental review URA and tenant protections Davis Bacon labor standards Lead based paint Fair housing and equal opportunity, including Section 504 handicapped access requirements Applicability depends on project & entity NSP3 must also comply with vicinity hiring requirement 22
Section 2: Compliance During Affordability Period Rents Change of Use Tenant Income Sales During Affordability Period Unit Quality 23
Rents Grantee required to define affordable rents in its Action Plan [24 CFR 570 subpart K, FR-5255-N-01] HOME is safe harbor NSP rents must remain affordable for affordability period Grantee needs to share new rent limits with owners, as published Owner must document rents charged to NSPassisted units 24
Tenant Income Eligibility During affordability period, must ensure tenant income eligibility Check and document incomes of new tenant at unit turn over Unit originally occupied by household at 120% of median, new tenant at < 120% of median Unit originally occupied by household at 50% of median, new tenant at 50% of median Units could float so long as maintain proportion 25
On-Going Unit Quality No required NSP on-going property standard Many grantees elect to impose such standards May choose to defer to HOME standard [24 CFR 92.251]: Units must remain standard for affordability period May elect to inspect units over time HOME rule [24 CFR 92.504]: Number of Units Inspection Required 1-4 Every 3 yrs 5-25 Every 2 yrs 26 or more Annually 26
Rental Property Sales During Affordability Period If assisted project sold, must continue occupant, rent, unit quality restrictions (if applied by grantee) for balance of affordability period Record requirements as land covenant or deed restriction Include within written agreement with rental owner If project is foreclosed or sold without restrictions, grantee must repay investment minus any PI earned to date 27
Change In Use Applies to real property under the grantee or subrecipient s control acquired or improved with $25K or more of NSP [24 CFR 570.505]: Must notify citizens and receive comments on change and If changed, property use must: Meet a national objective for five years after close-out of the grant agreement, or Must return $ at current fair market value and treat as NSP program income 28
Rental Compliance Self Monitoring Important to ensure that rental projects meet compliance requirements for affordability period If project is not compliant: Not providing quality housing to eligible households Requires a lot of grantee oversight May fail and NSP funds have to be repaid 29
Enhanced Monitoring To be successful, projects must also be physically and financially viable - affects their ability to remain in compliance Can t just monitor for compliance, must also monitor for viability 30
Rental Compliance System Effective rental project oversight requires system of integrated steps Each step affects and informs others Many grantees compartmentalize staff, tasks & processes, but Underwriting and monitoring staff should confer about risk areas Data from monitoring is critical to future underwriting decisions 31
Rental Compliance System (cont) Application Process Reinforces NSP Compliance Standards Underwriting Selects Projects That Are Likely to Succeed Grantee/Owner Agreement Outlines Obligations Grantee Watches For Troubled Projects and Intervenes Early Owner Periodically Reports to Grantee Grantee Monitors Each Project For Compliance in Key Areas: Rents, Tenant Income Owner Addresses Monitoring Findings 32
Lessons Learned About Rental Compliance Systems Everyone (grantee, owner, property manager) must know relevant NSP rules Compliance is active & on-going process, not just annual monitoring System is feedback loop information from one step is shared with others Successful grantees use tools such as risk assessments, periodic reports, financial analysis, standardized forms Long run success is based on smart up front decisions 33
Please Give Us Your Feedback Answer a few short questions Link:http://www.surveymonkey.com/s/RENTALC ompliance 34