Changes in 2013 HOME Final Rule

Changes in 2013 HOME Final Rule

In December 2011, HUD published a proposed rule in the Federal Register revising several aspects of the HOME program regulations. The final rule was promulgated in July 2013 and represented the first substantive changes to the HOME regulations since 1996.

The stated purposes of the rule are to “address many of the operational challenges facing participating jurisdictions; improve understanding of HOME program requirements, update property standards to which housing funded by HOME funds must adhere, and strengthen participating jurisdictions’ accountability for both compliance with program requirements and performance.” To achieve these aims, the rule makes several changes to the HOME program. Some aspects of the rule are specifically concerned with oversight and would strengthen existing requirements or impose new requirements to attempt to enhance the accountability of states and localities that receive HOME funds. Other aspects of the rule would codify existing administrative requirements or best practices as identified by HUD.

Several major provisions of the 2013 final rule are described here. Some of these provisions are also discussed elsewhere in this report, and the description of program requirements throughout the report reflects relevant changes made in the 2013 rule.

Among other things, the final rule does the following:

• Requires PJs to adopt written policies to improve program oversight and monitoring of recipients of HOME funds,
• Updates the property standards that HOME-assisted housing must meet,
• Requires PJs to conduct annual examinations of the financial condition of rental projects with at least 10 HOME-assisted units,
• Requires repayment of HOME funds used for rental projects that are not rented to eligible tenants within 18 months, and
• Requires HOME-assisted home buyers to receive housing counseling.

The rule also includes several provisions that are similar to those that were included in the FY2012 and FY2013 HUD appropriations laws. These provisions specify the following:

• HOME funds used for projects that are not completed within four years of the date the funds are committed are to be repaid by the PJ. The Secretary of HUD can extend this deadline by one year if he determines that the delay was caused by circumstances outside of the PJ’s control.
• PJs cannot commit funds without conducting an underwriting review of the proposed project, assessing the developer’s capacity and fiscal soundness, and examining market conditions.
• Home buyer units that are not sold to eligible home buyers within nine months of the project’s completion are to be rented to eligible tenants.
• In order for CHDOs to demonstrate that they have the capacity to carry out housing activities, they must have paid staff with experience in the housing role the CHDO expects to play. Volunteers and donated staff cannot be used to demonstrate capacity (although they may assist with CHDO activities). Furthermore, a CHDO cannot rely on consultants to demonstrate capacity to undertake housing development, except in an organization’s first year as a CHDO if the consultant trains the CHDO’s staff.

The 2013 rule also included several additional provisions related to CHDOs. Some of these provisions were described in the “Community Housing Development Organizations (CHDOs)” section of this report.

Most of the provisions in the final rule became effective on August 23, 2013, with some exceptions. While the provisions in the FY2012 and FY2013 appropriations laws only applied to projects that used HOME funds appropriated in those years, these provisions now apply to all HOME funds committed after the effective date, regardless of the year the funds were appropriated.

Appendix A. Select Programs Formerly Funded Within the HOME Account

For several years prior to FY2008, two major HOME account set-asides provided funding for the American Dream Downpayment Initiative and HUD’s housing counseling program. However, neither of these programs is currently funded through the HOME account. Housing counseling is now funded through its own account, and Congress has not appropriated funding for the American Dream Downpayment Initiative since FY2008. Each of these programs is described briefly below.

American Dream Downpayment Initiative

The American Dream Downpayment Initiative (ADDI) was funded in the HOME account from FY2003 through FY2008. Congress has chosen not to fund ADDI in FY2009 or subsequent years.

ADDI was created by the American Dream Downpayment Act (P.L. 108-186), signed into law on December 16, 2003. The program aimed to increase homeownership, especially among low-income and minority populations, by providing formula funding to all 50 states and qualified local jurisdictions for down payment and closing cost assistance for first-time home buyers. States and localities could use ADDI funds to provide closing cost and down payment assistance up to $10,000 or 6% of a home’s purchase price, whichever was greater. Additionally, up to 20% of ADDI funds could be used to assist homeowners with rehabilitation costs, as long as the rehabilitation was completed within a year of the home’s purchase.

The formula used to award ADDI funds to states was based on the number of low-income households residing in rental housing in the state relative to the nation as a whole. For localities, the grant amount was based on the number of low-income households residing in rental housing in the jurisdiction relative to the entire state. In order for a local jurisdiction to receive its own allocation of ADDI funds, it had to have a population of at least 150,000 or be eligible for a minimum grant of $50,000 under the ADDI formula. 

While supporters of ADDI held that the program played an important role in increasing homeownership, critics argued that it was duplicative because states and localities could already choose to use their HOME funds for down payment assistance. ADDI was originally authorized to receive $200 million annually through FY2007, but the program never received more than $86 million in appropriations. The Consolidated Appropriations Act, 2008 (P.L. 110-161) appropriated $10 million to ADDI and extended the program through the end of FY2008. President Bush’s budget requested $50 million for ADDI in FY2009; however, the Omnibus Appropriations Act, 2009 (P.L. 111-8) did not include funding for ADDI, and the program has not been funded in subsequent years.

Housing Counseling

From FY1997 through FY2008, funding for HUD’s housing counseling program was appropriated as a set-aside in the HOME account. Through the housing counseling program, authorized under section 106 of the Housing and Urban Development Act of 1968 (P.L. 90-448), as amended, HUD competitively awards funding to HUD-approved agencies that provide counseling on a range of housing issues.

For several years in the 2000s, President Bush requested that housing counseling be funded through its own account, but until FY2009 Congress continued to fund housing counseling as a set-aside in the HOME account. In FY2009, Congress appropriated funding for housing counseling in its own account rather than as a set-aside within HOME, and has continued to do so in subsequent fiscal years. For more information on the housing counseling program, including information on appropriations, see CRS Report R41351, Housing Counseling: Background and Federal Role, by Katie Jones. 

Appendix B. Distribution of Participating Jurisdictions and Total HOME Funding by State

Table B-1. Distribution of Participating Jurisdictions and Formula Funding by State for FY2014

(dollars in millions)

Source: U.S. Department of Housing and Urban Development, Community Planning and Development Program

Formula Allocations for FY2014, available at https://www.hudexchange.info/grantees/cpd-allocations-awards/.

1. Formula funding totals include both the state grant and grants to PJs within the state. Totals also include reallocated funds.

Table B-2. Formula Funding for Insular Areas for FY2014

($ in millions)

 Source: U.S. Department of Housing and Urban Development, Community Planning and Development Program Formula Allocations for FY2014, available at https://www.hudexchange.info/grantees/cpd-allocations-awards/. 

1. Insular areas are funded by a set-aside of HOME funds equal to the greater of $750,000 or 2% of the HOME appropriation for the fiscal year. The percentages of formula grant funding for insular areas reflect the percentage of the set-aside funding that each insular area received.