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Rule2023-01617

Housing Opportunity Through Modernization Act of 2016: Implementation of Sections 102, 103, and 104

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Published

February 14, 2023

Effective

January 1, 2024

Issuing agencies

Housing and Urban Development Department

Abstract

This final rule revises HUD regulations to implement parts of the Housing Opportunity Through Modernization Act of 2016 (HOTMA). In addition to amending regulations for HUD's public housing and Section 8 programs, this final rule revises the program regulations for several other HUD programs. HUD did this in the interest of aligning its requirements across its programs or because the underlying program statute required HUD to make the revisions. These include the regulations for HUD's Community Development Block Grants, HOME Investment Partnerships, Housing Trust Fund, Housing Opportunities for Persons With AIDS, Supportive Housing for the Elderly (Section 202), and Supportive Housing for Persons with Disabilities (Section 811) programs. Since HUD and other Federal agencies may use the regulations revised as part of this rulemaking in the calculation of income for other programs or activities, the public should be aware that the effects of this rulemaking are not limited to the programs listed in this rule and preamble.

Full Text

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<title>Federal Register, Volume 88 Issue 30 (Tuesday, February 14, 2023)</title>
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[Federal Register Volume 88, Number 30 (Tuesday, February 14, 2023)]
[Rules and Regulations]
[Pages 9600-9676]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-01617]

[[Page 9599]]

Vol. 88

Tuesday,

No. 30

February 14, 2023

Part II

Department of Housing and Urban Development

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24 CFR Parts 5, 92, 93, et al.

Housing Opportunity Through Modernization Act of 2016: Implementation
of Sections 102, 103, and 104; Final Rule

Federal Register / Vol. 88 , No. 30 / Tuesday, February 14, 2023 /
Rules and Regulations

[[Page 9600]]

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 5, 92, 93, 570, 574, 882, 891, 960, 964, 966, 982

[Docket No FR-6057-F-03]
RIN 2577-AD03

Housing Opportunity Through Modernization Act of 2016:
Implementation of Sections 102, 103, and 104

AGENCY: Office of the Deputy Secretary, HUD.

ACTION: Final rule.

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SUMMARY: This final rule revises HUD regulations to implement parts of
the Housing Opportunity Through Modernization Act of 2016 (HOTMA). In
addition to amending regulations for HUD's public housing and Section 8
programs, this final rule revises the program regulations for several
other HUD programs. HUD did this in the interest of aligning its
requirements across its programs or because the underlying program
statute required HUD to make the revisions. These include the
regulations for HUD's Community Development Block Grants, HOME
Investment Partnerships, Housing Trust Fund, Housing Opportunities for
Persons With AIDS, Supportive Housing for the Elderly (Section 202),
and Supportive Housing for Persons with Disabilities (Section 811)
programs. Since HUD and other Federal agencies may use the regulations
revised as part of this rulemaking in the calculation of income for
other programs or activities, the public should be aware that the
effects of this rulemaking are not limited to the programs listed in
this rule and preamble.

DATES: This final rule is effective January 1, 2024, except for the
amendments to Sec. Sec. 5.520(d), 5.628(a), 960.102(b), 960.206(b),
960.253, 960.257(a) and (d), 960.261, 960.507, 960.509, 960.600,
960.601(b), 964.125(a), 966.4(a) and (l), which are effective March 16,
2023.

FOR FURTHER INFORMATION CONTACT:
Public Housing, Housing Choice Voucher (including project-based
vouchers), and rehabilitation programs: Michael Dennis, Senior Program
Advisor, Office of Public Housing and Voucher Programs, at 202-402-4059
(this is not a toll-free number), or email <a href="/cdn-cgi/l/email-protection#4901061d0408383c2c3a3d2026273a09213c2d672e263f">[email&#160;protected]</a>.
Multifamily Housing programs: Jennifer Lavorel, Director, Program
Administration Office, Office of Asset Management and Portfolio
Oversight, at 202-402-2515 (this is not a toll-free number), or email
<a href="/cdn-cgi/l/email-protection#3c717a7463747368717d7c544958125b534a">[email&#160;protected]</a>.
Community Development Block Grant program: Jessie Kome, Director,
Office of Block Grant Assistance, Office of Community Planning and
Development, at 202-402-5539 (this is not a toll-free number), or email
<a href="/cdn-cgi/l/email-protection#501300140f181f041d11103825347e373f26">[email&#160;protected]</a>.
HOME Investment Partnerships and Housing Trust Fund programs:
Virginia Sardone, Director, Office of Affordable Housing Programs,
Office of Community Planning and Development, at 202-708-2684 (this is
not a toll-free number), or email <a href="/cdn-cgi/l/email-protection#084b584c5740475c454948607d6c266f677e">[email&#160;protected]</a>.
Housing Opportunities for Persons With AIDS program: Rita Harcrow,
Director, Office of HIV/AIDS Housing, Office of Community Planning and
Development, at 202-402-5374 (this is not a toll-free number), or email
<a href="/cdn-cgi/l/email-protection#fab9aabea5b2b5aeb7bbba928f9ed49d958c">[email&#160;protected]</a>.
HUD welcomes and is prepared to receive calls from individuals who
are deaf or hard of hearing, as well as individuals with speech and
communication disabilities. To learn more about how to make an
accessible telephone call, please visit <a href="https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs">https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs</a>.
The mailing address for each office contact is Department of
Housing and Urban Development, 451 7th Street SW, Washington, DC 20410.

SUPPLEMENTARY INFORMATION:

I. Background

History of the Rule

On July 29, 2016, HOTMA was signed into law (Pub. L. 114-201, 130
Stat. 782). HOTMA makes numerous changes to statutes governing HUD
programs, including sections 3, 8, and 16 of the United States Housing
Act of 1937 (42 U.S.C. 1437 et seq.) (1937 Act). HUD published a rule
in the Federal Register on October 24, 2016 (81 FR 73030), announcing
which statutory changes made by HOTMA could be implemented immediately
and which statutory changes required further action by HUD.
On November 29, 2016 (81 FR 85996), HUD published a Federal
Register notice seeking public input on how HUD should determine the
income limit for public housing residents pursuant to Section 103 of
HOTMA, and this was followed by a July 26, 2018 (83 FR 35490) notice
that made some provisions of Section 103 of HOTMA effective.
On January 18, 2017, HUD published a proposed rule (82 FR 5458)
that made multiple HOTMA provisions for the Housing Choice Voucher
(HCV) program, unrelated to sections 102, 103, and 104, effective and
solicited public comment on HUD's implementation methods. The
conforming regulatory changes for the HCV program provisions
implemented by the January 18, 2017, rulemaking are not part of this
final rule and are being addressed through a separate rulemaking.\1\
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\1\ HUD published a proposed rule to implement HOTMA's
provisions on the voucher programs and additional streamlining
procedures on October 8, 2020 (85 FR 63664).
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Many of the statutory provisions in HOTMA are intended to
streamline administrative processes and reduce burdens on PHAs and
owners of housing assisted by Section 8 programs. Sections 102, 103,
and 104 of HOTMA require that HUD make changes to its regulations and
take other actions--some of which will also reduce burdens on PHAs and
private owners once implemented.
On September 17, 2019 (84 FR 48820), HUD published a proposed rule
to update its regulations according to HOTMA's statutory mandate and to
implement the provisions of Sections 102, 103, and 104 of HOTMA that
require rulemaking. Additional details about the proposed rule may be
found at 84 FR 48820 (September 17, 2019). That proposed rule has
additional information on the proposed regulatory changes and how they
relate to HOTMA. In addition, on December 4, 2020 (85 FR 78295), HUD
re-opened public comment on specific provisions dealing with families
whose income rises above the new cap for residing in public housing.
This final rule follows the publication of the September 17, 2019,
proposed rule and considers the public comments received, including
public comments received in response to HUD's December 4, 2020, notice
re-opening public comments.

Summary of Affected Programs

Because a variety of programs use these definitions, HUD offers the
following chart showing which programs (other than the public housing
and Section 8 programs) are affected by various changes to the income
regulatory provisions in 24 CFR part 5:

[[Page 9601]]

----------------------------------------------------------------------------------------------------------------
Housing Trust
HOPWA (Part 574) HOME (Part 92) Fund (Part 93) 202/811
----------------------------------------------------------------------------------------------------------------
Net Family Assets Definition Yes, except the Yes, unless the Yes, unless the Yes.
(Sec. 5.603). value of a home participating HTF grantee
of a participant jurisdiction chooses chooses to
receiving short- to calculate income calculate income
term mortgage or using the IRS income using the IRS
utility definition. The value income
assistance under of a homeowner's definition.
Sec. principal residence Income or asset
574.300(b)(6) or is excluded under enhancements
other owner-occupied derived from the
homeownership rehabilitation HTF-assisted
assistance programs. Income or project shall
eligible under asset enhancements not be
HOPWA is derived from the HOME- considered in
excluded (Sec. assisted project calculating
574.310(f)). shall not be assets or annual
considered in income (Sec.
calculating assets or 93.151(b)(1)(i)
annual income (Sec. and (e)(1)).
92.203(c)(1) and
(e)(1)).
Annual Income Definition (Sec. Yes (Sec. Yes, unless the Yes, unless Yes (as modified
5.609(a)). 574.310(d)(1) participating grantee uses IRS in Sec.
and (2) and Sec. jurisdiction uses IRS income 891.105).
574.310(e)(1) income definition definition under
and (2)). under Sec. Sec.
92.203(c)(2) (Sec. 93.151(b)(1)(ii)
92.203(c)(1)). (Sec.
93.151(b)(1)(i)).
Annual Income Exclusions (Sec. Yes (Sec. Yes, unless the Yes, unless Yes (as modified
5.609(b)). 574.310(d)(1) participating grantee uses IRS in Sec.
and (2) and Sec. jurisdiction uses IRS income 891.105).
574.310(e)(1) income definition definition under
and (2)). under Sec. Sec.
92.203(c)(2) (Sec. 93.151(b)(1)(ii)
92.203(c)(1)). (Sec.
93.151(b)(1)(i)).
Annual Income Calculation & Yes (Sec. No, unless unit is No, unless unit Yes (as modified
Reexaminations (Sec. 574.310(d)(1) subject to Sec. is subject to in Sec.
5.609(c)). and (2) and Sec. 92.203(a)(1) or the Sec. 891.105).
574.310(e)(1) participating 93.151(a)(1)-(3)
and (2)). jurisdiction accepts (93.151(a) &
income determination (f)).
under Sec.
92.203(a)(2) (Sec.
92.203(a) & (f)).
Adjusted Income Mandatory Yes (Sec. Yes (Sec. 92.203(a) No, unless unit Yes (as modified
Deductions (Sec. 5.611(a)). 574.310(d)(1)). & (f)). is subject to by the
Sec. definition of
93.151(a)(1)-(3) annual income in
(Sec. Sec. 891.105).
93.151(a) and
(f)).
Adjusted Income Additional No (Sec. No, unless unit is No, unless unit No.
Deductions (Sec. 5.611(b)). 574.310(e)(1)(iv subject to Sec. is subject to
)). 92.203(a)(1) or the Sec.
participating 93.151(a)(1)-(3)
jurisdiction accepts (Sec.
income determination 93.151(a) and
under Sec. (f)).
92.203(a)(2) (Sec.
92.203(a) and (f)).
Adjusted Income Financial Yes, if the Yes, if the No, unless unit Yes.
Hardship Exemptions (Sec. grantee elects participating is subject to
5.611(c)). to grant jurisdiction elects Sec.
financial to do so under Sec. 93.151(a)(1)-(3)
hardship 92.203(f)(1)(i), if (Sec.
exemptions (Sec. unit is subject to 93.151(a) and
Sec. 92.203(a)(1), (f)).
574.310(e)(1)(v) or if income
). determination is
accepted under Sec.
92.203(a)(2), (Sec.
92.203(a) and (f)).
Asset restriction (Sec. Yes, but only for No.................... No............... No.
5.618). housing
activities
subject to the
resident rent
payment
requirements in
Sec.
574.310(d) (Sec.
574.310(f)).
----------------------------------------------------------------------------------------------------------------

II. Changes at the Final Rule Stage

A. Definitions

New and Revised Definitions
HUD edits the definition of ``earned income'' in Sec. 5.100. In
this final rule, HUD expands the proposed definition of ``earned
income'' to explain that ``transfer payments'' (which are not included
in earned income) mean payments made or income received in which no
goods or services are being paid for, such as welfare, social security,
and governmental subsidies for certain benefits.
The proposed rule definition of ``earned income'' in Sec. 5.100
largely mirrored the definition of ``earned income'' currently in Sec.
984.103; however, unlike the definition of ``earned income'' in Sec.
984.103, the proposed rule did not specify that ``funds deposited in or
accrued interest on the FSS program escrow account established by a PHA
on behalf of a participating family'' is excluded from ``earned
income.'' In the context of both the proposed rule and in this final
rule, HUD determined it would be inappropriate to define Family Self-
Sufficiency (FSS) escrow deposits as either earned or unearned income
because FSS participants do not actually receive FSS escrow funds until
the PHA disburses the funds to the family in accordance with FSS
requirements. Income earned on amounts placed in a family's FSS account
are excluded from family income pursuant to a new exclusion at 24 CFR
5.609(b)(27). Additionally, the value of FSS accounts is excluded by 24
CFR 5.603 from the calculation of net family assets.
HUD has also added the corresponding definition of ``unearned
income'' in Sec. 5.100. The definition of unearned income specifies
that the term is broad, encompassing any annual income, as calculated
under Sec. 5.609, that is not earned income. The definition of ``Real
property'' in Sec. 5.100 is also slightly modified from the proposed
rule to have the same meaning as real property as provided under the
State law in which the property is located.\2\
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\2\ Where the term ``State'' is used throughout the Part 5
regulations, it includes Territories and Possessions of the United
States. This is consistent with the definition of ``State'' in
section 3(b)(7) of the U.S. Housing Act of 1937 which ``includes the
several States, the District of Columbia, the Commonwealth of Puerto
Rico, the territories and possessions of the United States, and the
Trust Territory of the Pacific Islands.''

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[[Page 9602]]

HUD is revising the definition ``medical expenses'' in Sec. 5.603
to be ``health and medical care expenses'' consistent with the language
used in HOTMA. HUD is also revising the definition to reflect the
Internal Revenue Service (IRS) definition of the term and provide
additional clarity without using the term to define itself. In
addition, this final rule then adds ``long-term care premiums'' as an
example of what is included in the definition of health and medical
care expenses. The prior regulation in Sec. 5.603(b) specifically
included ``medical insurance premiums'' as an example of health and
medical care expenses, and the proposed rule did not propose to alter
this existing example of what counts as health and medical care
expenses. In this final rule, HUD is adding a reference to long-term
care in the regulatory language to conform with existing practices and
policies and to add clarity. For example, the HUD Handbook Occupancy
Requirements of Subsidized Multifamily Housing Programs (4350.3)
(``Multifamily Occupancy Handbook'') states that ``long-term care
premiums (not prorated)'' are examples of deductible health and medical
care expenses (see exhibit 5-3 of that Handbook).\3\
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\3\ U.S. Department of Housing and Urban Development, HUD
Handbook 4350.3: Occupancy Requirements of Subsidized Multifamily
Housing Programs (Nov. 2013), <a href="https://www.hud.gov/sites/documents/43503HSGH.PDF">https://www.hud.gov/sites/documents/43503HSGH.PDF</a>.
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HUD also amends the definition of ``net family assets'' in Sec.
5.603 in response to questions and requests for clarification submitted
in public comments. Initially, HUD clarifies that net family assets do
not include the value of all non-necessary items of personal property
with a total combined value of $50,000 or less, as adjusted annually by
an inflationary factor. HUD will issue guidance for PHAs, owners, and
grantees to determine whether an item is a ``necessary item of personal
property'' or whether the value of the item should be included in
calculating the value of all non-necessary items of personal property
for the $50,000 threshold. In addition, HUD is specifying that because
negative equity in real property does not preclude a family from
selling the property, negative equity alone does not justify excluding
such a property from net family assets. The definition of ``net family
assets'' also excludes Federal tax refunds or refundable tax credits
for a period of 12 months after receipt by the family. HUD adds this
language to align with 26 U.S.C. 6409, which states that any Federal
tax refund (or advance payment with respect to a refundable credit)
made to any individual ``shall not be taken into account as resources
for a period of 12 months from receipt, for purposes of determining the
eligibility of such individual'' for benefits or assistance under any
Federal program or State or local program financed with Federal funds.
HUD also clarifies the definition of ``net family assets'' to provide
that in cases where a trust fund has been established and the trust is
not revocable by, or under the control of, any member of the family or
household, the trust fund is not a family asset and the value of the
trust is not included in the calculation of net family assets, so long
as the fund continues to be held in a trust that is not revocable by,
or under the control of, any member of the family or household.
Finally, as explained later in this preamble, HUD excludes from the
calculation of ``net family assets'' the value of any ``baby bond''
account created, authorized, or funded by Federal, State, or local
government.
As a result of adding a new income exclusion for ``nonrecurring
income'' (see below), HUD is including definitions for ``day laborer,''
``independent contractor,'' and ``seasonal worker'' in Sec. 5.603, all
of which are referenced in the new income exclusion. HUD expects that
adding these new definitions will help PHAs and owners better determine
what income must be included when determining the family's rent for the
upcoming year by narrowing the definition of nonrecurring income.
Foster Children and Adults
In Sec. 5.603, HUD is amending the definition of ``foster adults''
from what was proposed. HUD also adds a definition of ``foster child''
and is revising the definition of ``dependent.'' These definitions
provide additional details on the characteristics of foster adults and
foster children for purposes of determining members of a household.
However, while foster adults and foster children are members of the
household (and therefore will be considered when determining
appropriate unit size and utility allowance), they are not considered
members of the family for purposes of determining either annual and
adjusted income or net family assets, nor are the assets of foster
adults or foster children taken into consideration for purposes of the
asset limitations in HUD programs covered by these definitions.
These revised definitions will result in a change in the treatment
of foster children and foster adults residing in units assisted under
Multifamily Housing programs because the Office of Multifamily Housing
Programs has treated foster children and foster adults as family
members. In finalizing this rule, HUD determined that, because the
definition of ``family'' applies to all 1937 Act programs, it was
necessary to clarify for HUD programs covered by this rule that a
foster child or adult is a member of the household but not a member of
the assisted family (similar to a live-in aide). HUD also determined
that there are practical considerations that weigh in favor of this
clarification across all programs. For example, Sec. 5.403 states that
``a child who is temporarily away from the home because of placement in
foster care is considered a member of the family.'' If an assisted
family temporarily housed this foster child and counted the child as a
member of their family, then the child would be considered a family
member of two assisted families at the same time.
HUD will update its existing Multifamily Housing guidance on foster
families, including chapter 3 of the Multifamily Occupancy Handbook, to
conform with this final rule. Upon the effective date of this final
rule, these regulations supersede conflicting Multifamily Housing
guidance.
Fostering Stable Housing Opportunities
This final rule updates the definition of ``family'' in Sec.
5.403. The definition in this final rule incorporates revisions made to
the 1937 Act by the Fostering Stable Housing Opportunities provisions
of the Consolidated Appropriations Act, 2021,\4\ which expands the
definition of Single Persons. Due to the modification of the 1937 Act
prior to this final rule, HUD is making a conforming change to Sec.
5.403 to align with the new statutory language.
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\4\ Public Law 116-260, div. Q, tit. I, Section 103 (Dec. 27,
2020).
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Specifically, youth who are between the ages of 18 and 24, who have
either left foster care or will leave foster care within 90 days, and
who are homeless or at risk of becoming homeless at age 16 or older,
will be considered ``single persons'' for the purposes of Section 8 and
public housing under the 1937 Act. Currently, HUD's regulations at
Sec. 5.403 do not include this separate category of eligible youth
within the definition of ``family.'' This final rule updates this
definition. Because HUD has no discretion regarding this modification,
HUD believes this is an appropriate conforming change to incorporate
into the final rule.

[[Page 9603]]

Definitions Related to Over-Income Families in Public Housing (Sec.
960.102)
HOTMA amended the 1937 Act with new and expanded provisions related
to families who are residing in public housing units while being over
the newly created over-income (OI) limit for that program. HUD is
including in this final rule additional definitions related to such
families to facilitate the use of consistent terminology throughout
provisions in the regulations:
Alternative non-public housing rent. This is the monthly amount
PHAs must charge non-public housing over-income (NPHOI) families,
allowed by PHA policy to remain in a public housing unit and who have
completed the 24 consecutive month grace period. The alternative rent
is defined as the higher of Fair Market Rent (FMR) or subsidy.
Covered person. Because the new Sec. 960.509 borrows heavily from
the existing lease provisions in Sec. 966.4, which use the term
``covered person,'' HUD is inserting the definition of ``covered
person'' into Sec. 960.102 to indicate that lease provisions cover the
tenant, members of the tenant's household, guests, or others under the
tenant's control.
Non-public housing over-income family. This is the defined term for
a family that is above the OI limit but is remaining in their unit,
paying the alternative non-public housing rent. These families will no
longer be public housing program (PHP) participants.
Over-income family. This was an existing term that previously
referred to a family that is not a low-income family. The term has been
revised in the final rule to now mean a family whose income exceeds the
OI limit.
Over-income limit. This term was discussed and defined in the
notice published by HUD on July 26, 2018 (83 FR 35490) and its
September 17, 2019, proposed rule, but was not proposed to be codified
as a defined term in the proposed rule. Upon reconsideration, HUD is
codifying this definition in Sec. 960.102. This limit is set by
multiplying the very low-income level for the applicable area by a
factor of 2.4.
Technical Amendments
This final rule also updates an outdated citation in the definition
of ``Income'' in Sec. 570.3. The definition of income in that section
incorporates three separate definitions of ``income'' and allows
Community Development Block Grant program grantees and Section 108 Loan
Guarantee program borrowers to choose which definition to use to
determine whether a family or household is low- or moderate-income. One
option available to grantees is the definition of annual income ``as
defined under the Section 8 Housing Assistance Payments program at 24
CFR 813.106[.]'' However, the Section 8 Housing Assistance Payments
program was incorporated into part 5 in 1996, and the definition of
``Annual Income'' was moved from Sec. 813.106 to Sec. 5.609.
Therefore, this citation is out of date. HUD has allowed grantees to
use the definition at Sec. 5.609 despite the outdated citation because
it is the clear definition applicable ``under the Section 8 Housing
Assistance Payments program.'' This final rule updates the citation
from Sec. 813.106 to Sec. 5.609. Because grantees are already
authorized to use the definition under Sec. 5.609, this change is
technical in nature and will not affect grantees in a substantive
manner. Therefore, HUD believes this is an appropriate technical
correction to incorporate into the final rule.
HUD also adds cross-references to certain newly added and revised
definitions described in part 5 to parts 92 (HOME Program), 93 (HTF
Program), and 891 (Section 202 and Section 811 Programs) for
consistency across HUD programs.

B. Income

Applicability of Subpart F
Subpart F of part 5 addresses the common definitions and provisions
addressing income for multiple HUD programs. In this final rule, HUD is
further revising Sec. 5.601 to remove references to the Rent
Supplement program (Rent Supp) and Rental Assistance Program (RAP),
because all contracts assisted under those programs have either expired
or, pursuant to the authority provided under HUD's Rental Assistance
Demonstration program, been converted to Section 8 contracts.
Definition of Income
HUD is revising the definition of annual income in Sec. 5.609(a)
for clarity. In paragraph (a)(1), HUD relies on the definition of
excluded income under Sec. 5.609(b) to provide the scope of what is
included in income. In addition, HUD is modifying paragraph (a)(2) to
specify that when net family assets are valued over $50,000 (as
adjusted by inflation) and actual returns cannot be calculated, imputed
returns are included in income. All actual returns that can be
calculated continue to be included in income.
Exclusions From Income
This final rule makes changes from what was proposed to the
exclusions from income in Sec. 5.609(b). Changes to the exclusions
related to foster children and adults, financial aid, and distributions
from trusts are discussed elsewhere within this preamble. The remaining
changes are discussed here.
In Sec. 5.609(b)(1), HUD is including the corollary to the
specification in the definition of income that imputed returns for net
family assets valued over $50,000 are included as income. In Sec.
5.609(b)(1), imputed returns for net family assets valued at or below
$50,000 are explicitly excluded from income. PHAs, owners, and grantees
are therefore not required to calculate and may not include imputed
returns as family income when a family's net family assets are valued
at or below $50,000 (as such amount is annually adjusted by an
inflationary factor). Actual returns from net family assets continue to
be included in income.
In this final rule, HUD revises Sec. 5.609(b)(2) to exclude from
income various types of trust distributions. For an irrevocable trust
or a revocable trust outside the control of the family or household
excluded from the definition of net family assets under Sec. 5.603(b),
the final rule excludes from income distributions of the principal or
corpus of the trust, and distributions of income from the trust when
the distributions are used to pay the costs of health and medical care
expenses for a minor. For a revocable trust or a trust that is under
the control of the family or household, any distributions from the
trust are excluded from income, except that any actual income earned by
the trust, regardless of whether it is distributed, shall be considered
income to the family at the time it is received. Please see the
discussion elsewhere in this preamble (section III. On public comments
and HUD's responses, Section ``E. Trust Distributions'' under the
header ``Income Exclusions'') for a detailed discussion of
distributions of income or principal from trusts. HUD is also modifying
Sec. 5.609(b)(3) to remove references to income from foster children
and adults and to incorporate the new defined term ``earned income.''
This has the effect of continuing to specifically exclude earned income
of all children under the age of 18 within assisted households. This
income is currently excluded under 24 CFR 5.609(c)(1) of HUD's income
regulations and will remain excluded under this final rule.
Section 5.609(b)(4) excludes from income payments received for the
care of foster children or adults, and the proposed rule proposed
language expanding the exclusion to State kinship or guardianship care
payments. In this final rule, HUD is clarifying that the exclusion
should also apply to

[[Page 9604]]

Tribal kinship or guardianship care payments.
Section 5.609(b)(5) excludes from income insurance payments and
settlements for personal or property loss. In this final rule, HUD is
clarifying that these payments and settlements include, but are not
limited to, ``payments through health insurance, motor vehicle
insurance, and workers' compensation.'' HUD believes that explicitly
including these examples will help address questions about what is
covered by this exclusion.
In this final rule, HUD excludes ``income earned by, government
contributions to, and distributions from `baby bond' accounts created,
authorized, or funded by Federal, State, or local government'' from
income in Sec. 5.609(b)(10). HUD also revised 24 CFR 5.603 to exclude
the ``value of any `baby bond' account created, authorized, or funded
by Federal, State, or local government'' from the calculation of net
family assets. HUD makes these revisions in recognition of the fact
that ``baby bonds'' (money held in trust by the government for children
until they are adults) are being authorized in various States and
localities in an effort to combat the wealth gap and address systemic
poverty. In this final rule, HUD makes other revisions to the proposed
Sec. 5.609(b)(10). Specifically, Sec. 5.609(b)(10) now excludes
``income and distributions from'' rather than the ambiguous ``amounts
from'' any Coverdell education savings account under Section 530 of the
Internal Revenue Code of 1986 or any qualified tuition program under
Section 529 of such Code.
The proposed rule at Sec. 5.609(b)(10) excluded from annual income
any amounts from ABLE accounts under section 529A of the Internal
Revenue Code of 1986. With this exclusion, HUD intended to codify a
mandatory income exclusion in the Achieving Better Life Experience
(ABLE) Act (Pub. L. 113-295). However, HUD has since determined that
the income exclusion in the proposed rule did not comply with the
statutorily mandated income exclusion and was also inconsistent with
Notice PIH 2019-09/H-2019-06 (issued April 26, 2019), Treatment of ABLE
accounts in HUD-Assisted Programs.5 Upon further review of
the statutorily mandated income exclusion in the ABLE Act, HUD decided
that income exclusions related to ABLE accounts are too nuanced to
capture in a succinct, general income exclusion. Therefore, in this
final rule, HUD declines to provide an enumerated income exclusion
related to ABLE accounts. Instead, the mandatory income exclusion
related to ABLE accounts is provided pursuant to Sec. 5.609(b)(22),
which covers amounts that HUD is required by Federal statute to exclude
from income and further provides that HUD will publish a notice in the
Federal Register to identify the benefits that qualify for this
exclusion. PHAs, owners, and grantees may refer to Notice PIH 2019-09/
H-2019-06 for details about when ABLE account income is excluded.
Though HUD is not including an enumerated income exclusion related to
ABLE accounts, HUD is retaining language excluding the value of ABLE
accounts from the definition of ``net family assets'' in Sec. 5.603.
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\5\ Available at: <a href="https://www.hud.gov/sites/dfiles/PIH/documents/PIH-2019-09.pdf">https://www.hud.gov/sites/dfiles/PIH/documents/PIH-2019-09.pdf</a>.
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In Sec. 5.609(b)(12)(iv), incremental earnings and benefits from
various specific employment training programs are excluded from income.
In the proposed rule, HUD inadvertently omitted Federal and Tribal
employment training programs from the list of income exclusions and
included only State and local employment training programs. Therefore,
in this final rule, HUD is adding language to also exclude payments
from training programs funded by HUD or qualifying Federal, State,
Tribal, or local employment training programs (including training
programs not affiliated with a local government) and payments from
training of a family member as resident management staff from the
family's income.
In this final rule, HUD is revising the wording of the income
exclusions of earned income of dependent full-time students (Sec.
5.609(b)(14)) and of adoption assistance payments (Sec. 5.609(b)(15))
to provide greater clarity as to the amount excluded. In both cases,
the amount excluded from income was intended to be the amount in excess
of the dependent deduction in Sec. 5.611 (understanding that under
HOTMA the dependent deduction will be adjusted annually for inflation).
Under the proposed rule, rather than simply identifying the amount of
the dependent full-time student's earned income that was specifically
excluded from income, HUD identified the amount of the dependent full-
time student's earned income that ``shall be considered income'' (which
was the amount equal to the dependent deduction). HUD is revising both
Sec. 5.609(b)(14) and Sec. 5.609(b)(15) to explicitly state that the
income exclusion is the earned income in excess of the amount of the
deduction for a dependent in Sec. 5.611. Since the dependent deduction
under Sec. 5.611 provides for this annual adjustment, HUD believes
that the intended purpose of the regulation will be better understood
as a result of the revisions in the final rule.
Section 5.609(b)(19) excludes payments to keep family members with
disabilities living at home. In the proposed rule, HUD proposed to
exclude only payments from State Medicaid-managed care systems to keep
a family member who has any disability (not just a developmental
disability) living at home. The intent behind these changes was both to
expand the existing exclusion to include those with a disability other
than a developmental disability and to clarify the types of payments
that are excluded from income. Many States provide benefits to
individuals with a variety of disabilities, which allow such
individuals to remain at home rather than reside in institutional
settings such as hospitals, nursing homes, or other institutional or
segregated settings, and there was no reason to limit the exclusion to
persons with a certain type of disability.
The proposed rule also removed the qualifying language regarding
such payments to ``offset the cost of services and equipment
provided.'' HUD is aware that payments under these programs are not
limited to reimbursement of specific services and equipment in order to
keep a family member with a disability living at home.
In response to public comments that State Medicaid agencies provide
in-home supports through a range of delivery structures, such as fee-
for-services, not just managed care, HUD is expanding the language in
the final rule to exclude all payments from State Medicaid agencies for
in-home supports. Federal Medicaid rules allow States to cover a wide
range of institutional and home and community-based long-term services
and supports (LTSS), but the type of services, populations covered, and
delivery models differ substantially across States based on their
individual Medicaid program structure.
Additionally, in response to public comments pointing out that
there are similar payments from States that are not connected to
Medicaid, HUD is expanding the language in the final rule to also
exclude payments from or authorized by State agencies for States that
use a source of funding other than Medicaid to provide for in-home
support.
HUD is also adding payments made or authorized by a Federal agency
for this purpose so as not to inadvertently make such payments
ineligible for this exclusion. HUD will issue guidance to

[[Page 9605]]

PHAs and owners on any payments made by Federal agencies that would be
covered by this exclusion. HUD is clarifying in the final rule that
payments may be made directly by the State Medicaid agency (including
through a managed care entity) or other State or Federal agency, or
made by another entity authorized by the State Medicaid agency, State
agency, or Federal agency to make such payments on its behalf.
Public commenters also described how in many cases the government
agency directly pays the person providing the services. For instance,
an adult providing personal care services for a parent or other family
member with a disability could receive direct payments from the State
agency for performing those services. HUD is adding language in the
final rule that amounts paid directly to a member of the assisted
family by the State Medicaid agency (including through a managed care
entity) or other State or Federal agency (or other entities authorized
by the agencies to make such payments) to enable a family member who
has a disability who wishes to remain living in the assisted unit,
under the applicable terms and conditions for the family member to be
eligible for such payments, are excluded from the family's income. This
income exclusion applies only to payments to the family member for
caregiving services for another member of the family residing in the
assisted unit. For example, payments to the family member for
caregiving services for someone who is not a member of the assisted
family (such as for a relative that resides elsewhere) are not excluded
from income. Furthermore, if the agency was making payments for
caregiving services to the family member for not only another member of
the assisted family but also for a person outside of the assisted
family, only the payments attributable to the caregiving services for
the caregiver's assisted family member would be excluded from income.
HUD is revising Sec. 5.609(b)(20), which excludes loan proceeds
from income. The revisions specify that the exclusion also covers
amounts disbursed to or on behalf of a borrower, or loan proceeds
received by a third party instead of the family. Examples of loan
proceeds excluded by this new definition can include payments from
student loans, car loans, or amounts received from a Home Equity
Conversion Mortgage (if the assisted family is in a program that allows
for assistance to homeowners e.g., HOME).
In Sec. 5.609(b)(21), HUD is modifying the exclusion of payments
received by Tribal members resulting from mismanagement of assets held
in trust by the United States. In addition to using the term ``Tribal
member'' instead of ``Indian persons,'' Sec. 5.609(b)(21) now covers
payments excluded from income under Federal law other than the Internal
Revenue Code. These payments were always required to be excluded under
HUD income exclusion requirements because they are excluded from income
for eligibility and determining the amount of assistance under Federal
law, but they are now explicitly referenced in Sec. 5.609(b)(21).
HUD also simplified Sec. 5.609(b)(22), which addresses income
exclusions required by other Federal statutes. Rather than distributing
notices updating the list to PHAs, the final rule commits HUD to
publishing the notice in the Federal Register.
Section 5.609(b)(23) excludes ``gap'' payments made pursuant to 49
CFR part 24. These are a form of relocation assistance payments made to
displaced persons under the Uniform Relocation and Real Property
Acquisition Policies Act of 1970, as amended (42 U.S.C. 4601 et seq.)
(URA). The ``gap'' payment pays for the difference in costs associated
with moving from one form of housing assistance to another and/or from
one dwelling unit to another as a result of permanent displacement for
a Federal program or project, as defined under the URA. The final rule
revises the exclusion for clarity without making substantive changes.
In the proposed rule, HUD proposed removing the exclusion of
``temporary, nonrecurring or sporadic income.'' This was the result of
much confusion over what exactly the exclusion covered. However, after
reviewing public comments and additional consideration, HUD has
realized the utility of including a broad exemption for income that a
family may have received previously but does not anticipate for the
coming year. This is particularly needed because under HOTMA, PHAs and
owners are to use the family's income from the previous year in making
an income determination for the upcoming year, with adjustments as the
PHA or owner determines necessary to reflect current income. Therefore,
HUD is restoring, in Sec. 5.609(b)(24) of this final rule, a general
exclusion of ``nonrecurring income.'' To address some of the issues
that have arisen under the previous broad exemption, HUD is defining
nonrecurring income as income that will not be repeated in the coming
year, based on information that the family provides. The exclusion also
specifically states that income earned as an independent contractor,
day laborer, or seasonal worker does not count as ``nonrecurring''
income.
Additionally, to address other forms of sporadic income that would
have been excluded under the previous blanket exclusion, HUD is
including additional information on what ``nonrecurring income''
consists of and offering specific examples: payments from the U.S.
Census Bureau for work on the decennial Census or the American
Community Survey that is less than 180 days and does not result in a
permanent position; direct Federal or State payments intended for
economic stimulus or recovery; amounts received directly by the family
as a result of State or Federal refundable tax credits or refunds at
the time they are received; gifts for holidays, birthdays, or
significant life events or milestones; non-monetary, in-kind donations
from food banks or similar organizations; and lump-sum additions to
assets such as lottery or other contest winnings.
Under 26 U.S.C. 6409, Federal tax refunds are excluded from the
calculation of income for Federal programs. HUD is therefore adding
Federal refundable tax credits and Federal tax refunds at the time they
are received to the exclusions from annual income at Sec.
5.609(b)(24)(iv), as they are a form of nonrecurring income that is
specifically excluded from family income by statute. Until this
rulemaking, refunds of State taxes have not been specifically
identified as excluded from a family's annual income in HUD's
regulations. HUD is clarifying that this is a form of nonrecurring
income that must be excluded from a family's annual income. HUD is now
excluding amounts directly received by the family as a result of State
refundable tax credits or State tax refunds at the time that they are
received in Sec. 5.609(b)(24)(iii).
HUD notes that the reason why the passages at Sec.
5.609(b)(24)(iii) and (iv) read as refundable tax credits or tax
refunds ``at the time they are received'' is because a family's annual
income may have already included the amounts the family received in the
year that the taxes were paid. In those instances, the refund of taxes
paid does not represent any new or additional money paid to the family.
Moreover, there are some forms of refundable tax credits that may be
provided to a family in advance of filing taxes. In order to avoid any
confusion and to ensure that PHAs and owners are not counting the same
income more than once, HUD has added the modifier ``at the time they
are received'' for the exclusion of both Federal and State refundable
tax credits and refunds.

[[Page 9606]]

HUD has used the current exclusion in Sec. 5.609(c)(3) to exclude
from income lump-sum additions to assets that the family may have
received as a result of a resolution of a civil rights matter. This may
include amounts received as a result of litigation or other actions,
such as conciliation agreements, voluntary compliance agreements,
consent orders, other forms of settlement agreements, or administrative
or judicial orders under the Fair Housing Act, Title VI of the Civil
Rights Act, section 504 of the Rehabilitation Act (Section 504), the
Americans with Disabilities Act, or any other civil rights or fair
housing statute or requirement. HUD does not intend to change the
practice of excluding this income, but because there has been
confusion, HUD is adding a new income exclusion in Sec. 5.609(b)(25)
that broadly excludes from income any amounts the family may receive
from civil rights settlements or judgments regardless of how the
settlement or judgment is structured. This reflects the fact that
sometimes settlements or judgments of this nature are not lump-sum
payments but instead may have a payment schedule.
HUD is also adding at Sec. 5.609(b)(25) language stating that back
pay received by the family pursuant to a civil rights settlement or
judgment is excluded from income. HUD believes it would be unfair to
treat back pay received by a family pursuant to a civil rights
settlement or judgment differently than other amounts received under
such settlements or judgments. The treatment of back pay is different
from the future payments the family receives as a result of the raise
or promotion under the terms of the civil rights settlement or
judgment, which would be included in income.
While these civil rights settlement or judgment amounts are
excluded from income, the settlement or judgment amounts will generally
be counted toward the family's net family assets (e.g., if the funds
are deposited into the family's savings account or a revocable trust
under the control of the family).
Income generated on the settlement or judgment amount after it has
become a net family asset is not excluded from income. For example, if
the family received a settlement or back pay and deposited the money in
an interest-bearing savings account, the interest from that account
would be income at the time the interest is received. As an example,
consider a family with no net family assets that receives a civil
rights settlement in the amount of $20,000. Upon receiving the
settlement, the family's assets increased to $20,000, but the $20,000
settlement is not included in the family's income. At the family's next
income examination, any actual income earned from the $20,000 (e.g.,
interest or investment income) will be included in the family's income.
For instance, if at the family's next annual income examination after
the family received the $20,000 civil rights settlement, the actual
income earned from investing the $20,000 is $500, then $500 will be
included in the family's income.
Furthermore, if a civil rights settlement or judgment increases the
family's net family assets such that they exceed $50,000 (as annually
adjusted by an inflationary factor), then income will be imputed on the
net family assets pursuant to 24 CFR 5.609(a)(2) in this final rule. If
the imputed income, which HUD considers unearned income, increases the
family's annual adjusted income by ten percent or more, then an interim
reexamination of income will be required unless the addition to the
family's net family assets occurs within the last 3 months of the
family's income certification period and the PHA or owner chooses not
to conduct the examination.
Finally, a large addition to net family assets may impact the
family's eligibility for public housing or Section 8 assistance if the
net family assets exceed $100,000 (as annually adjusted by an
inflationary factor) per 24 CFR 5.618.
In this final rule, HUD adds new income exclusions at Sec.
5.609(b)(26) and (b)(27). Section 5.609(b)(26) excludes income received
from any account under a retirement plan recognized as such by the IRS,
including individual retirement arrangements (IRAs), employer
retirement plans, and retirement plans for self-employed individuals.
However, any distribution of periodic payments from these retirement
accounts shall be income at the time they are received by the family.
This revision aligns with, and clarifies, HUD's current policy
regarding the treatment of income earned and distributions from
retirement accounts. For example, current Sec. 5.609(b)(4) states that
income includes the full amount of periodic amounts received by
retirement funds and pensions. A new income exclusion at Sec.
5.609(b)(27) excludes income earned on amounts placed in a family's FSS
account. This exclusion is consistent with how HUD currently treats
income earned on FSS accounts. The exclusion does not address
distributions from a family's FSS account, because such distributions
(either as a final or interim distribution under the terms of the
Contract of Participation) will be excluded from income under Sec.
5.609(b)(24)(vii) as a lump-sum addition to net family assets.
With these revisions and additions, HUD intends to exclude from
income sources of funds that cannot be relied upon to pay for a
family's housing needs, while providing additional clarity to PHAs and
owners about what funds must still be considered income, given the
broad definition contained in HOTMA.
In Sec. 5.609(b)(28), HUD is codifying the current requirements
for considering self-employment income and income from the operation of
a business, which are currently codified in Sec. 5.609(b)(2). Under
Sec. 5.609(b)(28), gross income that a family member receives through
self-employment or operation of a business is excluded from a family
member's income, as gross income is not reflective of the costs of
operating a business of being self-employed. Instead, HUD is requiring
that the net income from the operation of a business be considered
income in Sec. 5.609(b)(28)(i). As provided by currently codified
Sec. 5.609(b)(2), HUD does not consider expenditures for business
expansion of amortization of capital indebtedness to be deductible when
determining the new income from a business. An allowance for
depreciation of assets used in a business or profession may be
deducted, based on a straight-line depreciation, as provide in IRS
regulations, as is the case under the current rule. Under Sec.
5.609(b)(28)(ii), HUD shall consider the withdrawal of cash or assets
from the operation of a business to be income except to the extent that
such withdrawal is to reimburse the family member for cash or assets
that the family has invested in the operation of the business. This
treatment is no different than the current treatment under the
regulations and represents a continuation of existing policy.
Student Financial Assistance
HOTMA mandates the exclusion of certain earned income for full-time
dependent students and grant-in-aid, or scholarship amounts for such
students. Although not required by the HOTMA statute, the proposed rule
proposed the previous exclusion of financial aid, which also codified
the treatment of financial assistance under longstanding appropriations
act provisions for Section 8 families (including persons over the age
of 23 with dependent children). However, the proposed rule was still
not entirely clear regarding what constitutes financial assistance.
Furthermore, the proposed rule did not codify a Federally mandated
income exclusion in section 479B of the Higher Education Act of 1965
(20 U.S.C.

[[Page 9607]]

1087uu) (HEA). This exclusion is currently included in the list of
Federally mandated exclusions from income, which HUD published on May
20, 2014 (79 FR 28938). HUD has determined this exclusion should be
codified in the final rule because of the extent of its impact in
calculating family incomes. Finally, considering the required exclusion
in section 479B of the HEA, HUD concludes it cannot, as part of this
rulemaking, codify the Section 8 student financial assistance
limitations provided annually in HUD appropriations (see Section 210(b)
of Division L of Public Law 117-103 for the provision in the 2022
Consolidated Appropriations Act), although these limitations will
continue to apply to funds from any year in which the limitations are
enacted in an appropriations act.\6\
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\6\ The HEA is an authorizing statute whereas appropriations
acts are temporary in nature, applying only to the funds from the
year that the appropriations are in effect. HUD acknowledges that
HUD's current rule at 24 CFR 5.609(b)(9) codifies the Section 8
student financial assistance appropriations language,
notwithstanding section 479B of the HEA, but notes that this
rulemaking was authorized by the FY 2006 Appropriations Act (Pub. L.
109-115); section 327 of that Act directed HUD to issue a final rule
to ``to carry out'' the Section 8 appropriations student
restrictions. Since 2006, HOTMA passed without the language from the
student restrictions in the annual appropriations text, and a newer
version of the HEA passed. Moreover, recent appropriations acts do
not include a requirement that would enable HUD to codify a
requirement in this final rule contradicting this latest version of
the HEA, an authorizing statute. Notwithstanding the foregoing
interpretation about the treatment of student assistance under
section 479B of the HEA as excluded income, HUD's current Section 8
eligibility rule at 24 CFR 5.612, also codified pursuant to the FY
2006 Appropriation Act rulemaking authority, is not part of this
rulemaking and is therefore still in effect.
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Therefore, in this final rule, in Sec. 5.609(b)(9), HUD codifies
the Federally mandated income exclusion in section 479B of the HEA. HUD
also expands on the proposed regulatory language, calling upon
interpretations of the previous regulatory text, IRS definitions, and
relevant statutory language. Section 5.609(b)(9) includes two income
exclusions related to assistance provided to students. First, Sec.
5.609(b)(9)(i) excludes any assistance that section 479B of the HEA
requires to be excluded from a family's income. Second, Sec.
5.609(b)(9)(ii) excludes student financial assistance, not otherwise
excluded by Sec. 5.609(b)(9)(i), for tuition, books, and supplies,
room and board, and other fees required and charged to a student by an
institution of higher education.
Section 5.609(b)(9)(i) addresses the mandatory income exclusion in
section 479B of the HEA, which states ``[n]otwithstanding any other
provision of law, student financial assistance received under this
title, or under Bureau of Indian Affairs student assistance programs,
shall not be taken into account in determining the need or eligibility
of any person for benefits or assistance, or the amount of such
benefits or assistance, under any Federal, State, or local program
financed in whole or in part with Federal funds.'' Under Section 701 of
Division FF of Public Law 116-260, entitled ``FAFSA Simplification
Act,'' Section 479B of the HEA has been modified slightly to exclude
student financial assistance under the Bureau of Indian Education
(instead of the Bureau of Indian Affairs) and to expand the forms of
excluded income to include income earned in employment and training
programs under Section 134 of the Workforce Innovation and Opportunity
Act (WIOA) (29 U.S.C. 3174 et seq.). As per Section 101 of Division R
of Public Law 117-103, this revised provision shall become effective on
July 1, 2024. Until July 1, 2024, PHAs, owners, and grantees shall
exclude from income amounts received for the forms of assistance listed
in the current version of Section 479B of the HEA. Beginning July 1,
2024, PHAs, owners, and grantees shall exclude from income amounts
received for the forms of assistance listed in the revised version of
Section 479B of the HEA. Current examples of student financial
assistance received under Title IV of HEA include but are not limited
to: Federal Pell Grants, Teach Grants, Federal Work-Study Programs,
Federal Perkins Loans, among many others. Current examples of student
financial assistance under the Bureau of Indian Education include the
Higher Education Tribal Grant and the Tribally Controlled Colleges or
Universities Grant Program. Current employment training programs under
Section 134 of the WIOA that are to be excluded from income when the
revised statute comes into effect are workforce investment activities
for adults and workers dislocated as a result of permanent closure or
mass layoff at a plant, facility, or enterprise, or a natural or other
disaster that results in mass job dislocation, in order to assist such
adults or workers in obtaining reemployment as soon as possible.
Section 479B of the HEA requires that all assistance under Title IV
of the HEA (as well as Bureau of Indian Affairs student financial
assistance), even assistance provided to students in excess of tuition
and required fees or charges, be excluded from HUD income calculations.
However, for more than a decade, enacted on a year-by-year basis, HUD
appropriations have included a provision that has created an exception
to section 479B for Section 8 income calculations. For example, the
FY2022 Appropriations Act (Pub. L. 117-103) states that, ``[f]or
purposes of determining the eligibility of a person to receive
assistance under Section 8 of the United States Housing Act of 1937 (42
U.S.C. 1437f), any financial assistance (in excess of amounts received
for tuition and any other required fees and charges) that an individual
receives under the Higher Education Act of 1965 (20 U.S.C. 1001 et
seq.), from private sources, or from an institution of higher education
(as defined under Section 102 of the Higher Education Act of 1965 (20
U.S.C. 1002)), shall be considered income to that individual, except
for a person over the age of 23 with dependent children.'' Thus, for
any year that this language appears in HUD appropriations, it requires
that certain assistance, including assistance under Title IV of the
HEA, in excess of tuition and other required fees and charges, be
included in income calculations for Section 8 students who are age 23
and under or without dependent children. In a notice titled Eligibility
of Students for Assisted Housing Under Section 8 of the U.S. Housing
Act of 1937; Supplementary Guidance, HUD interpreted this limitation as
applying when the student is the head of household or spouse, but not
when the student resides with parents in a Section 8 unit. (April 10,
2006, 71 FR 18146).
Although the proposed rule sought to codify this appropriations
requirement, HUD has since determined that it does not have the
authority to publish a rule that contradicts section 479B of the HEA
without explicit statutory authority.
For any funds from a year where HUD's appropriations acts include
Section 8 student financial assistance limitations similar to those in
FY2022, those limitations will still apply with respect to Section 8
participants, even if the appropriations contradict section 479B of the
HEA. As discussed directly below, any student financial assistance that
is not excluded pursuant to Sec. 5.609(b)(9)(i) is subject to Sec.
5.609(b)(9)(ii). Thus, a PHA or owner must perform the calculation for
a Section 8 student head of household or spouse who is either 23 and
under or without dependent children in 5.609(b)(ii) including the
student assistance that would have been excluded in 5.609(b)(i) but is
not because the Section 8 funds come from a year where the HUD
appropriations act provisions included the Section 8

[[Page 9608]]

student financial assistance limitations. HUD plans to issue guidance
about how to treat student financial assistance in income calculations.
Section 5.609(b)(9)(ii) of the final rule recognizes that student
financial assistance can take a variety of forms and come from a
variety of sources to both full and part-time students. For example,
HUD considered that not all assistance provided to students is
assistance provided under Title IV of the HEA or through the Bureau of
Indian Affairs. The final rule provides that student financial
assistance, for purposes of Sec. 5.609(b)(9)(ii), means a grant or
scholarship received from the Federal government, a State, Tribal, or
local government, a private foundation registered as a nonprofit under
26 U.S.C. 501(c)(3), a business entity (such as a corporation, general
partnership, limited liability company, limited partnership, joint
venture, business trust, public benefit corporation, or nonprofit
entity), or an institution of higher education. A grant would include a
qualified tuition remission, reduction, waiver, or reimbursement (i.e.,
amounts received as reimbursement for the student's paid costs of
tuition, books, and fees, etc.) by the educational institution, such as
for an employee of the institution of higher education or an eligible
family member of that employee. A grant would also include assistance
provided by an employer as part of an employee educational assistance
program or tuition reimbursement program. The final rule also states
that student financial assistance, for purposes of Sec.
5.609(b)(9)(ii), does not include any assistance that is excluded from
income pursuant to Sec. 5.609(b)(9)(i). Thus, assistance provided to
students under Title IV of the HEA or under Bureau of Indian Affairs
student assistance programs is not subject to Sec. 5.609(b)(9)(ii).
The language included in the final rule is also intended to clarify
that student financial assistance excluded from income under Sec.
5.609(b)(9)(ii) must be for educational expenses and does not include
payments obtained through work study, money from friends or family, or
funds that exceed the actual education expenses to the student. Amounts
received under work study may still be excluded under Sec.
5.609(b)(9)(i) (if provided pursuant to Title IV of the HEA) or Sec.
5.609(b)(14) (to the extent that the work study is being performed by a
dependent full-time student). Loan proceeds for educational expenses,
though considered student financial assistance if provided under a loan
program in Title IV of the HEA, are not considered student financial
assistance for purposes of Sec. 5.609(b)(9)(ii) and are already
excluded from income under Sec. 5.609(b)(20). In addition, HUD is
adding language in Sec. 5.609(b)(9)(ii)(D) that states if student
financial assistance is paid to the student, the responsible entity (as
defined in Sec. Sec. 5.100 and 5.603) must verify that the assistance
meets the requirements in the paragraph.
HUD sought in this final rule to craft regulatory text that
provides for the consistent treatment of students receiving student
financial assistance, as defined in Sec. 5.609(b)(9)(ii). HUD's goal
in this regard was primarily to provide for the equitable treatment of
such students. The current regulation, consistent with Section 8
appropriations limitations, provides that financial assistance in
excess of amounts received for tuition and any other required fees and
charges (hereafter ``excess'' amounts) was excluded from income to an
individual unless the individual was a Section 8 participant who was
either age 23 or under or without dependents.
In the final rule, such ``excess'' amounts are not considered
student financial assistance to be excluded from income under Sec.
5.609(b)(9)(ii). Though the change will have the effect of eliminating
an income exclusion for certain families (i.e., all non-Section 8
families, and Section 8 families with a head of household or spouse
that is student who is over 23 with dependent children), HUD believes
that this change is justified in terms of fairness. For example,
consider two public housing residents who are both part-time students
over the age of 18 and receive student financial assistance that is not
excluded pursuant to Sec. 5.609(b)(9)(i). One receives ``excess''
amounts of student financial assistance and the other does not, instead
earning the same amount of income from employment (that is not excluded
from income calculations). Before HUD changed the rule through this
rulemaking, the student that had the excess amount of student financial
assistance would have had that excess amount of student financial
assistance excluded from their family's income. On the other hand, the
student with an equal amount of wages (that are not excluded from
income) would have had those wages included in their family's income.
The result would have been that the family of the student who worked
and received wages would pay a higher rent than the family of the
student that received an equal amount of excess student financial
assistance. The rule, as revised, would treat both the excess amounts
of student financial assistance and the earned income of the students
in the example above as income.
Specifically, the final rule provides at Sec.
5.609(b)(9)(ii)(B)(4) that student financial assistance (other than
assistance provided to students under Title IV of the HEA or under
Bureau of Indian Affairs student assistance programs) does not include
any amount of the scholarship or grant that either by itself or when in
combination with the excluded financial assistance under 479B of the
HEA, exceeds the actual cost of tuition, books and supplies (including
supplies and equipment to support students with learning disabilities
or other disabilities), room and board, or other fees required and
charged to a student by the education institution, and for a student
who is not the head of household or spouse, the reasonable and actual
costs of housing while attending the institution of higher education
and not residing in an assisted unit (i.e., the student is living in
off-campus/non-college owned housing while away at school instead of a
dorm or college owned housing). HUD refers to all of these costs as the
``actual covered costs'' in the regulation and preamble.
The final rule includes a new paragraph at Sec. 5.609(b)(9)(ii)(E)
that explains how to determine the amount of assistance that exceeds
these actual covered costs when the student is receiving assistance
excluded from income under section 479B of the HEA as well as student
financial assistance from other sources. As noted earlier, all
assistance under section 479B of the HEA is excluded from income,
regardless of whether those amounts exceed the actual covered costs
described above. The new paragraph at Sec. 5.609(b)(9)(ii)(E) provides
that when determining the amount of assistance in excess of actual
covered costs, as required under Sec. 5.609(b)(9)(ii)(B)(4), the
assistance provided under section 479B of the HEA will be the first
assistance deducted from the actual covered costs. This is because
assistance under section 479B of the HEA is intended to pay the actual
covered costs, and so HUD has determined that these amounts must be the
first amounts subtracted from actual covered costs before any student
financial assistance that HUD is excluding under HUD's discretionary
exclusion authority.
If the amount of assistance excluded under section 479B of the HEA
exceeds the student's actual covered costs, then all of the amounts
received from all other grants or scholarships the student is receiving
from other sources would be in excess of actual covered costs and would
not be considered student

[[Page 9609]]

financial assistance that is excluded from income. For example, assume
a student received $26,000 in assistance excluded under section 479B of
the HEA and another $5,000 from a scholarship that is not excluded
under section 479B of the HEA. If the student's actual covered costs
were $25,000, the entire $26,000 in assistance excluded under section
479B of the HEA would still be excluded from income. However, the
$5,000 from the other scholarship would not be considered student
financial assistance under Sec. 5.609(b)(9)(ii), because it is
assistance in excess of actual covered costs and would not be excluded
from income under that paragraph.
On the other hand, if the amount of assistance excluded under
section 479B of the HEA is less than the student's actual covered
costs, then some or all of the other scholarships and grants would be
excluded from income. The amount that HUD considers student financial
assistance under Sec. 5.609(b)(9)(ii) excluded from income is the
lower of either (1) the total amount of scholarships and grants the
student received that are not excluded under section 479B of the HEA or
(2) the amount by which the student's actual covered costs exceeds the
assistance the student received that is excluded under section 479B of
the HEA. For example, assume a student received $15,000 in assistance
from assistance excluded under 479B of the HEA and another $5,000 from
a scholarship not excluded under section 479B of the HEA. The entire
$15,000 excluded under section 479B of the HEA is excluded from income.
If the student's actual covered costs are $22,000, then the entire
amount of the $5,000 scholarship that is not excluded under section
479B of the HEA would also be student financial assistance that is
excluded from income, as the amount of the scholarship combined with
the assistance excluded under section 479B of the HEA ($20,000) is
still less than the student's actual covered costs ($22,000). But if
the student's actual covered costs are only $18,000, the amount of the
scholarship that is considered student financial assistance under Sec.
5.609(b)(9)(ii) and excluded from income would be $3,000. This is
because the $3,000 by which the student's actual covered cost exceeds
the assistance excluded under section 479B ($18,000-$15,000) is less
than the scholarship amount that is not excluded under 479B of the HEA
($5,000). Consequently, the amount of that scholarship that is in
excess of the student's actual covered costs ($2,000) is not student
financial assistance and is not excluded under Sec. 5.609(b)(9)(ii).
Safe Harbor
This final rule revises the provision in Sec. 5.609(c)(3) that
states that PHAs and owners may, but are not required to, use income
calculation information from other programs or agencies to determine a
family's income prior to applying deductions under Sec. 5.611. Based
on suggestions received in public comments, HUD adds the following to
the list of means-tested forms of public assistance that PHAs and
owners may rely upon: the Low-Income Housing Credit (LIHTC); the
Special Supplemental Nutrition Program for Women, Infants, and Children
(WIC); and Supplemental Security Income (SSI). In addition to these
specific forms of public assistance, HUD is including other HUD
programs, other means-tested forms of Federal public assistance for
which HUD establishes a memorandum of understanding, and other means-
tested forms of Federal public assistance that HUD may announce through
a Federal Register notice.
In response to questions received in public comments, HUD is also
adding regulatory language specifying how PHAs or owners that choose to
use income determinations from other programs are to verify the
information. PHAs or owners are to use third-party verification, which
must include the tenant's family size and composition and state the
family's annual income. The verification must also be dated within the
time frame specified for the type of verification, including within the
previous 12-month period for purposes of the specified means-tested
forms of Federal public assistance. If the PHA or owner cannot obtain
the required third-party verification, or if the family disputes the
determination, the PHA or owner must calculate the family's annual
income using the methods established in Sec. 5.609(c)(1) and (2) or in
the applicable program regulations.
Permissive Deductions
This final rule clarifies that PHAs administering the public
housing, HCV, and Section 8 moderate rehabilitation programs are
authorized to adopt additional deductions under HOTMA in accordance
with the terms and conditions at Sec. 5.611(b). Additionally, the
final rule states that only PHAs, not owners that happen to also be
PHAs, may adopt additional deductions. The proposed rule stated that
permissive deductions could be adopted when a PHA is an owner in the
Section 8 project-based rental assistance (PBRA) program, but HUD has
since determined that such a policy would not comport with HOTMA. Even
if a PHA owns a PBRA property, it does so as any other PBRA owner, and
without any special status conveyed upon it just because it is a PHA.
Thus, because HOTMA permits only PHAs, and not owners, to adopt
additional deductions, HUD concludes that a PBRA owner that is a PHA is
precluded from adopting permissive deductions at a PBRA property.
This final rule updates Sec. 5.611(b) to explain how permissive
deductions are established under each applicable program and splits
Sec. 5.611(b)(1) into paragraphs (i) and (ii) for the public housing
and the applicable Section 8 programs (HCV, moderate rehabilitation,
and moderate rehabilitation Single-Room Occupancy (SRO) programs),
respectively.
HUD is also adding additional language clarifying how HUD will
ensure compliance with the amended 1937 Act's requirement that
permissive deductions not ``materially increase Federal expenditures.''
PHAs can respond to community needs by using a wide range of permissive
deductions, including permissive deductions to provide incentives to
work. However, given the statutory requirement that permissive
deductions may not materially increase Federal expenditures, HUD does
not want to reduce funding for all PHAs by factoring in permissive
deductions prior to allocating PHA Operating Funds or Section 8 funds.
Therefore, HUD will not be revising the public housing Operating Fund
formula to account for any decrease in PHA revenue attributable to
implementing permissive deductions in accordance with Sec. 5.611. The
subsidy costs attributable to permissive deductions will not be taken
into consideration in determining the PHA's HCV renewal funding or
moderate rehabilitation funding. When establishing permissive
deductions, PHAs are still subject to Federal nondiscrimination
requirements, including the obligation to provide reasonable
accommodations that may be necessary for households with family members
with disabilities.
These permissive deductions impact the calculation of the family's
adjusted income that is then used to determine the Total Tenant Payment
(TTP), which is then used to calculate the tenant rent in the public
housing and moderate rehabilitation programs and the family share in
the HCV program. Permissive deductions do not affect the family's
annual income and consequently have

[[Page 9610]]

no impact on the family's income eligibility for the public housing,
HCV, or moderate rehabilitation programs.
Hardship Exemptions
As discussed in section III of this preamble, HUD received numerous
comments on the structure and form of hardship exemptions for
unreimbursed health and medical care and reasonable attendant care and
auxiliary apparatus expenses and child care expenses in Sec. 5.611(c).
HUD therefore is revising the language in this final rule to provide
additional clarity and to ease burdens on families experiencing
financial hardships, including reorganizing the financial hardship
exemption sections from what was included in the proposed rule.
Hardship exemptions for unreimbursed health and medical care and
reasonable attendant care and auxiliary apparatus expenses are now
defined in Sec. 5.611(c). Hardship exemptions for child care expenses
are now defined in Sec. 5.611(d). Finally, hardship policy
requirements are now described in Sec. 5.611(e).
The final rule provides two types of hardship exemptions to the new
ten percent threshold for unreimbursed health and medical care expenses
(for elderly and disabled families) and reasonable attendant care and
auxiliary apparatus expenses (for families that includes a person with
disabilities).
The first category, defined in Sec. 5.611(c)(1), is for families
eligible for and taking the unreimbursed health and medical care
expenses and reasonable attendant care and auxiliary apparatus expenses
deduction in effect prior to this final rule. The second category,
defined in Sec. 5.611(c)(2), is for families that can demonstrate that
the family's health and medical care expenses or reasonable attendant
care and auxiliary apparatus expenses increased, or the family's
financial hardship is a result of a change in circumstances that would
not otherwise trigger an interim reexamination.
HUD is adding this second category in the final rule in recognition
that the change from the three percent threshold to the new ten percent
threshold for unreimbursed health and medical care expenses and/or
reasonable attendant care and auxiliary apparatus expenses may result
in financial hardship for families, including those families who were
not receiving the deduction or may not even have been receiving housing
assistance at the time this rule went into effect. For example, a
family may have had health and medical care and reasonable attendant
care and auxiliary apparatus expenses that did not exceed three percent
on the effective date of the rule, but their health and medical care
expenses may have subsequently increased although those expenses do not
exceed the now effective ten percent threshold. This family may receive
temporary hardship relief if their health and medical care expenses or
reasonable attendant care and auxiliary apparatus expenses exceed 5
percent of the family's income, as discussed in detail below. Another
example is a case where the family's health and medical care expenses
and reasonable attendant care and auxiliary apparatus expenses have not
increased, but the family has had a decrease in income or increase in
other expenses that has resulted in the family's financial hardship. In
such a circumstance the family may receive temporary hardship relief if
their health and medical care expenses or reasonable attendant care and
auxiliary apparatus expenses exceed 5 percent of the family's income.
The second category may also include families that either qualified
under the first category but have exhausted the relief in that
exemption or have chosen to apply for relief under the second category
before completing the transition to the ten percent threshold in
accordance with the terms and conditions discussed below, so long as
they independently qualify under Sec. 5.611(c)(2).
Under the first category at Sec. 5.611(c)(1), the responsible
entity must deduct eligible expenses exceeding 5 percent of the
family's income for the first year. The second year, the responsible
entity must deduct expenses exceeding 7.5 percent of the family's
annual income. However, beginning with the third year, the responsible
entity must deduct only the expenses that exceed ten percent of the
family's annual income, unless the family qualifies for a new exemption
under the other eligible category of health and medical care and
reasonable attendant care and auxiliary apparatus expense hardships
defined in Sec. 5.611(c)(2).
Under the second category defined in Sec. 5.611(c)(2), a family
may also qualify for hardship exemptions for health and medical care
expenses or reasonable attendant care and auxiliary apparatus expenses
if the family can demonstrate that the family's applicable health and
medical care expenses or reasonable attendant care and auxiliary
apparatus expenses increased or the family's financial hardship is a
result of a change in circumstances (as defined by the responsible
entity). For these families, the responsible entity deducts the
eligible expenses in excess of 5 percent of the family's income for a
period of up to 90 days. Responsible entities may extend such
exemptions for additional 90-day periods at their discretion, based on
the family's circumstances. As in the proposed rule, a responsible
entity may also terminate the hardship exemption if the responsible
entity determines that the family no longer needs the exemption.
In some circumstances, a family that is still receiving the health
and medical care and reasonable attendant care and auxiliary apparatus
expense hardship relief under the first category (a family that was
receiving the health and medical care and/or reasonable attendant care
and auxiliary apparatus expense deduction on the effective date of the
rule and is transitioning to the new ten percent threshold) may request
relief under the second category of hardship relief. During the second
year of the transition, the responsible entity deducts expenses
exceeding 7.5 percent of the family's annual income if they are
obtaining relief under Sec. 5.611(c)(1). If the family can demonstrate
that the family's applicable health and medical care and/or reasonable
attendant care and auxiliary apparatus expenses increased or the
family's financial hardship is a result of a change in circumstances
(as defined by the responsible entity) other than the transition to the
higher threshold under the hardship relief policy of Sec. 5.611(c)(1),
the family may be granted hardship relief under the second category of
hardship relief in Sec. 5.611(c)(2). In this case, the responsible
entity would deduct expenses exceeding 5 percent of the family's annual
income instead of 7.5 percent. However, Sec. 5.611(c)(2) provides
relief only for a period of up to 90 days (unless extended by the
responsible entity at their discretion), and a family granted hardship
relief under the second category is no longer eligible for relief under
the first category, as per Sec. 5.611(c)(1)(D). In other words, at the
end of the relief period for the second category that is defined in
Sec. 5.611(c)(2), the family would be subject to the regular health
and medical care expenses or reasonable attendant care and auxiliary
apparatus expenses deduction threshold of ten percent, regardless of
whether they fully transitioned to the ten percent threshold under
Sec. 5.611(c)(1) before receiving hardship relief under the second
category.
HUD reminds responsible entities that they must comply with the
Health Insurance Portability and Accountability Act (HIPAA) (Pub. L.
104-191, 110 Stat. 1936) and the Privacy Act of 1974 (Pub. L. 93-579,
88 Stat. 1896) when requesting documentation to determine eligibility

[[Page 9611]]

for a financial hardship exemption for unreimbursed health and medical
care expenses. Responsible entities may not request documentation
beyond what is sufficient to determine anticipated health and medical
care and/or reasonable attendant care and auxiliary apparatus costs or
when a change in circumstances took place. Before placing bills and
documentation in the tenant file, the responsible entity must redact
all personally identifiable information. Responsible entities must also
comply with all Federal nondiscrimination and civil rights statutes and
requirements, including, but not limited to, the Fair Housing Act,
Title VI of the Civil Rights Act, Section 504, and the Americans with
Disabilities Act, as applicable. Among other obligations, this includes
providing for reasonable accommodations that may be necessary for
persons with disabilities.
HUD also includes language in Sec. 5.611(d) creating a 90-day time
frame for the hardship exemption to the child care income deduction in
this final rule. Responsible entities may extend the hardship for
additional 90-day periods if the family demonstrates to the responsible
entity's satisfaction that the family is unable to pay their rent
because of loss of the child care expense deduction, and the child care
expense is still necessary even though the family member is no longer
employed or furthering his or her education. The 90-day time frame for
the child care hardship in Sec. 5.611(d) is similar to the 90-day time
frame for the second hardship exemption for health and medical care
expenses or reasonable attendant care and auxiliary apparatus expenses
and is also consistent with the 90-day length of time provided for
minimum rent hardship exemptions under Sec. 5.630(b)(2). As in the
proposed rule, responsible entities may also terminate the hardship
exemption if the responsible entity determines that the family no
longer needs the exemption. HUD believes that this 90-day term is
fairer to families than the proposed rule's reliance on the family's
next regular reexamination, where the applicability of the child care
hardship exemption could vary significantly in length depending on when
the event requiring the child care hardship occurred in relationship to
the effective date of the family's next regular reexamination.
For example, assume a family no longer qualifies for the child care
deduction because the child care is no longer necessary to enable a
member of the family to be employed or to further his or her education.
The family member who was employed has left their job in order to
provide uncompensated care to an elderly friend who is severally ill
and lives across town. Under the proposed rule, the length of time that
the hardship exception for the child care deduction could continue
(assuming the need continued to exist) would depend on the timing of
the next regular reexamination. Under the final rule, the hardship
exemption and the resulting alternative adjusted income calculation
must remain in place for a period of up to 90 days, regardless of the
relationship of the timing of the circumstance to the need for the
hardship exemption and the next regular reexamination. In addition, the
final rule provides that responsible entities have the discretion to
extend the hardship exemption for additional 90-day periods based on
family circumstances.
In what is Sec. 5.611(e) in this final rule, HUD has included the
proposed provisions related to how responsible entities are to
establish hardship policies and requirements for notifying families,
which are moved but largely unchanged from what was included in the
proposed rule. In addition to correcting some cross citations that have
changed, the only difference is that HUD has revised the provision to
reflect that hardship exemptions are either phased (Sec. 5.611(c)(1))
or expire within 90 days (Sec. 5.611(c)(2) and (d)), rather than at
the next regular income reexamination, or when the responsible entity
determines the hardship exemption is no longer necessary.

C. Assets

Income From Assets
HOTMA specifically includes actual income from assets in the
definition of income. Therefore, any actual income received must be
counted as family income. In Sec. 5.609(a)(2) of this final rule, HUD
clarifies the regulatory language regarding income from assets to help
PHAs and owners determine what income from assets should be included in
the family's annual income, while also minimizing the burden on PHAs,
owners, and families. This final rule includes language in Sec.
5.609(a)(2) to indicate that the imputed return on assets of a combined
value of more than $50,000 must be calculated if no actual income can
be computed. In addition, if the actual income can be computed for some
assets, but not all assets, housing providers must compute the actual
income for those assets, calculate the imputed income for all remaining
assets where the actual income cannot be computed, and combine both
amounts to account for assets of a combined value of over $50,000.
Limitation on Eligibility for Assistance Based on Assets
Per requirements in HOTMA, Sec. 5.618 creates a restriction on the
eligibility of a family to receive assistance if the family owns real
property that is suitable for occupancy by the family as a residence or
has assets in excess of $100,000, as adjusted annually in accordance
with the Consumer Price Index for Urban Wage Earners and Clerical
Workers. The proposed rule included an exception to the restriction
against owning real property suitable for occupancy by the family as a
residence if the property does not meet the disability-related needs
for all members of the family, including physical accessibility
requirements. In response to public comment, HUD is adding language
clarifying that the example of physical accessibility requirements is
not the sole type of disability-related need that the property must
meet for all family members. There are various circumstances where a
property may not be suitable for occupancy for a household with a
household member with disabilities. Other examples include, but are not
limited to, a disability-related need for additional bedrooms,
proximity to accessible transportation, etc.
HUD is also adding clarifying language throughout the section,
including in Sec. 5.618(a), on the programs covered by the section. In
Sec. 5.618(a)(1)(ii), the final rule adds language that clarifies the
ability to sell is based on the State and local laws of the
jurisdiction where the property is located. HUD has revised Sec.
5.618(a)(1)(ii)(B) to clarify that asset limitations do not apply to a
member of a family that jointly owns real property with another non-
household member that does not reside with the family when that non-
household member lives in the jointly owned property. This can apply in
instances where a family member owns a fractional interest of a
property with other relatives that do not reside with the family.
HUD has revised Sec. 5.618(a)(2) since the proposed rule to add
clarifications and examples of different ways in which a property will
be considered ``suitable for occupancy'' under the amended 1937 Act.
These clarifications and examples indicate that if a property is
geographically located so that the distance or commuting time between
the property and the family's place of work or a family member's
educational institution would create a hardship for the family, as
determined by the PHA or

[[Page 9612]]

owner, it may not be suitable. These clarifications and examples also
specify that a property is considered unsafe to reside in when the
property's physical condition poses a risk to the family's health and
safety and the condition of the property cannot be easily remedied.
This could include where environmental factors outside the control of
the family are contributing to the unsafe condition or where the
alterations necessary to make the physical condition of the property
safe are cost prohibitive.
HUD is also adding a new provision at Sec. 5.618(a)(2)(v) to
clarify that, for purposes of the asset limitation, a property that a
family may not reside in under State or local laws of the jurisdiction
where the property is located is not a property that is suitable for
occupancy by the family as a residence. This can happen when an
assisted family owns a commercial property that cannot legally be
occupied as a residence by the family, such as a convenience store or a
retail establishment. While owning such a property is not the form of
property ownership prohibited under HOTMA, HUD notes that the real
property would be considered an asset for purposes of determining: net
family assets under Sec. 5.603; annual income from net family assets
under Sec. 5.609(a)(2); and for purposes of determining if the family
owns net family assets in excess of $100,000 under 5.618(a)(1)(i). The
real property's value under these regulations is the net cash value of
the real property after deducting reasonable costs that would be
incurred in disposing of the family's real property, which would
include repayment of any mortgage debt or other monetary liens on the
real property.
HUD is changing the paragraph header in Sec. 5.618(b) from ``Self-
certification'' to ``Acceptable documentation; confidentiality'' for
clarity.
Finally, in Sec. 5.618(d), HUD adds language that states that
while the PHA or owner has six months to begin eviction or termination
proceedings for families that have excess or prohibited assets, the PHA
or owner is still bound by other provisions of law.
For clarity, HUD is also adding a cross-reference to the new
restrictions in Sec. 5.618 in the regulations for denial or
termination of assistance for the Section 8 moderate rehabilitation,
HCV, and public housing programs at Sec. Sec. 882.515(d), 982.552(b),
960.201(a) and 966.4(l)(2), respectively.

D. HOME Investment Partnerships Program (HOME) Changes

Definitions
Section 92.2 is being amended to add the term Live-in aide, which
has the same meaning given that term in Sec. 5.403. Section 92.2 is
also amended by adding the terms Foster adult, Foster child, Full-time
student, and Net family assets, which are defined in Sec. 5.603. HUD
believes that this will help participating jurisdictions (PJs) locate
the applicable regulatory definitions for these new or revised terms.
Use of Annual Income in the HOME Program
To determine whether a family is eligible to participate in HOME
program activities, a PJ must calculate a family's annual income. HOME
program activities include the support and development of affordable
rental and homeownership housing, homebuyer downpayment assistance,
rehabilitation of owner-occupied housing, and tenant-based rental
assistance (TBRA) for very low-income and low-income families as
defined in Sec. 92.2. A PJ uses a family's annual income to determine
eligibility for: occupancy of HOME-assisted rental unit, purchase of a
homeownership unit, receiving homebuyer downpayment assistance, and
obtaining rental assistance in TBRA.
The HOME regulations at Sec. 92.203 permit a PJ to use one of two
definitions for annual income for each rental project or program
assisted with HOME funds: (1) adjusted gross income in IRA Form 1040
Individual Income Tax Return (IRS Form 1040) or (2) annual income as
defined at Sec. 5.609. The definition of adjusted gross income in the
IRS Form 1040 is not changed in this rulemaking and will continue to
align with the definition of adjusted gross income developed by the
Department of Treasury. HUD is revising the definition of annual income
at Sec. 5.609 as part of this rulemaking and the changes will apply to
income calculations made after the effective date of this final rule.
In this final rule, HUD is revising Sec. Sec. 92.203 and 92.252 to
align with the income and net family assets provisions amended by HOTMA
and to reduce the administrative burden of calculating income when HOME
funds are layered with other HUD programs. The final rule also
clarifies who is considered a member of the family for the purpose of
calculating income; identifies three cases where a PJ must calculate a
tenant's adjusted income; and removes references to and the
applicability of the disallowance of earned income at Sec. 5.617 from
the HOME program regulations two years after the effective date of the
rule in conformity with the revisions to program regulations subject to
the 1937 Act.

Use of Adjusted Income in the HOME Program

Under certain circumstances, the HOME program also uses the
definition of adjusted income in Sec. 5.611. This definition is used
for the calculation of the maximum subsidy allowable for a family
receiving TBRA, for the calculation of a family's Low HOME rent in
accordance with Sec. 92.252(b)(2), and for the calculation of rent for
over-income tenants, in accordance with Sec. 92.252(i)(2).

Annual Income Determinations in the HOME Program

HUD is amending paragraph Sec. 92.203(a) to add the subheading
``Methods of determining annual income'' to clarify the section's
intent and add new paragraphs (a)(1), (a)(2), and (a)(3) to describe
new requirements for how a PJ must determine the annual income of
families living in HOME-assisted rental units.
In accordance with new Sec. 92.203(a)(1), a PJ must accept a PHA,
owner, or rental subsidy provider's income determinations, in
accordance with Sec. 5.609, if a family is applying for or living in a
HOME-assisted rental unit and the unit is being assisted by Federal
project-based rental subsidy. Similarly, a PJ must accept a State
project-based rental subsidy provider's income determination under the
rules of that State program. Prior to this rulemaking, this requirement
was only described in Sec. 92.252(b)(2). This aligns the calculation
of a family's income under the HOME program with the calculation of a
family's income in other rental assistance or subsidy programs that
assist the same unit. The requirement to accept a PHA's or owner's
income determination applies when HOME funds are used in a project
where units also receive a Federal project-based rental subsidy such as
Section 8 Project-Based Rental Assistance, PBV, project-based
assistance under HUD-VASH Vouchers, or rental assistance provided in
conjunction with the Section 202 Supportive Housing for the Elderly
Program (Section 202) or the Section 811 Supportive Housing for Persons
with Disabilities Program (Section 811). For these units, the family's
income must be calculated in accordance with the rules of the program
providing the rental assistance or subsidy.
In accordance with Sec. 92.203(a)(1), PJs must accept the PHA,
owner, or rental

[[Page 9613]]

subsidy provider's determinations of annual and adjusted income
conducted at initial occupancy, interim reexaminations, and annual
reviews of eligibility, as applicable under that program's rules. For
subsequent income determinations during the HOME affordability period,
a PJ must continue to accept the income determinations performed by the
PHA, owner, or rental subsidy provider in accordance with the rules of
those programs.
In an effort to further align HOME with the HCV Program as well as
other forms of Federal tenant-based rental assistance, HUD is providing
a new flexibility for PJs in Sec. 92.203(a)(2). This new flexibility
allows a PJ to accept a Federal tenant-based rental assistance
provider's income determinations if the family is applying for or
living in a HOME-assisted rental unit and the family is being assisted
by a Federal tenant-based rental assistance program. This flexibility
is an option when tenants in HOME-assisted units are assisted by
programs that provide Federal tenant-based rental assistance such as
the HCV program (including special purpose vouchers such as HUD-VASH
vouchers), HOME-American Rescue Plan (HOME-ARP) Program, Emergency
Solutions Grants Program (ESG), and the Housing Opportunities for
Persons with AIDS (HOPWA) Program. For these units, the PJ may accept
the income determinations made for the family in accordance with the
rules of the program providing the rental assistance. When exercising
this option, the PJ may accept determinations of annual and adjusted
income conducted at initial occupancy, interim reexaminations, and
annual reviews of eligibility, as applicable under that program's
rules. However, a PJ must ensure these units comply with HOME rent
limitations at Sec. 92.252 (e.g., High HOME, Low HOME, and SROs).
This rule does not change the requirement that a PJ enter into
agreement with the owner, developer, or sponsor of rental housing to
commit HOME funds and impose the HOME affordability restrictions.
However, HUD recommends that a PJ also enter into an agreement with the
PHA, owner, or rental subsidy provider for Federal or State project-
based rental subsidy programs, or with the rental assistance provider
for Federal tenant-based rental assistance programs, to facilitate the
sharing of income and rent determinations when income will be
calculated in accordance with Sec. 92.203(a)(1) or (2). This will
ensure the project is able to meet the HOME rental occupancy
requirements established in the HOME written agreement and 24 CFR part
92 (e.g., fixed or floating, High HOME, and Low HOME unit mix).
For HOME-assisted units not assisted by Federal or State project-
based rental subsidy or where a PJ has chosen not to accept a PHA,
owner, or rental subsidy provider's determination of annual income, the
PJ is subject to Sec. 92.203(a)(3) and must continue to comply with
the HOME requirements regarding determination of income in Sec.
92.203(b) through (f), as applicable.
In applying Sec. 92.203(a)(1) and (2), the PJ must accept a PHA's,
owner, rental subsidy provider, or rental assistance provider's
determination of annual and adjusted income under the rules of the
applicable program. For HUD project-based rental subsidy programs, this
includes but is not limited to the determination to: make the
deductions under Sec. 5.611(a), provide any permissive deductions
under Sec. 5.611(b), grant financial hardship exemptions to the family
under Sec. 5.611(c) through (e), and allow for any disallowance of
earned income made under those program rules in accordance with Sec.
5.617 (while those provisions remain in place). HUD also reminds PJs
that, when applying Sec. 92.203(a)(1) and (2), there are new
flexibilities in Sec. 5.609(c)(3) allowing PHAs administering HCV and
owners of projects with project-based rental subsidies a safe harbor
that allows them to accept annual income determinations made by
administrators of means-tested forms of Federal public assistance such
as Temporary Assistance for Needy Families (TANF) or Supplemental
Nutrition Assistance Program (SNAP). To reduce burden and preserve
program alignment, HUD is requiring that where the PHA or owner has
accepted such a determination pursuant to Sec. 5.609(c)(3), the PJ
must also accept the PHA or owner's determination of annual and (as
applicable) adjusted income regardless of whether the safe harbor was
used in making that determination.
Furthermore, HUD similarly reminds PJs that though the HOME program
does not incorporate asset limitations because there is no statutory
basis to exclude families from the HOME program based upon the amount
of assets that are held by those families, families that are subject to
the asset limitations under Sec. 5.618 because of their participation
in a different program may be denied continued assistance under that
program. PJs are under no requirement under the HOME program to exclude
these families from participation and must continue to follow the
tenant protection requirements in Sec. 92.253(c) even if the families
may no longer receive assistance under other HUD programs because of
the family's assets. A HOME PJ may only terminate the tenancy or refuse
to renew the lease of a tenant of rental housing assisted with HOME
funds for good cause, as defined in Sec. 92.253(c), which does not
include having the type of assets or an amount of assets in excess of
the limitations in Sec. 5.618.
Where the PHA or owner enforces the asset limitations and
terminates assistance to the unit or the family because the family's
net family assets exceed the asset limitations in Sec. 5.618, the
family may remain in the HOME-assisted rental unit and the PJ must
determine the family's annual income in accordance with Sec. 92.203(b)
through (e); calculate the family's adjusted income, if applicable, in
accordance with Sec. 92.203(f); and charge a rent in accordance with
Sec. 92.252(a) through (i).
Required Documentation for Annual Income Calculations in the HOME
Program
Unless a PJ falls into one of the exceptions listed in Sec.
92.203(a)(1) or (2), a PJ must calculate annual and (as applicable)
adjusted income each year for HOME-assisted families in accordance with
Sec. 92.203(a)(3) and (f). HUD is not changing the requirements for
what evidence a PJ must use for the first year the family is assisted
or the documentation options available to the PJ in subsequent years.
However, due to the changes discussed above, HUD is redesignating these
options from Sec. 92.203(a)(1) and (a)(2) to paragraphs Sec.
92.203(b)(1) and (b)(2) and redesignating the introductory text to a
new paragraph (b) and revises the new paragraph (b)(1) to update the
reference to the new paragraph Sec. 92.203(b)(1)(i). HUD also revises
the paragraph to add the heading ``Required Documentation for Annual
Income Calculations.''
Defining Income for Eligibility in the HOME Program
While HUD is not changing the two options of calculating annual
income as part of this rulemaking, HUD is redesignating the paragraph
explaining the two options of calculating annual income from Sec.
92.203(b) to Sec. 92.203(c), is revising new paragraph Sec. 92.203(c)
to add subheading Defining income for eligibility, and is incorporating
revisions made to the definitions of annual income at Sec. 5.609(a)
and (b). Notably, this revision in Sec. 92.203(c)(1) does not
incorporate Sec. 5.609(c), which describes how to calculate annual
income in the public housing or Section 8 programs and is therefore not
applicable to the HOME program. Section 92.203(c)

[[Page 9614]]

retains the reference to the definition of net family assets at Sec.
5.603 used to determine the imputed income on assets over $50,000 based
on the current passbook savings rate in Sec. 5.609(a), as the new
definition has no impact on HOME-funded owner rehabilitation
activities. For HOME-assisted owner-occupied rehabilitation activities,
a PJ would continue to exclude the value of a homeowner's principal
residence pursuant to new paragraph Sec. 92.203(c)(1) from the
calculation of net family assets, as defined in Sec. 5.603.
Using Income Definitions in the HOME Program
HUD is also redesignating the paragraph explaining that PJs have
the option of using one of these two income definitions from Sec.
92.203(c) to Sec. 92.203(d), and adding a clarification of existing
policy in the redesignated Sec. 92.203(d). This clarification explains
that though a PJ has the option to use either the definition of
adjusted gross income contained in the IRS Form 1040 or the definition
of annual income in Sec. 5.609 as the definition of annual income for
each rental project, there are some cases where a PJ will be required
to use the definition of annual income in Sec. 5.609 for the
calculation of income for a rental project. This is because for rental
housing projects containing units assisted by a Federal or State
project-based rental subsidy, the PJ must accept the determination of
annual and adjusted income made by the PHA, owner, or rental subsidy
provider under that program's rules. Moreover, in cases where the PJ is
accepting the calculations of a rental assistance provider's
determination of annual and adjusted income for tenants receiving
Federal tenant-based rental assistance, the PJ must calculate income in
accordance with the rules of that program. For HUD-assisted tenant-
based rental assistance and project-based rental subsidy programs, this
would generally be the calculation of annual income under Sec. 5.609.
While this has been a longstanding HUD policy contained in Sec.
92.252, HUD is making this clarification in the income regulations at
Sec. 92.203 to help PJs align the HOME program with project-based
rental assistance programs.
Determining Family Composition and Projecting Income in the HOME
Program
HUD is redesignating paragraph (d) in Sec. 92.203 as paragraph (e)
and adding the heading ``Determining Family Composition and Projecting
Income'' to the redesignated paragraph (e). HUD is also adding
clarifications of existing policy that annual income includes income
from all persons living in the household except live-in aides, foster
children, and foster adults. PJs must project annual income based on
the requirements in Sec. 92.203(e) regardless of which definition of
annual income in Sec. 92.203(c) the PJ applies to its HOME-funded
programs or to each HOME-assisted rental project (Sec. 5.609 or IRS
Form 1040).
In Sec. 92.203(e)(1), HUD is also permitting grantees to use the
certification process established in Sec. 5.618(b) when imputing
income for families whose net family assets, as defined in Sec. 5.603,
do not exceed $50,000 without taking further steps to verify the
accuracy of the declaration. HUD is also clarifying that when families
are homeowners applying for homeowner rehabilitation assistance under
the HOME program, they may also exclude the value of their principal
residence from the calculation of their Net Family Assets for purposes
of the certification. This rule also clarifies, in Sec. 92.203(e)(1),
that the PJ must exclude the Federal tenant-based rental assistance
provided to the family or any Federal or State project-based rental
subsidy provided to the HOME rental housing unit from the calculation
of annual income when determining eligibility for occupancy of HOME-
assisted rental housing units.
The redesignated paragraph Sec. 92.203(e)(3) restates the
requirement that PJs continue to disallow increases in earned income of
persons with disabilities occupying HOME-assisted rental units or
receiving TBRA in accordance with Sec. 5.617 until the elimination of
the requirement. This requirement is derived from Sec. 5.617(e). As
Sec. 5.617 will lapse two years after the effective date of this rule,
HUD is revising paragraph Sec. 92.203(e)(3), to explain that the
requirements of Sec. 92.203(e)(3) shall lapse on January 1, 2026.
Determining Adjusted Income in the HOME Program
In Sec. 92.203, HUD redesignates paragraph (e) as paragraph (f),
revises new paragraph (f), and adds subheading Determining Adjusted
Income. HUD also clarifies the three scenarios in which the PJ must
calculate a tenant's adjusted income and added new paragraphs
(f)(1)(i), (f)(1)(ii), (f)(1)(iii), and (f)(2). The new paragraph
(f)(1)(i) incorporates the revisions to the definition of adjusted
income at Sec. 5.611(a) and (c) and requires the PJ to apply the
deductions at Sec. 5.611(a) for families in HOME TBRA. The PJ may
grant financial hardship exemptions according to the requirements of
the revised Sec. 5.611(c) through (c) to families affected by the
statutory increase in the threshold to receive health and medical care
expense and reasonable attendant care and auxiliary apparatus expenses
deductions from annual income under Sec. 5.611(a)(3), as well as
families that apply for a continued child care expense deduction. To
use the authority, the PJ must develop policies and procedures for
qualifying and granting hardship exemptions in accordance with the
requirements contained in Sec. 5.611(e).
The new paragraph (f)(1)(ii) requires the PJ to apply the mandatory
deductions from income established at Sec. 5.611(a) when determining a
family's adjusted income for the purpose of calculating the rent
applicable to a tenant in Low HOME Rent unit that is subject to the
provisions of new paragraph Sec. 92.252(b)(2)(i). Furthermore, the PJ
may grant financial hardship exemptions according to the requirements
of Sec. 5.611(c) through (e) to families affected by the statutory
increase in the threshold to receive health and medical care expense
and reasonable attendant care and auxiliary apparatus expenses
deductions from annual income under Sec. 5.611(a)(3), as well as
families that apply for a continued child care expense deduction. To
use the authority, the PJ must develop policies and procedures for
qualifying and granting the hardship exemptions in accordance with the
requirements contained in Sec. 5.611(e).
The new paragraph (f)(1)(iii) requires the PJ to apply the
mandatory deductions from income established at Sec. 5.611(a) when
determining a family's adjusted income for the purpose of calculating
the rent applicable to over-income tenants in accordance with Sec.
92.252(i)(2).
Similar to earlier sections of the rule, the new paragraph (f)(2)
clarifies that for Low HOME Rent units that receive Federal or State
project-based rental subsidy, the PJ does not have to calculate the
family's adjusted income and must accept the PHA, owner, or rental
subsidy provider's determination of adjusted income under that
program's rules.
Qualification as Affordable Housing: Rental Housing in the HOME Program
While HUD is not changing the definitions of the High or Low HOME
rents, HUD is revising Sec. 92.252(b)(2) by splitting it into two
paragraphs. Section 92.252(b) states that a PJ has the option of
charging a family either (1) a rent that does not exceed 30 percent of
the annual income of a family whose

[[Page 9615]]

income equals 50 percent of the median income for the area, as
determined by HUD, or (2) a rent that is equal to 30 percent of a
family's adjusted income. This final rule separates into new Sec.
92.252(b)(2)(ii) the conditions that a HOME-assisted unit that also
receives Federal or State project-based rental subsidy must meet in
order for a project owner to charge the maximum rent allowable under
the Federal or State project-based rental subsidy program.
To conform HOME requirements for subsequent income determinations,
HUD is revising paragraph (h) of Sec. 92.252 to update the cross
references from Sec. 92.203 to Sec. 92.203(b)(1), from Sec.
92.203(a)(1)(i) to Sec. 92.203(b)(1)(i), and from Sec.
92.203(a)(1)(ii) to Sec. 92.203(b)(1)(ii). In the sixth year of a HOME
rental project's affordability period, a PJ is not required to review
source documentation for families whose incomes are determined in
accordance with Sec. 92.203(a)(1) and (2). HUD further specifies that
if rental housing projects contain units assisted by a Federal or State
project-based rental subsidy, the PJ must accept the determination of
annual and adjusted income made by the PHA, owner, or rental subsidy
provider under that program's rules. The revisions also permit a PJ to
accept a rental assistance provider's income determination if the
family is living in a HOME-assisted rental unit and the family is being
assisted by Federal tenant-based rental assistance.

E. Housing Trust Fund (HTF) Changes

Definitions
Section 93.2 is being amended to add the term Live-in aide, which
has the same meaning given that term in Sec. 5.403. Section 93.2 is
also amended by adding the terms Foster adult, Foster child, Full-time
student, and Net family assets, which are defined in Sec. 5.603. HUD
is also adding a definition of Public Housing Agency (PHA) that
provides that this term has the same meaning as the definition provided
in Sec. 5.100. HUD believes that this will help HTF grantees locate
and use the applicable regulatory definitions in calculating income.
Use of Annual Income in the HTF Program
To determine whether a family is eligible to participate in HTF
program activities, the HTF grantee must calculate the family's annual
income. HTF program activities include the support and development of
affordable rental and homeownership housing and homebuyer downpayment
assistance for extremely low-income and very low-income families as
defined in Sec. 93.2. An HTF grantee uses a family's annual income to
determine eligibility for occupancy of an HTF-assisted rental unit,
purchase of a homeownership unit, and receiving homebuyer downpayment
assistance.
In this final rule, HUD is revising Sec. 93.151 and Sec. 93.302
to align with HOTMA's income and net family assets provisions and
reduce the administrative burden of calculating income when HTF funds
are layered with other HUD programs. This final rule also codifies
existing program requirements regarding income calculations,
establishes who is considered a member of the family, explains how to
determine the annual income of a family (projecting income), sets a
limit on how long income determinations are good for, and clarifies
that income or assets enhancement derived from the investment of HTF
funds in a project cannot be included when calculating annual income.
Although HUD aligned HTF with other HUD rental programs as much as
possible, the Department codified these requirements to avoid confusion
on which income requirements in the final rule applied to the HTF
program.
Annual Income Determinations in the HTF Program
HUD is revising Sec. 93.151(a) to describe how grantees must
determine the annual income of families living in HTF-assisted rental
units. In Sec. 93.151(a)(1), HUD specifies that if a family is
applying for or living in an HTF-assisted rental unit, and the unit is
assisted under the PHP, then an HTF grantee must accept the PHA's
determination of the family's annual income and adjusted income under
Sec. Sec. 5.609 and 5.611, respectively. This requirement applies when
HTF funds are used in projects that also include public housing funding
in accordance with Sec. 93.203.
In Sec. 93.151(a)(2), HUD explains that if a family is applying
for or living in an HTF-assisted rental unit, and the family is
assisted under a Federal tenant-based rental assistance program, then
an HTF grantee must accept the rental assistance provider's
determination of the family's annual income and adjusted income under
the rules of that program. This requirement applies when HTF funds are
used in projects that also include families that receive Federal
tenant-based rental assistance such as HOME TBRA, HOME-ARP TBRA, HCVs,
ESG, CDBG-CV, HUD-VASH, and HOPWA assistance.
Section 93.151(a)(3) explains that if a family is applying for or
living in an HTF-assisted rental unit and the unit is assisted with a
Federal or State project-based rental subsidy, then an HTF grantee must
accept the PHA, owner, or rental subsidy provider's determination of
the family's annual income and adjusted income under that program's
rules. This requirement applies when HTF funds are used in projects
that also receive Federal or State project-based rental subsidy such as
Section 8 Project-Based Rental Assistance, PBV, project-based
assistance under HUD-VASH Vouchers, or rental assistance provided in
conjunction with the Section 202 and Section 811 Programs. This aligns
the calculation of a family's income under the HTF program with the
calculation of a family's income in other rental assistance or project-
based rental subsidy programs that assist the same family or unit as
the HTF assistance.
In accordance with Sec. 93.151(a)(1) through (3), HTF grantees
must accept examinations of a family's annual and adjusted income
conducted at initial occupancy, interim reexaminations, and annual
reviews of eligibility, as applicable under that program's rules. This
includes but is not limited to the determination to: make the
deductions under Sec. 5.611(a), provide any permissive deductions
under Sec. 5.611(b), grant financial hardship exemptions to the family
under Sec. 5.611(c) through (e), and allow for any disallowance of
earned income made under those program rules in accordance with Sec.
5.617 (while those provisions remain in place).
This rule does not change the requirement that an HTF grantee enter
into an agreement with the recipient (owner or developer) of rental
housing to commit HTF funds and impose the HTF affordability
restrictions. However, HUD recommends that an HTF grantee also enter
into agreement with the PHA, rental assistance provider, rental subsidy
provider, or owner, as applicable, to facilitate the sharing of income
and rent determinations to ensure the project is able to meet the HTF
rental occupancy requirements established in the HTF written agreement
and 24 CFR part 93 (e.g., fixed or floating and applicable HTF rents).
HUD also reminds HTF grantees that Sec. 5.609(c)(3) contains new
flexibilities allowing PHAs administering HCV and public housing and
owners of projects with project-based rental subsidies a safe harbor
that allows them to accept annual income determinations made by
administrators of means-tested forms of Federal public assistance such
as TANF

[[Page 9616]]

or SNAP. To reduce burden and preserve program alignment, HUD is
requiring that where the PHA or owner has accepted such determination
pursuant to Sec. 5.609(c)(3), the HTF grantee must also accept the PHA
or owner's determination of annual and (as applicable) adjusted income
regardless of whether the safe harbor was used in making that
determination.
HUD similarly reminds HTF grantees that though the HTF program does
not incorporate asset limitations because there is no statutory basis
to exclude families from the HTF program based upon the amount of
assets that are held by those families, families that are subject to
the asset limitations under Sec. 5.618 because of their participation
in a different program may be denied continued assistance under that
program. HTF grantees are under no requirement under the HTF program to
exclude these families from participation and must continue to follow
the tenant protection requirements in Sec. 93.303(c) even if the
families no longer receive assistance under other HUD programs because
of the family's assets. An HTF grantee may only terminate the tenancy
or refuse to renew the lease of a tenant of rental housing assisted
with HTF funds for good cause under Sec. 93.303(c), which does not
include having the type of assets or an amount of assets in excess of
the limitations in Sec. 5.618.
Where the PHA or owner enforces the asset limitations and
terminates assistance to the unit or the family because the family's
net family assets exceed the asset limitations in Sec. 5.618, the
family may remain in the HTF-assisted rental unit and the grantee must
determine the family's annual income in accordance with Sec. 93.151(b)
through (e) and charge a rent in accordance with Sec. 93.302(b).
Under Sec. 93.151(a)(4), for HTF-assisted units not assisted by
the PHP or Federal or State project-based rental subsidy, and for
families that are not assisted by Federal tenant-based rental
assistance, a grantee must (a) continue to comply with the HTF
requirements to determine annual income of families by examining at
least 2 months of source documents at initial occupancy and every six
years of the HTF period of affordability, (b) project the prevailing
rate of income of the family, (c) specify which of three methods to
determine annual income (i.e., source, self-certification, written
statement) will apply to subsequent income determinations (other than
at initial occupancy and every six years) during the HTF affordability
period.
While HUD is not changing the two options of calculating annual
income as part of this rulemaking, HUD is revising Sec. 93.151(b)(1)
to incorporate HUD's revisions to the definition of income at Sec.
5.609(a) and (b), which is the definition of income provided by HOTMA.
Notably, this requirement does not fully incorporate Sec. 5.609(c),
which describes how to calculate annual income in the public housing or
Section 8 programs. The section does incorporate revisions to the
definition of Net Family Assets at Sec. 5.603 that are used to
determine the imputed income on assets over $50,000 based on the
current passbook saving rate in Sec. 5.609(a).
HUD is also revising Sec. 93.151(b)(2) to add a clarification of
existing policy. An HTF grantee has the option to use either the
definition of adjusted gross income contained in the IRS Form 1040 or
the definition of annual income in Sec. 5.609 as the definition of
annual income for each rental project. While the provisions addressing
the use of the IRS Form 1040 are not changing, HUD is revising the
provisions allowing grantees to use the definition of annual income in
Sec. 5.609 to specify that there are some cases where an HTF grantee
will be required to use the definition of annual income in Sec. 5.609
for the calculation of income for a rental project. This is because for
rental housing projects containing units assisted through the PHP, a
Federal or State project-based rental subsidy, or through a Federal
tenant-based rental assistance program, the HTF grantee must accept the
determination of annual and adjusted income made under that program's
rules. While this has been a HUD policy in Sec. 93.302(b)(2) for units
assisted by a Federal or State project-based rental subsidy, HUD is
expanding this policy to also align HTF with the public housing and
other Federal tenant-based rental assistance programs in response to
public comment and HUD's policy of aligning HUD programs. HUD is making
this clarification in the income regulations at Sec. 93.151 to better
help HTF grantees in complying with HTF program requirements.
HUD is also revising the header for paragraph (d) of Sec. 93.151
to read as ``Required documentation for Annual Income calculations'' to
clarify the intent of the paragraphs and align with the HOME income
rules.
Determining Family Composition and Projecting Income in the HTF Program
HUD is revising Sec. 93.151 to add a new paragraph (e), entitled
``Determining Family Composition and Projecting Income'' to clarify
existing HUD policy that grantees must calculate annual income by
projecting the prevailing rate of income of the family at the time the
grantee determines that the family is income eligible. In addition, HUD
clarifies that annual income includes income from all persons living in
the family except live-in aides, foster children, and foster adults
regardless of which definition of annual income the grantee applies to
its HTF-assisted programs or projects. HUD also clarifies that income
determinations made in the HTF program are valid for a period of 6
months. Unless the HTF grantee is exempt from projecting a family's
annual income because it is accepting the annual income calculation
performed pursuant to Sec. 93.151(a)(1) through (3), the grantee may
not assist a family whose income determination was made more than 6
months prior to the provision of HTF assistance. In Sec. 93.151(e)(1),
HUD is also permitting grantees to use the certification process
established in Sec. 5.618(b) when imputing income for families whose
net family assets, as defined in Sec. 5.603, do not exceed $50,000,
without taking further steps to verify the accuracy of the declaration.
Lastly, HUD clarifies that for families living in HTF-assisted rental
housing units, any rental assistance provided to the family under a
Federal tenant-based rental assistance program or any Federal or State
project-based rental subsidy provided to the HTF rental housing unit is
not tenant income for purposes of determining annual income.
Use of Adjusted Income in the HTF Program
HUD also revises Sec. 93.151 to add a new paragraph (f) to clarify
that grantees do not have to calculate adjusted income in the HTF
program. This paragraph explains that the only time a tenant's adjusted
income is relevant to the HTF program is if a family or unit is
assisted with Federal tenant-based rental assistance (e.g., HCV
program, HOME tenant-based rental assistance, etc.), public housing, or
by a Federal or State project-based rental subsidy. In those cases a
grantee must then accept the determination of adjusted income made
under that program's rules.
Qualification as Affordable Housing: Rental Housing Under the HTF
Program
HUD revises Sec. 93.302(e)(1) to update the reference to Sec.
93.151(c) to read as Sec. 93.151(d). In addition, HUD revises Sec.
93.302(e)(2) to conform to the new requirement that grantees must
continue to accept annual and adjusted income determinations performed
under the rules of those programs for subsequent income determinations
during the HTF affordability period for HTF-assisted

[[Page 9617]]

units where the unit is assisted by the PHP, through Federal or State
project-based rental assistance subsidies, or where the tenant is
assisted by Federal tenant-based rental assistance. In the sixth year
of an HTF rental project's affordability period, a grantee is not
required to review source documentation for families assisted under the
PHP, a Federal tenant based rental assistance program, or by a Federal
or State project-based rental subsidy. Additionally, HUD notes that
Sec. 93.302(b) of the HTF regulation already specifies that for
projects with project-based rental subsidies, the HTF grantee may
continue to permit the project owner to charge the maximum rent
allowable under the Federal or State project-based rental subsidy
program. Lastly, HUD amends the last sentence of paragraph (e) to
update the reference to Sec. 93.151(a)(1)(iii) to read as Sec.
93.151(d)(2).

F. HOPWA Program Changes

HOPWA Income Determinations
This final rule makes various changes to clarify how jurisdictions
should make income determinations for the HOPWA program for resident
rent payments. As explained in the proposed rule's preamble, Section
859 of the AIDS Housing Opportunity Act (42 U.S.C. 12908) requires that
HOPWA rental assistance ``be provided to the extent practicable in the
manner'' of the Section 8 program. Accordingly, the changes this final
rule makes to the HOPWA regulations in 24 CFR part 574 generally track
the changes this final rule makes regarding income determinations,
income examinations, income reexaminations, net family asset
requirements, and de minimis errors for the HCV program, the Section 8
program that is the most practicable for the largest share of HOPWA-
funded projects to track. Accordingly, HOPWA has adopted most of the
provisions in Sec. Sec. 5.609, 5.611, 5.617, and 5.618, where
practicable, in addition to many of the changes in part 982. Although
HUD recognizes additional regulatory changes could be made to bring
HOPWA rental assistance into closer alignment with the Section 8
program, HUD has determined some changes are not practicable to
implement in HOPWA, as explained below, and other changes would require
a separate rulemaking because they are beyond the scope of this
particular rulemaking.
As discussed in the proposed rule, this final rule revises part 574
to apply the part 5 definition of net family assets in HOTMA as applied
to the Section 8 program, except the value of a home of a participant
receiving short-term mortgage or utility assistance under Sec.
574.300(b)(6) or other assistance for which homeowners are eligible
under the HOPWA program is excluded from the definition.
Section 574.310(d) is being revised to clarify the use of annual
and adjusted income in the calculation of resident rent payments for
persons receiving rental assistance or residing in any rental housing
assisted under the HOPWA program, excluding short-term supported
housing. Section 574.310(d) requires that the resident rent payments
shall be the higher of three options. HUD is clarifying that for option
one, the rent payment including utilities would be 30 percent of the
family's monthly adjusted income. Option two is clarified as ten
percent of the family's monthly income. Option three, which applies if
a family receives welfare assistance from a public agency, remains
unchanged.
As stated in Sec. 574.310(e)(1)(i), references to PHAs and
responsible entities in Sec. Sec. 5.609 and 5.611 are understood to
refer to the grantees or project sponsors that are determining income.
This provision has been added to provide clarity to the HOPWA grantees
on their roles and responsibilities.
HUD has determined that it is not practicable to permit permissive
deductions in the HOPWA program as this final rule permits PHAs to do
in the HCV program under Sec. 5.611(b). HOTMA amends section 3 of the
1937 Act to provide PHAs with the ability to apply permissive
deductions in the public housing, HCV, and Section 8 moderate
rehabilitation programs. Other entities, even when administering the
1937 Act programs, were not provided this statutory authority.
Likewise, HUD does not see any intent or justification in either HOTMA
or the HOPWA program statute to give all HOPWA grantees and project
sponsors the same ability and accountability as PHAs with developing
and administering permissive deductions. Moreover, unlike in the HCV
program, PHAs are just one subset of the entities that may administer
HOPWA-funded rental assistance and housing, and HUD sees no intent or
justification in HOTMA or the HOPWA program statute to provide PHAs
with greater ability or accountability than other HOPWA grantees in
administering HOPWA assistance. Accordingly, the HOPWA rule does not
incorporate the part 5 provision on permissive deductions.
Additionally, unlike the Section 8 programs that make hardship
exemptions mandatory, this final rule allows HOPWA grantees to make
their own determination on whether to grant hardship exemptions. If a
grantee implements hardship exemptions in their program, the grantee
must follow the requirements of the revised Sec. 5.611(c) through (e)
for families affected by the statutory increase in the threshold to
receive health and medical care expense and reasonable attendant care
and auxiliary apparatus expenses deductions from annual income under
Sec. 5.611(a)(3), as well as families that apply for a continued child
care expense deduction. To use the authority, the grantee must develop
policies and procedures for qualifying and granting hardship exemptions
in accordance with the requirements contained in Sec. 5.611(c) through
(e). Given the amount of administrative work required to institute
these hardship exemptions as provided for the Section 8 programs, HUD
has determined that it is practicable only to apply Sec. 5.611(c)-(e)
to HOPWA grantees who determine they have the capacity and choose to
make available the hardship exemption as provided by Sec. 5.611(c)-
(e). In addition to the grantee's discretion to grant hardship
exceptions, grantees are subject to Federal nondiscrimination
requirements, including the obligation to provide reasonable
accommodations that may be necessary for households with family members
with disabilities.
This rule also revises part 574 to incorporate HOTMA's provisions
for restrictions on assistance to families with certain assets but only
for activities subject to the resident rent payment requirements.
Section 574.310(e)(1)(vi) restates the requirement that grantees
disallow increases in earned income of persons with disabilities
occupying HOPWA-assisted rental units as stated in Sec. 5.617(e). As
HUD is removing the requirement in Sec. 5.617 two years after the
effective date of this rule, HUD is only requiring that grantees follow
Sec. 5.617 during that time period.
Section 574.310(e)(3) details requirements for obtaining and
documenting third-party income verification consistent with the
provisions in Sec. 982.516(a), aligning HOPWA requirements with the
HCV program to the extent practicable. HUD recognizes that grantees do
not have access to the same information that PHAs do; however, HUD
believes the flexibility built into the regulation still makes it
practicable for HOPWA grantees and project sponsors to comply with
third-party verification requirements.

[[Page 9618]]

Lastly, Sec. 574.310(e)(4)(v) allows a HOPWA grantee to provide a
family with retroactive rent decreases in the event that the family
fails to provide a grantee with timely information about a decrease in
income that would trigger an interim reexamination. In these instances,
just as in the HCV program, HOPWA grantees will have the option of
retroactively adjusting rent as of the date of the change leading to
the interim reexamination of family income or the effective date of the
family's most recent previous interim or annual reexamination (or
initial examination if that was the family's last examination). To
provide a retroactive rent decrease to an eligible family, the HOPWA
grantee must develop a written policy allowing for retroactive rent
decreases. HUD believes that these revisions may be made to the HOPWA
regulations because they are consistent with changes in the HCV program
and because HUD has determined that it is practicable to allow HOPWA
grantees the same discretion to apply rent decreases retroactively, as
is performed in the HCV program. For more information on how this
provision operates, please see the extended Preamble discussion on
Interim Reexaminations below.

G. Supportive Housing for the Elderly (Section 202) and Supportive
Housing for Persons With Disabilities (Section 811) Programs

Definitions
This final rule updates certain definitions in the Section 202 and
Section 811 program regulations to revise outdated references, clarify
ambiguous terms, and consistently apply Section 8 provisions in part 5
of this title to the Section 202 and Section 811 programs. HUD is
adding a definition of ``Net family asset'' to Sec. 891.105 and
defining it consistently with Sec. 5.603. HUD is also revising the
defined term ``Tenant payment to Owner'' at Sec. 891.105 to ``Tenant
rent'' while maintaining its definition. HUD is updating the
corresponding instances of ``tenant payment'' (in part 891 that do not
mean ``Total tenant payment'') to ``Tenant rent.'' This change does not
affect the use of the defined term and merely avoids confusion between
``tenant payment'' and ``Total tenant payment.'' HUD is defining
``Gross rent'' for all Section 202 and Section 811 projects at Sec.
891.105 consistent with the Section 8 Housing Assistance Payment
program at Sec. 880.603(c)(3). HUD is therefore removing the project-
specific definitions of ``Gross rent'' for Section 202/8 projects at
Sec. 891.520 and for Section 202/162 projects at Sec. 891.655.
Use of Section 8 Income Reexamination and Eligibility Requirements in
the Section 202 and Section 811 Programs
The Section 202 and Section 811 programs have income eligibility
requirements, including income reexamination requirements, that follow
Section 8 requirements. In this final rule, HUD is revising Sec. Sec.
891.410(g)(1) and (3) (Section 202 program) and Sec. Sec.
891.610(g)(1) and (3) (Section 811 program) to replace outdated cross
references to part 813 of this chapter, which HUD removed in a final
rule that took effect November 18, 1996 (61 FR 54492), with references
to the Section 8 project-based assistance program at Sec. 5.657. These
references provide the regular income reexamination requirements as
well as the income eligibility requirements. HUD is further revising
the interim reexamination requirements at Sec. 891.410(g)(2) and Sec.
891.610(g)(2) by replacing the references to lease provisions with
references to the Section 8 project-based assistance program at Sec.
5.657. These changes provide for consistent application of Section 8
requirements in part 5 to the Section 202 and Section 811 programs and
do not substantively change the requirements for grantees. Finally, HUD
is revising Sec. 891.410(g)(3)(i) to clarify that termination of
eligibility for project rental assistance payment does not mean removal
of the unit or residential space from the Project Rental Assistance
Contract (PRAC).
Technical Amendments
HUD is making several technical amendments to part 891 in this
final rule. This final rule updates outdated citations in the Section
202 and Section 811 program regulations. HUD is removing and reserving
Sec. 891.230 because it purports to apply selection preferences in
part 5, subpart D, but there are no longer selection preferences
defined in part 5 (including subpart D). HUD is making editorial
revisions to Sec. 810.410(g)(1) to discuss changes to payment amounts
in one sentence and changes to the unit size in another sentence. HUD
is also removing the reference to Sec. 5.410(g) for informal review
provisions for the denial of a Federal preference at Sec. 891.610(e)
because Sec. 5.410(g) was removed. These changes will not affect
grantees in a substantive manner, because the references are to
provisions previously eliminated by statute and removed by HUD in a
final rule that took effect April 28, 2000 (65 FR 16720).
This final rule also clarifies that the new ``Net family assets''
definition this rule adds to Sec. 5.603 is applicable to the Section
202 and Section 811 programs, and there is no discretion to use the IRS
income definition as suggested in the ``HOTMA Section 102'' chart in
the proposed rule. The proposed rule's chart referenced the IRS
definition; this was a drafting error. This final rule also clarifies
that the hardship exemptions provided at Sec. 5.611(c) through (e) are
applicable to the Section 202 and Section 811 programs. The ``HOTMA
Section 102'' chart in the proposed rule mistakenly stated that the
hardship exemptions were not applicable; this error resulted from HUD
conflating ``adjusted income'' and ``minimum rent.''
Finally, this final rule replaces ``should'' with ``must'' in Sec.
891.440 regarding Section 202/811 owners providing utility data as part
of a utility allowance analysis. This change clarifies that providing
these data is a requirement, which is not a substantive change because
the utility allowance analysis has always treated this as a
requirement.

H. PHA Requirements

Over-Income Families in Public Housing
Based on the public comments received during the reopened comment
period, HUD makes changes to the new Sec. 960.507, adds a new Sec.
960.509, and inserts cross-references accordingly in Sec. Sec. 5.520,
5.628, 960.253(a)(3) and (f)(1), 960.257(a)(5) and (b)(4) and 966.4(a)
and (l). HUD also adds new or amended definitions at Sec. 960.102,
including ``alternative non-public housing rent'' (alternative rent),
``covered person,'' ``non-public housing over-income family'' (NPHOI
family), and ``over-income family'' (OI family) which are discussed
above. Small additional changes for clarity are also added throughout.
Additionally, HUD adds a sentence regarding compliance for NPHOI
families to Sec. 960.600.
In Sec. 960.206, HUD adds a new paragraph (b)(6) stating that the
PHA may adopt a preference for admission of current NPHOI families who
become a low-income family as defined in Sec. 5.603(b) and are
eligible for admission to the PHP. PHAs whose policy is to terminate OI
families after the 24 consecutive month grace period may not use this
preference because this preference may not be applied to current public
housing families or families who have vacated the public housing
project.

[[Page 9619]]

In Sec. 960.253(a), HUD adds a new paragraph (3) in relation to
the choice of rent for NPHOI families. The intent of this new paragraph
is to make clear that, if allowed by PHA policy to remain in a public
housing unit, NPHOI families will not have a choice in rent and instead
must pay the alternative rent as defined in Sec. 960.102. Paragraph
(f)(1) of Sec. 960.253 has been revised to address the new
requirements for PHAs when conducting reexamination of family income
for families paying the flat rent after a family is determined to be
OI. Currently, the PHA conducts a reexamination of family income and
composition at least once every three years for a family paying the
flat rent. In the proposed rule, this paragraph had been modified to
make clear that once a PHA determines a family is OI, the PHA must
follow the income examination, documentation, and notification
requirements under Sec. 960.507(c) including conducting a
reexamination of family income annually instead of once every three
years.
In Sec. 960.257(a)(5), HUD makes clear that the PHA may not
conduct an annual reexamination of family income for NPHOI families. In
Sec. 960.257(b)(4), HUD clarifies that when OI families are in the
period of up to six months before their tenancy is terminated, the PHA
must conduct an interim reexamination of family income as otherwise
required because the OI family is still a program participant prior to
termination. However, the resulting income determination will not make
the family eligible to remain in the PHP beyond the period defined by
PHA policy.
HUD is making extensive changes to the proposed Sec. 960.507.
Throughout the sections addressing OI families, HUD clarifies that the
period of time a family has to reside in their unit before having to
vacate or pay a higher rent is 24 consecutive months, rather than 2
years.
HUD also includes a new Sec. 960.509, covering the provisions that
must be in leases provided to NPHOI families paying the alternative
rent. HUD also makes conforming edits to use defined terms or terms
more understood as part of the PHP, rather than introducing new
terminology.
In Sec. 960.507(a)(1), HUD clarifies that the OI provisions at
Sec. 960.507 apply to all families in the PHP, including families in
the FSS program, or receiving the Earned Income Disregard (EID). In
paragraph (a)(1), HUD has added language specifying the following: (1)
mixed families (as defined in Sec. 5.504) who are NPHOI families pay
the alternative rent in accordance with the continued occupancy policy
for OI families; (2) NPHOI families cannot participate in public
housing resident councils; (3) NPHOI families cannot participate in
programs only for public housing or low-income families; and (4) NPHOI
families cannot receive Federal assistance, including a utility
allowance, from PHAs.
In paragraph (a)(2), HUD states that PHAs must implement the
requirements of Sec. 960.507 by amending all applicable admission and
continued occupancy policies according to the provisions in 24 CFR part
903. All PHAs must have effective OI policies, consistent with Sec.
960.507, no later than 120 days after the date of publication of this
final rule in the Federal Register. HUD has determined that this
requirement is fair to PHAs considering PHAs have had years of prior
notice that these policies will be required as detailed in HUD's July
26, 2018 notice (83 FR 35490) (2018 FR Notice) and Notice PIH-2019-
11(HA) issued May 3, 2019.\7\ The 2018 FR Notice announced the official
applicable effective date of the provisions of Section 103 of HOTMA as
September 24, 2018, and instructed PHAs to complete the process for
amending their OI policy within six months after the applicable date of
the 2018 FR Notice or by March 24, 2019.
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\7\ Available at: <a href="https://www.hud.gov/sites/dfiles/OCHCO/documents/2019-11pihn.pdf">https://www.hud.gov/sites/dfiles/OCHCO/documents/2019-11pihn.pdf</a>.
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It should be noted that OI families who have already exceeded the
24 consecutive month grace period, in accordance with a continued
occupancy policy established in compliance with the 2018 FR Notice, are
not entitled to another 24 consecutive month grace period when the rule
is published. However, until this rule is effective, HUD will not
enforce any requirement to terminate OI families who exceed the OI
limit for 24 consecutive months. If a PHA chooses not to enforce an
established termination policy, then the PHA must continue to treat
such OI families as public housing families and offer the option of
paying the income-based rent or a flat rent. For PHAs that adopted OI
related waivers under HUD's CARES Act notice (Notice PIH 2021-14),\8\
guidance on the status of OI families and the amount of rent to charge
the family is detailed in the Navigating CARES Act Waiver Expiration
factsheet.\9\
---------------------------------------------------------------------------

\8\ Available at: <a href="https://www.hud.gov/sites/dfiles/PIH/documents/PIH2021-14.pdf">https://www.hud.gov/sites/dfiles/PIH/documents/PIH2021-14.pdf</a>.
\9\ Available at: <a href="https://www.hud.gov/sites/dfiles/PIH/documents/CaresAct_Occupancy_Policiesv2.pdf">https://www.hud.gov/sites/dfiles/PIH/documents/CaresAct_Occupancy_Policiesv2.pdf</a>.
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Consistent with the proposed rule, Sec. 960.507(b) describes how
to determine the OI limit. The OI limit is determined by multiplying
the applicable income limit for a very low-income family as defined in
Sec. 5.603(b), by a factor of 2.4. In paragraph (c), HUD provides
additional details on the procedures a PHA must follow in notifying OI
families of their status. HUD is removing proposed language referring
to multiple ways for the PHA to become aware of a family's OI status,
instead specifying that OI procedures are triggered by annual or
interim reexaminations, in order to reduce burden on PHAs and provide
clarity on exactly how a PHA is to determine that a family is OI. When
a PHA determines that a family is OI, the PHA must notify the family in
writing of the family's OI status at that time, in accordance with
paragraph (c)(1).
If a family continues to exceed the income limit for 12 consecutive
months after receiving the first OI determination, the PHA must provide
a second notice in accordance with Sec. 960.507(c)(2). This second
notice informs the family that they have been OI for 12 consecutive
months and, if the family continues to be OI for another 12 consecutive
months, the PHA will follow its continued occupancy policies for OI
families in accordance with Sec. 960.507(d). This notification must be
provided within 30 days after the income examination that led the PHA
to determine that the family has been OI for 12 consecutive months. The
notice must also include the estimated alternative rent (i.e., based on
data current to the date of the notice), when a PHA's OI policy permits
NPHOI families to remain in a public housing unit paying the
alternative rent.
For families that maintain their OI status for a further 12
consecutive months (24 consecutive months in total), the PHA must
provide the family with a third notice in accordance with Sec.
960.507(c)(3). The third notice informs the family that it has exceeded
the OI limit for 24 consecutive months. The third notice also states
that the family must either pay the alternative rent as an NPHOI family
or have their tenancy terminated in no more than six months, depending
on the PHA's continued occupancy policy for OI families. If the family
is allowed to stay as a NPHOI family under the PHA's OI policy, the PHA
must also present the family with a new NPHOI lease under the terms
contained in the new Sec. 960.509 and inform the family that the least
must be executed no later than 60 days of the date of the notice or at
the next lease renewal, whichever is sooner.
Furthermore, HUD specifies in Sec. 960.507(c)(4) that if a family
falls below the OI limit at any time during the 24 consecutive months,
the family is

[[Page 9620]]

entitled to a new 24 consecutive month grace period, and the
notification cycle starts over.
HUD is modifying and clarifying, in what is now Sec. 960.507(d),
the requirements for PHAs after a family has exceeded the OI limit for
24 consecutive months. Rather than specify how to determine the
alternative non-public housing rent in that provision, HUD has moved
that detail into the definition of the term ``alternative non-public
housing rent'' (or ``alternative rent'') and instead simply states that
the PHA must charge NPHOI families the alternative rent within 60 days
of, or terminate the family's tenancy within six months after, the
third notification to the family (pursuant to Sec. 960.507(c)(3)), in
accordance with the PHA's policies and State and local laws. If a PHA
is terminating the family's tenancy, the PHA must continue to charge
the families their public housing rent during the period prior to the
termination.
In Sec. 960.507(e), HUD clarifies the status of OI families once
the 24-month grace period ends. The family's status will depend on the
continued occupancy policy of the PHA. For PHAs that have a policy to
terminate OI families, those families will still be PHP participants
until their tenancy is terminated in the time frame established by the
PHA (up to 6 months). During that time, the family may request an
interim reexamination of income to potentially reduce their rent
burden. However, the resulting income determination will not make the
family eligible to remain in the PHP beyond the period before
termination as defined by PHA policy.
For PHAs that have a policy to allow OI families to pay the
alternative rent, those families will no longer be PHP participants
once the 24-month grace period ends, and they execute a NPHOI lease. In
other words, the OI family members will continue to be PHP participants
until their tenancy is terminated or they execute the NPHOI lease.
Section 960.509(a) states that the OI family must execute a NPHOI lease
no later than the earlier of the next lease renewal or 60 days after
the PHA notifies the family, pursuant to Sec. 960.507(c)(3), that they
have been OI for 24 consecutive months. If the family does not execute
the NPHOI lease within this period, per Sec. 960.509(a), the PHA must
terminate the tenancy of the family no more than 6 months after the
notification under Sec. 960.507(c)(3) in accordance with Sec.
960.507(d)(2). Notwithstanding, pursuant to Sec. 960.509(a), the PHA
may permit, in accordance with its OI policies, an OI family to execute
the lease after the deadline, but before termination of the tenancy, if
the OI family pays the PHA the total difference between the alternative
non-public housing rent and their public housing rent dating back to
the lease execution deadline. HUD largely retains the reporting
requirements in the proposed rule, now found in Sec. 960.507(f), for
PHAs. HUD has only added language that would allow HUD to request other
information on OI families from PHAs.
As a response to requests and comments that HUD received, both upon
the initial proposed rule and the reopening of public comment, HUD is
adding in this final rule a new Sec. 960.509, which sets forth the
lease requirements for OI families that are remaining in a public
housing unit and paying the alternative rent as NPHOI families. This
new section pulls heavily from existing regulations governing public
housing leases in Sec. 966.4, with adjustments made as needed to
accommodate the fact that these families are not public housing
participants. Notwithstanding, PHAs must still comply with Federal
nondiscrimination requirements, including but not limited to, the Fair
Housing Act, Title VI of the Civil Rights Act, Section 504, and Title
II of the Americans with Disabilities Act (ADA), as applicable. In
response to the public comment regarding reasonable accommodations,
PHAs still have a legal obligation to provide for reasonable
accommodations that may be necessary for individuals with disabilities.
PHAs do not have discretion whether to provide reasonable
accommodations. Moreover, in the context of unit transfers for a family
when repairs to improve the life, health, or safety of a resident
cannot be made within a reasonable time, consistent with fair housing
and civil rights obligations, PHAs must provide comparable alternative
accommodations having the appropriate number of bedrooms based on the
family's need and accessible accommodations and reasonable
accommodations for persons with disabilities.
Section 960.509(a) states that families who will remain as tenants
paying the alternative rent must execute the lease for the NPHOI family
no later than the earlier of the next lease renewal or 60 days after
the third OI notification as described in Sec. 960.507(c)(3). If the
family does not execute the lease within this time, the PHA shall
terminate the tenancy of the OI family pursuant to 960.507(d)(2).
In paragraph (b), HUD specifies the various provisions that must be
in leases for NPHOI families, such as information on who is a party to
the lease, how long the lease is for, what the costs covered by the
lease are, how the lease is to be renewed or terminated, the tenant's
rent and possible charges, tenant rights for use, the responsibilities
of both the PHA and the tenant, repair and access obligations,
procedures around lease termination and grievances, and how leases are
to be modified.
The regulations at Sec. 960.600 have been revised to include an
additional sentence confirming that NPHOI families are not required to
comply with the Community Service and Self-Sufficiency Requirements
(CSSR). In the revised Sec. 960.601, the definition of individuals
exempt from the community service requirements is updated to reflect
that members of NPHOI families are also exempt from those requirements.
It should be noted that OI families, in the period before termination
of tenancy or prior to becoming NPHOI families, are still PHP
participants and so must remain compliant with all PHP requirements
including the community service and self-sufficiency requirements
(CSSR). New language in an amended Sec. 964.125 clarifies that members
of a NPHOI family are not eligible to be members of a public housing
resident council organized in accordance with 24 CFR part 964, subpart
B.
HUD has made conforming changes to the lease requirements provision
under Sec. 966.4(a)(2) regarding the term of the public housing lease
for PHAs that have a continued occupancy policy under Sec.
960.507(d)(2). This change requires the public housing lease to convert
to a month-to-month term to account for the period before tenancy
termination as determined by PHA policy.
The regulation at Sec. 966.4(l)(2)(ii) has also been revised to
remove the reference to Sec. 960.261 as one of the grounds for
termination of tenancy and replaced it with a reference to Sec.
960.507. To conform to HOTMA, this final rule also removes the existing
Sec. 960.261 from HUD's regulations, which provides that PHAs may not
evict or terminate the tenancy of a family that is over the income
limit for public housing if the family is participating in the FSS
program, or if they receive EID.
Section 960.261 has been removed as a part of the rulemaking
process for two reasons. First, the reference made in Sec. 960.261 to
families who are over income is currently understood to mean a family
whose annual income exceeds the limit for a low-income family at the
time of initial occupancy which is 80 percent of the area median income
(AMI) or lower. However, with HOTMA, Congress established a statutory

[[Page 9621]]

framework of how PHAs must treat OI families. Additionally, HOTMA does
not establish the OI limit at 80 percent of AMI. Therefore, HUD has
determined that Sec. 960.261 must be removed because the HOTMA OI
limitations, as well as these implementing regulations, supersede the
prior regulation provision at Sec. 960.261. As a result of removing
Sec. 960.261, a PHA may not evict or terminate the tenancy of OI
families in the PHP based on income until they have been over 120
percent AMI for 24 consecutive months and the PHA has implemented an OI
policy in their written policies. Some PHAs may need to amend their
written policies if they previously had a policy to not allow families
to stay in the PHP if their income exceeded 80 percent of AMI.
Second, Sec. 960.261 has been deleted to remove the exception to
evict or terminate the tenancy of a family solely because the family is
OI provided the family has a valid contract for participation in an FSS
program under part 984 or if the family receives EID. With this final
rule, HUD intends for there to be no exceptions to the HOTMA OI
provision.
Enterprise Income Verification (EIV)
This final rule revises Sec. 5.233(a)(2)(i) to clarify that the
use of EIV is required only at annual reexaminations, and not at
interim reexaminations. However, PHAs and owners may use EIV for
interim reexaminations if desired. Prior to this final rule, HUD
interpreted ``reexaminations'' in Sec. 5.233(a)(2)(i), which required
the use of EIV at all reexaminations, to include interim
reexaminations. However, since the EIV Income Report can take up to 90
days to be updated, it often is not helpful during an interim
reexamination. This change also decreases PHAs' and owners'
administrative burden.
Consent Forms
The final rule changes Sec. 5.230 to clarify that, except in
enumerated circumstances, on or after this final rule's effective date,
once an applicant has signed and submitted a new consent form, they are
not required to do so again at the next interim or regularly scheduled
income examination.
Additionally, this rule retains in large part the new paragraph (c)
added by the proposed rule to Sec. 5.232 but removes the reference to
the PHA's Annual Plan as the proper place for a PHA to establish
policies regarding an applicant, participant, or family member's
revocation of consent to access financial records. Since the PHA's
Annual Plan is not the appropriate place for such a policy, the final
rule changes this and allows PHAs to address this within an admission
and continued occupancy policy instead. As discussed in the preamble to
the proposed rule, HOTMA provides PHAs with the discretion to determine
whether applicants or recipients are ineligible for benefits if they,
or their family members, refuse to provide or revoke the authorization
to obtain financial records. The revision to Sec. 5.232 is therefore
necessary to clarify that the penalties described in that section will
not apply if applicants or participants or their family members revoke
their consent for the PHA to access financial records unless the PHA
has established a policy that revocation of consent to access financial
records will result in denial or termination of assistance or
admission.

I. General Requirements

Inflationary Index
For consistency, this final rule specifies in the following
regulatory provisions that the inflationary index for all necessary
adjustments will be based on the Consumer Price Index for Urban Wage
Earners and Clerical Workers (CPI-W): \10\ Sec. Sec. 5.603(b)(3)(ii);
5.609(a)(2) and (b)(1); 5.611(a)(1) and (2); 5.618(a)(1)(i) and (b)(1);
5.659(e); 574.310(e)(3)(ii) and (f); 882.515(a), 882.808(i)(1),
960.259(c)(2); and 982.516(a)(3). HUD has chosen to use the CPI-W based
on public comments and because HUD believes this publicly available
index is an accurate measure of inflation to use in making income and
asset determinations in HUD programs. Moreover, the Cost-of-Living
Adjustment (COLA) adjustment for Social Security and SSI benefits for
approximately 70 million Americans is based on increases in the CPI-W
and consequently many PHAs, owners, grantees, and families are familiar
with it.
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\10\ Social Security Administration, CPI For Urban Wage Earners
And Clerical Workers, <a href="https://www.ssa.gov/oact/STATS/cpiw.html">https://www.ssa.gov/oact/STATS/cpiw.html</a>.
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In this final rule, annual inflationary adjustments will be
established by rounding to the nearest dollar except that annual
inflationary adjustments for the dependent deduction (Sec.
5.611(a)(1)) and the elderly or disabled family deduction ((Sec.
5.611(a)(2)) will be rounded to the next lowest multiple of $25. HUD
makes this differentiation because HOTMA requires HUD to determine the
dependent and elderly or disabled family deductions for each year by
``rounding such amount to the next lowest multiple of $25.'' HUD notes
that the amounts described in the income exclusions in Sec.
5.609(b)(14) and (15) both reference the dependent deduction, which is
required to be rounded to the lowest multiple of $25. HUD declines to
round to the next lowest multiple of $25 elsewhere in this final rule.
In general, HUD expects to make the revised amounts effective
January 1st of each year for the following requirements in accordance
with the inflationary adjustments covered by this final rule: the value
cap on net family asset cap for imputing returns (Sec. 5.609(a)(2) and
(b)(1)); the mandatory deduction for elderly and disabled families
(Sec. 5.611(a)(2)); the restriction on the net family assets
(Sec. Sec. 5.618(a)(1)(i), 574.310(f)); the amount of net assets the
PHA or owner may determine based on a certification by the family
(Sec. Sec. 5.618(b)(1), 5.659(e), 92.203(e); 93.151(e);
574.310(e)(3)(ii); 960.259(c)(2), and 982.516(a)(3)); and the mandatory
deduction for a dependent ((Sec. 5.611(a)(1)), which is also used to
calculate the income exclusion for earned income of dependent students
(Sec. 5.609(b)(14)) and adoption assistance payments (Sec.
5.609(b)(15)).
De Minimis Errors
HUD revises provisions in this final rule (in Sec. Sec.
5.609(c)(4), 5.657(f), 574.310(h), 882.515(f), 882.808(i)(5),
960.257(f), and 982.516(f)) to define a de minimis error as an error
that results in a difference in the determination of a family's
adjusted income of $30 or less per month. This change from defining a
de minimis error as a percentage error will enable a PHA or owner to
make de minimis determinations on a family-by-family basis rather than
having to do a full portfolio review to determine if a PHA, owner, or
grantee exceeds the threshold. In addition, using a dollar amount
instead of a percentage will make de minimis errors easier to
calculate. However, HUD also provides that through issuance of a
Federal Register notice for comment, HUD may re-define de minimis
errors.
In addition, to clarify that the de minimis protections apply to
all calculations of income, not just during interim reexaminations, HUD
moves the language about the de minimis safe harbor into its own
paragraph in each location in which it is included in the regulations.
HUD also adds language to clarify that where a PHA or owner has
made a mistake resulting in the family underpaying their rent, the
family will not be held liable for the underpaid rent. This is in
addition to language that was included in the proposed rule that would
require PHAs and owners to repay families that were overcharged due to
miscalculation errors.

[[Page 9622]]

Interim Reexaminations
In response to public comments asking for additional clarification
on interim reexaminations, this final rule ensures that the language in
Sec. Sec. 5.657(c), 574.310(e)(4), 960.257(b), 882.515(b), and
982.516(c) is as consistent as possible. HUD also revises the language
to clarify that the threshold for when a PHA, owner, or grantee must
conduct a reexamination due to decreases in a family's income is a
change of ten percent or a lower threshold set by the PHA or owner.
Further, in most circumstances, PHAs, owners, or grantees must conduct
interim reexaminations if a family's income has increased by ten
percent or more, or such other amount established by HUD through
notice.
HUD also adds language in each instance clarifying that
``reasonable'' interim reexamination processing time should be based on
the amount of time it takes to verify information, but generally should
not be longer than 30 days after changes in income are reported. HUD
does not add more specific language in Sec. 960.253(g), which
addresses the ability of a public housing tenant to switch from flat
rents to income-based rents due to a hardship, as it is beyond this
rulemaking's scope. However, HUD expects that PHAs will follow a
similar time frame for changing rent determination methods due to
hardship as they do for other hardship evaluations. HUD also did not
add the more specific language to Sec. 574.310(e)(4) because the HOPWA
program rule does not provide for flat rents.
Finally, HUD adds language in each location regarding the effective
dates of any changes in rent due to an interim reexamination. If the
tenant complies with the interim reporting requirements, the PHA,
owner, or grantee must give the tenant 30 days advance notice of any
rent increase, and the rent increase will be effective the first of the
month commencing after the end of the 30-day period. If the tenant has
complied with the interim reporting requirement and the tenant's rent
will decrease, the change in rent is effective on the first day of the
month after the date of action that caused the interim certification,
for example the first of the month after the date of loss of
employment. A 30-day notice is not required for these rent decreases.
If the tenant does not comply with the interim reporting
requirements, and the PHA, owner, or grantee discovers the tenant has
failed to report changes as required, the PHA, owner, or grantee must
initiate an interim reexamination and implement rent changes as
follows:PHAs, owners, or grantees must implement any resulting rent
increase retroactive to the first of the month following the date that
the action occurred, and any resulting rent decrease must be
implemented no later than the effective date of the first rent period
following completion of the reexamination.
However, rent or family share decreases may also be applied
retroactively at the PHA's, owner's, or grantee's discretion, in
accordance with the conditions established by the PHA, owner, or
grantee in written policy. For example, a PHA, owner, or grantee may
adopt a policy that would make the effective date of an interim
reexamination retroactive to the first of the month following the date
of the actual decrease in income as opposed to the first of the month
following the interim reexamination. However, the final rule clarifies
that a retroactive rent or family share decrease may not be applied
prior to the later of the first of the month following the date of the
change leading to the interim reexamination or the first of the month
following the effective date of the family's most recent previous
income examination (either interim or annual reexamination, or the
first of the month following the family's initial examination if that
was family's only income examination before the interim reexamination
in question). In other words, a family's failure to report the change
at a previous examination or reexamination may not be taken into
consideration in applying the effective date of the interim
reexamination.
The PHA, owner, or grantee may also choose to establish conditions
or requirements for when such a retroactive application would apply
(for example, where a family's ability to report a change in income
promptly may have been hampered due to extenuating circumstances such
as a natural disaster or disruptions to the PHA's, owner's, or
grantee's management operations). In applying a retroactive change in
rent or family share as the result of an interim reexamination, the PHA
or owner must clearly communicate the impact of the retroactive
adjustment to the family so there is no confusion over the amount of
the rent that is the family's responsibility. In the HCV program,
moderate rehabilitation program, and HOPWA's project- or tenant-based
rental assistance programs, the PHA or grantee must also clearly
communicate the impact of the retroactive adjustment to the owner as
well. These policies may reduce the potential hardship on families and
eliminate or significantly reduce the amount a family may owe for back
rent if the family has had difficulty in making timely rent payments
during the time between loss of income and the interim reexamination.
HUD anticipates that questions may arise about whether the
retroactive rent regulations may apply back to decreases in income
occurring before the effective date of this final rule. Any interim
reexamination conducted under this final rule may not be applied
retroactively to any period of time prior to the effective date of the
final rule.
HUD intends to issue additional guidance in the future on
retroactively applying interim reexaminations for PHAs and owners that
may be interested in permitting retroactive rent decreases.
In Sec. 960.257(c) and (d), HUD inserts the word ``continued'' to
clarify that the policies PHAs are required to adopt regarding annual
and interim reexaminations are part of the PHA's admission and
continued occupancy policies. This brings the language in those
paragraphs in line with language referring to the same policies in
Sec. 960.507(d) to create consistency when referring to the same
things.
HUD intends to publish additional guidance to PHAs and owners on
how they may use self-certifications from tenants and how PHAs and
owners may help their tenants determine if any income change meets the
threshold. HUD does acknowledge, however, that depending on the PHA's
or owner's policies, the PHA or owner may be required to do extensive
reviews of income to determine if the change in income meets the
relevant threshold to trigger an interim reexamination.
Other Guidance
This final rule and this preamble reference additional guidance
that HUD will publish relating to implementation. Such guidance will be
issued for the various HUD programs impacted by this final rule and
will also include the applicable requirements for PHAs and owners,
including fair housing and civil rights requirements, to ensure
administration and implementation of HOTMA's statutory mandates and
this final rule.
In addition to the HOTMA Section 102 provisions implemented through
this final rule, Section 102 further provides in section 3(a)(7)(e) of
the USHA that HUD shall develop a mechanism for disclosing information
to a PHA for the purpose of verifying the employment and income of
individuals and families in accordance with section 453(j)(7)(E) of the
Social Security Act (42 U.S.C. 653(j)(7)(E)), and shall ensure PHAs
have access to information

[[Page 9623]]

contained in the `Do Not Pay' system established by section 5 of the
Improper Payments Elimination and Recovery Improvement Act of 2012
(Pub. L. 112-248; 126 Stat. 2392). HUD will issue guidance on this
provision regarding how and what information PHAs may access consistent
with the Section 102 effective date established by this final rule of
January 1, 2024.

J. Conforming Changes to Section 8 Moderate Rehabilitation Regulations
at 24 CFR Part 882

HUD is using this final rule to conform its moderate rehabilitation
program and moderate rehabilitation SRO programs to HOTMA Section 102
and 104. While HUD's proposed rule inadvertently omitted proposed
conforming changes to the moderate rehabilitation regulations at Sec.
882.515 and the moderate rehabilitation SRO regulations at Sec.
882.808 that it included for the public housing and other Section 8
programs, HUD has a solid justification for making these changes in
this final rule.
Initially, Sections 102 and 104 of HOTMA amend the 1937 Act,
respectively, to revise the frequency of family income reviews and
calculations of income in HUD's public housing and Section 8 programs
and to set limits on the assets that families residing in public
housing and families receiving assistance under Section 8 may own.
These HOTMA changes impact all Section 8 programs, including the
Section 8 moderate rehabilitation program and the Section 8 moderate
rehabilitation SRO program. Equally important, with respect to the
income calculations, income reexaminations, and eligibility
determinations, HUD's moderate rehabilitation programs function in the
same manner as its HCV program. Specifically, the PHA (as opposed to
the owner) is responsible for conducting income reviews and adjusting
the tenant rent and housing assistance payment accordingly and is
likewise responsible for issues related to a tenant's eligibility for
admission to the program and continued assistance under the program.
The owner does not have any role in income calculations,
reexaminations, and eligibility determinations. Because of this
similarity in functional roles and responsibilities to the HCV program,
HUD believes that the public comments submitted in response to the
proposed rule on these topics, which were presented as uniform polices
impacting the public housing and all Section 8 programs in the same
manner in the preamble discussion, provide HUD with a solid basis to
make conforming changes to its moderate rehabilitation program and
moderate rehabilitation SRO program regulations. In this regard, the
interests of the parties most affected by HUD conforming changes--PHAs
and program participants--are substantially identical to the parties
impacted by the changes made to the HCV program. Finally, most of the
HOTMA income changes impacting the moderate rehabilitation programs are
implemented by revisions to part 5 of this final rule. The ability to
use these part 5 changes in accordance with other interrelated HOTMA
Section 102 and 104 requirements would be hindered without conforming
changes to part 882. For example, while the PHA could apply the asset
limitation under the new part 5, it could not rely on the statutorily
permitted self-certification of the family that they have less than
$50,000 in assets.
As a result, this final rule makes conforming changes to HUD's
moderate rehabilitation regulations. These conforming changes are
largely identical to those made to HUD's HCV program regulations at
Sec. 982.516. A discussion of the specific revisions to Sec. Sec.
882.515 and 882.880 follows.
Sec. Sec. 882.515(a) and Sec. 882.808(i)(1)--Self-Certification of
Net Family Assets
HUD is making conforming amendments to Sec. 882.515(a) and Sec.
882.808(i) for the moderate rehabilitation programs regarding the
amendments made by HOTMA to allow families to self-certify when their
combined net family assets are $50,000 or less, with that amount
adjusted by an inflationary factor. As discussed in the preamble of the
proposed rule, Section 104 of HOTMA not only establishes a limitation
on the amount and type of assets that a family residing in public
housing or assisted under the Section 8 programs may own but also
provides that the PHA or owner could determine the net assets of a
family based on a certification by the family that their net family
assets do not exceed $50,000. This self-certification is codified at
Sec. 5.618(b). Under this final rule, HUD is also adding language on
the self-certification of net family assets to moderate rehabilitation
program regulations, consistent with the language added to the
regulations specific to the other Section 8 programs. For more
information on these Section 8 program changes, please see the
discussion of the public comments received on the asset limitation and
the self-certification under Section III, Income--Income from Assets,
and Assets--Value of Assets, of this preamble.
Sec. Sec. 882.515(b) and (e), and 882.808(i)(4)--Timing of Interim
Reexaminations
HUD is making conforming changes to Sec. 882.515(b), adding a new
paragraph (e) to Sec. 882.515, and adding a new paragraph (4) to Sec.
882.808(i) for the moderate rehabilitation programs regarding the
amendments made by HOTMA on requirements related to the timing of
interim reexaminations. As discussed in the proposed rule, Section 102
of HOTMA deals with income reviews in HUD's public housing and Section
8 programs, including interim reexaminations. HUD is revising these
regulations, consistent with revisions made for the program specific
regulations for public housing and the other Section 8 programs, to
implement requirements related to when interim reexaminations are
conducted under HOTMA, what qualifies as a reasonable time for the PHA
to conduct the interim reexamination, and the effective date of the
rent changes. For more information on these Section 8 program changes,
please see the discussion of public comments received related to
interim reexamination issues under Section III--Interim Reexamination
of Income, of this preamble.
Sec. Sec. 882.515(f) and Sec. 882.808(i)(5)--De Minimis Errors
HUD is making conforming changes by adding new paragraphs at Sec.
882.515(f) and Sec. 882.808(i)(5) for the moderate rehabilitation
program and moderate rehabilitation SRO program regarding the
amendments made by HOTMA for de minimis errors made by the PHA in
calculating income. As discussed in the proposed rule, HOTMA provides
that a PHA or owner will not be out of compliance with the statute's
new provisions regarding income review and income calculation solely
due to any de minimis errors made by the agency or owner in calculating
family income. HUD is revising these regulations, consistent with
revisions made for the program specific regulations for public housing
and other Section 8 programs. For more information on these Section 8
program changes, please see the discussion of public comments received
related to de minimis errors under Section III- De minimis errors, of
this preamble.

III. The Public Comments

General Comments

Commenters submitted comments that were not on a specific proposal,
but about the rulemaking in general. Some commenters expressed general
support,

[[Page 9624]]

while others expressed a general opposition to the changes.
Some commenters suggested that HUD should choose between competing
priorities by choosing alternatives that most reduce burdens or
increase the likelihood that tenants can pay their rent. A commenter
also expressed concerns that the proposed changes will hurt those who
access HUD programs, particularly those with disabilities, and will
price them out of extremely low-income programs. One commenter stated
that the proposed rule would increase the difficulty for low-income
populations supported with Federal housing funding.
A commenter stated that HUD should start an analysis to model HOTMA
to determine the extent of adverse changes in PHA funding sources
resulting from the changes and report the results to Congress prior to
the changes going into effect.
HUD Response: HUD appreciates all the members of the public who
submitted comments. This rulemaking is required due to statutory
changes brought about by the enactment of HOTMA. HUD is sensitive to
the needs of all populations participating in HUD programs and has
considered the needs of all groups when making any discretionary
changes. HUD therefore believes that this final rule appropriately
balances the need for flexibility in HUD programs with the interest of
protecting the investment of government funding involved.

Effective Date

Commenters stated that HUD should create an extended time after
publication of the final rule before the rule is effective. Some
suggested allowing PHAs up to 2 years to enforce the rule, while
allowing PHAs to proceed earlier if they wish. Others stated that HUD
should make the effective date 120 days after publication to allow for
revision of training materials and to ease the transition for
households.
HUD Response: HUD agrees that additional time after this final
rule's publication will be appropriate before the provisions are
effective; HOTMA also specifies that some of the statutory changes are
not effective until the beginning of the calendar year after HUD issues
implementing regulations. In addition to allowing PHAs and owners time
to decide on how to exercise their discretionary authorities, HUD will
need time to adjust its systems to properly account for these changes.
Therefore, HUD established an effective date for the majority of this
final rule of January 1, 2024. However, because HUD has taken extensive
comments and issued previous implementation direction for the
provisions regarding public housing tenants who exceed the income
limit, those regulatory provisions will be effective 30 days after the
publication of this final rule.

Program Alignment

A. General
Commenters supported the idea of HUD aligning rules and regulations
across HUD programs where possible. The commenters stated that such
alignment would ensure consistency, minimize errors and duplicate work,
and reduce administrative burdens, particularly where projects blend
multiple forms of assistance. Some commenters stated specifically that
HUD should work with the IRS to streamline HUD programs with the LIHTC
program.
Commenters also stated that when HUD cannot align rules across HUD
programs, HUD should describe the differences between the programs and
have a rule specifying what rule takes precedence when programs
conflict and multiple funding sources are being used for the same
household.
HUD Response: HUD agrees with commenters advocating for aligned
regulations. In this rule, HUD, to the extent practicable and allowed
by statute, is aligning programmatic regulations and requirements
across HUD programs. Aligning with LIHTC is outside this rule's scope,
but HUD would note that income for tenants occupying LIHTC projects is
calculated in accordance with 26 U.S.C. 42(g)(4) (referencing 26 U.S.C.
142(d)(2)(B)), which says ``income of individuals and area median gross
income shall be determined by the Secretary in a manner consistent with
determinations of lower income families and area median gross income
under section 8 of the United States Housing Act of 1937.'' Section
1.42-5(b)(1)(vii) of title 26, Code of Federal Regulations, has similar
language that states, ``[t]enant income is calculated in a manner
consistent with the determination of annual income under Section 8 of
the United States Housing Act of 1937 (`Section 8').'' Therefore, HUD
believes that LIHTC and HUD program income calculations are currently
aligned and will continue to be aligned when the changes in HOTMA are
codified.
When a project is using multiple sources of HUD funding, HUD
already has in place programmatic policies and requirements on how to
combine and administer those multiple sources. For example, MFH
addresses tenant rent issues for units with LIHTC financing and HAP
assistance in the Multifamily Occupancy Handbook. PHAs and owners
should continue to follow such policies.
B. HOME
Generally, commenters were in favor of aligning requirements
between the HOME and other programs. Commenters stated that HUD should
apply all revisions to adjusted income when combining HOME and other
Federal programs. Commenters stated that HUD should adopt financial
hardship exemptions for families receiving HOME TBRA but should do so
through a separate process to ensure that all interested stakeholders
have the opportunity to comment.
Others wrote that HUD should apply asset restrictions for any
program funded by HOME to align regulations across the programs.
However, one commenter stated that agencies that combine HOME funds
with other program funds should be allowed to not enforce asset
limitations.
A commenter asked for clarity on which entities are required to
determine rent for HOME units receiving Federal or State subsidy, as
the proposed rule seemed to require participating jurisdictions to do
so, rather than the subsidy provider.
A commenter stated that, when a unit receives a Federal or State
project-based rental subsidy, participating jurisdictions should rely
on the other program's determination of adjusted income and rent
calculations rather than requiring the participating jurisdiction to
determine adjusted income.
HUD Response: HUD agrees with commenters that, to the extent
possible, requirements between HUD programs should be aligned. That is
why at Sec. 92.203(a)(1) of the final rule HUD requires the PJ to
accept the income determinations (initial, interim, and annual
reexaminations or recertifications) performed by the PHA, owner, or
rental subsidy provider when families applying for or living in HOME-
assisted units receive Federal or State project-based rental subsidies.
In addition, at Sec. 92.203(a)(2) of this final rule, HUD permits PJs
to accept the rental assistance provider's income determinations when
families are applying for or living in HOME-assisted units and are also
assisted by a Federal tenant-based rental assistance program. These
revisions align HOME with other HUD programs when a responsible entity
has made hardship deductions pursuant to the process established in
Sec. 5.611(c) through (e), as PJs must accept

[[Page 9625]]

the determination of annual and adjusted income performed under those
program rules. For HOME TBRA, the proposed rule included the option for
PJs to provide hardship exemptions in accordance with the process
established in Sec. 5.611, and those provisions are still included in
this final rule.
There is no HOME statutory requirement to limit a family's assets
or to remove a family from the HOME program if the family's net family
assets exceed a threshold. HUD solicited public comment on whether HUD
should impose asset limitations in the proposed rule to align with
other programs. However, after due consideration and examination of the
Cranston-Gonzalez National Affordable Housing Act (42 U.S.C. 12701 et
seq.), HUD has determined that it will not impose asset limitations
through this rulemaking. Section 225(b) of the Cranston-Gonzalez
National Affordable Housing Act (42 U.S.C. 12755(b)), which provides
tenant protections in the HOME program, states in relevant part that
``[a]n owner shall not terminate the tenancy or refuse to renew the
lease of a tenant of rental housing assisted under this subchapter
except for serious or repeated violation of the terms and conditions of
the lease, for violation of applicable Federal, State, or local law, or
for other good cause.'' HUD has never interpreted holding a certain
level or type of assets as sufficient good cause for an owner to
terminate a tenancy under the HOME statute and declines to do so in
this rulemaking.
Similarly, HUD has determined that there is no statutory basis for
excluding families from participating in HOME homeownership activities
because of the amount or types of assets they own, and that imposing an
asset limitation for the HOME program would be counter to Congressional
intent. The HOME program serves a broader group of beneficiaries
through activities not authorized under many other HUD programs, and it
is appropriate that potential homebuyers and homeowners seeking
rehabilitation assistance have higher incomes and more assets than
Section 8 families or public housing residents so that they can sustain
homeownership. Applying an asset restriction to the HOME program would
impact potential beneficiaries of HOME-funded activities and would
result in fewer families being assisted. Also, applying an asset
restriction to only one or two HOME sub-programs (e.g., rental housing,
HOME TBRA) would create inconsistencies within the HOME program, be
administratively burdensome to implement, and cause potential
noncompliance.
PJs are responsible for ensuring compliance with rent and income
requirements applicable to rental housing assisted with HOME funds even
if the rent and income eligibility determinations are conducted by
entities under contract with the PJ or the PJ's housing partners (e.g.,
owner of a HOME rental housing project, subrecipient administering HOME
TBRA, etc.). In accordance with Sec. 92.252(f)(2), which is unchanged
in this final rule, owners of rental housing must annually provide the
PJ with information on rents and occupancy of HOME-assisted units to
demonstrate compliance and the PJ must review rents for compliance and
approve or disapprove them every year. Under the newly revised Sec.
92.203(a)(1) and (2), where a PJ must accept or chooses to accept the
income determinations made in accordance with the rules of those
programs, the PJ may rely upon that income determination and is not
required to perform further income calculations under the remainder of
Sec. 92.203. The PJ must document the income determination made by the
PHA, owner, rental subsidy provider, or rental assistance provider, as
applicable, in their files to demonstrate compliance with Sec. Sec.
92.203 and 92.508(a)(3)(v).
C. HOPWA
Commenters asked for the Housin

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