HOTMA Final Rule – Impact on the Housing Trust Fund (HTF) Program

The Department of Housing & Urban Development (HUD) has released a Final Rule implementing the Housing Opportunity Through Modernization Act of 2016 (HOTMA). This final rule was published in the Federal Register on February 14, 2023. With the exception of changes relating to Non-Public Housing Over Income families (which take effect on March 16, 2023), this final rule takes effect on January 1, 2024.

 The Housing Opportunity Through Modernization Act (HOTMA) was signed into law on July 29, 2016, amending many aspects of Multifamily Housing programs (as well as programs administered through the Offices of Public and Indian Housing and Community Planning and Development). HOTMA was intended to streamline processes and reduce burdens on housing providers. On September 17, 2019, HUD issued a proposed rule to update its regulations according to HOTMA’s statutory mandate. The final rule, published on January 9, 2023, considers public comment received on the proposed rule and provides additional guidance for implementing Sections 102, 103, and 104 of HOTMA.

Which Programs will be Affected by the Final Rule?

 The Section 8 PBRA (including RAD), Section 202/811 PRAC, 202/8, 202/162 PAC, Senior Preservation Rental Assistance Contract (SPRAC), and Section 811 Project Rental Assistance (811 PRA) programs will see changes due to HOTMA.

This is the seventh in a series of articles I am writing on the sweeping changes that will be made to HUD affordable housing programs. This article will focus on the revised rules regarding the Housing Trust Fund (HTF) Program.

In the final rule, HUD clarifies that for the HTF Program, the definition of Live-in Aide, foster adult, foster child, full-time student, and net family assets will be the same as the meaning of these terms for the HUD multifamily housing programs.

Use of Annual Income in the HTF Program

HTF grantees use the annual income of families to determine eligibility for: (1) occupancy of HTF-assisted rental units; (2) purchase of a homeownership unit; and (3) receiving homebuyer downpayment assistance.

In the final rule, HUD is amending the HTF regulations to align with HOTMA’s income and net family assets provisions in order to reduce the administrative burden of calculating income when HTF funds are layered with other HUD programs.

The final rule specifies that if a family is applying for or living in an HTF-assisted rental unit, and the unit is assisted under the Public Housing Program, the HTF grantee must accept the PHA’s determination of income and adjusted income in accordance with the requirements of the PH program. The same is true if the family is assisted under a Federal tenant-based rental assistance program. Likewise, if a family applying for an HTF unit is living in a project with a Federal or State project-based rental subsidy, the grantee must accept the PHA, owner, or rental subsidy provider’s determination of the family’s annual and adjusted income under that program’s rules.

While HTF grantees must enter into regulatory agreements with owners, developers, or sponsors of HTF-assisted rental housing, HUD is recommending that grantees also enter into agreements with PHAs, owners, or rental subsidy providers in order 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 other HTF program requirements.

Also, although the HTF program has no asset limitations, families that are participating in a program with asset limitations noted in the final rule may be denied assistance under that program. However, if such families are eligible based on the regulations of the HTF program, they may not be excluded from an HTF unit – even if they are denied Federal rental assistance. If the family has assistance terminated by the operator of the rental assistance program, the grantee must determine the family’s income in accordance with HTF requirements.

For HTF units not assisted through another HUD program, grantees must (1) continue to comply with the HTF requirements to determine the annual income of families by examining at least two months of source documents at initial occupancy and every six years of the HTF affordability period; (2) project the prevailing rate of income of the family; and (3) 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.

The final rule does incorporate revisions to the definition of net family assets that are applicable to other HUD programs – i.e., income to assets will not be imputed unless the assets exceed $50,000. Imputing will be based on the HUD Section 8 imputed rate. Grantees will also be able to accept self-affidavits of assets if the household assets do not exceed $50,000.

Unless an HTF unit is layered with other HUD funding that is subject to this final rule, 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 used in the Section 8 program.

The final rule clarifies that income determinations made in the HTF program are valid for six months. This will not apply if the income determination is being made in accordance with the rules of another program at the property.

Finally, while not a new provision, HTF regulations already specify that for projects with project-based rental subsidies, the HTF grantee may continue to permit the project owner to charge the maximum rent permitted under the Federal or State project-based rental subsidy program.

Bottom Line: While not extensive, the changes made to the HTF program by the final rule are substantive and both grantees and operators of HTF -assisted rental projects should familiarize themselves with these new rules — keeping in mind that they do not go into effect until 2024.