Bipartisan legislation has been introduced in the House to preserve and revitalize aging Sec. 515 rural rental housing projects, while also allowing owners with pre-1989 loans to prepay their mortgages and convert their projects to market-rate housing.

The bill (H.R. 5039) was introduced by Rep. Geoff Davis (R-Ky.), with Republicans Bob Ney of Ohio, Gary G. Miller of California and Rick Renzi of Arizona, and Democrats Barney Frank of Massachusetts and Ruben Hinojosa of Texas as co-sponsors. Frank is the ranking member on the Financial Services Committee, and Ney is chairman of the housing subcommittee.

Prepayment of pre-1989 loans is currently subject to a variety of restrictions, while post-1989 loans can’t be prepaid. The latter prohibition would remain in effect.

As a condition of prepayment, a project owner would have to notify tenants at least 90 days before taking any action to prepay the loan, providing information on the availability of vouchers and, in the case of a proposed transfer of ownership, information on the transfer.

The Rural Housing Service (RHS) would have to approve a prepayment request if the 20-year restricted-use period has expired, the borrower hasn’t been provided assistance to extend the use restrictions, and the loan was not at any time restricted by servicing actions, including transfers. Prepayments during the 20-year restricted-use period would be prohibited.

During the 75-day period after providing notice of prepayment to the RHS, an owner planning to sell the project could sell only to a purchaser willing to extend low-income use restrictions for an additional 20 years.

Low-income tenants residing in a Sec. 515 project on the date a loan is prepaid would be eligible for vouchers, though their actual availability would depend on congressional appropriations. The amount of voucher assistance would be the difference between the lesser of the rent for the voucher unit or a comparable unit in the market, and the lesser of the amount the tenant was paying for rent at the time of prepayment or 30% of adjusted income.

A voucher could be used to lease a unit in the prepaying project, and the owner could not refuse to rent a unit because the tenant has a voucher. Alternatively, tenants could use their vouchers to lease housing elsewhere.

For communities with a lack of affordable housing, voucher assistance could be provided in accordance with the enhanced voucher provisions of Sec. 8.

While the legislation could finally settle the long legal debate over owners’ prepayment rights, the primary thrust of the bill is the preservation and revitalization of the Sec. 515 inventory.

Like HUD’s Sec. 8 Mark-to-Market program, the RHS revitalization program could be operated through participating administrative entities, and the plan for a project could involve debt restructuring and other financial incentives for owners willing to enter into restrictive-use agreements for the longer of 20 years or the remaining useful life of the project.

Specifically, a plan could include reduction or elimination of interest on the Sec. 515 loan; partial or full deferral of loan payments; loan forgiveness, subordination, or reamortization; grants, direct loans, or loan guarantees; and opportunities to obtain third-party investment equity.

Under the long-term use agreements, tenant rents will be limited to 30% of adjusted income, and RHS may provide for minimum rents of up to $25, subject to hardship exceptions.

The rent provisions were the subject of debate at a House housing subcommittee hearing on the bill.

RHS Administrator Russell T. Davis objected to the 30% cap on rents in restructured projects, contending that it would significantly increase the cost of the preservation program. In addition, Davis said, the rent cap would undermine the goal of a mixed-income tenant population.

On the other hand, tenant advocates endorsed the 30% maximum rent, while questioning the need for a minimum tenant rent.

HUD strategic plan affirms department goals

The Department of Housing and Urban Development (HUD) has released a strategic plan that covers fiscal years 2006-2011. It affirms HUD’s commitment to the six goals laid out in 2003: increasing homeownership opportunities, promoting affordable housing, strengthening communities, ensuring equal opportunity in housing, embracing high standards of ethics and accountability, and promoting participation of faith-based and community organizations.

“This department remains committed to serving the most vulnerable populations, fighting discrimination, and sustaining and revitalizing our nation’s communities,” said HUD Secretary Alphonso Jackson in releasing the strategic plan. “Through HUD’s work, America and its communities will grow stronger and more vibrant as more individuals and families share in the growing opportunities of this great nation.”

The plan also lists objectives associated with each strategic goal, along with performance measures to evaluate HUD’s success in achieving its goals.

Under the goal of promoting affordable housing, for example, the objectives include expanding access to decent rental housing, improving the management accountability and physical quality of public and assisted housing, and reforming the public housing and Sec. 8 voucher programs to improve the delivery of affordable housing.

The performance measures for this goal include expanding affordable rental housing by 1.346 million units through 2011 through use of the low-income housing tax credit, the community development block grant (CDBG) program, and HOME, housing opportunities for persons with AIDS, and Indian housing block grant funds.

The objectives for strengthening communities include assisting in the recovery from the Gulf Coast hurricanes, expanding economic opportunities, and ending chronic homelessness, while the performance measures include creation or retention of 322,486 jobs through the CDBG program and creation of 40,000 new units of permanent housing for the chronically homeless. 

HUD provides guidance on Sec. 8 aid for students

HUD has provided additional guidance on the restrictions on Sec. 8 assistance for students imposed by the fiscal 2006 appropriations act. The department previously issued a regulation to implement the new law.

The law restricts assistance to college students who are younger than 24, unmarried, and have no dependent children. Unless a student is determined to be independent from his or her parents, Sec. 8 can be provided only if the student and the parents are separately determined to be income-eligible.

Any financial assistance received by the student in excess of tuition will be included in annual income in determining the student’s eligibility – unless the student is older than 23 with dependent children. If the student is determined to be eligible for Sec. 8, this excess assistance will also be taken into account in rent calculations.

The guidance makes clear that the aid restrictions don’t apply to students residing with their parents in a Sec. 8-assisted unit or with parents who are applying for Sec. 8. Accordingly, financial assistance received by a student living with his or her parents will continue to be excluded from annual household income.

If a student subject to the restrictions on Sec. 8 eligibility is currently receiving assistance and is found to be ineligible at income recertification, the Sec. 8 aid will be terminated.

While a student in such a situation can’t be evicted as long as he or she is in compliance with the lease, the notice points out that there is no provision for proration of assistance. Therefore, if an ineligible student is living in a household other than with his or her parents, assistance to the entire household will be terminated. If the ineligible student moves out, the rest of the household may be eligible for Sec. 8 if assistance is available.

Barry G. Jacobs is editor of Housing and Development Reporter, the nation’s premier source for in-depth, factual coverage of all aspects of affordable housing and community development. The two-part publication includes informed reports and insightful analyses in “HDR Current Developments,” and an always up-to-date compilation of essential documents in the “HDR Reference Files.” Jacobs is also the author of the annually updated HDR Handbook of Housing and Development Law. For more information, call (800) 723-8077.