HUD’s Office of Multifamily Housing issued Notice H 2012-3. This notice is a useful reference regarding instances when Enhanced Vouchers can be issued to residents instead of regular vouchers if residents are threatened with displacement when a HUD-insured mortgage is prepaid, or when a Project-based Section 8 contract expires.
In the 1960s Congress created the Section 221(d)(3) and Section 236 mortgage insurance programs, as well as the Section 202 direct loan program, to reduce the cost of developing rental housing for low to moderate income households. In order to make this housing affordable to low income households, Congress created rental assistance programs linked to the HUD-insured housing: the Rent Supplement Payments program, the Rental Assistance Program (RAP), and the Project-Based Section 8 program. HUD’s Office of Multifamily Housing oversees properties assisted by these programs. Many assisted properties are reaching the end of their original mortgage term, and rental assistance contracts are also approaching expiration.
Low income residents of many of these properties may be eligible for Tenant Protection Vouchers (TPVs) when a HUD-insured mortgage is prepaid or when a rental assistance contract expires. TPVs include regular Housing Choice Vouchers and Enhanced Vouchers (EVs), both administered by a local public housing agency (PHA). Households living in properties eligible for EVs have the right to remain in their homes when, for example, a multifamily owner decides to no longer participate in the Project-Based Section 8 program. EVs are further enhanced because the voucher will cover the difference between 30% of the household’s income and the rent charged by the owner, even if that rent exceeds the PHA’s regular voucher payment standard, which is between 90% and 110% of the Fair Market Rent (FMR).
When a HUD-insured mortgage matures, residents are not eligible for EVs. However, if a multifamily property owner prepays a certain type of HUD-insured mortgage, tenants might be eligible for EVs. The notice describes prepayment situations relating to certain properties and the conditions triggering whether HUD must provide EVs, has discretion to provide EVs, or cannot provide EVs.
The notice explains that an owner may decide to prepay a mortgage sometime the year before a mortgage matures in order to protect tenants through the provision of EVs. HUD “strongly encourages” its field staff to contact owners to advise them that prepayment may enable their tenants to receive EVs.
Enhanced vouchers will be provided to residents living in units covered by a Project-Based Section 8 Housing Assistance Payment (HAP) contract that the owner decides to opt out of, i.e. not renew. HUD also provides EVs to residents covered by a Rent Supplement contract if a project is subject to both a Section 8 HAP contract and a Rent Supplement contract that expires on the same day. EVs are given to tenants in RAP units when the owner prepays a mortgage that does not require prior HUD approval to prepay.
The FY12 appropriations act gives HUD the discretion to provide regular vouchers when certain Section 202 elderly properties are prepaid and when a Rent Supplement or RAP contract terminates due to expiration, prepayment, or HUD enforcement action (e.g., HUD terminates a contract because the owner consistently fails to maintain the property).
Notice H-2012-3 is at http://portal.hud.gov/hudportal/documents/huddoc?id=12-03hsgn.pdf.