HUD’s Office of Multifamily Asset Management sent an email on December 4 seeking feedback regarding how best to process budget-based rent increases for projects subject to “Low-Income Housing Preservation and Residential Homeownership Act of 1990” (LIHPRHA) Use Agreements. The email notes the inconsistent processing and approval of budget-based rent increases pursuant to the “Fixing America’s Surface Transportation Act of 2015” (FAST Act), which allowed projects subject to a LIHPRHA Use Agreement to refinance a loan or obtain a new loan to request a budget-based rent increase that included the refinancing or new loan debt service. A draft Notice for comment is posted on Multifamily’s Drafting Table. The draft notice provides guidelines for preparing, submitting, and reviewing a budget-based rent increase subject to the FAST Act amendments to LIHPRHA. Comments are due by January 11, 2024.
Congress enacted LIHPRHA in 1990 to prevent the loss of FHA-insured and HUD-assisted affordable housing units to mortgage prepayment. A variety of incentives were offered to such properties, such as additional Section 8 subsidy, Section 8 rent increases, and capital grants. In return, owners could either extend low-income affordability restrictions for the remaining useful life of a property (for at least another 50 years), or transfer the property to nonprofit organizations, tenant associations, or community-based organizations that agreed to maintain the property as affordable housing for its remaining useful life. Currently, there are approximately 640 properties with more than 75,000 units subject to LIHPRHA provisions. Statutory use restrictions and rent-setting processes for these properties are in a LIHPRHA Use Agreement and a project-specific Plan of Action.
The purpose of the draft Notice is to provide clarifying guidance for owners of a property subject to a LIHPRHA Use Agreement who want to take on new debt to recapitalize the property to preserve it. The draft notice applies to all properties with a Section 8 PBRA Housing Assistance Payment (HAP) contract subject to a LIHPRHA Use Agreement or Plan of Action that authorizes a budget-based rent increase if an annual Operating Cost Adjustment Factor (OCAF) is insufficient to address a project’s operating expenses. A Use Agreement is a contract between an owner and HUD that binds the owner for a specified length of time to specific requirements, such as maintaining the property as “affordable” at program-determined rent limits for households meeting program-determined income limits. A Plan of Action (POA) is a plan developed by an owner that is submitted to HUD for the extension of affordability restrictions, as well as other matters.
HUD may approve a rent increase greater than the OCAF adjustment only to address extraordinary and necessary expenses of owning and maintaining a property. Any budget-based rent increase only applies to the year for which HUD approves the increase. Owners may request a budget-based rent increase if they want to include debt service incurred due to a new loan or the refinancing of an existing loan used to make capital repairs to sustain the property over the long term.
Read the draft Notice for comment at: https://tinyurl.com/39bjrcav
More information about the various Project-Based housing programs, including LIHPRHA, can be found on page 4-77 of NLIHC’s 2023 Advocates’ Guide.