HUD’s Office of Multifamily Housing Programs (Multifamily) published a final rule in the Federal Register on June 29 amending existing Project-Based Section 8 regulations related to Management and Occupancy Reviews (MORs). MORs will now be conducted using a performance-based schedule that considers both a property’s risk-rating and its previous MOR score to determine whether the property’s next MOR will be scheduled within 12, 24, or 36 months of its previous MOR. The new schedule was published separately in the Federal Register on June 29. The intent of the new system is to reduce the frequency of MORs for Multifamily properties that consistently perform well. The effective date of the final rule is September 26.
The amended MOR system applies to seven Project-Based Section 8 programs, including the Section 202/8 program serving elderly households or those headed by persons with disabilities, and the Section 515 program administered by the Rural Development (RD) Mission Area of the U.S. Department of Agriculture. Multifamily issued a proposed rule on January 14, 2015; the final rule adopts most of the features of the proposed rule.
Contract administrators (CAs) conduct on-site MORs to evaluate a property’s overall management. A MOR provides an assessment of the day-to-day financial management of a property. It also assesses management’s ability to maintain a property in a decent, safe, and sanitary condition. The physical assessment component of the MOR supplements the more detailed physical inspection carried out by a separate Real Estate Assessment Center (REAC) inspection. A MOR also enables HUD to oversee owner compliance with Section 8 Housing Assistance Payment (HAP) contract requirements.
Guided by Chapter 6 of Handbook 4350.1 REV-1, CHG-2, Multifamily Asset Management and Project Servicing, CAs have long been assigning properties performance indicators (ratings) of “Superior,” “Above Average,” “Satisfactory,” “Below Average,” and “Unsatisfactory.” In the preamble to the final rule, Multifamily asserts that most properties receive high MOR scores; for example, in fiscal year (FY) 2021, 94% received a MOR score of “Satisfactory,” “Above Average,” or “Superior.” CAs use HUD Form 9834 to arrive at MOR scores. Because most properties have such high MOR scores, Multifamily claims there is less need for conducting frequent MORs.
The new MOR schedule establishes a frequency for completing MORs based on a property’s previous MOR score and the property’s rating under Multifamily’s risk-based management model. That model incorporates qualitative and quantitative elements to arrive at an overall property-level rating of “Troubled,” “Potentially Troubled,” or “Not Troubled.” Multifamily will have different measures for HUD-insured properties and for those that are not HUD-insured. For insured properties, Multifamily’s “Qualitative Assessment Score” will take into account tenant complaints and local code violations. Quantitative factors will include vacancy rate, REAC score, and debt service coverage ratio. Multifamily states that an individual property’s risk rating will not be made publicly available because it will be a part of Multifamily’s deliberative process with an owner/manager and could impair a property’s ability to secure resources needed to make improvements.
Under the new system, a property might have a MOR annually, biannually, or triennially:
- A property must have a MOR within 12 months of its previous MOR if it has:
- a “Troubled” or “Potentially Troubled” risk classification, regardless of its MOR score, or
- a “Not Troubled” risk classification but an MOR score of “Unsatisfactory” or “Below Average.”
- A property must have a MOR within 24 months of its previous MOR if it has a “Not Troubled” risk classification and a MOR score of “Satisfactory.”
- A property must have a MOR within 36 months of its previous MOR if it has a “Not Troubled” risk classification and previous MOR score of “Above Average” or “Superior.”
In the Federal Register notice detailing the above MOR schedule, Multifamily suggests that owners provide copies of completed MORs to tenant organizations upon request, after redacting any personally identifiable information.
In response to comments to the proposed rule, the final rule states that HUD or a CA may conduct a MOR at any time if thought necessary – for example, if a property’s risk profile has worsened due to an owner relaxing maintenance standards between scheduled MORs. The final rule also requires a MOR within six months when there is a change of ownership or management.
The final rule in the June 27 Federal Register is available at: https://bit.ly/3npe7QE
An easier-to-read version of the final rule is available at: https://bit.ly/3QTjzsm
The final MOR schedule published in the June 27 Federal Register is available at: https://bit.ly/39UUKMk
Handbook 4350.1 REV-1, CHG-2, Multifamily Asset Management and Project Servicing is available at: https://bit.ly/3u8Syrr
Chapter 6, “Conducting Management Reviews,” is available at: https://bit.ly/3a1Ad8K
HUD Form 9834 is available at: https://bit.ly/3bzi9mW
More information about Project-Based housing can be found on page 4-67 of NLHC’s 2022 Advocates’ Guide.
More information about the Section 202/8 program can be found on page 4-73 of NLHC’s 2022 Advocates’ Guide.
More information about the RD Section 515 program can be found on page 4-81 of NLHC’s 2022 Advocates’ Guide.