HUD Housing Notice § 2018-02

                         U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
                                         WASHINGTON, DC 20410-8000


OFFICE OF HOUSING




Special Attention of:                                 Notice H 2018-02
Public Housing Agencies
Public Housing Hub Office Directors                   Issued: March 22, 2018
Public Housing Program Center Directors
Multifamily Regional Center Directors
Multifamily Satellite Office Directors                Expires: This Notice remains in effect until
Regional and Field Office Directors                   amended, superseded, or rescinded.
Regional Administrators
Performance Based Contract Administrators

                                                                  Cross Reference:      H 2013-17

SUBJECT:            Refinancing of Pre-1974 Section 202 Direct Loans and Subsequent Issuance of
                    Tenant Protection Vouchers (TPVs) or Senior Preservation Rental Assistance
                    Contracts (SPRACs)

       This Notice supplements Housing Notice H 2013-17, providing additional guidance to
owners of pre-1974 Section 202 Direct Loan properties that have the option of refinancing the
Section 202 Direct Loan for the purposes of reducing the interest rate and/or making capital
improvements.

        To prevent the displacement of unassisted, low-income elderly tenants following the
refinancing of a pre-1974 Section 202 Direct Loan, HUD is authorized to provide rental
assistance under the Housing Choice Voucher (HCV) program or to provide project-based rental
assistance under a Senior Preservation Rental Assistance Contract (SPRAC). This Notice
provides additional guidance on each.

Housing Choice Vouchers
       The FY 2017 Appropriations Act provides, in part, for “tenant protection assistance
including replacement and relocation assistance or for project-based assistance to prevent the
displacement of unassisted elderly tenants currently residing in section 202 properties financed
between 1959 and 1974 that are refinanced pursuant to Public Law 106-569, as amended.” 1



1
  Please note that the policy set forth in this section of the Notice relies on authority that appears in
annual appropriations act language and may cease to apply if the language is eliminated or altered in
a future appropriations act.


                                     www.hud.gov        espanol.hud.gov
        This Notice clarifies that Public Housing Agencies (PHAs) may utilize any Tenant
Protection Voucher (TPV) assistance issued following the refinancing of such properties either
as regular tenant-based vouchers under 24 CFR Part 982 to assist eligible residents in these
properties or as project-based vouchers (PBVs) in accordance with 24 CFR Part 983 and HUD’s
Housing Opportunity Through Modernization Act of 2016 (Public Law 114-201, 130 Stat. 782)
implementation and guidance notices affecting PBV (in particular, 82 Fed. Reg. 5458; 82 Fed.
Reg. 32461; and Notice PIH 2017-21). The Appropriations Act identifies these properties as
being eligible to directly receive project-based assistance. Accordingly, if the PHA and project
owner (“Owner”) agree to use the voucher assistance as project-based vouchers, owner proposal
selection procedures described in 24 CFR §983.51 shall not apply and the assistance may be
attached directly to the PBV unit without first offering it to the affected families in the form of
tenant-based assistance (though tenant consultation procedures described in Housing Notice H
2013-17 still apply).

       Additionally, pursuant to the HOTMA notices cited above, as long as the conditions
described in Attachment F of Notice PIH 2017-21 are met PBVs placed on such properties are
exempt from the PBV percent funding limitation contained in section 8(o)(13)(B) of the U.S.
Housing Act of 1937 (1937 Act) and are exempt from the income-mixing limitation on the
number of PBV units at a project contained in section 8(o)(13)(D) of the 1937 Act. All other
PBV requirements apply.

SPRAC
        The FY 2017 Appropriations Act provided $10 million for HUD to use for Capital
Advance and project-based rental assistance awards and/or to provide incremental SPRACs
following the refinancing of a pre-1974 Section 202 Direct Loan property. Accordingly, HUD is
making up to $5 million available to award new SPRACs, which will be provided on a first-
come, first-serve basis, based on the time of submission of a complete prepayment request that
includes all required submission elements. 2 Owners requesting a SPRAC must e-mail
SPRAC@hud.gov their submission of the refinancing request as the date and time of submission
shall be recorded based on the receipt of the e-mail to this address. The Owner may make
modifications to the prepayment request following submission without impacting their priority
for SPRAC. To receive the SPRAC, the Owner must:
    1) have a Management and Occupancy Review score that is satisfactory or higher and have
        no open referrals to the Departmental Enforcement Center, unless the Owner can
        demonstrate to HUD’s satisfaction that a plan has been established to replace the
        management agent or take other corrective actions sufficient to address the problem and
        that such plan can and will be implemented in a timely manner,


2
  HUD will promulgate separate guidance regarding the balance of funding made available under
this provision of the FY 17 Appropriations Act.
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   2) demonstrate in the refinancing request that the units proposed to be covered under the
      SPRAC could not be covered by a PBV contract and are not otherwise assisted by a
      Section 8 contract,
   3) commit to serving very low-income elderly residents upon unit turnover,
   4) be approved for and close on the refinance of the current Section 202 Direct Loan before
      the loan’s mortgage maturity date, and
   5) comply with Federal civil rights and fair housing laws and requirements. Outstanding
      civil rights matters must be resolved to HUD’s satisfaction prior to grant award, provided
      that all applicable legal processes have been satisfied.

       The prepayment and refinance of any Section 202 direct loan project is prohibited, unless
HUD gives prior approval in accordance with the American Homeownership and Economic
Opportunity Act of 2000; the Section 202 Supportive Housing for the Elderly Act of 2010; 24
CFR, Subpart E; HUD Notice 2013-17; and the terms of the particular rental assistance program
and the original 202 loan agreement.

        Per Notice H 2013-17, Owners considering prepayment must consult with their Account
Executive prior to submitting the prepayment request. Where the prepayment plans entail the use
of PBVs and/or SPRACs as described in this Notice, the Account Executive will coordinate with
HUD’s Public Housing Field Office to identify a PHA to administer the PBV Housing
Assistance Payment (HAP) contract. The Owner may request a SPRAC to cover any units that
the PHA, if one is available, determines could not be covered under the PBV HAP contract. The
PHA and the Owner will determine the exact number of units that could be covered by the PBV
HAP contract after the date of submission of the prepayment request based on occupancy of the
project and eligibility of the current residents for PBV assistance. A SPRAC, if requested, would
cover, at a minimum and subject to the availability of funds, those units that could not be
covered under the PBV contract.

        When the Owner’s prepayment request is approved, HUD will also notify the owner of
the approval for a SPRAC, reserve funds for the project, and provide nine (9) months for the
prepayment to occur, unless otherwise approved by HUD. Once the Owner (or, if the refinancing
transaction is undertaken in association with a change in ownership, the HUD-approved
transferee) has successfully closed on the refinancing loan and is ready to proceed with
prepayment of its Section 202 Direct Loan, HUD will request new voucher funding to be
awarded to the PHA, who will in turn enter into the PBV contract and the Owner (or HUD-
approved transferee, if applicable) will then execute the required Use Agreement and other loan
documents as well as the SPRAC, if applicable.

        Rental assistance provided under this SPRAC will be administered in accordance with the
specific terms and conditions enumerated under the contract. Initial SPRAC rents will be
established based on the lesser of comparable market rents or 150% of the Fair Market Rent

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(FMR). Over the 20-year term of the SPRAC, contract rents will be adjusted using the processes
described in the HUD Section 8 Renewal Policy Guidebook under Option 1A: Mark-Up-to
Market.

      For further information, Owners should consult their Account Executive and the SPRAC
webpage: www.hud.gov/program_offices/housing/mfh/presrv/presmfh/sprac_contracts.

Environmental Impact

        A Finding of No Significant Impact (FONSI) with respect to the environment has been
made for this Notice in accordance with HUD regulations at 24 CFR Part 50, which implement
section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)).
The FONSI is available for inspection at HUD's Funds Available web page at
https://www.hud.gov/program_offices/spm/gmomgmt/grantsinfo/fundingopps.


                                        ________________________________
                                        Dana T. Wade
                                        General Deputy Assistant Secretary for Housing




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