LAWS and REGS

Monday,
November 26, 2007

Part II

Department of
Housing and Urban
Development

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24 CFR Parts 200 and 401
Implementation of Mark-to-Market
Program Revisions; Final Rule

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Federal Register / Vol. 72, No. 226 / Monday, November 26, 2007 / Rules and Regulations

DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
24 CFR Parts 200 and 401
[Docket No. FR–4751–F–02]
RIN 2502–AH86

Implementation of Mark-to-Market
Program Revisions
Office of the Assistant
Secretary for Housing—Federal Housing
Commissioner, HUD.
ACTION: Final rule.
AGENCY:

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SUMMARY: Based on statutory changes
and HUD’s technical operational
experience in administering the
program, this final rule implements a
number of changes to the Mark-toMarket (M2M) program, HUD’s
mortgage restructuring program for
FHA-insured projects with project-based
Section 8 assistance, to facilitate
processing. Unlike the M2M proposed
and final rules addressing renewal of
expiring Section 8 project-based
assistance contracts that HUD published
on January 12, 2006, this rule addresses
a range of administrative and
programmatic issues other than the
project-based assistance contracts. This
final rule follows publication of a March
14, 2006, proposed rule and takes into
consideration the public comments
received on the proposed rule.
DATES: Effective Date: December 26,
2007.
FOR FURTHER INFORMATION CONTACT:
Theodore Toon, Deputy Assistant
Secretary, Office of Affordable Housing
Preservation (OAHP), Department of
Housing and Urban Development, 451
Seventh Street, SW., Room 6230,
Washington, DC 20024, telephone
number (202) 708–0001 (this is not a
toll-free number). Persons with hearing
or speech impairments may access this
number via TTY by calling the toll-free
Federal Information Relay Service at
(800) 877–8339.
SUPPLEMENTARY INFORMATION:

I. Background
The Multifamily Assisted Housing
Reform and Affordability Act (MAHRA)
became law on October 27, 1997. (See
Pub. L. 105–65, 111 Stat. 1384, 42
U.S.C. 1437f note.) The Departments of
Veterans Affairs and Housing and Urban
Development, and Independent
Agencies Appropriations Act for Fiscal
Year 1999 (Pub. L. 105–276, approved
October 21, 1998) revised section
524(a)(2) of MAHRA to make renewal of
expiring contracts under that section
subject to section 516 of MAHRA,
which prohibits mortgage restructuring

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and consideration of requests for
contract renewals in the case of certain
kinds of conduct by the project owner.
On October 20, 1999, the Departments
of Veterans Affairs, Housing and Urban
Development, and Independent
Agencies Appropriations Act for Fiscal
Year 2000, Public Law 106–74, 113 Stat.
1047, at 1110, extensively revised
section 524 of MAHRA. Among other
changes, the revisions changed the
method for calculating rents when an
expiring or terminating Section 8
contract is renewed, and required
reduction to comparable market rents
for certain projects that, prior to
expiration or termination, had rents that
exceeded such comparable market rents.
The Mark-to-Market Extension Act of
2001 (Title VI of Pub. L. 107–116,
approved January 10, 2002) (Mark-toMarket Extension Act) made a number
of amendments to MAHRA and a
MAHRA-related amendment to section
223(a)(7) of the National Housing Act
(12 U.S.C. 1715n). A discussion of the
implementation of those amendments
and additional proposed revisions to
HUD’s mortgage restructuring program
can be found in the preamble of the
March 14, 2006, proposed rule (71 FR
13221).
MAHRA is currently implemented in
HUD’s regulations at 24 CFR parts 401
and 402. These regulations were
initially published as an interim rule on
September 11, 1998 (63 FR 48926). On
March 22, 2000, HUD published a final
rule implementing 24 CFR part 401 and
portions of 24 CFR part 402 (65 FR
15485).
In order to facilitate restructurings
under MAHRA, this rule also amends
HUD’s regulations at part 200. Part 200
is the introductory section addressing
HUD’s mortgage insurance programs
under the National Housing Act, 12
U.S.C. 1701 et seq. The specific sections
being amended are 24 CFR 200.20,
which applies to the refinancing of
insured mortgages, and 24 CFR 200.40,
which sets HUD’s fees and charges for
its mortgage insurance programs.
For more information on the
implementation of the revisions being
made to the M2M program, please see
the preamble of the March 14, 2006,
proposed rule.

1. Removal of references to the
OMHAR. HUD has removed the
definition and all references to the
Office of Multifamily Housing
Assistance Restructuring (OMHAR). The
Office of Affordable Housing
Preservation (OAHP) replaced OHMAR
as of October 1, 2004. OAHP was
established to assure the smooth
continuation of the M2M program,
utilizing authorities that continued after
the legislative sunset of OMHAR. HUD
has taken the opportunity afforded by
this rule to update its regulations to
reflect the organizational structure of
the program as it is currently
implemented. In addition, references to
the ‘‘Director’’ of OAHP have been
replaced with more general references to
‘‘HUD’’ to avoid having to amend the
regulations whenever the title of a HUD
official is changed. ‘‘HUD’’ is defined to
include an official authorized to act
under the provisions of MAHRA.
2. Transfer Fee Exemption. The
language of § 200.40(h) is clarified to
provide for a fee exemption for transfers
that are contemporaneous with the
restructuring of a mortgage pursuant to
a restructuring plan, rather than for
transfers ‘‘in connection with’’ a
restructuring plan.
3. Revised Tenant Endorsement
Procedure. In response to public
comment, HUD has revised the tenant
endorsement procedure. A purchaser
will now only be required to hold one
informational meeting, but may hold
additional meetings as necessary.
Tenant endorsement will be based upon
a potential priority purchaser receiving
a majority of the tenant heads of
household’s written endorsement.
Those tenants who do not attend the
informational meeting, or any
subsequent meeting, may be directly
contacted by the purchaser to collect
their written endorsement. Purchasers
who are unable to obtain the majority of
tenant heads of household’s written
endorsement after undertaking
reasonable efforts will be able to submit
a request, in writing, to HUD. Based
upon the information and explanation
contained in the request, HUD will
make a determination whether or not to
grant tenant endorsement to a purchaser
based on a lower percentage of tenants’
written endorsement.

II. This Final Rule; Changes to the
March 14, 2006, Proposed Rule

III. Discussion of Public Comments
Received on the March 14, 2006,
Proposed Rule
The public comment period on the
proposed rule closed on May 15, 2006.
HUD received three public comments in
response to the proposed rule. One of
the comments was submitted jointly by
a group of national organizations

This final rule follows publication of
the March 14, 2006, proposed rule, and
takes into consideration the public
comments received on the proposed
rule. After careful review of the public
comments, HUD has made the following
changes to the proposed rule:

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representing real estate managers,
lessors, lenders, builders, and realtors.
One of the comments was submitted on
behalf of a group of regional, state, and
national organizations with extensive
experience in preserving and improving
HUD’s inventory of multifamily
housing. One of the comments was
submitted by a statewide renter’s
association. This section of the
preamble presents a summary of the
significant issues raised by the public
commenters on the March 14, 2006,
proposed rule, and HUD’s responses to
these issues.
Section 200.40 HUD Fees
Comment: The charging of
transactional fees does discourage
participation in the M2M program. The
commenter agrees with HUD that
various transactional fees discourage
owners from participating in the M2M
program and that select fees should be
exempt or eliminated.
HUD Response: HUD appreciates the
input of regulated entities in the
formulation of its regulations. Based
upon HUD’s experience and that of
regulated entities, the regulations at
§ 200.40(h) and (j) will be revised to
exempt transfer fees where the transfer
of physical assets or substitution of
mortgagors occurs contemporaneously
with the restructuring of a mortgage
pursuant to a restructuring plan and
eliminated an application or
commitment fee in connection with the
insurance of a mortgage used to
facilitate a restructuring plan,
respectively.

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Section 401.452 Property Standards
for Rehabilitation
Comment: The property standards for
rehabilitation are reasonable. The
commenter expressed approval of the
objectives of the provision to ensure that
the property can attract non-subsidized
tenants, but competes on rents rather
than amenities, which the commenter
finds reasonable.
HUD Response: HUD is implementing
the property standards for rehabilitation
as proposed. HUD believes that the
property standards are realistic, by
taking into consideration the resources
of the project as well as ensuring the
rehabilitation reflects current standards.
Section 401.461 HUD-held Second
Mortgage
Comment: The use of discretion in
whether simple or compound interest on
HUD-held second mortgages will be
required is good policy. The commenter
wrote that in § 401.461(b)(1), HUD’s
proposed elimination of the reference to
simple interests and its use of

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administrative discretion in requiring
simple or compound interest, so that
waivers will no longer be required,
makes good sense. The commenter also
appreciates HUD’s willingness to make
restructuring transactions using Low
Income Housing Tax Credits (LIHTCs)
feasible without the need for waiver.
HUD Response: HUD appreciates the
support expressed for the revisions to
§ 401.461(b)(1). The regulatory change
removes the reference to simple interest
and, thereby, allows HUD to use its
administrative discretion in requiring
simple or compound interest. This
enables HUD to make determinations
that are in the best interest of the
government and the individual debt
restructuring.
Comment: There should not be a time
limit on the canceling, modifying, or
assigning of a property’s Mark-to-Market
subsidiary mortgage(s) if transferring to
a priority purchaser. The commenters
wrote that § 401.461(b)(1) should be
revised to eliminate the time limit (i.e.,
3-year window) for canceling,
modifying, or assigning a property’s
Mark-to-Market subsidiary mortgage(s),
so long as the transfer is to a priority
purchaser. In addition, the commenters
suggested that the regulation clarify that
there is no time limit for transferring
Mark-to-Market restructured properties
to priority purchasers. Currently,
Appendix C of the Operating Procedures
Guide and the Standard Restructuring
Commitment form allow the forgiveness
of second and third debt to qualified
purchasers only if the property transfers
within 3 years of restructuring.
HUD Response: HUD has not revised
the regulations in response to this
comment. Section 401.461(b)(5) states
that HUD will consider modification,
assignment of the second mortgage to an
acquiring entity, or forgiveness of all or
part of the second mortgage to a priority
purchaser. No defined time period for
making the request is contained in this
section. In applying § 401.461(b)(5), as
described in Appendix C of the
Operating Procedures Guide and the
Standard Restructuring Commitment
form, HUD has generally limited its
consideration to requests made by
priority purchasers within 3 years of the
restructuring. HUD believes that this
guidance provides an appropriate and
reasonable time frame for a priority
purchaser to request modification,
assignment of the second mortgage to an
acquiring entity, or forgiveness of all or
part of the second mortgage. However,
HUD will consider, on a case-by-case
basis, requests made by a priority
purchaser that are outside of this 3-year
window. Such requests remain subject
to continuing statutory authority.

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Section 401.480 Sale or Transfer of
Project
Comment: The tenant endorsement
procedure for attaining priority
purchaser status should be revised. The
commenters wrote that all provisions
pertaining to a second meeting devoted
to a formal voting process should be
eliminated. This would also eliminate
the need for proxies and, thereby,
eliminate the increased possibility of
undue influence (monetary or other
promised favors), which distort the
endorsement process. In place of the
second meeting, the commenters
suggested revising the regulations to
require that 51 percent of the tenants
provide written endorsement. The
commenters believe that this would
encourage a priority purchaser to
thoroughly engage tenants in order to
gain their informed, genuine, and
meaningful support.
HUD Response: HUD specifically
requested comment on the procedure for
demonstrating tenant endorsement and
solicited recommendations for a less
prescriptive and more streamlined
procedure that will meet the goal of
providing an opportunity for the
informed participation of tenants in an
endorsement process that can
reasonably be considered to be valid. In
response to these comments and
recommendations, HUD is revising the
rule by adopting the commenters’
suggested endorsement procedure with
some modifications. A purchaser is only
required to hold an informational
meeting under this final rule; however,
additional meetings may be scheduled
in accordance with the notice
requirements of § 401.480(e). Tenant
endorsement under § 401.480(e) is to be
demonstrated by a purchaser submitting
documentation, such as ballots, letters
of support, or petitions, to HUD from a
majority (51 percent) of the tenant heads
of household. A purchaser may contact
tenant heads of households who did not
attend the meeting, to collect a written
endorsement.
HUD is also implementing a process
by which a purchaser who has made a
reasonable effort to obtain the majority
of the tenants’ endorsement but was
unsuccessful can ask HUD to make a
determination as to whether
endorsement can be obtained with a
lower percentage of endorsing tenants.
The purchaser will have to make the
request in writing and include a
description of the efforts undertaken to
secure the endorsement, an explanation
of the circumstances that resulted in
failing to receive endorsement from a
majority of tenant heads of household,
and any comments received from

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tenants regarding the approval of the
endorsement.
HUD believes that this process is less
prescriptive than the procedures that
were proposed and serves the interests
of both purchasers and tenants.
Comment: The informational meeting
should be held at a convenient time and
location and conducted by a neutral
third party. The commenter wrote that
the proposed regulation should be
revised to require that the informational
meeting be held at a time and location
convenient to the majority of the
tenants, and should be conducted by the
Participating Administrative Entity
(PAE) or other neutral third party.
HUD Response: HUD has not revised
the rule in response to this comment. It
is HUD’s intent to allow flexibility in
the conduct of tenant meetings so as to
allow the needs and resources of each
project to be addressed. Further, since
tenant endorsement will be determined
based on receiving endorsement of 51
percent of the tenant heads of
household, it is in the interest of all
involved to hold meetings that are
convenient as to time and location with
competent facilitators. HUD will issue
guidance, as needed, that outlines
informational meeting best practices.
Comment: The final rule should state
that there must be at least 3 weeks
between the informational meeting and
final endorsement of the purchaser.
Two commenters supported the
requirement of an informational
meeting, but would revise the regulation
to require that 3 weeks elapse between
the date of the informational meeting
and when final endorsement of the
purchaser is made.
HUD Response: HUD has not revised
the rule in response to this comment.
HUD does not believe that a required
time interval between a tenant meeting
and the final endorsement of the
purchaser would be beneficial. HUD
acknowledges that time is needed for
adequate consideration and
deliberation; however, HUD chooses not
to prescribe how much time is
necessary.
Comment: Additional elements
should be required for the informational
meeting. The commenters wrote that the
regulations should require prospective
priority purchasers to prepare materials
that must be readily available at no cost
to residents before and after the
informational meeting. Included among
the materials suggested by the
commenters were any plans for repairs
and improvements to the property; any
changes in the on-site manager or
management company; any changes in
utility billing; the names and locations
of other properties owned by the

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potential purchaser, specifically
identifying properties that are HUDassisted; and the names and affiliations
of the prospective purchaser’s directors
and officers. The commenters also wrote
that if English is not the primary
language of a significant number of
tenants, then the final rule should
require the prospective owner to
provide interpreters and written
materials for the informational meeting
in other languages spoken by 15 percent
of the tenants.
HUD Response: HUD has not revised
the rule in response to this comment. As
stated above, HUD does not want to
impose overly prescriptive requirements
on the tenant endorsement procedure.
HUD has created the endorsement
framework and believes that the needs
and resources of the project and the
restructuring of that project should
dictate the conduct of the meeting(s)
and endorsement process. HUD will
supplement this framework by issuing
guidance containing best practices, as
needed.
Comment: A representative of the
purchaser must attend the
informational meeting. The commenters
also wrote that the final rule should
require that a representative of the
prospective purchaser must be present
at the informational meeting. The
representative should be prepared to
discuss plans for improving the
property and capable of addressing
tenant questions and concerns.
HUD Response: HUD agrees with this
comment and has included a provision
at § 401.480(e)(1), which requires that a
representative of the purchasing entity
attend the required tenant meeting(s),
present its plan for the acquisition and
improvement of the project, and answer
the questions of tenants attending the
meeting.
Comment: The provisions governing
how tenants are to be notified of the
informational meeting should be
revised. The commenters wrote that
§ 401.480(e)(2), regarding notice to
tenants and tenant organizations, should
be modified to require that notice must
be delivered directly or by mail to the
parties listed in § 401.501, which
include local government, the public
housing authority, the Outreach and
Training Grant (OTAG) or Intermediary
Technical Assistance Grant (ITAG)
organization, other appropriate
neighborhood representatives, and other
affected parties. Additionally, the
commenters suggested the regulations
must state that notice of the
informational meeting must also be
posted in three conspicuous places on
the property and provided in
appropriate languages. The commenters

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wrote that if the informational meeting
is not part of the second PAE-convened
tenant comment meeting, then the
regulations must require notice no less
than 3 days and no more than 10 days
prior to the informational meeting.
HUD Response: HUD has not revised
the rule in response to this comment.
HUD believes that the imposition of
such prescriptive requirements would
not be beneficial to the tenant
endorsement process. HUD envisions an
endorsement procedure that reflects the
needs and resources of the project.
However, HUD will issue, as
determined to be necessary, guidance
outlining best practices.
Comment: The definition of ‘‘tenant
organization’’ should be amended to be
more inclusive. The commenters wrote
that the final rule should state that a
‘‘tenant organization’’ includes any
organization based on the property, as
well as any nonprofit organizing group
working with the property’s residents.
HUD Response: HUD has not revised
the rule in response to this comment.
HUD believes that the scope of the
definition of ‘‘tenant organization,’’
which is limited to households of
occupied units of the property, is
appropriate. Tenant-organizing groups
may help establish a tenant
organization, but do not themselves
constitute tenant organizations for
purposes of the rule.
Comment: The regulations should
contain the Operating Procedures Guide
regarding the posting of notices, meeting
times and location, and priority
purchaser ‘‘independence’’ criteria.
HUD Response: HUD has not revised
the rule in response to this comment.
HUD does not want to impose
requirements as to all aspects of the
tenant endorsement procedure. HUD
intends to promote flexibility and
responsiveness to each project. HUD
will issue guidance, as needed, to
inform participants of best practices for
the endorsement process.
Comment: A record of the
informational meeting should be
submitted with the restructuring plan or
as an addendum to the restructuring
plan. The commenters wrote that the
final rule should require that comments
made by tenants at the informational
meeting regarding needed repairs,
current management, and other
concerns must be captured in writing
and submitted with the restructuring
plan or as an addendum to the
restructuring plan.
HUD Response: HUD has not revised
the rule in response to this comment.
HUD does not believe that a record of
the informational meeting should be
submitted with the restructuring plan,

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because the meeting is outside the scope
of HUD’s review. This does not preclude
tenants from conditioning their
endorsement on the potential priority
purchaser including such items in the
restructuring plan; however, HUD
chooses not to make this a requirement.
Comment: Claims or promises made
by potential priority purchasers should
be made a binding provision of the
restructuring plan. The commenters
stated that the final rule should provide
that any claims or promises made to
tenants in order to ensure their
endorsement must be a binding
provision in the restructuring plan, and
enforceable by tenants.
HUD Response: HUD has not revised
the rule in response to this comment.
HUD believes that the rule adequately
requires and encourages extensive
tenant participation in the sale or
transfer process when the sale or
transfer is to a priority purchaser.
IV. Findings and Certifications
Paperwork Reduction Act
The information collection
requirements contained in this final rule
have been approved by the Office of
Management and Budget (OMB) under
the Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3520) and assigned
OMB Control Number 2502–0563. In
accordance with the Paperwork
Reduction Act, HUD may not conduct or
sponsor, and a person is not required to
respond to, a collection of information,
unless the collection displays a
currently valid OMB control number.
Unfunded Mandates Reform Act
Title II of the Unfunded Mandates
Reform Act of 1995 (UMRA) (2 U.S.C.
1531–1538) establishes requirements for
federal agencies to assess the effects of
their regulatory actions on state, local,
and tribal governments, and the private
sector. This rule, which implements a
statutory mandate to establish a program
for the resolution of a narrow category
of disputes, will not impose any federal
mandates on any state, local, or tribal
government, or the private sector within
the meaning of UMRA.

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Environmental Impact
A Finding of No Significant Impact
with respect to the environment was
made at the proposed rule stage in
accordance with HUD regulations in 24
CFR part 50 that implement section
102(2)(C) of the National Environmental
Policy Act of 1969 (42 U.S.C. 4332). The
finding continues to apply and remains
available for public inspection during
regular business hours in the Office of
the Rules Docket Clerk, Office of

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General Counsel, Department of
Housing and Urban Development, 451
Seventh Street, SW., Room 10276,
Washington, DC 20410. Due to security
measures at the HUD Headquarters
building, please schedule an
appointment to review the docket file by
calling the Regulations Division at (202)
708–3055 (this is not a toll-free
number). Persons with hearing or
speech impairments may access this
number via TTY by calling the toll-free
Federal Information Relay Service at
(800) 877–8339.

■

Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
(5 U.S.C. 601 et seq.) generally requires
an agency to conduct a regulatory
flexibility analysis of any rule subject to
notice and comment rulemaking
requirements, unless the agency certifies
that the rule will not have a significant
economic impact on a substantial
number of small entities. This rule
affects only owners of multifamily
projects with Section 8 assistance. There
are very few multifamily Section 8
owners who are small businesses.
Therefore, this rule will not have a
significant economic impact on a
substantial number of small entities.
Accordingly, the undersigned certifies
that this rule will not have a significant
economic impact on a substantial
number of small entities.

An existing mortgage insured under
the Act, or an existing mortgage held by
the Secretary that is subject to a
mortgage restructuring and rental
assistance sufficiency plan under the
Multifamily Assisted Housing Reform
and Affordability Act, 42 U.S.C. 1437f
note (MAHRA), may be refinanced
pursuant to section 223(a)(7) of the Act
and such terms and conditions as may
be established by the Commissioner.
The term of such refinancing in
connection with the implementation of
an approved restructuring plan under
section 401, subpart C of this title, may
be up to, but not more than, 30 years.

Executive Order 13132, Federalism
This rule does not have federalism
implications and does not impose
substantial direct compliance costs on
state and local governments or preempt
state law within the meaning of the
Executive Order.
List of Subjects
24 CFR Part 200
Administrative practice and
procedure, Claims, Equal employment
opportunity, Fair housing, Home
improvement, Housing standards, Lead
poisoning, Loan programs-housing and
community development, Mortgage
insurance, Organization and functions
(Government agencies), Penalties,
Reporting and recordkeeping
requirements, Social security,
Unemployment compensation, Wages.
24 CFR Part 401
Grant programs-housing and
community development, Housing,
Housing assistance payments, Housing
standards, Insured loans, Loan
programs-housing and community
development, Low and moderate
income housing, Mortgage insurance,
Mortgages, Rent subsidies, Reporting
and recordkeeping requirements.

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Accordingly, HUD amends 24 CFR
parts 200 and 401 as follows:
PART 200—INTRODUCTION TO FHA
PROGRAMS
1. The authority citation for part 200
continues to read as follows:

■

Authority: 12 U.S.C. 1702–1715z–21; 42
U.S.C. 3535(d).
■

2. Revise § 200.20 to read as follows:

§ 200.20

Refinancing insured mortgages.

3. In § 200.40, revise paragraphs (h)
and (j) to read as follows:

■

§ 200.40

HUD fees.

*

*
*
*
*
(h) Transfer fee. Upon application for
the approval of a transfer of physical
assets or the substitution of mortgagors,
a transfer fee of 50 cents per thousand
dollars shall be paid on the original face
amount of the mortgage in all cases,
except that a transfer fee shall not be
paid where both parties to the transfer
transaction are nonprofit purchasers, or
when the transfer of physical assets or
the substitution of mortgagors occurs
contemporaneously with the
restructuring of a mortgage pursuant to
a restructuring plan under part 401,
subpart C of this title.
*
*
*
*
*
(j) Fees not required. (1) The payment
of an application, commitment,
inspection, or reopening fee shall not be
required in connection with the
insurance of a mortgage involving the
sale by the Secretary of any property
acquired under any section or title of
the Act.
(2) The payment of an application or
commitment fee shall not be required in
connection with the insurance of a
mortgage used to facilitate a
restructuring plan under part 401,
subpart C of this title.

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compensation package annually on its
Internet Web site.
■ 8. In § 401.309, revise the section
heading and paragraphs (b)(2) and (c) to
read as follows:

PART 401—MULTIFAMILY HOUSING
MORTGAGE AND HOUSING
ASSISTANCE RESTRUCTURING
PROGRAM (MARK-TO-MARKET)
4. The authority citation for part 401
continues to read as follows:

■

Authority: 12 U.S.C. 1715z–1 and 1735f–
19(b); 42 U.S.C. 1437(c)(8), 1437f(t), 1437f
note, and 3535(d).

5. In § 401.2(c), remove the definition
of OMHAR, revise the definition of
HUD, and add the definition of OAHP
to read as follows:

■

§ 401.2 What special definitions apply to
this part?

*

*
*
*
*
(c) * * *
HUD means a HUD official authorized
to act under the provisions of MAHRA,
and otherwise has the meaning given in
§ 5.100 of this title.
*
*
*
*
*
OAHP means the Office of Affordable
Housing Preservation, and any
successor office.
*
*
*
*
*
■ 6. In § 401.101, add a new paragraph
(d) to read as follows:
§ 401.101 Which owners are ineligible to
request Restructuring Plans?

*

*
*
*
*
(d) Notice to tenants. The PAE or
HUD will give notice to tenants of a
rejection in accordance with
§§ 401.500(f)(2), 401.501, and 401.502.
■ 7. In § 401.304, revise paragraphs
(a)(2), (b), and (d) to read as follows:

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§ 401.304 PRA provisions on PAE
compensation.

(a) * * *
(2) HUD will establish a substantially
uniform baseline for base fees for public
entities. The base fee for a PAE will be
adjusted, if necessary, after the first term
of the PRA.
*
*
*
*
*
(b) Incentives. The PRA may provide
for incentives to be paid by HUD. While
individual components may vary
between PAEs (both public and private),
the total amount potentially payable
under the incentive package will be
uniform. Objectives may include
maximizing savings to the Federal
Government, timely performance, tenant
satisfaction with the PAE’s performance,
the infusion of public funds from nonHUD sources, and other benchmarks
that HUD considers appropriate.
*
*
*
*
*
(d) Other matters. HUD will retain the
right of final approval of any fee
schedule. HUD will publish the
standard form of PRA and the

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§ 401.309 PRA term and termination
provisions; other provisions.

*

*
*
*
*
(b) * * *
(2) Termination for convenience of
Federal Government. HUD may
terminate a PRA, and may remove an
eligible property from a PRA, at any
time in accordance with the PRA or
applicable law, regardless of whether
the PAE is in default of any of its
obligations under the PRA, if such
termination is in the best interests of the
Federal Government. The PRA will
provide for payment to the PAE of a
specified percentage of the base fee
authorized by § 401.304(a) and amounts
for reimbursement of third-party
vendors to the PAE authorized by
§ 401.304(c).
*
*
*
*
*
(c) Liability for damages. During the
term of a PRA, and notwithstanding any
termination of a PRA, HUD may seek its
actual, direct, and consequential
damages from any PAE for failure to
comply with its obligations under PRA.
*
*
*
*
*
■ 9. Revise the section heading and add
a new sentence to the end of § 401.401
to read as follows:
§ 401.401
Plans.

Consolidated Restructuring

* * * HUD’s decision to approve or
disapprove a Consolidated
Restructuring Plan will be made on a
case-by-case basis.
■ 10. Revise § 401.452 to read as
follows:
§ 401.452 Property standards for
rehabilitation.

The restructuring plan must provide
for the level of rehabilitation needed to
restore the property to the non-luxury
standard adequate for the rental market
for which the project was originally
approved. If the standard has changed
over time, the rehabilitation may
include improvements to meet the
current standards. The rehabilitation
also may include the addition of
significant features, in accordance with
§ 401.472. The result of the
rehabilitation should be a project that
can attract non-subsidized tenants, but
competes on rent rather than on
amenities. When a range of options
exists for satisfying the rehabilitation
standard, the PAE must choose the least
costly option considering both capital
and operating costs and taking into

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account the marketability of the
property and the remaining useful life of
all building systems. Nothing in this
part exempts rehabilitation from the
requirements of part 8 of this title
concerning accessibility to persons with
disabilities.
■ 11. In § 401.461, revise paragraphs
(a)(1), (a)(2)(ii), (b)(1), (b)(5), and (c) to
read as follows:
§ 401.461

HUD-held second mortgage.

(a) Amount. (1) The Restructuring
Plan must provide for a second
mortgage to HUD whenever the Plan
provides for either payment of a claim
under section 541(b) of the National
Housing Act (541(b) claim) or the
modification or refinancing of a HUDheld first mortgage that results in a first
mortgage with a lower principal
amount. The term ‘‘second mortgage’’ in
this section also includes a new HUDheld first mortgage (not a refinancing
mortgage), if a full payment of claim is
made under § 401.471 or if a full
payment of claim is unnecessary
because surplus project accounts are
available to facilitate the Restructuring
Plan, pursuant to section 517(b)(6) of
MAHRA, or if § 401.460(a) does not
permit a restructured first mortgage in
any amount.
(2) * * *
(ii) The greater of:
(A) The section 541(b) claim (or the
difference between the unpaid principal
balance on HUD-held mortgage debt
immediately before and after the
restructuring), plus surplus project
accounts from residual receipts
accumulated pursuant to 24 CFR
880.205(e), 881.205(e), or 883.306(e) and
derived from an expiring Section 8
Housing Assistance Payments contract
and not otherwise distributed to the
owner and made available to facilitate
the Restructuring Plan pursuant to
section 517(b)(6) of MAHRA, and
(B) The difference between the unpaid
balance on the first mortgage
immediately before and after the
restructuring.
(b) Terms and conditions. (1) The
second mortgage must have an interest
rate of at least one percent, but not more
than the applicable Federal rate.
*
*
*
*
*
(5) HUD will consider modification,
assignment to the acquiring entity, or
forgiveness of all or part of the second
mortgage, if: The Secretary holds the
second mortgage; and if the project has
been sold or transferred to a tenant
organization or tenant-endorsed
community-based nonprofit or public
agency that meets eligibility guidelines
determined by HUD; accepts additional

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affordability requirements acceptable to
HUD; and requests such modification,
assignment, or forgiveness. A
community-based nonprofit group or
public agency demonstrates that it is
tenant-endorsed in accordance with
§ 401.480(e).
(c) Additional mortgage to HUD. (1) A
Restructuring Plan shall require the
owner to give an additional mortgage on
the project to HUD in an amount that:
(i) For the restructuring of a mortgage
insured by HUD, does not exceed the
difference between:
(A) The amount of a section 541(b)
claim paid under § 401.471 increased by
any residual receipts, pursuant to 24
CFR 880.205(e), 881.205(e), or
883.306(e); and
(B) The principal amount of the
second mortgage; or
(ii) For the restructuring of a mortgage
held by HUD, does not exceed the
difference between:
(A) The principal amount of a
restructured HUD-held mortgage and
the sum of, as applicable, a restructured
HUD-held first mortgage at reduced
principal amount, new mortgage funds
paid to HUD at closing, and surplus
project accounts other than residual
receipts, pursuant to 24 CFR 880.205(e),
881.205(e), or 883.306(e); and
(B) The principal amount of the
second mortgage.
(2) HUD may approve a Plan that does
not require an additional mortgage, or
provides for less than the full difference
to be payable under the additional
mortgage, or allows for subsequent
modification, assignment, or forgiveness
of the additional mortgage under any of
the following circumstances:
(i) The anticipated recovery on the
additional mortgage is less than the
servicing costs; or
(ii) HUD has approved modification,
assignment, or forgiveness of the second
mortgage, pursuant to paragraph (b)(5)
of this section.
(3) With respect to the second
mortgage required by paragraph (a) of
this section, any additional mortgage
must:
(i) Be junior in priority;
(ii) Bear interest at the same rate; and
(iii) Require no payment until the
second mortgage is satisfied, at which
time it will be payable upon demand of
HUD or as otherwise agreed by HUD.
■ 12. Revise § 401.472(b) to read as
follows:
§ 401.472

Rehabilitation funding.

*

*
*
*
*
(b) Statutory restrictions. Any
rehabilitation funded from the sources
described in paragraph (a) of this
section is subject to the requirements in

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section 517(c) of MAHRA for an owner
contribution.
(1) Addition of significant features.
With respect to significant added
features, the required owner
contribution will be as proposed by the
PAE and approved by HUD, and not to
exceed 20 percent of the total cost.
Significant added features include the
addition of air conditioning (including
conversions from window air
conditioning to central air
conditioning), an elevator, or additional
community space.
(2) Cap on owner contribution. If a
restructuring plan includes additions
other than those specified, and the PAE
considers the additions significant, the
PAE may propose to make those
additions subject to the cap on owner
contribution. In general, the owner will
contribute 3 percent toward the cost of
each significant addition. The PAE may
propose a lower or higher owner
contribution, not to exceed 20 percent,
with respect to significant additions.
(3) Other rehabilitation. With respect
to other rehabilitation, the required
owner contribution will be calculated as
20 percent of the total cost of
rehabilitation, unless HUD or the PAE
determines that a higher percentage is
required. The owner contribution must
include a reasonable proportion (as
determined by HUD) of the total cost of
rehabilitation from nongovernmental
resources.
(4) Cooperatives. The PAE may
exempt housing cooperatives from the
owner contribution requirement.
*
*
*
*
*
■ 13. In § 401.480 revise paragraph (b)
and add paragraph (e) to read as follows:
§ 401.480

Sale or transfer of project.

*

*
*
*
*
(b) When must the restructuring plan
include sale or transfer of the property?
If the owner is determined to be
ineligible pursuant to § 401.101 or
§ 401.403, or if the property is subject to
an approved plan of action under the
Emergency Low Income Housing
Preservation Act of 1987 or the Low
Income Housing Preservation and
Resident Homeownership Act of 1990,
as described in section 524(e)(3) of
MAHRA, the property must be sold or
transferred as a condition of
implementation of a restructuring plan,
which must include a condition that the
owner sell or transfer the property to a
purchaser acceptable to HUD, in
accordance with paragraph (c) of this
section. Such sale or transfer shall be a
condition to the implementation of the
Restructuring Plan.
*
*
*
*
*

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66039

(e) Tenant endorsement procedure for
priority purchaser status. (1) Required
meeting. (i) A community-based
nonprofit or public agency purchaser
requesting tenant endorsement to obtain
priority purchaser status must conduct
an informational meeting with the
tenants of the project to disseminate
information about both the endorsement
request and the purchaser’s plans for the
project.
(ii) If the purchaser is acting
contemporaneously with the
Restructuring Plan, the informational
meeting must occur at the second
meeting of tenants convened by the PAE
to discuss the restructuring plan
pursuant to § 401.500(d).
(iii) A representative of the
purchasing entity must attend the
informational meeting to present its
plans for the acquisition and
improvement of the project and to
respond to questions about the
purchaser’s plans for the property.
(iv) Tenants shall have the
opportunity, but are not to be required,
to vote for or against the acquisition at
the informational meeting.
(v) For the purpose of obtaining
tenant endorsement, a purchaser may
conduct additional meetings with
tenants in accordance with the notice
requirements of paragraphs (e)(2) and
(e)(3) of this section.
(2) Parties who must receive notice.
The purchaser must deliver notice of the
informational meeting, and any
subsequent meeting, to each tenant
household in the project and any tenant
organization for the project, and post
notices of the meeting in the project.
(3) Notice contents. The notice must
identify the place, date, and time of the
informational meeting, and any
subsequent meeting. Include a brief
description of the purpose of the
meeting and provide a narrative
outlining the purchaser’s plans for the
project, including any request made to
HUD for debt relief under
§ 401.461(b)(5) of the second and any
additional mortgage.
(4) Tenant endorsement. (i) A
purchaser may demonstrate that it is
tenant endorsed by submitting
documentation to HUD that a majority
(51 percent) of the tenant heads of
household have given their
endorsement in writing. Such
documentation may include, but is not
limited to, ballots, letters of support, or
petitions. The endorsement of tenants
who did not attend, or vote at, the
informational meeting, or any
subsequent meeting, may be sought
directly from each of these tenants
subsequent to the meeting.

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(ii)(A) If the purchaser has made a
reasonable effort to obtain the
endorsement of a majority (51 percent)
of the tenants and the necessary
percentage of votes was not obtained,
the purchaser may seek HUD approval
to obtain endorsement based on a lower
percentage of endorsing tenants.
(B) The purchaser must deliver notice
to each tenant household that the
purchaser is seeking HUD approval of a
tenant endorsement based on less than
51 percent of tenant approval and
provide tenants with at least 10 days
from the date of the notice to submit
comments to the purchaser on the
approval of endorsement.
(C) The purchaser and/or seller must
submit, in writing, to HUD an account
of the efforts taken to secure tenant
endorsement, the number and
percentage of tenants voting for and
against endorsement, and any comments
received from tenants regarding the
approval of endorsement.
(D) HUD will determine whether or
not to approve endorsement on the basis
of all the information available to HUD
and will promptly notify the purchaser
of HUD’s determination.
■ 14. Revise § 401.500(f)(2) to read as
follows:
§ 401.500 Required notices to third parties
and meeting with third parties.

*

*
*
*
*
(f) * * *
(2) Within 10 days after a
determination that the Restructuring
Plan will not move forward for any
reason, HUD or the PAE shall provide
notice to affected tenants that describes
the reasons for the failure of the Plan to
move forward and the availability of
tenant-based assistance under
§ 401.602(c).
■ 15. Revise § 401.645 to read as
follows:

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§ 401.645
decision.

Owner request to review HUD

(a) HUD notice of decision. (1) HUD
will provide notice to the owner of:
(i) A decision that the owner or
project is not eligible for the Mark-toMarket program;
(ii) A decision not to offer a proposed
Restructuring Commitment to the
owner; and
(iii) A decision to offer a proposed
Restructuring Commitment. The
proposed Restructuring Commitment
provided to the owner constitutes the
notice of decision for purposes of
requesting a review of a HUD decision.

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(2) The notice of decision will include
the reasons for the decision.
(3) The notice of decision will also
notify the owner of the right to request
a review of the decision or to cure any
deficiencies on which the decision was
based; the date by which the review
request must be submitted or the
deficiencies must be cured, which will
be at least 30 days after the date of the
notice of decision; and the address to
which the review request is to be
submitted.
(b) Review request by owner. (1)
Written statement. The review request
must specify in writing:
(i) Each item of the decision to which
the owner objects;
(ii) The reasons for the owner’s
objections; and
(iii) All information in support of the
objections that the owner wants HUD to
consider.
(2) Scope of information submitted.
HUD will not consider information first
submitted to HUD in conjunction with
an owner’s request for review except for:
(i) Information that could not have
been submitted previously; and
(ii) New health and safety
information.
(c) HUD review and final decision. (1)
HUD may expand the scope of review
beyond the issues raised by the owner
and may review and modify any term
within the Restructuring Commitment
without regard to whether the owner
has raised an objection to that term,
including adjustments to rents or
expenses as underwritten by the PAE. If
HUD does expand the scope of review,
HUD will notify the owner of such
action and provide an additional 30
days for the owner to raise any
additional objections and provide
additional information.
(2) Within 30 days of HUD’s receipt
of the owner’s review request and any
additional objections and information,
HUD will review the request and, using
a standard of what is reasonable in light
of all of the evidence presented, issue a
final decision. The final decision will:
(i) Affirm the notice of decision; or
(ii) Modify the notice of decision and,
if applicable, modify the Restructuring
Commitment, in which event HUD will
issue an amended or restated
Restructuring Commitment that
incorporates the final decision; or
(iii) Revoke the notice of decision
and, if applicable, terminate the
Restructuring Commitment and notify
the owner that the owner is not eligible
for participation in the Mark-to-Market

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program or that a restructuring of the
property is not feasible.
■ 16. Revise § 401.650 to read as
follows:
§ 401.650 When may the owner request an
administrative appeal?

(a) No review request by owner. If the
owner does not request a review of the
notice of decision under § 401.645 or
does not execute the proposed
Restructuring Commitment within the
time provided in the notice of decision,
HUD will send a written notice to the
owner stating that the notice of decision
is HUD’s final decision and that the
owner has 10 days after receipt of the
letter to accept the decision, including
a Restructuring Commitment, if
applicable, or request an administrative
appeal in accordance with § 401.651.
(b) Upon receipt of final decision.
HUD will send the owner a written
notice of the final decision under
§ 401.645 that will also provide the
owner with 10 days to request an
administrative appeal of the final
decision.
(c) HUD decision to accelerate the
second mortgage. Upon receipt of notice
from HUD of a decision to accelerate the
second mortgage under § 401.461(b)(4),
the owner may request an
administrative appeal in accordance
with § 401.651.
■ 17. In § 401.651, revise paragraph (b)
to read as follows:
§ 401.651

Appeal procedures.

*

*
*
*
*
(b) Written decision. Within 20 days
after the conference, or 20 days after any
agreed-upon extension of time for
submission of additional materials by or
on behalf of the owner, HUD will review
the evidence presented for the
administrative appeal and, using the
standard of whether the determination
of the final decision was reasonable,
will advise the owner in writing of the
decision to terminate, modify, or affirm
the original decision. HUD will act, as
necessary, to implement the decision,
for example, by offering a revised
Restructuring Commitment to the
owner.
*
*
*
*
*
Dated: November 14, 2007.
Brian D. Montgomery,
Assistant Secretary for Housing—Federal
Housing Commissioner.
[FR Doc. E7–22908 Filed 11–23–07; 8:45 am]
BILLING CODE 4210–67–P

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