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HUD Publishes a New Proposed Rule Implementing HOTMA Provisions

The Department Continues Its Slowly Rolling Implementation

On September 17, HUD published a proposed rule implementing sections of the Housing Opportunities Through Modernization Act (HOTMA).

  • Section 102 addressing income reviews in Section 8 and public housing programs,
  • Section 103 imposing continued occupancy income limits for public housing, and
  • Section 104 addressing limitations on assets that may be owned by public housing and Section 8 program participants.

HOTMA was enacted in July 2016. Since then, HUD has published several solicitations and notices requesting comments and offering guidance on HOTMA. In October 2016, HUD identified HOTMA provisions that are effective on enactment and HOTMA provisions that would require further rule making and guidance. In January 2017, HUD published guidance on several HOTMA provisions and published technical corrections to that notice in July 2017. In September 2017, the department published guidance on manufactured housing space rentals, and on October 2017, it published Notice 2017-21(HA) concerning HOTMA changes to Housing Choice Voucher Program and Project Based Voucher Program provisions. All of these notices are available here.


Next Steps

Public comments concerning HUD’s HOTMA notice are due on November 18, and PHADA plans to submit comments. The notice echoes HUD’s general piecemeal approach to implementing HOTMA, and presentation of these changes is not particularly straightforward. The statute only requires changes to public housing and Section 8 programs, but HUD has proposed to make parallel changes to other programs such as HOME, the Housing Trust Fund (HTF) and Housing Opportunities for Persons with Aids (HOPWA). HUD has requested comments on burdens these changes may impose, particularly as they relate to Rental Assistance Demonstration (RAD) conversions. PHADA urges members to submit comments in response to specific requests the department has embedded throughout its discussion of this proposed rule.


What HUD Has Proposed

Section 102: Income Reviews in Public Housing and Section 8 Programs

Interim Income Reexaminations

HUD has proposed to require interim reexaminations at the request of a family when the family’s annual adjusted income (income or deductions) decline by 10 percent or more and to permit HAs and owners to set a lower threshold for those reexaminations if they wish. The proposal also requires interim reexaminations when an HA finds that a family’s estimated adjusted income rises by 10 percent or more, but allows HAs to forgo such an interim reexamination within 3 months of a scheduled regular reexamination. HAs may not consider earned income when estimating increases in income unless those increases correspond to an earlier interim reexamination based on reductions in earned income.

For both adjusted income increases and decreases, the proposal requires an HA to complete an interim reexamination in a reasonable period of time. HUD has asked whether it should define a “reasonable period of time,” and uses 2 weeks as an example of a potential definition.

HUD also solicited comments on whether it should continue to require the use of the Enterprise Income Verification (EIV) system for interim reexaminations, or if it should only require the use of EIV for initial rent determinations and regular annual reexaminations. HAs could continue to use the EIV system if they chose to do so for interim reexaminations.


Calculation of Income

The proposed rule would require use of estimated anticipated annual income at initial occupancy or provision of assistance, and to use income from the preceding year for annual reexaminations. The calculation of income provisions also includes a safe harbor of using income determinations of other means tested federal assistance programs such as TANF or Medicaid. HUD has added the Earned Income Tax Credit to the list of means tested programs that may be used for this safe harbor.

HUD has solicited comments on (1) administrative impacts of uses of safe harbors, (2) whether HUD should address instances where there are more than one safe harbor income determinations available, and (3) whether there are other means tested federal assistance programs that should be included in HUD’s safe harbor provision.


Annualization of Income

The proposed rule removes a provision authorizing annualization of income where an HA is unable to accurately anticipate income over a 12-month period. Proposed changes would require the use of income from the preceding year for annual reexaminations.


De Minimis Errors

The statute provides that HAs will not be out of compliance with income rules if there are de minimis errors in calculating family income. HUD’s proposal would define de minimis errors as varying from correct income calculation by more than 5 percent. HUD has asked for comments concerning this standard and whether it should use a dollar amount (such as $30) or use a measure of the total income calculations in a calendar year to define a de minimis error.


Earned Income Disallowance

HUD has proposed deleting provisions regarding the current EID consistent with HOTMA. It would allow existing disallowances to expire naturally over the next 2 years. This would require HAs to continue to monitor families’ earned incomes and the timing of earned income increases after a new rule becomes effective. HUD’s notice solicits comments concerning this proposal.


Annual Income Definition

The proposed rule would simplify the definition of annual income, but HUD does not believe the simplification represents a substantive change in that definition except with regard to its treatment of income from assets. The proposed rule will only include imputed income from assets exceeding a value of $50,000 based on the passbook savings rate where actual income cannot be determined, and HUD will inflate that asset value periodically. The notice solicits comments on whether the change in definition may make income calculation easier to understand, and what index HUD should use to inflate the value of assets used to calculate imputed income.


Income Exclusions

The proposal would remove certain discretionary exclusions such as inheritances, capital gains, gifts, and sporadic income, and includes HOTMA’s income exclusions. HUD has proposed changes to wording it hopes will help clarify policy, for instance removing a parenthetical reference to medical, accident and worker’s compensation insurance payments from the exclusion of insurance payments. The notice includes detailed discussions of the treatment of realized and unrealized capital gains (realized gains are income; unrealized gains are assets), and HUD solicits comments on its proposed treatment of both initial and subsequent distributions from non-revocable trusts. The notice’s discussion of less common income exclusions, and HAs with experiences with these income sources (i.e. ABLE accounts, state kinship or guardianship payments, payments resulting from claims of government mismanagement of Native American assets held in trust) should become familiar with HUD’s proposals for those sources and exclusions.


Adjusted Income

The rule would maintain the $480 deduction for dependents and raise the elder and disabled deduction from $400 to $525. HUD would inflate both deductions annually, rounding each to the next lowest $25 increment. The new rule would change the threshold for eligibility for a medical deduction from medical expenses of 3 percent to 10 percent of income. HUD believes that some income increases may be offset by the change in the elderly and disabled deduction. HUD has also proposed a hardship exemption for medical costs. Where HAs determine that a family could not pay the rent due to the change in the medical deduction, the HA would apply a hardship threshold of 6.5 percent of income rather than 10 percent. That exemption would continue until the family’s next regular reexamination. HUD has also proposed a hardship exemption for the childcare deduction where a family no longer has a member working, looking for work or pursuing their education. In these cases, HAs would have to determine that a family would be unable to pay rent due to loss of the deduction and that childcare costs continue to be necessary. The proposed rule includes notification requirements surrounding changes to the medical and the childcare deductions. HUD has asked for comments specifically on these changes to existing deductions (e.g., should HUD establish national standards for a family’s inability to pay the rent).

HUD’s rule extends an HAs ability to establish permissive deductions to Section 8 assistance as well as public housing. Implementation will require additional information collection so that permissive deductions in the Section 8 program do not result in an HA receiving additional Housing Assistance Payments as a result.


Section 103: Public Housing Income Limits for Continued Occupancy

For the first time, Congress has required HUD to establish income limits for families’ continued occupancy in public housing. This proposal would establish the income limit as 2.4 times the Very Low Income (VLI) limit already established annually by HUD. The statute’s income limit is 120 percent of Area Median Income (AMI). The rule would provide that when an HA discovers that a family has income exceeding 2.4 times the local VMI limit, it would schedule another income reexamination 12 months later. If the family continued to have an income greater than the income limit, the HA would notify the family that if their income exceeds the limit for a third time (a second year), they would either have to pay a flat rent of the greater of the applicable FMR or the amount of subsidy (monthly Operating Fund and Capital Fund resources) the HA received for the housing unit or they would be terminated from the public housing program within 6 months of the third reexamination. HUD has defined the subsidy levels to be used as the average per unit Operating Fund and Capital Fund paid to the property in the previous year. HAs would establish which alternative is available to their residents in local policies. Families would not be deemed to have incomes over the continued occupancy income limit unless three annual reexaminations demonstrated that a family had income over these limits for 2 consecutive years.

The statute requires HUD to make the number of over income public housing residents at each HA each calendar year and the status of each HA’s waiting list public. HUD does not currently collect information on waiting lists, so the department will have to develop an information collection to gather that data. Unfortunately, although the department currently collects the income and occupancy status of every single household and every single household member living in public housing nationally through the PIC 50058 system, the notice indicates that HUD cannot figure out how to extract that information from its data sets and so will require a new separate report from HAs concerning over income households living in public housing each year.


Section 104: Asset Limitations

Families with assets valued in excess of $100,000 (adjusted annually) would be ineligible for housing assistance.


Real Property

In addition, families with real property will be ineligible if they have (1) a present ownership interest in the property, (2) a legal right to reside in the property, and (3) an effective right to sell the property. The proposed rule requires families to demonstrate that real property does not meet these three standards for the property to be excluded from assets. HUD would also exclude jointly held real property from family assets if ownership is shared with a person who will not reside with the family. In addition, HUD proposed to exclude real property from family assets if the family can demonstrate that (1) the property does not meet disability related needs of the family, (2) is insufficient for the size of the family, (3) is located so as to provide a hardship for the family, or (4) is physically unsafe for the family to occupy. HUD would also exclude from family assets (1) manufactured housing where the family receives Section 8 assistance, (2) property where a family receives homeownership assistance, (3) property owned by an assistance recipient who is a victim of domestic violence, or (4) property offered for sale by the family.

The notice solicited comments concerning the feasibility of families demonstrating elements that would exclude real property from inclusion as family assets and feedback on how HAs will implement the exclusion of victims of domestic violence.


Self-Certification and Agency Discretion

The rule would permit HAs to accept families’ self-certifications that their net family assets do not exceed $50,000 (inflated annually along with the limitation on net family assets). The rule would also allow self-certification that families do not own real property subject to the asset limitation.

The proposal would provide HAs the discretion not to enforce asset limitations or establish local exceptions to those limitations if they include an explicit policy statement to that effect in their PHA Plan. Exceptions may be based on certain family characteristics such as disability, age, or income as long as exception standards do not discriminate against members of any protected class. Finally, the proposal would permit HAs to delay implementation of asset limitation requirements (undertaking termination of assistance) for 6 months.


Net Family Assets

In addition to the exclusions described above (including sources excluded from annual income), the rule would exclude from net family assets:

  • Balances in dedicated retirement accounts, and
  • Items of personal property, other than necessary items, valued at less than $50,000.

The notice solicited public comments on the exclusion of personal property valued at less than $50,000 or necessary personal property (e.g., a car or medical equipment).


Authorization for Financial Disclosures

The proposal would expand the reach of the existing requirement for applicants and participants to consent to collection of certain information to verify income. The new requirement would be authorization to access any financial information from any financial institution necessary to determine eligibility or level of benefits. The new authorization would remain in effect until there is an adverse determination of eligibility, an end of eligibility for assistance from HUD programs, or written notice from the family to HUD revoking the authorization. Finally, since the statute permits HA discretion concerning penalties for revocation of this authorization, HAs may deny or terminate a household’s assistance on revocation of this authorization if they have adopted an explicit policy to do so.


CPD Program Changes

As described above, although HOTMA was concerned with requirements of the U.S. Housing Act of 1937, HUD has chosen to propose parallel changes to HOPWA, HOME and HTF rules to align requirements concerning income and assets among HUD programs. The notice solicited specific comments on whether the department should include all of the HOTMA changes in HOME program rules, and specifically where HOME resources and Section 8 resources are both involved in providing assistance. Concerning HTF programs, HUD has solicited comments on whether asset restrictions should apply in any HTF program as well as where HTF and other assistance resources such as Section 8 funds are combined for assistance.

If you have comments, questions or concerns with this notice, please contact Jim Armstrong who will be preparing the comments PHADA will submit.