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HUD's attention shifts, RHS revises loan values

In recent years, concerns about the future of the Section 8 rent subsidy program have focused on the problem of high costs, particularly the costs of subsidizing rents on many units that are well above market. The so-called mark-to-market program was developed to deal with this problem. Under this program, which is limited to Section 8 projects with Federal Housing Administration-insured mortgages, rents are reduced to market level when Section 8 contracts expire, and the mortgage is restructured so that market rents can support the debt service. The Section 8 contracts may be renewed with either project- or tenant-based assistance.

Ironically, attention is now shifting to the opposite problem - rents that are below market - depressing income to project owners and encouraging them to opt out of the program when their current Section 8 contracts expire. To address this problem, the U.S. Department of Housing and Urban Development (HUD) has taken steps toward creation of a mark-up-to-market program, where Section 8 rents will be increased, rather than reduced, when contracts are renewed.

Section 8 rents are limited generally to HUD-established fair-market rents (FMRs), which, because of the department's methodology (FMRs are set at the 40th percentile of the rent distribution) can fall well below rents for comparable properties in the market. Generally, projects will be eligible for a rent markup if FMRs are below 110% of comparable rents, although HUD may waive this requirement if a project is considered a critical housing resource in the community.

To control costs, rent increases will be limited to 150% of FMR. In the notice (H 99-15) announcing the limited mark-up-to-market initiative, HUD says the cost of marking all below-market Section 8 properties up to market would be "prohibitive and unnecessary." To allow owners to get the benefits of the higher rents, HUD will waive current distribution limits.

RHS revises loan values The Rural Housing Service (RHS) has revised the regulations for the Section 538 guaranteed multifamily loan program to allow the use of tax-exempt bonds to fund loans. A previous restriction on tax-exempt financing was eliminated by legislation passed last year. Also, in cases where loan funds are used for both construction and permanent financing, the construction loan period has been extended from 12 to 24 months.

The RHS has $74 million available for the Section 538 program in fiscal year 1999. Fiscal year 2000 agriculture appropriations bills in both houses of Congress would provide $100 million for the program next year. The House also approved $120 million for the Section 515 direct rural rental housing loan program, up from current-year funding of $114 million, while the Senate bill would continue funding at this year's level. For rural rental assistance, the House would hold funding at the 1999 level of $583 million, while the Senate measure would provide an increase to $640 million.

HUD proposes expansion of rules HUD has proposed an expansion of its regulations for tenant participation in significant multifamily housing management decisions, as required by Section 202 of the 1978 Housing Act. Currently, the regulations apply to FHA-insured and formerly insured subsidized projects and to projects for the elderly or handicapped financed with Section 202 loans.

The proposed rules would add projects with project-based Section 8 assistance, enhanced vouchers under affordable housing preservation statutes and projects for the elderly or handicapped funded under the Section 202 and Section 811 grant programs. The 1978 legislation protects the rights of tenants to establish and operate tenant organizations, and the proposed rules would clarify what constitutes protected activities.

Specifically, tenants and tenant organizers could engage in such activities as distributing leaflets in lobbies or common areas or placing leaflets at tenants' doors; conducting door-to-door surveys to determine interest in establishing a tenant organization; helping tenants participate in organizing activities; and formulating responses to owners' requests for rent increases, conversion to tenant-paid utilities, major capital additions, and conversion of residential rental units to condominiums, cooperatives or nonresidential use. Owners and management agents would have to recognize properly established tenant organizations and give reasonable consideration to their concerns.

The rules would also acknowledge the right of tenants to establish more than one tenant organization, though generally, HUD says it believes that a single organization is the most effective way to represent tenant views.

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