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When a household is living in a Covered Project unit assisted under a Section 8 HAP contract, the unit is not subject to LIHTC requirements and the household’s total tenant payment (TTP) exceeds the Section 8 Gross Rent, how are rents determined?

For units that convert under RAD that are not subject to LIHTC requirements, households pay to owners 30% of their adjusted income, also referred to as Total Tenant Payment (TTP), minus any applicable utility allowance. See 24 CFR §5.628. Owners may find that a given household’s calculated TTP exceeds the Gross Rent for their unit, particularly where the household has a RAD right to return to the unit. Under RAD, the household’s payment to the owner is the calculated TTP minus any applicable utility allowance even when the TTP exceeds Gross Rent. TTP is not capped at the Gross Rent for the unit. However, the owner/PHA may choose to implement a maximum rent equal to the 60% of AMI LIHTC rents for the metropolitan area in which the project is located for households whose TTP exceeds Gross Rent (or 80% of AMI LIHTC rents if other units at the Covered Project are part of an LIHTC project using the average income test). If an owner chooses to implement the LIHTC maximum rent, it must apply uniformly to any household living in the Covered Project and not in an LIHTC unit whose TTP exceeds Gross Rent.

Tenant Rents in LIHTC Units

When a household is living in a unit at a Covered Project assisted under a Section 8 HAP contract and the unit is subject to LIHTC requirements, how are rents determined?

Section 8 rent calculation rules apply to households living in units that are assisted under a Section 8 HAP contract and are also subject to LIHTC requirements. As such, households pay to owners 30% of their adjusted income, also referred to as Total Tenant Payment (TTP), minus any applicable utility allowance. See 24 CFR §5.628. As long as HAP is paid under the contract, the tenant’s rent is calculated in this manner regardless of the normally applicable LIHTC rent. The RAD notice says that when TTP rises above the Gross Rent and no assistance is paid under the HAP contract (or “zero-HAP”), the tenant pays to the owner the lower of TTP, less any utility allowance, or "any applicable maximum rent allowable under LIHTC regulations." The maximum rent refers to the designated Area Median Income (AMI) set-aside (e.g. 40%, 50% or 60% of AMI) for the unit that the household occupies. Some tax credit allocating agencies may have set aside requirements in addition to the federal set aside requirements under Section 42 of the Internal Revenue Tax Code, which can vary by project depending on their LIHTC award. In that event, the applicable maximum rent shall be the maximum rent agreed to by the allocating agency for the unit in the tax credit allocation process. Based on the locality and the designated AMI set-aside, the maximum LIHTC rent for a particular unit may be above or below the Gross Rent under the HAP contract. Accordingly, in some rare cases where the LIHTC rents are below the Section 8 Gross Rent and a family’s incomes rises such that TTP exceeds the Section 8 Gross Rent, a household’s rent could decrease.

Next Steps for Project Not Awarded 9% Tax Credits

What are the specifics of HUD’s decision to issue a new Financing Plan due date if the project is not awarded credits in current round and needs more than 30 days to established a financing strategy that does not include 9% credits? Notice states that the decision is based on score and rank. What does "score and rank" refer to?

If the PHA’s applications for 9% tax credits is unsuccessful in the first tax credit round that begins 90 days after CHAP issuance, the CHAP will be terminated unless, within 30 days of notification, the PHA demonstrates that it diligently pursued 9% tax credits, as evidenced by the score and ranking in the unsuccessful 9% application OR proposes a financing strategy that does not rely on 9% tax credits and that is feasible. “Score and ranking” refers to the QAP score and rank within the LIHTC application round. Typically projects are rated and ranked based upon how well the project met the priorities and criteria set forth in the state’s QAP and the top scoring applicants are awarded LIHTCs. The PHA would need to submit evidence showing that their project received a high QAP score and ranking but still did not receive the credits due to the competiveness of the round.

LIHTC Guarantees

Can a Housing Authority provide the guarantees in a LIHTC deal.

The RAD program neither requires nor prohibits a PHA from providing these guarantees.

Subsidy Layering Review form

I'm working on a LIHTC transaction. The HFA has agreed to do the subsidy layering review. Is there a form that HUD would prefer the HFA use?

No. HUD does not have a subsidy layering form for external parties to use. The HFA should perform the subsidy layering review in accordance with their existing internal process.

Lender and Investor Concerns Regarding Foreclosure

How is RAD responding to concerns of commercial lenders and Low-Income Housing Tax Credit (LIHTC) investors with regard to foreclosure matters and continued rental assistance?

HUD has posted a standard rider to the public housing conversion RAD HAP contracts to address the concerns LIHTC investors have raised while also protecting the long term affordability of properties converting under RAD, and adhering to the statutory provisions for ownership and control. These riders document and set forth conditions for: providing notice to LIHTC investors; accepting the investor’s offer to cure on behalf of a defaulted owner; providing HUD consent to the transfer of the investor’s interest in the ownership; and pre-approving replacement of the general partner or managing member with the special limited partner or similar entity for a limited period of time in order to facilitate an acceptable permanent replacement. To access these riders, go to www.radresource.net > Contracts & Closing Documents. HUD is also in the process of drafting standard riders to the Use Agreement and the public housing conversion RAD HAP contracts to clarify that HUD will not assert an interest to prohibit a lender from foreclosing when there is cause, but that the Use Agreement -- which establishes affordability requirements -- survives foreclosure by its terms and that continuation of HAP assistance requires HUD consent. It is also HUD’s goal through these riders to provide for a limited continuation of HAP assistance if the lender or its designee comes into ownership of the project in accordance with its rights under the loan documents. When final, these riders will be published on the RAD website. Until these riders are finalized, HUD has developed several provisions that can be provided by the RAD Closing Coordinator to assist with transactions currently moving into the closing phase. These provisions address lender concerns while also protecting the long term affordability of properties converting under RAD, and adhering to the statutory provisions for ownership and control. Importantly, neither rider changes RAD statutory and RAD notice requirements around ownership and control. The RAD Use agreement and RAD HAP contract – two means through which long-term affordability for residents are secured – survive foreclosure, leaving current and future residents protected.

HUD 2530s for LIHTC Investors

Can you clarify who needs to provide HUD 2530s in regards to a low income housing tax credit investor?

The RAD applicant is responsible for providing all 2530/APPS submissions. Note that LIHTC investors may qualify for 'passive investor' status in APPS. See http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/mfh/apps/appsmfhm. Passive investors can make a limited submission in APPS.

Financing Plan Requirements for Streamlined RAD Conversion for Small PHAs	Applies	Does Not Apply	Modified
A. Type of Conversion. The PHA must identify whether the project will covert to PBV or PBRA as described in Attachment 1A of the RAD Notice.
B. Capital Needs Assessment (CNA). Section 1.4.A.1 of the RAD Notice is waived for Streamlined Conversions. However, the PHA must provide a certification from its Board that: The PHA has assessed the property for any exigent health and safety hazards and, if applicable, has completed any necessary repairs. The property can be sustained for 20 years as decent, safe, and sanitary housing at the published RAD contract rents.¹⁰¹ If the PHA is transferring the property to a new owner (including an wholly controlled single asset entity) and the property has pre-1978 “target” housing, PHA has provided the Owner the records of lead disclosures, lead- based paint inspections, risk assessments, ongoing lead- based paint maintenance, periodic re-evaluations, and the Owner has agreed to evaluate and control lead-based paint hazards.
C. Scope of Work. Does not apply.
D. Environmental Review. Section 1.4.A.3. and Attachment 1A of the RAD Notice are modified for Environmental Reviews required under 24 CFR Part 50 to allow for a tiered Environmental Review. See Section 1.15.B.iii. above.
E. RAD Fair Housing, Accessibility & Relocation Checklist. As applicable to the proposed conversion plans, the PHA must complete and submit the checklist as described in Attachment 1A of the RAD Notice.
F. Sources & Uses. Requirements set forth in Attachment 1A of the RAD Notice do not apply except that all of the PHA’s remaining public housing funds must be reflected in a Sources and Uses statement (e.g. used to cover any conversion-related cost or placed into an initial deposit to the replacement reserve), with the exception of any funds needed to address the public housing closeout in accordance with Notice PIH 2019-13. Any public housing funds that are retained under public housing and not used to cover the cost of administrative activities required to terminate the ACC as described in Notice PIH 2019-13 will be remitted to HUD.
G. Development Team. Does not apply.
H. Proposed Financing. Does not apply.
I. Operating Pro-Forma. The PHA must submit an operating pro-forma that meets all existing requirements except that annual replacement reserve deposits must equal or exceed $500 per unit, unless otherwise approved by HUD and justified by a third-party assessment report.
J. Market Study. Does not apply.
K. Approval of Significant Amendment to PHA Plan. All Requirements for RAD Specific PHA Plan and/or Significant Amendment Submission set forth in Attachment 1D of the RAD Notice shall apply.
L. Pre-Approval of Specific Activities. Requirements set forth in Attachment 1A of the RAD Notice shall apply.
M. Approval of Non-Dwelling Real Property. Does not apply. In order to facilitate the complete conversion of the PHA, all non-dwelling property and land possessed by the PHA will be removed from the DOT or DORC and from the ACC and shall be encumbered by the RAD Use Agreement or released under 2 CFR 200.311(c).
N. Approved Amendment to Attachment A of the MTW Agreement. (only applicable to MTW Agencies subject to the Standard MTW Agreement rather than the MTW Operations Notice) See Footnote in Section 1.15.B.iv
O. Affirmative Fair Housing Marketing Plan (AFHMP). Applies only for PBRA conversions, as set forth in Attachment 1A of the RAD Notice.
P. Estimated public housing funds available for HAP subsidy. Submission requirements set forth in Attachment 1A of the RAD Notice shall apply.
Q. Transfer of Assistance. See Footnote 2.
R. Resident Comments. Submission requirements set forth in Attachment 1A of the RAD Notice shall apply. Furthermore, All Resident Participation and Funding requirements set forth in Attachment 1B of the RAD Notice shall apply.
S. Title Report. Submission requirements set forth in Attachment 1A of the RAD Notice shall apply.