[Federal Register Volume 60, Number 190 (Monday, October 2, 1995)]
[Proposed Rules]
[Pages 51658-51662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24368]
[[Page 51657]]
_______________________________________________________________________
Part III
Department of Housing and Urban Development
_______________________________________________________________________
24 CFR Part 882
Section 8 Moderate Rehabilitation; Rent Adjustments; Annual and Special
Adjustments; Comparability Studies; Rent Reductions; Proposed Rule
Federal Register / Vol. 60, No. 190 / Monday, October 2, 1995 /
Proposed Rules
[[Page 51658]]
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Office of the Assistant Secretary for Public and Indian Housing
24 CFR Part 882
[Docket No. FR-3709-P-01]
RIN 2577-AB48
Section 8 Moderate Rehabilitation; Rent Adjustments; Annual and
Special Adjustments; Comparability Studies; Rent Reductions
AGENCY: Office of the Assistant Secretary for Public and Indian
Housing, HUD.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would revise the current regulations on
adjusting Section 8 Moderate Rehabilitation Contract Rents. The rule
would modify the method used by Public Housing Agencies (PHAs) to
determine the amount of the annual increase in the Contract Rents by
providing for PHAs to conduct comparability studies for Moderate
Rehabilitation projects to prevent the application of the Annual
Adjustment Factors from resulting in a material difference between
rents charged for assisted units and similar unassisted units. The
proposed rule provides a substitute method of determining the initial
difference between Moderate Rehabilitation rents and rents charged for
comparable unassisted units, if the PHA failed to establish the amount
of the difference when the initial Contract Rents were determined. The
proposed rule also provides, subject to the availability of
appropriations, for special adjustments when an exemption from real
property tax expires under certain circumstances. The proposed rule
also adds insurance to the categories of cost increases that may result
in a special adjustment.
DATES: Comment Due Date: December 1, 1995.
ADDRESSES: Interested persons are invited to submit comments regarding
this proposed rule to the Rules Docket Clerk, Office of General
Counsel, room 10276, Department of Housing and Urban Development, 451
Seventh Street SW, Washington, DC 20410. Communications should refer to
the above docket number and title. Facsimile (FAX) comments are not
acceptable. A copy of each communication submitted will be available
for public inspection and copying during regular business hours.
FOR FURTHER INFORMATION CONTACT: Madeline Hastings, Rental Assistance
Division, Room 4226, Department of Housing and Urban Development, 451
Seventh Street SW, Washington, DC 20410; telephone (202) 708-2841
(voice) or (202) 708-4594 (TDD). (These are not toll-free numbers.)
SUPPLEMENTARY INFORMATION:
I. Paperwork Reduction Act Statement
The information collection requirements contained in this proposed
rule have been submitted to the Office of Management and Budget (OMB)
for review under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-
3520). No person may be subjected to a penalty for failure to comply
with these information collection requirements until they have been
approved and assigned an OMB control number. The OMB control number,
when assigned, will be announced by separate notice in the Federal
Register.
The public reporting burden for each of these collections of
information is estimated to include the time for reviewing and
instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information. Information on the estimated public
reporting burden is provided under the preamble heading, Other Matters.
Send comments regarding this burden estimate or any other aspect of
this collection of information, including suggestions for reducing this
burden, to the Department of Housing and Urban Development, Rules
Docket Clerk, 451 Seventh Street SW, Room 10276, Washington, DC 20410;
and to the Office of Information and Regulatory Affairs, Office of
Management and Budget, Attention Desk Officer for HUD, Washington, DC
20503. At the end of the public comment period on this rule, the
Department may amend the information collection requirements set out in
this rule to reflect public comments or OMB comments received
concerning the information collection.
II. Background
A. Applicability
This proposed rule would be applicable to all projects which are
currently, or will be in the future, under a Section 8 Moderate
Rehabilitation Housing Assistance Payments (HAP) Contract, as provided
in the regular Section 8 Moderate Rehabilitation Program, and the
Section 8 Moderate Rehabilitation Single Room Occupancy (SRO) Program
for Homeless Individuals. This rule proposes to revise the current
regulations in 24 CFR part 882, subpart D, that govern the special
procedures for adjusting Contract Rents of regular and SRO Moderate
Rehabilitation projects during the term of the HAP Contract. The
procedures for both annual and special rent adjustments would be
revised by the rule. These are the only upward adjustments to the
initial base and Contract Rents set forth in the HAP Contract that are
allowed during the term of the HAP Contract. Downward adjustments due
to changes in project financing are also permitted during the term of
the HAP Contract.
Regulations governing annual and special rent adjustments for the
other Section 8 Programs have been and will be addressed by separate
rulemaking. A proposed rule, entitled ``Annual Adjustments of Contract
Rents for Section 8 Assisted Housing; Comparability Studies,'' was
published in the Federal Register on October 29, 1992 (57 FR 49120).
The Department received considerable public comment on the October 29,
1992 proposed rule, and, as a result of this public comment, is further
considering its October 29, 1992 proposal. Accordingly, the language of
this proposed rule which is limited to the Section 8 Moderate
Rehabilitation Program and which would make similar amendments to those
amendments proposed to be made by the October 29, 1992 rule is not
based on the language of the October 29, 1992 proposed rule.
Additionally, the Department notes that 24 CFR part 888, subpart B,
does not apply to the process utilized under the Section 8 Moderate
Rehabilitation Program. Although subpart B currently applies to all
Section 8 Housing Assistance Programs, its scope is limited to the
Automatic Annual Adjustment factors. The Section 8 Moderate
Rehabilitation Program does not utilize automatic adjustments and,
therefore, adjustments will be made in accordance with Sec. 882.410,
not 24 CFR part 888, subpart B.1
\1\ Another proposed rule applicable to the section 8
regulations and entitled ``Section 8 Certificate and Voucher
Programs Conforming Rule'' was published on February 24, 1993 (58 FR
11292).
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B. Comparability Studies
This proposed rule would implement section 801(c) of the Department
of Housing and Urban Development Reform Act of 1989 (Pub. L. 101-235,
approved December 15, 1989) (HUD Reform Act), by providing for PHAs to
conduct comparability studies for Moderate Rehabilitation projects to
prevent a material difference between
[[Page 51659]]
rents charged for assisted units and similar unassisted units. The rule
also would revise 24 CFR 882.410 to provide that upon request to the
PHA by the Moderate Rehabilitation owner (Owner) to the PHA for an
annual adjustment, a comparability study may be conducted to ensure
that the application of the Annual Adjustment Factor (AAF) would not
result in a new Contract rent that is materially different from the
rents charged for comparable unassisted units. HUD will prescribe
procedures on how a comparable rent shall be determined.
Under the proposed rule, when the application of the AAF to the
base rent, plus the monthly rehabilitation debt service and utility
allowance, produces an amount which is 110 percent or more of the most
recently published Fair Market Rents (FMRs) for Existing Housing or
exception rent approved by HUD, a comparability study would be
conducted by the PHA. The Owner would be given notice of the PHA's
intent to conduct a comparability study within a limited timeframe.
Where the results of the PHA's comparability study show that a material
difference would result between the adjusted Contracts Rents and rents
being charged for similar unassisted units, allowing for any difference
which may have existed with respect to the initial Contract Rent (see
Section D of this preamble), the Contract rent would be set at the
maximum allowable Contract rent (which will be defined later in this
preamble). However, the Contract Rent would be reduced below its
current level based upon the comparability study.
A material difference between the assisted and comparable
unassisted rents exists if the adjusted base rent is greater than the
maximum allowable Contract rent plus any amount attributable to an
initial difference. The maximum allowable base rent is a dollar amount
equal to 105 percent of the comparable rent.
The rule also would provide that Contract Rents will never be
reduced as a result of a comparability study. Contract rents may be
reduced when the project has been refinanced in such a manner that the
periodic payment of the Owner has been reduced. The Owner is required
to notify the PHA of any refinancing that occurs during the term of the
HAP Contract.
C. Initial Difference
In determining whether a material difference exists, the PHA must
allow for any difference which may have existed with respect to the
initial Contract Rent. The initial difference is defined as a dollar
amount equal to the difference between the original comparable rent at
the time the unit went under HAP contract and the initial Contract
Rent. In many cases, however, PHAs never established the initial
difference. The Regular Moderate Rehabilitation rent formula is based
on a cost approach and therefore in most instances PHAs neglected to
perform a comparability analysis. Because of the nature of the Moderate
Rehabilitation program, the Department will assume that in most cases
an initial difference actually existed between comparable unassisted
rents and initial Contract Rents.
For those contracts where an initial difference was never
established, the Department has created a substitute method to allow
for the initial difference. Where an initial difference was never
established, the initial difference will be assumed to be ten percent
of the initial Contract Rent, unless an owner can document that the
initial difference was greater.
Providing for a substitute method that assumes the initial
difference is ten percent if it was never established is consistent
with HUD's procedures established for Section 8 New Construction and
Substantial Rehabilitation Properties where current contract rents are
above the published FMRs. In a direct issuance to HUD's Field Offices
(Notice H-95-12, issued March 7, 1995), HUD stated: ``In order to
provide a fair number to owners who may not be able to show proof of
the initial difference which existed in the initial Section 8 contract
rents, HUD will use 10% of the initial Section 8 contract rent (plus
the Financial Adjustment Factor, if applicable) where evidence of the
initial difference cannot be provided by the owner.'' (Page 4 of Notice
H-95-12). Accordingly, HUD's use of the 10 percent initial difference
in this rule is to maintain consistency and uniformity, to the extent
possible, in its Section 8 programs.
D. Special Adjustments
This proposed rule would clarify and expand the availability of
special rent adjustments. Special adjustments may not be approved
because of cost increases particular to operation of the individual
Owner or project, but only may be granted for ``general increases''
that affect operation of housing in the community. The proposed rule
would provide that these special adjustments may only be approved to
reflect ``substantial general'' increases in ``actual and necessary''
expenses of owning and maintaining the dwelling unit. The Owner does
not have a contractual or regulatory right to receive the special
adjustment. HUD ``may approve'' a special adjustment, and the PHA ``may
make'' a special adjustment. A special adjustment must be determined in
accordance with HUD procedures and be approved by HUD.
The proposed rule would implement section 142 of the Housing and
Community Development Act of 1992 (Pub.L. 102-550, approved October 28,
1992). Section 142 allows HUD to give a special adjustment, subject to
the availability of appropriations, to the extent HUD determines such
adjustments are necessary to reflect increases in the actual and
necessary expenses of owning and maintaining the units that have
resulted from the expiration of a real property tax exemption. In
addition, the proposed rule would include insurance in the categories
of cost increases that may result in a special adjustment, provided
that the insurance cost increases are actual and necessary expenses
which have resulted from substantial general increases in insurance
costs. Special adjustments are currently limited by the regulations
pertaining to real property taxes or special assessments, and increases
of utility rates or cost of utilities not covered by regulated rates.
On September 16, 1994 (59 FR 47772), HUD published a final rule
that implements section 542 of the Cranston-Gonzalez National
Affordable Housing Act of 1990 (Pub.L. 101-625, approved November 28,
1990). Consistent with section 542, the September 16, 1994 final rule
provides for PHAs to recommend, and HUD to approve, subject to the
availability of appropriations, a special adjustment, on a project by
project basis, to reflect substantial increases in operating,
maintenance and capital repair costs primarily due to the general
prevalence in the community of drug-related criminal activity. The
authority for this special adjustment is strictly subject to the
availability for appropriations for this purpose.
The September 16, 1994 final rule codified the section 542 special
rent adjustments provisions in Sec. 882.410(a)(2). This proposed rule
would move these provisions to Sec. 882.410(d), and would make some
organizational and minor clarifying language changes. However, the
substance of the special rent adjustment provisions as implemented in
Sec. 882.410(a)(2) in the September 16, 1994 final rule, remains the
same as in Sec. 882.410(d)(1),(2),(4) and (6) of this proposed rule.
[[Page 51660]]
III. Other Matters
Executive Order 12866
This proposed rule was reviewed by the Office of Management and
Budget (OMB) under Executive Order 12866 on Regulatory Planning and
Review, issued by the President on September 30, 1993. Any changes made
in this proposed rule as a result of that review are clearly identified
in the docket file, which is available for public inspection in the
office of the Department's Rules Docket Clerk, Room 10276, 451 Seventh
Street, SW, Washington, DC.
Environmental Impact
With respect to the rule's proposal to implement the comparability
studies provision of the HUD Reform Act, an environmental assessment is
unnecessary since statutorily required establishment and review of rent
schedules that do not constitute a development decision affecting the
physical condition of specific project areas or buildings sites is
categorically excluded from HUD's National Environmental Policy Act
(NEPA) procedures under 24 CFR 50.20(l). With respect to the proposed
rule's special rent adjustment provision, a Finding of No Significant
Impact with respect to the environment has been made in accordance with
HUD regulations at 24 CFR part 50, which implements section 102(2)(C)
of NEPA in connection with development of the September 16, 1994 final
rule that implements section 542 of the NAHA, and which provides for
special rent adjustments certain operating and maintenance costs
incurred as a result of a general prevalence of drug-related criminal
activity in the community. That Finding of No Significant Impact is
applicable to this proposed rule available for public inspection
between 7:30 a.m. and 5:30 p.m. weekdays in the Office of the Rules
Docket Clerk, Office of the General Counsel, Department of Housing and
Urban Development Room 10276, 451 Seventh Street, SW, Washington, DC
20410.
Executive Order 12612, Federalism
The General Counsel, as the Designated Official for HUD under
section 6(a) of Executive Order 12612, Federalism, has determined that
the policies contained in this proposed rule do not have federalism
implications and, thus, are not subject to review under the order. The
rule is limited to revising the regulations applicable to the Section 8
Moderate Rehabilitation Program on the matter of adjustment of Contract
Rents.
Executive Order 12606, the Family
The General Counsel, as the Designated Official under Executive
Order 12606, The Family, has determined that this proposed rule would
not have potential for significant impact on family formation,
maintenance, and general well-being, and, thus, is not subject to
review under the order. The rents paid by families in housing governed
under this rule are based on the income of the families, and not on the
Contract Rents affected by this rule. Therefore, the proposed rule is
not subject to review under that order.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this proposed rule before publication and
by approving it certifies that this proposed rule would not have a
significant economic impact on a substantial number of small entities.
Specifically, the rule would modify the procedures for adjusting
Contract Rents in the Section 8 Moderate Rehabilitation Program.
Paperwork Reduction Act Statement
The information collection requirements contained in this rule have
been submitted to the Office of Management and Budget for approval
under the Paperwork Reduction Act of 1980 (44 U.S.C. 3501-3520). The
following provisions of the rule have been determined by the Department
to contain collection of information requirements:
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Number
Number of responses Total Hours per
Submission requirements rrespondents per annual response Total hours
respondent responses
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PHAs complete study........................... 130 1 130 20 2600
Notify owners of results where it is found
that a material difference exists............ 65 1 65 1 65
Owner appeal of results....................... 22 1 22 8 176
PHA process appeal............................ 22 1 22 4 88
Owner final appeal............................ 4 1 4 4 16
HUD review of final appeal and notify owner of
result....................................... 4 1 4 4 16
Owner submit request for special rent
adjustment due to expiration of real property
tax exemption................................ 100 1 100 10 1000
PHA process owner request for special rent
adjustment due to expiration of real property
tax exemption................................ 100 1 100 8 800
HUD review request for special rent adjustment
due to expiration of real property tax
exemption.................................... 75 1 75 8 600
Owner submit request for special rent
adjustment due to increases in insurance
costs........................................ 100 1 100 10 1000
PHA process owner request for special rent
adjustment due to increases in insurance
costs........................................ 100 1 100 8 800
HUD review request for special rent adjustment
due to increases in insurance costs.......... 75 1 75 8 600
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Total................................... 7,761
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List of Subjects in 24 CFR Part 882
Grant programs--housing and community development, Homeless, Lead
poisoning, Manufactured homes, Rent subsidies, Reporting and
recordkeeping requirements.
Accordingly, 24 CFR part 882, subpart D is proposed to be amended
as follows:
PART 882--SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM--EXISTING
HOUSING
1. The authority citation for part 882 continues to read as
follows:
[[Page 51661]]
Authority: 42 U.S.C. 1437a, 1437c, 1437f, and 3535(d). Subpart H
is also issued under 42 U.S.C. 11361 and 11401.
2. Section 882.410 is revised to read as follows:
Sec. 882.410 Rent adjustments.
(a) Annual adjustments. (1) Contract Rents will be adjusted
annually as provided in paragraph (a) of this section upon submittal to
the PHA by the Owner of a revised schedule of Contract Rents, provided
that the unit is in decent, safe, and sanitary condition and that the
Owner is otherwise in compliance with the terms of the Lease and
Contract. The Annual Adjustment Factors (AAFs) which are published
annually by HUD (see Schedule C, 24 CFR part 888) will be utilized.
(2) On or after each annual anniversary date of the Contract, the
Contract Rents may be adjusted in accordance with this paragraph and
other established HUD procedures. Contract Rents will only be adjusted
for housing assistance payments for the months commencing 60 days after
the PHA receives the Owner's revised schedule of Contract Rents.
Contract Rents will not be adjusted retroactively or cumulatively. The
annual adjustment with respect to any anniversary date must be
requested prior to the next annual anniversary date.
(3) The adjusted Contract Rents cannot exceed the amount
established by multiplying the applicable AAF by the base rents then
adding the monthly rehabilitation debt service.
(4) Rents to be adjusted by the AAF must then be examined in
accordance with paragraphs (b) and (c) of this section and may be
adjusted accordingly.
(b) Overall limitation. (1) Notwithstanding any other provisions
of this part, adjustments as provided in this section must not result
in material differences between the rents charged for assisted and
unassisted units of similar age, quality, and type in the same market
area, as determined by the PHA (and approved by HUD in the case of
adjustments under paragraph (d) of this section). A material difference
between the assisted and comparable unassisted rent is determined to
exist if the adjusted Contract rent is greater than the maximum
allowable Contract rent plus any difference which may have existed
initially. The maximum allowable base rent is a dollar amount equal to
105 percent of the comparable rent.
(2) In determining whether a material difference exists, the PHA
must allow for any difference which may have existed with respect to
the initial Contract Rent. If the PHA did not establish an initial
difference at the time the HAP contract was executed, ten percent of
the initial Contract Rent shall be used as a substitute, unless an
owner can document that the initial difference was greater.
(c) Comparability Studies. (1) A comparability study will be
conducted for the purpose of determining whether a material difference,
as described in paragraph (b) of this section, will result from
application of the AAF. The PHA will notify the Owner in writing of its
intention to conduct a comparability study.
(2) If the Contract rent, as adjusted by the AAF, plus the utility
allowance, is less than 110 percent of the current Existing Housing FMR
or exception rent (if granted for a geographical area in accordance
with Sec. 882.408(b)), the adjusted Contract Rent for the project shall
be approved by the PHA in accordance with HUD prescribed procedures and
the PHA shall not conduct a comparability study.
(3) If the Contract rent, adjusted by the AAF, plus the utility
allowance, is 110 percent or more of the current Existing Housing FMR
or if an exception rent limit (if granted for a geographical area in
accordance with Sec. 882.408(b)), the PHA will conduct a comparability
study to determine and approve an adjusted base rent that is not
materially different from rents charged for comparable unassisted
units.
(4)(i) In conducting a comparability study, the project's Contract
rents, as adjusted by the AAFs, will be compared to rents charged for
unassisted units of similar quality, type and age in the same market
area.
(ii) Comparability studies will be conducted by PHA staff. PHA
staff conducting the comparability studies will make adjustments
necessary to accommodate any difference between the comparables and the
assisted project that significantly affect the amount of rent charged
(including, without limitation, adjustments for utility charges).
(5) If it is determined by the comparability study that a material
difference would result (as provided in paragraph (b) of this section)
from application of the full AAF, a notice showing the results of the
study will be provided to the Owner within 30 business days of receipt
of the Owner's request for a rent increase. The Contract Rent will be
set at the maximum allowable Contract rent (as defined in paragraph (b)
of the section). However, the Contract Rent will never be reduced as a
result of a comparability study.
(6) Where the results of a comparability study show that a material
difference would not result from application of the full AAF, the base
rent will be adjusted by the full AAF to determine the new Contract
Rent.
(7)(i) Appeals of the decision to disapprove a full adjustment
under the AAF must be made to the appropriate PHA within 30 business
days from the date of the notice as required in paragraph (c)(5) of
this section. Sufficient documentation must be provided of any
objections to the decision.
(ii) The PHA will review the appeal within 30 business days from
receipt of the documentation.
(8) Final appeals of the PHA decision may be made to the
appropriate HUD Field Office.
(d) Special adjustments. (1) A special adjustment, to the extent
determined by HUD to reflect increases in the actual and necessary
expenses of owning and maintaining the unit which are not adequately
compensated for by annual adjustments under this part, and which have
resulted from substantial general increases in real property taxes,
assessments, utility rates, utilities not covered by regulated rates,
or increases in insurance costs, may be recommended by the PHA for
approval by HUD.
(2) Subject to the availability of appropriations for the purpose
specified in paragraph (d)(2) of this section, a special adjustment may
be recommended by the PHA for approval by HUD when HUD determines,
based upon a clear demonstration by the Owner, that a project is
located in a community where drug-related criminal activity is
generally prevalent, and not specific to a particular project, and the
project's operating, maintenance, and capital repair expenses have
substantially increased primarily as a result of the prevalence of such
drug-related activity.
(i) HUD may, on a project-by-project basis, provide adjustments to
the maximum monthly rents to a level no greater than 120 percent of the
current gross rents for each unit size under a Housing Assistance
Payments Contract to cover the costs of maintenance, security, capital
repairs and reserves required for the Owner to carry out a strategy
acceptable to HUD for addressing the problem of drug-related criminal
activity.
(ii) Where the strategy involves physical improvements, HUD will
perform an environmental review to the extent required under HUD's
environmental regulations at 24 CFR
[[Page 51662]]
part 50 prior to approving the special adjustment.
(3) Subject to the availability of appropriations, a special
adjustment also may be recommended by the PHA for approval by HUD when
and to the extent HUD determines such adjustments are necessary to
reflect increases in such actual and necessary expenses that have
resulted from expiration of an exemption from real property tax.
(4) The special rent adjustments described in paragraph (d) of this
section only will be approved if and to the extent the Owner clearly
demonstrates that these general increases have caused increases in the
Owner's operating costs which are not adequately compensated for by
annual adjustments.
(5) Special adjustments are a separate component of the Contract
Rent and are never added to the Base Rent for the purpose of
calculating annual rent adjustments.
(6) The Owner must submit financial information to the PHA which
clearly supports the increase. For Contracts of more than twenty units,
the Owner must submit audited financial information.
(e) Effective date of special adjustments. The effective date of
the adjusted Contract Rent will be the first day of the month following
the actual increase, or the first day of the month after the Owner's
written request for the special adjustment, whichever is later. Special
adjustments for security will not be made retroactively.
(f) Term of special adjustments. (1) The term of a special rent
adjustment will be coterminous with the period of the increased cost to
the Owner, subsequent to its effective date. HUD will approve the term
of the special adjustment and the special adjustment must be terminated
at the end of the specified term. The special adjustment must be
reviewed annually by the PHA to determine whether it is still
justifiable. The PHA may request and HUD may approve a decrease or an
increase in the term.
(2) Special adjustments are removed from the Contract Rent at the
end of the approved term. The removal of a special adjustment from the
Contract Rent at the end of the approved term is not and will not be
considered a reduction of Contract Rents.
(g) Rent reductions. Contract Rents will never be reduced as a
result of a comparability study, but may be reduced when the project
has been refinanced in such a manner that the periodic payment of the
Owner has been reduced. The Owner is required to notify the PHA of any
refinancing that occurs during the term of the HAP Contract. When the
property acquisition portion of a loan has been refinanced, procedures
prescribed by HUD will be utilized to recompute the base rents in
relation to AAFs. Such procedures shall not be applicable to projects
under subpart H of this part.
Editorial Note: This document was received at the Office of the
Federal Register on September 26, 1995.
Dated: December 1, 1994.
Joseph Shuldiner,
Assistant Secretary for Public and Indian Housing.
[FR Doc. 95-24368 Filed 9-29-95; 8:45 am]
BILLING CODE 4210-33-P