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>> HELLO AND WELCOME TO MULTIFAMILY'S TRAINING ON THE SECTION 8 RENEWAL POLICY GUIDE. I'M STAN, IN THE OFFICE OF ASSET MANAGEMENT AND PORTFOLIO OVERSIGHT. FOR THE NEXT HOUR OR SO I'LL BE COVERING A LOT OF MATERIAL ON RENEWING THE SECTION 8 OR PROJECT-BASED RENTAL ASSISTANCE, OTHERWISE KNOWN AS PBRA, CONTRACTS. I'M GOING TO TALK ABOUT CROSS CUTTING ISSUES AND SPECIFIC ISSUES RELATED TO EACH OPTION. I'M ALSO GOING TO RESPOND TO A FEW QUESTIONS WE HAVE RECEIVED RECENTLY ABOUT PROVISIONS IN THE GUIDE. WE'RE GOING TO COVER A LOT OF MATERIAL IN THE NEXT HOUR, BUT I'D LIKE FOR YOU TO TAKE AWAY THREE IDEAS FROM THIS SESSION. YOU AND THE CONTRACT ADMINISTRATOR SHOULD BE FAMILIAR WITH THE ORIGINAL TERM CONTRACT AND THE MAHRA RENEWAL CONTRACT. YOU SHOULD KNOW WHICH OPTION THE CONTRACT IS RENEWED UNDER NOW. LAST, YOU SHOULD HAVE A BETTER UNDERSTANDING OF THE RELATIONSHIP BETWEEN OPTION ONE, OPTION TWO, AND THE CAPITAL REPAIRS PROGRAM THAT'S IN CHAPTER 15. BEFORE WE GET INTO THE OPTION RENEWALS, I WANT TO HIGHLIGHT SOME OF THE MATERIAL IN CHAPTER 2, SPECIFICALLY RENT ADJUSTMENTS AND ADJUSTMENTS FOR THE RESERVE FOR REPLACEMENT ACCOUNT OR R FOR R. MOST PROJECTS, RENTS, ARE ADJUSTED ANNUALLY BY EITHER AN OPERATING COST ADJUSTMENT FACTOR, SHORT NAME IS OCAF OR A BUDGET BASED RENT ADJUSTMENT, BBRA. THE DEPARTMENT ISSUES THE OCAFS EACH YEAR CLOSE TO OCTOBER, AND THEY ARE EFFECTIVE FEBRUARY THE 11TH OF THE NEXT YEAR. MOST OCAF RENT ADJUSTMENTS ARE NOW MADE ELECTRONICALLY THROUGH THE AUTO PROCESS. WE ARE REVISING CHAPTER SEVEN. IT'S NOW CALLED CHAPTER 2.06. BE LOOKING FOR IT IN THE NEAR FUTURE. IN THE MEANTIME, REMEMBER THAT WE NO LONGER INCLUDE A 2% CONTINGENCY RESERVE FOR PROJECTS OWNED BY NONPROFITS AND THOSE PROJECTS ONCE OWNED BY NONPROFITS, BUT WHICH HAVE BEEN SOLD TO LIMITED DIVIDEND PARTNERSHIPS. IN ADDITION, THE BUDGET MUST REFLECT THE PROJECT'S CURRENT DEBT SERVICE, AND CURRENT DEBT SERVICE IS THAT WHICH WILL TAKE EFFECT WHEN A NEW LOAN CLOSES IF THE REFINANCE IS PART OF THE TRANSACTION. LAST, WE ALLOW DEBT SERVICE COVERAGE BUT LIMIT THE DEBT SERVICE COVERAGE TO 1.2. PROJECTS THAT ARE 100% SECTION 8 MUST INCLUDE A VACANCY LOSS RATE OF 3% IN THE BUDGET UNLESS IT'S PART OF A REFINANCING. AND THERE'S SPECIFIC GUIDANCE FOR SMALL AND PARTIALLY ASSISTED PROJECTS IN SECTION 2-15 FOR SPECIFIC INFORMATION ON VACANCY RATES. SOME OF THIS INFORMATION IS NEW, AS OF JULY 2017. FEES THAT MUST BE PAID FOR TAX CREDIT PROJECTS CAN ALSO BE INCLUDED IN THE BUDGET. EQUITY SYNDICATORS ASSET MANAGEMENT FEES, STATE ALLOCATING AGENCIES COMPLIANCE AND ASSET MONITORING FEES, AND OTHER FEES LISTED IN THE GUIDE CAN BE INCLUDED IN THE BUDGET. LAST, I WANT TO TALK ABOUT 0-DOLLAR BUDGET BASED RENT ADJUSTMENTS. OWNERS CAN REQUEST A 0-DOLLAR ADJUSTMENT BY MARKING THE APPROPRIATE BOX ON THE AMEND RENTS FORM, HUD 9626 OR 9627. NOW, OWNERS DO NOT, I REPEAT, DO NOT NEED TO SUBMIT A BUDGET WHEN THEY CHECK THAT APPROPRIATE BOX ON THAT FORM. FOR RESERVE FOR REPLACEMENT ADJUSTMENTS, AT THE ANNUAL RENT ADJUSTMENT, DEPOSITS TO THE R FOR R ARE INCREASED BY THE MOST RECENT PUBLISHED REGIONAL AAF WITH THE HIGHEST UTILITIES EXCLUDED, THAT'S IN TABLE 2, UNLESS HUD DETERMINES THAT THE R FOR R BALANCE JUSTIFIES A LESSER DEPOSIT. THIS IS A NEW PROVISION IN THE GUIDE AS OF 2017. NOW LET'S MOVE ON TO THE VARIOUS OPTIONS THAT OWNERS HAVE WHEN THEY RENEW THEIR CONTRACT. ONE CHANGE, HOWEVER, IS THAT AFTER WE DISCUSS OPTION ONE AND OPTION TWO, WE'RE GOING TO MOVE DIRECTLY TO A DISCUSSION ABOUT PAYING FOR CAPITAL REPAIRS, WHICH IS CONTAINED IN -- WAY BACK IN CHAPTER 15. HOWEVER, LET'S JUMP TO A FEW QUESTIONS FIRST. FIRST QUESTION: IS THE SECTION 8 CONTRACT THE ONLY CONTROLLING DOCUMENT LIMITING DISTRIBUTIONS? ANSWER: SEVERAL CONTROLLING DOCUMENTS MAY LIMIT THE AMOUNT OF DISTRIBUTIONS AN OWNER CAN MAKE. THESE INCLUDE THE REGULATORY AGREEMENT, THE SECTION 8 CONTRACT, OR THE USE AGREEMENT. THESE DOCUMENTS VARY FROM PROPERTY TO PROPERTY AND SHOULD BE REVIEWED TO DETERMINE ANY LIMITS ON DISTRIBUTIONS. NEXT QUESTION: FANNIE MAE IS REQUIRING A DEBT SERVICE COVERAGE RATIO OF 1.56 TO MAKE THE PROJECT WORK. CAN WE INCLUDE THE 1.56 IN THE BUDGET? >> ANSWER: WHAT WE ALLOW IN THE BUDGET FOR SECTION 8 IS 1.2. ANY ADDITIONAL AMOUNT MUST BE MADE UP FROM OTHER SOURCES. SO, NOW LET'S JUMP TO OPTION ONE. THE FIRST OPTION OWNERS HAVE. THE BIG PICTURE HERE IS THAT RENTS INCREASE TO MARKET. IF THE PROJECT MEETS CERTAIN FEDERAL REQUIREMENTS. THE OTHER HIGHLIGHT IS THAT THERE IS NO AUTOMATIC HUD COMMISSION RCS ANYMORE UNLESS RENTS EXCEED 140%. THERE ARE REALLY TWO TYPES OF MARK TO MARKET OPTIONS: ENTITLEMENT AND DISCRETIONARY. AND THERE ARE DIFFERENT QUALIFICATIONS FOR EACH CRITERIA. ALL PROJECTS WISHING TO RENEW UNDER MARK TO MARKET MUST HAVE AGGREGATE RENTS LESS THAN COMPARABLE MARKET RENTS. FOR EXAMPLE, TWO BEDROOM RENTS MIGHT BE ABOVE BUT IN THE TOTAL THEY WOULD BE BELOW. THEY HAVE TO HAVE A SATISFACTORY MANAGEMENT SCORE. THEY HAVE TO HAVE AN REAC SCORE THAT EXCEEDS 60 AND ALL THE MATERIAL FINANCIAL ASSISTANCE SUBSYSTEM OR FAS FINDINGS NEED TO BE CLOSED OR A PLAN IN PLACE TO RESOLVE ANY ISSUES. NOW, THE REQUIREMENT FOR MANAGEMENT TO BE SATISFACTORY, AND ALL FAS FINDINGS CLOSED, WERE ADDED IN 2015. AS I MENTIONED EARLIER, ENTITLEMENT PROJECTS, IF THE OWNER WISHES TO RENEW UNDER THE ENTITLEMENT PORTION OF MARK UP TO MARKET, THE PROJECT MUST ALSO MEET THESE ADDITIONAL CRITERIA. IF THE OWNER WISHES TO RENEW UNDER MARK TO MARKET, THEN THE OWNER ENTITY MUST BE PROFIT MOTIVATED OR BE A HOUSING AUTHORITY PUBLIC BODY CORPORATE AND POLITIC. THE RCS RENTS MUST BE AT OR ABOVE 100% OF THE FAIR MARKET RENT. THERE CAN BE NO USE RESTRICTIONS THAT CANNOT BE ELIMINATED BY THE UNILATERAL ACTION BY THE OWNER. IF AN OWNER WISHES TO RENEW UNDER THE DISCRETIONARY PART OF THE PROGRAM, THEN THE DISCRETION IS SET AT THE NUMBER OF CRITERIA THAT THE PROJECT MUST MEET. THE DEPARTMENT USED ITS DISCRETION TO SAY PROJECTS ONLY HAD TO MEET ONE OF THE FOLLOWING CRITERIA. EITHER THE PROJECT IS SERVING A VULNERABLE POPULATION, BE IN AN AREA WITH LOW VACANCY RATES, OR HAVE COMMUNITY SUPPORT. RECENT HAS BEEN DEFINED AS FIVE YEARS. IF ONE CRITERIA IS MET, THE PROJECT QUALIFIES. SOME OF THE ATTRACTIVE FEATURES OF RENEWING UNDER OPTION 1B INCLUDE, NONPROFITS CAN PARTICIPATE IN 1B. THE OWNER'S RENT COMP STUDY DOES NOT HAVE TO SHOW THAT RENTS ARE AT OR ABOVE 100% OF THE FAIR MARKET RENTS. AND RENTS ARE NOT LIMITED TO 150% OF THE FAIR MARKET RENT. LET'S JUMP TO A FEW QUESTIONS ON OPTION ONE, MARK UP TO MARKET. IS A LETTER FROM THE CITY DESCRIBING THE PROJECT'S SIGNIFICANCE TO THE COMMUNITY NO LONGER ACCEPTED WHEN EVALUATING WHETHER A PROJECT QUALIFIES FOR 1B? ANSWER: CORRECT. A LETTER FROM THE CITY WITHOUT SOME TYPE OF FINANCIAL INVESTMENT IS NOT AN ACCEPTABLE FORM OF COMMUNITY SUPPORT. QUESTION: A HOUSING AUTHORITY OCCUPYING THE STATUS OF A PUBLIC BODY CORPORATE AND POLITIC UNDER STATE LEGISLATION, MUST THE OWNER SUBMIT LEGAL COUNSEL'S WRITTEN VERIFICATION WITH THEIR OPTION ONE RENEWAL PACT TO SHOW ELIGIBILITY? >> THE SHORT ANSWER IS YES, THEY DO. NOW, LET'S MOVE ON TO OPTION TWO, RENEWAL OF CONTRACTS WITH RENTS AT OR BELOW MARKET. IF A PROJECT HAS RENTS BELOW MARKET BUT CANNOT OR DOES NOT QUALIFY UNDER OPTION ONE, THEN THEY HAVE THE ABILITY TO RENEW THAT CONTRACT UNDER OPTION TWO. NOW, OPTION TWO IS ALSO FOR PROJECTS WITH AGGREGATE CURRENT RENTS AT OR BELOW MARKET, OR PROJECTS WITH AGGREGATE RENTS ABOVE MARKET BUT NOT ELIGIBLE FOR RESTRUCTURING AND RENTS CAN BE REDUCED TO MARKET. FOR OPTION TWO, RENTS DO NOT AUTOMATICALLY INCREASE TO MARKET. RENTS ARE ADJUSTED IN ONE OF 22 WEIGHS, EITHER BY TAKING THE CURRENT RENT AND MULTIPLYING THEM BY THE OCAF OR BASED ON A BUDGET SUBJECT TO A MARKET LIMITATION. THAT'S ABOUT ALL OF THE MAJOR ISSUES IN OPTION TWO. SO LET'S JUMP TO A FEW QUESTIONS. WE JUST RECEIVED A RENT COMPARABILITY STUDY THAT REQUIRES RENTS TO GO DOWN IN THE FIFTH YEAR OF A 20-YEAR OPTION TWO CONTRACT. WE'RE GOING TO SEND THEM TO RECAP FOR RESTRUCTURE. ANSWER: AT THE FIFTH YEAR RENTS ARE REDUCED TO MARKET; HOWEVER, THERE IS NO REQUIREMENT TO SEND THEM TO RECAP UNLESS THE OWNER REQUESTS THEM TO BE SENT. QUESTION: I JUST RECEIVED MY RENT COMPARABILITY STUDY. IT SHOWS THAT THE RENTS FOR MY TWO BEDROOM UNITS ARE ABOVE MARKET, BUT THE AGGREGATE RENTS FOR THE PROJECT ARE BELOW MARKET. DO I STILL QUALIFY FOR OPTION TWO? ANSWER: YES. IF THE AGGREGATE RENTS ARE BELOW MARKET, THE PROJECT QUALIFIES FOR OPTION TWO. WE'VE DISCUSSED RENEWING UNDER OPTION ONE OR OPTION TWO WITHOUT INCLUDING A TRANSACTION WHERE MAJOR REPAIRS ARE PLANNED. NOW LET'S TURN TO HOW SECTION 8 CAN PROVIDE THE CASH FLOW TO PROVIDE FOR MAJOR REPAIRS TO THE PROJECT. SOME CALL THIS SECTION PRESERVATION, SOME CALL IT CHAPTER 15, BUT WE'RE GOING TO REFER TO IT AS CAPITAL REPAIRS. THE KEY FEATURE OF CHAPTER 15 OR CAPITAL REPAIRS IS A FRONT END COMMITMENT TO A RENT INCREASE AFTER THE REPAIRS ARE COMPLETE. SO, WHICH OPTION, IF SOMEONE IS INTERESTED, SHOULD AN OWNER SELECT? FIRST, LET'S LOOK AT WHO IS ELIGIBLE FOR WHAT. FOR PROFITS ARE TREATED DIFFERENTLY WHETHER THEY ARE THE OWNER OR THE PURCHASER IN THIS TYPE OF TRANSACTION. FOR PROFIT OWNERS CAN RENEW UNDER OPTION ONE OR TWO, AND THE FOR PROFIT CAN RENEW EITHER UNDER OPTION 1A OR B. FOR-PROFIT BUYERS CAN ONLY RENEW UNDER OPTION ONE. NONPROFITS CAN RENEW UNDER OPTION TWO OR IF THEY QUALIFY UNDER OPTION 1B. WHAT ARE SOME OF THE FEATURES OF THE CAPITAL REPAIRS PROGRAM? USING CHAPTER 15 IS THE ONLY WAY TO GET THAT UP FRONT COMMITMENT FOR POST-REHAB RENTS. GENERALLY, POST-REHAB RENTS ARE NOT EFFECTIVE UNTIL AFTER THE REHABILITATION IS COMPLETE; HOWEVER, IF A MORTGAGOR REQUIRES FULL DEBT SERVICE AT CLOSING, SUCH AS THE FANNIE MAE OR FREDDIE MAC METHOD REHAB PROGRAMS OR THE FHA223F PROGRAM, THE POST-REHAB RENTS CAN BE EFFECTIVE AT CLOSING. HOWEVER, THE OWNER MUST AGREE TO SIGN THE HUD 93182 ADDENDUM TO THE RENEWAL CONTRACT, FOR CAPITAL REPAIRS AND/OR ACQUISITION POST-REHANDLE RENTS -- POST-REHAB RENTS. UNSUBSIDIZED TENANT RENTS CAN INCREASE BY NO MORE THAN 10% AS PART OF THIS TRANSACTION. WHAT ARE SOME OF THE FEATURES OF THIS TYPE OF PROGRAM? APPRAISERS NO LONGER HAVE TO LOWER THE RENTS IN THE RENT COMPARABILITY STUDY BY ANY USE RESTRICTION. THE CAPITAL NEEDS ASSESSMENT REQUIREMENTS ARE NOW FOUND IN NOTICE 12-27 SO THIS SECTION HAS BEEN REDUCED. LAST, THE PROJECT CANNOT BE SUBJECT TO ADMINISTRATIVE SANCTIONS IN ORDER TO QUALIFY. SOME OF THE ADDITIONAL FEATURES IS THAT ENVIRONMENTAL REVIEW REQUIREMENTS WERE STRENGTH END IN 2015 AND SOME ADDITIONAL TEXT HAS BEEN ADDED AND REVISED IN 2017. DAVIS BACON WAGE RATES DO NOT APPLY UNLESS AN FHA INSURED MORTGAGE IS INVOLVED. THE RELOCATION PLAN AND ACCESSIBILITY REQUIREMENTS AS PART OF THE CAPITAL REPAIRS TRANSACTION ARE ALSO DESCRIBED IN THIS SECTION. AS WE'VE DONE BEFORE, WE CAN JUMP TO A FEW QUESTIONS NOW. QUESTION: I WAS TOLD THAT NONPROFITS COULD NOT RENEW UNDER OPTION ONE. ANSWER: IF A NONPROFIT MEETS ONE OF THESE THREE DISCRETIONARY CRITERIA, IT CERTAINLY CAN RENEW UNDER OPTION 1B, AND PARTICIPATE IN THE CHAPTER 15 TRANSACTION. QUESTION: HOW DO WE VERIFY IF A CONVENTIONAL LOAN IS REQUIRING FULL DEBT SERVICE AT CLOSING? ANSWER: YOU CAN REQUIRE THAT THE CONVENTIONAL LENDER PROVIDE WRITTEN CONFIRMATION THAT THE LOAN REQUIRES FULL DEBT SERVICE AT CLOSING. QUESTION: WHO IS SUPPOSED TO REVIEW THE OWNER'S RENT COMP STUDY THAT'S ASSOCIATED WITH A CHAPTER 15 TRANSACTION? ANSWER: HUD STAFF. >> I HOPE YOU UNDERSTAND A LITTLE MORE ABOUT THE PROCESS TO RENEW UNDER OPTION ONE AND OPTION TWO AND HOW TO USE CHAPTER 15 TO INCREASE RENTS TO PAY FOR CAPITAL REPAIRS. NOW WE'RE MOVING ON TO THE NEXT RENEWAL OPTION, MARK TO MARKET. TO BE ELIGIBLE FOR MARK TO MARKET OR M TO M, THE PROJECT MUST HAVE RENTS ABOVE MARKET AND IT MUST BE FHA INSURED OR HUD-HELD TO QUALIFY. NOW, WE'RE NOT GOING INTO A LOT OF DETAILS IN THIS SESSION, AS THE DETAILS ARE IN THE RECAP INSTRUCTIONS. BUT WE NEED TO DISCUSS SUBSEQUENT RENEWALS OF PROJECTS THAT HAVE BEEN BROUGHT THROUGH MARK TO MARKET. FIRST OF ALL, LET'S JUMP INTO THE TYPES OF CONTRACTS THAT ARE IN MARK TO MARKET. THERE ARE THREE TYPES ASSOCIATED WITH MARK TO MARKET. ONE IS THE MARK TO MARKET CONTRACT FOR MARK TO MARKET FULL TRANSACTIONS. SECOND IS THE BASIC CONTRACT FOR MARK TO MARKET LITE TRANSACTIONS. AND LAST, THERE ARE THESE THINGS CALLED WATCH LIST CONTRACTS. AGAIN, I'M NOT GOING TO GET INTO A LOT OF DETAIL ON EACH OF THESE, BUT I DO WANT TO HIGHLIGHT SOME OF THE ISSUES RELATED TO RENEWAL OF THOSE CONTRACTS. AS WITH OTHER SECTION 8 CONTRACTS, THE DEPARTMENT CANNOT EXTEND A CONTRACT. WE CAN ONLY TERMINATE AN EXISTING CONTRACT AND RENEW IT IF THE OWNER WISHES TO RENEW THE CONTRACT BEFORE IT WOULD NORMALLY ENTIRE. IF A REFINANCING IS PLANNED AS PART OF THE CONTRACT RENEWAL, IT MIGHT TRIGGER A DUE ON SALE OF THE MARK TO MARKET MORTGAGES. HOWEVER, THAT REQUIREMENT CAN BE WAIVED TO FACILITATE THE REFINANCING OF A DEBT RESTRUCTURED PROJECT'S FIRST MORTGAGE LOAN. AND IT CAN ALSO SATISFY A LENDER CONDITION FOR THE REFINANCING. NOTICE 2012-10 DESCRIBES HOW TO REQUEST SUCH A WAIVER. A NEW FEATURE FOR 2017 IS THAT NO RCS IS REQUIRED AT RENEWAL OF A MARK TO MARKET PROJECT. SUBSEQUENT RENEWALS. FOR MARK-TO-MARKET FULL CONTRACTS, WE CAN ONLY TERMINATE THE CONTRACT EARLY AND RENEW IT FOR THE REMAINING LIFE OF THE USE AGREEMENT, WHICH IS THE BALANCE OF THE 30 YEARS; HOWEVER, FOR MOST MARK-TO-MARKET CONTRACTS, THE OWNER CAN REQUEST THAT THE USE AGREEMENT BE EXTENDED SO THAT IT TERMINATES WHEN THE NEW CONTRACT ENDS. MARK-TO-MARKET EXCEPTION RENT PROJECTS 515G CANNOT BE RENEWED FOR A TERM THAT EXTENDS BEYOND THE TERM OF THE ORIGINAL USE AGREEMENT. 30 YEARS. NOW, AFTER 30 YEARS, ANY MARK-TO-MARKET PROJECT CAN RENEW UNDER ANY OPTION THAT IT QUALIFIES FOR. WITH THE EXCEPTION FOR CERTAIN TRANSACTIONS WITH QUALIFIED NONPROFITS, WHICH EXTEND BEYOND 30 YEARS. SOME OF THE QUESTIONS RELATED TO MARK-TO-MARKET: QUESTION: AN OWNER WITH A LIGHT CONTRACT MUST RENEW UNDER MARK-TO-MARKET. ANSWER: A LIGHT CONTRACT IS A BASIC CONTRACT AND DOES NOT HAVE A USE AGREEMENT. AT ITS EXPIRATION, IT CAN BE RENEWED UNDER ANY OPTION FOR WHICH IT QUALIFIES. QUESTION: ARE OWNERS WITH WATCH LIST CONTRACTS REQUIRED TO SUBMIT MONTHLY ACCOUNTING REPORTS FOR THE ENTIRE TERM OF THE CONTRACT? ANSWER: YES. QUESTION: I'M CONFUSED. CAN YOU EXTEND A MARK-TO-MARKET USE AGREEMENT OR NOT? ANSWER: A MARK-TO-MARKET USE AGREEMENT CAN BE EXTENDED FOR A PRESERVATION TRANSACTION IF IT'S NOT A MARK-TO-MARKET EXCEPTION PROJECT. IF IT'S AN EXCEPTION PROJECT, THE USE AGREEMENT CAN RUN ONLY FOR 30 YEARS. THAT'S A SHORT TOUR OF OPTION THREE, SO LET'S NOW MOVE ON TO OPTION FOUR. EXCEPTION RENTS. THIS RENEWAL OPTION IS FOR PROJECTS THAT HAVE RENTS ABOVE MARKET BUT MAHRA ALLOWS THEM TO RETAIN THE ABOVE MARKET RENTS. THERE ARE TWO TERMS THAT WE NEED TO HIGHLIGHT FOR OPTION FOUR. ONE IS NOT ELIGIBLE AND THE OTHER IS EXEMPT. WE USE THE TERM NOT ELIGIBLE FOR THOSE PROJECTS THAT CANNOT HAVE THEIR FHA MORTGAGES RESTRUCTURED. FIRST ARE THOSE PROJECTS THAT DO NOT HAVE AN FHA-INSURED OR HUD-HELD MORTGAGE, OR THEY HAVE FHA-INSURED OR HUD-HELD MORTGAGE BUT THE RENTS AT THE PROJECT ARE BELOW MARKET. THE SECOND TERM WE USE IS EXEMPT. THESE ARE USED WHEN WE TALK ABOUT PROJECTS THAT HAVE STATE OR LOCAL GOVERNMENT FINANCING OR 2028 OR 5158 PROJECTS OR 202 PROJECTS THAT ARE REFINANCING FOR THE FIRST TIME OR, LAST, SINGLE ROOM OCCUPANCY PROJECTS. IF AN OWNER IS CLAIMING EXEMPTION BECAUSE OF STATE AND LOCAL FINANCING, HOWEVER, AND IT IS FHA INSURED, THE TRANSACTION STILL MUST BE SENT TO RECAP FOR REVIEW PRIOR TO RENEWAL. TO SET RENTS AT CONTRACT RENEWAL, WHAT WE CALL THE HERS -- CURRENT TIMES OCAF. IF THE BUDGET DOES NOT SUPPORT THE CURRENT RENTS AT THE PROJECT THEN RENTS MAY GO DOWN. REMEMBER THREE ITEMS HERE. ONE, NO RCS IS REQUIRED AT CONTRACT RENEWAL, UNLIKE OTHER OPTIONS. THE OWNER CANNOT SUBMIT A ZERO BUDGET AT THE TIME OF RENEWAL OF OPTION FOUR. AND IF THERE IS A REFINANCING AS PART OF THIS ARE YOU -- RENEWAL, EVERYONE MUST INCLUDE THE NEW DEBT SERVICE IN THE BUDGET REQUEST. AT THE TIME OF THE ANNUAL RENT ADJUSTMENT, RENTS CAN BE ADJUSTED BY EITHER THE OCAF OR SUBJECT TO HUD'S APPROVAL, A BUDGET. WE STILL REQUIRE A RENT COMPARABILITY STUDY TO BE SUBMITTED IF AN OWNER SEEKS A BUDGET BASED RENT ADJUSTMENT AT THE TIME OF THE AMEND RENTS. THERE IS NO MARKET RESET FOR THESE PROJECTS IN YEARS FIVE, 10, AND 15 IN A 20-YEAR CONTRACT. FOR 202 -- REFIS, IF IT HAS DONE THAT ONCE, IT MAINTAINS ITS EXEMPTION. IF IT IS REFINANCED A SECOND TIME USING CONVENTIONAL FINANCING, THEN IT BECOMES NOT ELIGIBLE FOR RESTRUCTURING BECAUSE IT DOES NOT HAVE FHA FINANCING. LET'S JUMP TO A FEW QUESTIONS ON OPTION FOUR. AN OWNER WANTS TO RENEW HIS OPTION FOUR CONTRACT AND DOES NOT WANT A RENT INCREASE, SO HE SUBMITS A ZERO BUDGET. IS THAT ALLOWED? NO. THE OWNER MUST SUBMIT A REALISTIC BUDGET BECAUSE CURRENT RENTS MAY EXCEED WHAT'S JUSTIFIED BY THAT BUDGET AND RENTS WOULD NEED TO GO DOWN. QUESTION: I'M RENEWING MY OPTION FOUR CONTRACT AND MY PBCA IS DEMANDING A RENT COMP STUDY. I DON'T THINK I NEED TO PROVIDE ONE. DO I? ANSWER: THE ONLY REASON YOU WOULD NEED TO PROVIDE A RENT COMP STUDY AT RENEWAL OF AN OPTION FOUR CONTRACT WOULD BE IF YOUR PROJECT IS FHA FINANCED AND YOU WERE ATTEMPTING TO SHOW THAT RENTS ARE BELOW MARKET. OTHERWISE, NO RENT COMP STUDY IS NEEDED. FOR OPTION FIVE, THERE ARE TWO TYPES OF PROJECTS INCLUDED IN THIS OPTION. PORTFOLIO REENGINEERING DEMONSTRATION PROJECTS AND PRESERVATION PROJECTS. BOTH TYPES OF PROJECTS HAVE USE AGREEMENTS AND THESE CAN BE EXTENDED JUST LIKE MARK-TO-MARKET. FOR RENT ADJUSTMENTS FOR THESE TYPES OF PROJECTS, USUALLY FOR DEMOS, THERE'S AN OCAF IN YEARS TWO THROUGH FIVE AND A MARKET TEST IN YEAR SIX. IF A CONTRACT IS FOR MORE THAN FIVE YEARS, THEN THE PROJECT IS SUBJECT TO A FIFTH YEAR ADJUSTMENT IN ACCORDANCE WITH THE PROVISIONS OF THE CONTRACT. PRESERVATION PROJECTS ARE THOSE PROJECTS THAT WERE RENEWED UNDER TWO STATUTES THAT PREDATED MAHRA. EITHER UNDER THE EMERGENCY LOW-INCOME HOUSING PRESERVATION ACT OF 1987, OTHERWISE KNOWN AS ELIHPA OR SOMETIMES REFERRED TO AS A TITLE II PROJECT OR THE LOW-INCOME HOUSING PRESERVATION AND RESIDENT HOME OWNERSHIP ACT OF 1990 OR LIHPRA, WHICH IS ALSO REFERRED TO AS A TITLE 6 PROJECT. THERE ARE NO NEW PRESERVATION OR DEMO PROJECTS BEING MADE. PRESERVATION PROJECTS: THESE PROJECTS CAN ONLY BE RENEWED UNDER OPTION FIVE UNTIL THE END OF THEIR USE AGREEMENT. FOR THESE PROJECTS, THE PLAN OF ACTION PROVIDES INSTRUCTIONS ON RENT ADJUSTMENTS NOT FOUND IN OTHER RENEWAL OPTIONS. THE PLAN OF ACTION MAY ALLOW FOR A BUDGET BASED RENT INCREASE, AN AAF, OR AN OCAF RENT ADJUSTMENT. SO, EACH ONE NEEDS TO BE CHECKED CAREFULLY. IF THERE ARE CONFLICTS BETWEEN THE POA AND THE RECORDED USE AGREEMENT, THE USE AGREEMENT PREVAILS. LET'S LOOK AT A FEW QUESTIONS ON DEMO PROJECTS. QUESTION: I THOUGHT DEMO PROJECTS WERE THE SAME AS MARK-TO-MARKET PROJECTS AND THERE WERE NO RENT COMP STUDIES AND MARKET ADJUSTMENTS ALLOWED. ANSWER: THE CONTRACT USED FOR THE DEMO PROJECTS IS THE BASIC MULTIYEAR CONTRACT, WHICH REQUIRES A MARKET RENT DETERMINATION EVERY FIVE YEARS. QUESTION: MY OPTION FIVE OWNER SUBMITTED A BUDGET TO OBTAIN A RENT INCREASE. IS THAT ALLOWED? IF THE PROJECT HAS A PRESERVATION CONTRACT THAT ALLOWS A BUDGET-BASED RENT ADJUSTMENT, THEN, YES, SUBJECT TO REVIEW AND APPROVAL BY HUD. THE LAST OPTION WE'RE GOING TO TALK ABOUT TODAY IS OPTION SIX OPT-OUTS AND HOW AN OWNER CAN REQUEST ONE. OWNERS HAVE THE RIGHT TO OPENS OUT OF THE SECTION 8 CONTRACT AT THE END OF THEIR CONTRACT UNLESS THEY HAVE OTHERWISE AGREED NOT TO OPT OUT. OWNERS MUST AGREE ON THE RENEWAL FORM THAT THEY WILL AGREE TO HONOR THE FAMILY'S RIGHT TO RETURN. HOUSING NEEDS TO COMMUNICATE WITH THE PUBLIC HOUSING AGENCY IN ORDER TO OBTAIN VOUCHERS FOR THE RESIDENTS WHO WILL BE IMPACTED BY THIS OPT-OUT. THERE ARE NOW PROVISIONS FOR TRANSFERRING THE BUDGET AUTHORITY UNDER THAT PROJECT TO ANOTHER, UNDER SECTION 8(BB), HOUSING NOTICE 2015-3. YOU'RE STRONGLY ENCOURAGED TO CONTACT YOUR HUD ACCOUNT EXECUTIVE IF YOU'RE INTERESTED IN PARTICIPATING 8(BB). OPT-OUTS CREATE WORRY, AND THE BEST WAY TO REDUCE WORRY IS COMMUNICATION. PLEASE REMIND FOLKS THAT THE ENHANCED VOUCHER IS AVAILABLE IF THE TENANT STAYS IN THE PROJECT BUT MOVES FROM THE INDIVIDUAL UNIT. IT ONLY BECOMES A REGULAR VOUCHER IF THE TENANT MOVES FROM THE PROJECT ITSELF. IF YOU HAVE TO, YOU CAN ASK FOR MORE TIME TO GET THE VOUCHERS TO TENANTS. I'M NOT GOING TO SPEND A LOT OF TIME ON RENT COMPARABILITY STUDIES. THERE'S A THREE HOUR YOUTUBE TRAINING ON THIS SUBJECT THAT I STRONGLY ENCOURAGE YOU TO WATCH, IF YOU'RE INTERESTED. HOWEVER, I DID WANT TO TALK A LITTLE BIT ABOUT THE REVIEW OF RENT COMPARABILITY STUDIES. THERE ARE TWO PARTS TO THE REVIEW. THE INITIAL SCREENING THAT CAN BE UNDERTAKEN BY ANYONE AND THE SUBSTANTIVE REVIEW THAT SHOULD BE UNDERTAKEN BY A REVIEW APPRAISER. THE INITIAL SCREENING DETERMINES IF THE REQUIRED INFORMATION IS INCLUDED IN THE DOCUMENT. BY USING THE INITIAL SCREENING CHECKLIST. THE SCREENING DOES NOT DETERMINE THE REASONABLENESS OR THE CORRECTNESS OF THE INFORMATION. IF THE INFORMATION IS NOT COMPLETE, THEN THE SCREENER SHOULD CONTACT THE OWNER OR THE OWNER'S APPRAISER AND OBTAIN THE CORRECT INFORMATION. IF IT IS COMPLETE, THEN THE SCREENER SHOULD SIGN THE INITIAL SCREENING CHECKLIST AND SEND IT ON TO THE SUBSTANTIVE REVIEWER. THE SUBSTANTIVE REVIEW, THE PURPOSE OF IT IS TO ASSESS AND EVALUATE IF THE COMPARABLES, THE ADJUSTMENTS AND RENT CONCLUSIONS ARE REASONABLE. THE SUBSTANTIVE REVIEWER IS SUPPOSED TO CONCLUDE THAT THE SUGGESTED MARKET RENTS IN THE OWNER'S STUDY ARE REASONABLY SUPPORTED BY THE MARKET. THE REVIEWER IS NOT RESPONSIBLE FOR POLICING COMPLIANCE UNLESS THERE ARE SIGNIFICANT PROBLEMS IN THE RESEARCH, THE FACTS, THE REASONING, OR THE CONCLUSIONS OF THE RCS. THE SUBSTANTIVE REVIEW FOCUSES ON WHETHER OR NOT THE RENT COME -- COMPARABILITY STUDY IS REASONABLE, CONSISTENT WITH THE FACTS AND FOLLOWS STANDARD APPRAISAL PRACTICE AND COMPLIES WITH THE SECTION 8 GUIDE. IN MOST CASES THE CONTRACT ADMINISTRATOR WILL BE UNDERTAKING THE INITIAL SCREENING OF THE RENT COMPARABILITY STUDY. IF THEY SEE THAT THE APPRAISER HAS DETERMINED THAT THE PROJECT'S RENTS EXCEED THIS THRESHOLD, THEY SHOULD NOTIFY HUD AND HUD WILL COMMISSION A RENT COMPARABILITY STUDY FOR COMPARISON PURPOSES. HUD WILL PROCURE AN RCS FOR THOSE PURPOSES, AND THE FINAL RENTS ARE DETERMINED USING THE FORMULA THAT'S DESCRIBED IN 9-14C OF THE GUIDE. THERE IS NO NEED FOR A FOIA FOR THE HUD RCS. AN OWNER CAN REQUEST IT AND WE CAN PROVIDE IT TO THEM. IF A RENEWAL INVOLVES A REFINANCING WITH FHA INSURANCE, THEN THE LENDER OR MAP APPRAISAL CAN BE USED IN LIEU OF THE HUD COMMISSIONED RCS. WE PUT THIS BACK IN THE GUIDE AS OF 2017. HOWEVER, IT CAN ONLY BE USED IF THE STUDY IS PAID FOR BY THE LENDER, THE APPRAISER FOLLOWS THE INSTRUCTIONS IN CHAPTER NINE, AND USES THE HUD FORM 92273 S8 FOR CHANGES TO THE RENTS. ANY APPEALS ARE TO THE LENDER AND NOT TO HUD. AND REMEMBER, THE ACCOUNT EXECUTIVE IS STILL RESPONSIBLE FOR COMPARING THE TWO STUDIES AND MAKING THE DETERMINATION OF THE MARKET RENTS FOR THE PROJECT. NOW LET'S LOOK AT SOME QUESTIONS FOR RENT COMP STUDIES. WHAT IF AN OWNER DOES NOT RESPOND WHEN ADDITIONAL INFORMATION IS REQUESTED ON THE RCS? YOUR LETTER TO THE OWNER REQUESTING THE INFORMATION SHOULD SAY THAT HE HAS A CERTAIN NUMBER OF DAYS AND DESCRIBE THE CONSEQUENCES FOR NOT COMPLYING. WHAT IF THE FHA APPRAISER DOES NOT USE THIS 92273-S8? IF THEY DON'T, THEN THE APPRAISAL IS NOT AN ACCEPTABLE REPLACEMENT FOR THE HUD-COMMISSIONED STUDY. QUESTION: WHO IS RESPONSIBLE FOR REVIEWING THE HUD RCS? ANSWER: HUD. THERE ARE STILL A FEW OLD REG, STATE HOUSING FINANCE AGENCY PROJECTS THAT HAVE NOT RENEWED UNDER MAHRA. THIS CHAPTER PROVIDES THE OWNERS OPTIONS WHEN THE ORIGINAL FINANCING IS PREPAID AND THE CONTRACT IS STILL IN PLACE. OWNER OPTIONS UPON FULL PREPAYMENT OF ORIGINAL PERMANENT FINANCING. IT'S THE NOVEMBER 1975 VERSION OF THE HUD CONTRACT, LANGUAGE THAT SAYS THAT THE CONTRACT EXPIRES WITH THE FULL PREPAYMENT OF THE ORIGINAL PERMANENT FINANCING. SO WHEN THERE IS A PREPAYMENT OF A CONTRACT WITH THAT LANGUAGE IN IT, THE OWNER HAS THREE OPTIONS. HE CAN ASK THAT THE CONTRACT BE EXTENDED TO THE END OF THE ORIGINAL TERM. THIS IS THE ONLY TIME A CONTRACT CAN BE EXTENDED. HE CAN RENEW UNDER MAHRA, OR HE CAN OPT OUT, PROVIDED HE IS GIVEN THE ONE YEAR -- HAS GIVEN THE ONE YEAR NOTICE TO THE TENANTS. WE'VE COVERED A LOT OF MATERIAL IN THIS PRESENTATION, AND I HOPE THAT YOU AND THE CONTRACT ADMINISTRATOR UNDERSTAND THE IMPORTANCE OF BEING FAMILIAR WITH THE ORIGINAL TERM CONTRACT AND THE MAHRA RENEWAL CONTRACT AND THAT YOU UNDERSTAND THE OPTION THE CONTRACT IS RENEWED UNDER NOW. I ALSO HOPE YOU HAVE A BETTER UNDERSTANDING BETWEEN THE RELATIONSHIP BETWEEN OPTION ONE AND TWO AND THE CAPITAL REPAIRS PROGRAM IN CHAPTER 15. THANK YOU FOR YOUR ATTENTION. REMEMBER, WE ALSO HAVE A SERIES OF YOUTUBE PRESENTATIONS ON PREPARING AND REVIEWING RENT COMPARABILITY STUDIES, WHICH I HOPE YOU WILL TAKE THE TIME TO VIEW.