2013 HOME Program Final Rule:
CHDO Clinic for HOME PJs
Tiffani C. Moore, Senior Affordable Housing Specialist
Office of Affordable Housing Programs
January 22, 2015
Objectives
• CHDO provisions of 2013 HOME Final
Rule
• Anticipated impact on CHDOs
– Organizational shifts
– Project pipeline planning
• Be on the lookout for further
– Guidance and Rulemaking
Slide 2
2013 HOME Final Rule
• First comprehensive update since 1996
• Changes throughout, but of most
importance:
– Timeliness—commitment, completion, occupancy
deadlines
– Sustainability—project underwriting, emphasis on
capacity, property standards
• Generally effective for project
commitments on/after August 23, 2013
– Some delayed provisions, property standards still
pending
Slide 3
2013 HOME Rule CHDO
Impacts
Slide 4
CHDO Reservations
• Reservation (new definition): CHDO setaside funds are reserved only when
committed to a specific project
– Non-project-specific reservations no longer
count toward CHDO set-aside requirements
• PJs must reserve CHDO set-aside to
specific CHDO projects within 24 months
Slide 5
CHDO Project Commitment
• PJs may not commit HOME funds (and set
up in IDIS) to a new construction or
rehabilitation project until:
–
–
–
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All necessary financing is secured
A budget and production schedule is established
Underwriting and subsidy layering is completed
Construction is expected to start within 12
months
• Dated signatures required on written
agreement
Slide 6
Contingent HOME Award
• A PJ can make a contingent award of HOME
funds for a proposed project
– Contingent on obtaining financing, completing
environmental review, etc.
• Contingent awards are NOT reservations or
commitments
– Do not satisfy PJ’s 24 month commitment deadline
• PJs are advised that contingent awards should:
• Have clear performance and cancellation provisions
• Not be open-ended promises
Slide 7
Implications
• PJ responses
– More selective funding, key underwriting
concerns
– Commitments will likely come later, will a PJ
offer contingent awards?
– Impose shorter completion and interim
performance deadlines to allow for fall-back
– Conduct more oversight
– Add detail to written agreements
– Increase initial occupancy monitoring and
reporting
Slide 8
Slide 9
CHDO Certification
• Each time a PJ commits funds to a specific
CHDO project, it must certify that the
nonprofit:
– Meets CHDO definition (including the staff
capacity requirement)
– Has capacity to fulfill specific role (owner or
developer/sponsor) it will assume for the
project
• This is in addition to the underwriting and
other conditions for a project commitment
Slide 10
Maintenance of CHDO Status
• CHDO is expected to maintain CHDO
status for the duration of the CHDO
project
– Includes affordability period for rental
housing
• PJ is expected to develop procedures to
ensure CHDO status is maintained
Slide 11
CHDO Checklist
Checklist Item
1. Legal Structure
2. Independence
3. LI Community
Accountability
4. Capacity
5. Role
6. Pre-development costs
Set-Aside
PreOperating
Reservation Development Expenses
Loan
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7. Operating expense eligible
*Exception: Can award funds to an organization without staff
capacity only if the operating award will allow the organization
to obtain staff capacity needed for project funding.

Two Major Revisions to
Definition
Independence
• CHDO independence from
governmental & for-profit
entities
• CHDO staff capacity
Capacity
Slide 13
Independence from
Governmental Entities
• Pre-2013 provisions about government entities still apply:
– Government entity can create a CHDO, but cannot
appoint more than 1/3 of board (and they cannot
appoint remaining 2/3)
– No CHDO can have more than 1/3 board members who
are public officials or employees of a government entity
• Plus 2013 HOME Final Rule additions:
– Government entities includes PJ, other jurisdictions,
public housing agencies, HFAs, redevelopment agencies,
or tribes
– Officers/employees of a governmental entity may not
serve as officers (CEO, COO, CFO, managers) or
employees of any CHDO
Slide 14
Created by For-Profit Entity
• Pre-2013 provisions for CHDO created by a for
profit entity apply, for-profit creating CHDO:
– Cannot have primary purpose of housing
development or management
– Cannot appoint more than 1/3 of board; those
members cannot appoint remaining 2/3
– CHDO must be free to contract w/any vendor
• Plus 2013 HOME Final Rule addition:
– Officers and employees of the for profit that created
the CHDO cannot serve as officers or employees of
the CHDO
Slide 15
Defining Paid Employee
• Staff counted toward capacity must be paid directly by and
accountable to the CHDO
– Cannot be contracted through/cost-allocated from
another entity
• Usually, staff will be “employees” for tax purposes
– CHDO pays payroll/unemployment taxes and withholds
from wages
– W-2 is definitive evidence of being “paid employee” for
HOME purposes
• Absent W-2, PJ must review employment contract to assess
CHDO’s level of control over when, where, and how work is
done
– Draft HOMEfire
Slide 16
What is not paid staff?
• CHDOs must have paid staff w/
demonstrated capacity appropriate to
CHDO’s role:
– Use of consultants to demonstrate capacity
ONLY during the 1st year of funding as a
CHDO
• Role is primarily to train staff to build their
capacity
– Cannot meet capacity requirement with
volunteers, donated staff, or board members
Slide 17
Capacity Considerations
• Staff can be full time or part-time, but PJ must
determine whether capacity is sufficient, based
on:
– Role: owner, developer, sponsor
– Size, scope, and complexity of project
– Experience of employees in similar projects
• Core development skills and rental or
homebuyer-specific knowledge
– Level of staff effort for pipeline and project(s)
(part-time vs. full time, number of staff)
Slide 18
Implications
• Tie certification to project funding, determine
how
– To handle “full” and “updated” review for CHDOs
receiving multiple commitments (e.g. series of SF
projects)
– To address ongoing CHDO status in rental monitoring
• Determine framework to evaluate staff capacity
– Variation for own vs. develop vs. sponsor AND
homebuyer vs. rental
• Additional attention to board composition
– Expanded definition of governmental entity, need to
document for all board members
Slide 19
Slide 20
CHDO Checklist
Checklist Item
Set-Aside
Reservation
PreDevelopment
Loan
1. Legal Structure

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
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









*
2. Independence
3. LI Community
Accountability
4. Capacity
5. Role
6. Pre-development costs
7. Operating expense eligible
*Exception: Can award funds to an organization without staff
capacity only if the operating award will allow the organization
to obtain staff capacity needed for project funding.
Operating
Expenses

Own, Develop, or Sponsor
• Own, Develop, and Sponsor roles defined in
§92.300(a)(2) - (6)
– Previously in CPD-97-11
• Roles clarified/redefined, especially
– Expands opportunities under “owned”
– Clarifies Tax Credit and subsidiary projects under
“sponsored”
• CHDO must demonstrate capacity in relation to
its “role”
Slide 22
CHDO as Developer:
Homebuyer
• CHDO owns, rehabs or constructs, then sells
property
• Written agreement with CHDO must include:
– Actual sales price or method for determining it
– Disposition of proceeds of sale (return to PJ or permit
CHDO to retain), and use of proceeds if CHDO will
retain
• Not CHDO-specific, but all buyers must be
underwritten, no more one-size fits all
downpayment assistance
Slide 23
CHDO as Owner: Rental
• CHDO acquires & acts as owner of rental
housing
– It does not have to develop housing units
– If development, CHDO hires and oversees
project manager or contracts with developer
to perform rehab or construction
• CHDO must be owner in fee simple or
have long-term ground lease during
development and affordability period
Slide 24
CHDO as Developer: Rental
• CHDO itself owns and develops housing
• CHDO arranges financing and is in sole
charge of construction or rehab
• CHDO must be owner in fee simple or
have long-term ground lease during
development and affordability period
Slide 25
CHDO as Sponsor-Rental
Turnkey to Other Nonprofit
• CHDO develops rental housing on behalf
of another non-profit and transfers title
after completion
– Conveyed at pre-determined time to preidentified non-profit
– Other non-profit cannot be created by
governmental entity, but can be another
CHDO
• If transfer does not happen, CHDO must
maintain ownership for affordability
period
Slide 26
CHDO as Sponsor: Rental
CHDO Affiliate
• Rental housing is “sponsored” by a CHDO
if owned or developed by a:
– For-profit or non-profit that is wholly-owned
subsidiary of the CHDO; or
– If owned by an Limited Partnership (LP) or
Limited Liability Company (LLC), the CHDO
or its wholly owned subsidiary must be the
sole general partner (LP) or sole managing
member (LLC)
Slide 27
CHDO as Sponsor: Rental
CHDO Affiliate (con’t)
• Written agreement must be signed by PJ
and the entity that will own the project
– Funds (loan) must be provided directly to
ownership entity
• If LP/LLC, documents must specify:
– Removal of CHDO only permitted for cause
– CHDO must be replaced with another CHDO
Slide 28
Implications
• Owner role expands opportunity for CHDOs
without “development” experience, some may be
new CHDOs
• Re-examine turnkey sponsor role
• Sponsor in LIHTC transactions
– No more 51/49 joint ventures
– No more grant to CHDO, loan to partnership
structures
– New written agreement provisions re: maintaining
CHDO status, removal/replacement of CHDO
Slide 29
Slide 30
CHDO Checklist
Checklist Item
Set-Aside
Reservation
PreDevelopment
Loan
1. Legal Structure














*
2. Independence
3. LI Community
Accountability
4. Capacity
5. Role
6. Pre-development costs
7. Operating expense eligible
*Exception: Can award funds to an organization without staff
capacity only if the operating award will allow the organization
to obtain staff capacity needed for project funding.
Operating
Expenses

Optional CHDO Support
• Predevelopment loans
– Increased importance with enhanced commitment
requirement
– Overcome liquidity issues impeding project planning
• CHDO operating assistance
– Program design issue: shifting from ongoing
“entitlement” to focus on building capacity
– Available without “full certification” if operating
addresses “but for” capacity concerns
Slide 32
CHDO Proceeds
• Proceeds from sale of homebuyer development
– PJ choice: RETURN as Program Income vs. RETAIN
as CHDO Proceeds
• Written Agreement specifies use:
– HOME-eligible activities
• Could including operating support or non-set-aside
activities
– “Other housing activities to benefit low-income
families”
• Could include assistance to struggling rental
project, broad based counseling program, etc.
Slide 33
If a CHDO does not know
what a PJ wants…
• CHDOs need:
– Pipeline
– Predictability
• Tell them:
– What types of projects does your PJ want (and
what your PJ does not want)
– Key underwriting requirements, esp. market data
– Skills framework
• Challenge communicating in shifting environment
– Markets, funding levels, guidance
Slide 34
Strategic challenges
• Mutually dependent, but not equal
– Set-aside alone cannot sustain a CHDO
– PJs wants / CHDO own vision
• Balancing “size” and focus
– Expanding product portfolio
– Expanding geographic footprint
– Staying focused on “community”
Slide 35
Implications
• Evaluate the CHDO “pool,” does it need to
be
– Thinned or expanded
• Reconsider predevelopment, operating,
proceeds
– Focus on capacity needs
• Rebalance funding process
– Competition vs. matchmaking
Slide 36
Still to Come
• Further HUD Guidance
– Notices on CHDOs, Commitment, Underwriting, etc.
• HOME accounting changes
– FIFO
– Cumulative deadline measurement (requires rule
making)
• Future rulemaking
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Technical corrections, technical amendments
Homeownership counseling, cross-cutting standards
Energy efficiency and resiliency
Broader HUD/USDA/Treasury alignment efforts
Slide 37
Questions & Answers
Slide 38
Reminders & Tips
• Anticipate some uncertainty
• Communicate with your CHDOs
• See hudexchange.info for more
information
– Join the HOME Program listserv
– www.hudexchange.info/mailinglist/
Slide 39