IPED
HUD Multifamily Housing Compliance
Arlington, Virginia
May 10 – 11, 2007
Section 8 Income and Rents
Michael H. Reardon, Esq.
Nixon Peabody LLP
th
401 9 Street, NW, Suite 900
Washington, DC 20004
(202) 585-8304
mreardon@nixonpeabody.com
Section 8 Income Levels

Basic Section 8 Income Requirements: Families must
be Low-Income (80% or less of AMI) or Very LowIncome (50% or less of AMI)
– Units First Available Prior to Oct. 1, 1981: at least 75% of
units must be rented to Very Low-Income Families.
– Units First Available After Oct. 1, 1981: at least 85% of units
must be rented to Very Low-Income Families.
– Exceptions: owner must demonstrate a need for broad range of
incomes, insufficient Very Low-Income families, State
requirements or to prevent displacement.
Section 8 Income Levels
(cont’d)

Additional Income Targeting Requirements
– Of Section 8 dwelling units that become available for
occupancy in any fiscal year, not less than 40% shall be
available for leasing only by families that are Extremely LowIncome (30% or less of AMI) at the time of admission
Section 8 Project-Based Rent Requirements

Tenant Rent: Section 8 project-based programs, the total tenant
rent is the total tenant payment minus the utility allowance
– TTP: generally 30% of family’s adjusted income.
– Utility Allowance: estimate of monthly cost of reasonable
consumption of utilities by an energy conservative household of
modest circumstances consistent with requirement of safe, sanitary
and healthy living approved by PHA or HUD.
– Utility Reimbursement: amount, if any, by which utility allowance
exceeds the TTP

Minimum Rent: for section 8 project-based programs, the
minimum rent is $25 with exceptions for financial hardship.
Section 8 Project-Based Rent Adjustments

Need to review the specific section of your HAP
Contract

Three Basic Methods:
– AAF
– Budget-Based Rent Increase
– OCAF (for LIHPRHA)
Section 8 Project-Based Rent Adjustments
(continued)

Special Adjustments: For substantial general increases
in real property taxes, assessments, utility rates,
security costs and other similar costs beyond control of
the owner.

Rent Reasonableness: No material difference between
rents charged for assisted units and those for
comparable unassisted units.
Project-Based Contract Renewals

MAHRAA
– Multifamily Assisted Housing Reform Act of 1997
– Provides renewal terms of all section 8 project-based
contracts

Contract renewals administered by PHAs under
PBCA contracts with HUD

Rent Comparability Studies
Project-Based Contract Renewal Options

Mark-Up-To-Market

OCAF / Budget-Based Rent Increase

Mark-To-Market
Project-Based Contract Renewal Options
(continued)

Exception projects

Demonstration and Preservation projects

Opt-Out

Rent Adjustments After Renewal
Option 1: Mark-Up-To-Market

Entitlement MUTM
– Property Condition
– Ownership
– Current Rent Levels
– Use Restriction
Option 1: Mark-Up-To-Market
(continued)

Discretionary MUTM
– Vulnerable Populations
– Low Vacancy or Rural Area
– Community Support
Option 1: Mark-Up-To-Market
(continued)

Non-Profit Eligibility
– Not eligible for MUTM
– Eligible for Mark-Up-To-Budget (Chapter 15 of
the Renewal Guide)
Option 2: Current Rents At or Below
Comparables

Renewal Rents: adjusted by OCAF or
Budget

Capped by Comparable Rents
Option 3: Referral to OAHP

Criteria
– FHA-insured mortgage (not risk-sharing)
– Rents above comparable market rents

Full versus Lite
Option 3: Referral to OAHP
(continued)

OAHP Lite Contracts
– Rents reduced to market rents without
mortgage restructuring based on RCS
– Potentially Troubled
Option 3: Referral to OAHP
(continued)

Full Restructuring
– PAE and OAHP negotiate mortgage restructuring plan
with owner which generally will result in reduction in
first mortgage and inclusion of balance in 2nd and 3rd
mortgages
– Rent reduced to comparable market rents
Option 4: Exception Projects

Eligibility Criteria
– No FHA insurance (e.g., 202 and 515 projects)
– Rents above comparable market rents
– State or local financing with FHA insurance (conflict
with State or local law)
Option 4: Exception Projects
(continued)

Initial Renewal
– Can choose Options 1, 2 or 4
– Under option 4: initial rent is set at the lesser of existing plus
OCAF or budget-based rent

Subsequent Renewal
– Have options and subject to lesser of test

Subsequent Rent Adjustments
– OCAF or Budget
Option 5: Demonstration & Preservation
Projects

Portfolio Reengineering Demonstration
– Mortgage Restructured/Rents Reduced
 5 Year adjustment at OCAF
 At end of 5 years, RCS and eligible for
Option 1 and 2
– No Mortgage Restructuring
 May be referred to OAHP
Option 5: Demonstration & Preservation
Projects (continued)

Preservation Projects
– Approved Plan of Action
– Generally no ability to opt out, but in exception cases
owner must submit plan as to how owner can comply
with use agreement
– POA versus Use Agreement
Option 6: Owner Opt Out

Importance of Tenant Notification

If not provided, tenant cannot pay more
than 30% of adjusted income as rent

Short term renewal to comply
Residual Receipts and Reserve for
Replacements


Residual Receipts v. Reserve for
Replacement
“Old” Regulation v. “New” Regulation