nsp basics, 3/3/15 - hud exchange...14.04 nsp basics, 3/3/15 ~~~ noble transcription services -...
TRANSCRIPT
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NSP Basics, 3/3/15
Les Warner: Welcome, everyone, to this NSP Basics webinar and what we're trying to do today
is make sure that we go back over all of the basic rules, highlighting some of the changes or the
guidance that has been issued to make sure that everyone is kind of up to speed or needs a
refresher perhaps on the materials that are provided for folks.
Today on the line, I'm Les Warner. I'm from ICF International. If you would, I think I'll ask the
HUD folks to introduce themselves.
Hunter Kurtz: Hey, Les. This is Hunter and Paul Patterson.
Njeri Santana: Njeri Santana.
Lawrence Reyes: Larry Reyes.
Les Warner: Okay. So we've got some of the best minds in the business and the way we're going
to do this today is go through most of the material to get the basic information out and then we've
set aside quite a bit of time to be able to make sure we are able to provide answers for your
question.
There's two ways for you to be able to ask a question. There is a question box that you can type
in your question and it will be read aloud and then answered during our question and answer
session once we go through the basic materials, but you also have a way to ask a question over
the phone by pressing in your audio PIN, the number that was provided on the information about
the session and that will essentially raise your hand. We'll know that you're in line and we will
then come to you and allow you to ask your question verbally.
Lee Turner: Hey, Les. Just wanted to chime in with some details on questions. For asking your
question orally over the phone, what we do request is that would only apply to folks listening in
via their telephone today. If you're listening in via your mic and speakers, we'd prefer to keep
you muted because on a lot of occasions there gets to be some pretty rough feedback. We would
prefer that if you're listening in via mic and speakers, just submit your question via the written
question box. If you're listening in via your telephone, you're welcome to call in or you're
welcome to also submit your question via the written questions box.
Les Warner: Great. Thank you, Lee. Here's the agenda for today.
We're going to be talking about -- we're making the assumption that there are some folks that are
brand new to NSP, have joined after the program was up and running and kind of need all of the
basics. But we're also making the assumption that there's some folks that may have, with staffing
changes or as the program has kind of evolved, might be taking on some new roles.
There may be some developers or other folks that are new to this, so we're going to be talking
about what is NSP, going through all the key rules and requirements, and that's not only on the
front end on projects, and of course with program income coming in, there will be lots of folks
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still looking at eligibility for new projects and going through those regulations, but then also
we'll be thinking about what will it take to close out your project and what will your ongoing
responsibilities be once closeout has been completed.
We'll talk a little bit about some of the things that folks have kind of learned over time on this,
which may be useful in applying as you're thinking about what are the next activities I want to
fund, and then of course, will work in trying to answer questions as they come in. So the format
in this, we have laid this out. The NSP notices themselves, which will be referenced throughout
the presentation, have been highlighted in red and then the policy alerts, which are, you know,
topic by topic are referenced in green.
At the end, there is a list of some of the top 10 or so policy alerts. There are a number of really
useful toolkits that are posted and all of this would be found on the HUD exchange, which we
have linkage here for that. There are lots of very good, helpful, field office staff which we would
encourage you to work closely with and there still is the ability to request technical assistance or
submit a question through the ask a question system, all of which are done through the HUD
exchange side.
So what is the NSP program? The Neighborhood Stabilization Program. It was put in place to
help local communities dealing with the onslaught of abandoned and foreclosed, vacant
buildings that really were an outgrowth of the mortgage foreclosure crisis. We had three funding
cycles, NSP 1, 2 and 3. NSP 2 was a competitive process and NSP 1 and 3 were an allocation.
As a total, we've got about 250,000 local governments in all 50 states received funding through
NSP 1, 2 and 3 and with those funds, all variety of activities have been undertaken and will be
undertaken with the money circulating back through. Things, and we'll talk about the eligible
activities in a minute, but they include things like financing, buying, rehabbing, selling or renting
units and then economic development as part of our NSP work within our targeted areas.
Our benefits were targeted for low, moderate and middle income households, so this was sort of
a new term that is specific to NSP where we are allowed to go up to 120 percent area median
income -- hence the LMMI acronym -- that we'll see as we go through this presentation; a group
of the population that in our other programs we'd not been able to target and assist.
We're going to work through 15 key elements of the NSP program and really kind of starting
from the planning process all the way through the close out process to give you the basics on
this. Let's just dive right into that. Here's the second half of that list.
On the front end are notices issued from 2009 to 2010, laid out the basics on the NSP program
where our work was going to be in areas of greatest need and these targets were laid out based on
the numbers of foreclosures that have happened, data about subprime loans. Areas where it was
predicted that we were going to continue to see a rise in foreclosure and there were some other
local factors that were included in this.
Each grantee that received NSP funding identified within their action plan, their substantial
amendment, laid out those specific target areas. And so the work that's being done through the
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initial awards and also through the subsequent projects that will be done through program
income being received back in, that will need to happen within those defined target areas.
Those target areas need to be laid out, since our work is restricted to those, in all of our written
agreements so it's very clear that subrecipients, state recipients or developer that were
undertaking a project on your behalf understand that there is this restriction on where that project
can be located.
Also, the types of activities that you have selected to provide using your NSP funds were laid out
in your substantial amendments, in your action plan, and we'll be talking, when we get into the
latter section of this, about how that information will need to continue to be included in your con
plan and action plans for the program income and revolving loan funds that you will continue to
use for NSP eligible activities after closeout.
Some of the options on how you actually would operate your program, you might be running a
program yourself directly with your own staff, so marketing the availability of the activity,
taking applications, processing, doing your review on eligibility, the underwriting that might be
necessary, but many folks are also working with a subrecipient who has been designated to
operate a program on the behalf of that NSP grantee and a lot of our projects are being completed
by developers who are being funded for a particular program.
We also in the mix will have folks that are contractors, so they've been procured under our
federal circular requirements and they're acting on behalf of the NSP grantee or that subrecipient.
A couple of policy alerts that relate to this, that are referenced here, and for a lot of you, you've
got a mix of things. Some projects you actually are operating yourself or with a subrecipient and
then a lot of our projects are being undertaken in conjunction with developers or folks that we've
contracted with on this.
Keep in mind the different rules apply, and we'll reference this a number of places as we go
through, depending on what the role is. So an NSP grantee or a subrecipient are going to be
under our procurement rules, under the federal circulars. A developer is going to be exempt from
those rules. When you choose to hire a contractor, you need to be following the procurement
rules, depending on what type of procurement that is. It might be a construction field bid
procurement; it might be an RFP or an RFQ if we're contracting for services, some kind of
technical support for our program.
When you select a subrecipient or a developer, they do not fall under the procurement
requirements, but of course, you as the grantee are depending upon that partner to bring the
appropriate skills and capacity to be able to complete your project in compliance, complete it in a
timely manner. You probably, even though you are not held to procurement requirements,
probably want to go through a process to make sure that the subrecipient of developer that you
are selecting to partner with has the right staff, understands what the regulations, what the
process is that's required as part of this when you make that decision.
Of course, all of your partners need to have some kind of a written agreement with you, the
grantee, which will lay out what their roles and responsibilities are, what their liability might be,
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and your expectations about timing and communication and budget, all those things need to be
captured in that written agreement.
Hunter Kurtz: Hey, Les, this is Hunter. And one thing that really should be in that written
agreement, that we are seeing a lot of folks may have not thought of in the beginning of the
program, is how the subrecipients or developers or other folks that you have an agreement with,
how things are going to function post close out, and so a lot of grantees probably should take
some time now and sort of think about what they have in their written agreements and maybe
what they need to adjust in their written agreements now that they're getting closer to a point of
closing out the grant.
Les Warner: Yeah, I think that's a great -- and I think we can hit on that a couple of times as we
get into some later slides, but I do think for a lot of folks as you go forward with new projects,
you may want to think about the existing written agreement template that you're using and
whether it doesn't need some updating.
But as Hunter is mentioning, I would guess we've got a number of projects where the agreement
that was executed early on, we hadn't all really thought fully through what are the roles and
responsibilities? What are our requirements that need to be in place after closeout and probably a
lot of those agreements will have to have some kind of amendment or addendum executed to
make sure that they really fully lay out what your expectations and requirements would be.
Okay. So a couple of things related to activity and project administration that we need to talk
about, and there has been some confusion over time, is essentially how are we going to support
the cost of running a program? With the NSP funding came administrative funds and there's a
cap on that of 10 percent. Following the same regulations that apply for CDBG, as you, as an
NSP grantee or subrecipient, are receiving program income back, you are able to take 10 percent
of the program income to be able to use to cover the admin costs for the reuse of those funds.
You need to make sure that you have a system in place that's tracking, first of all, what your 10
percent budget is based on your allocation or award, but then also tracking program income and
setting aside if you choose as a program, setting aside up to 10 percent of the program income
which would fund to cover your admin costs. There are some options of cost that don't have to
come out of admin and those would be costs that are related to the actual delivery of the program
itself.
This option is for grantees and subrecipients and those project delivery costs could be tracked as
overall for a program that you were running or they could be tracked specifically to each
individual NSP project. Those project delivery costs for those properties do not have to be
charged to your admin costs, but things like sort of the general operation of your program,
ongoing compliance, dealing with the general public, marketing information, your con plan,
action plan, those sorts of things will need to be billed against your admin costs.
Where we've had some confusion is where we had folks who were developers who were
requesting a developer fee, but also wanted to receive admin and project delivery costs. So
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project delivery costs in admin are for grantees and subrecipients and they are not able to turn a
profit. They're not able to receive a developer fee.
A developer or a contractor, on the other hand, they can't receive admin or delivery costs, but
they can charge all the actual project costs and that includes things like appraisals, market
studies, permits, all those sorts of things, their overhead and fees for that project. There's been
some confusion over time, and particularly I think developers heard the term admin, saw that
some people were receiving that and thought that that would be something that they ought to also
have.
One of the things that you always have a responsibility on as the administrator of federal dollars,
is to make sure that we're only reimbursing for costs that are eligible, but also that they are
reasonable, so either through procurement or some kind of a cost evaluation process and we need
to be able to document how they are tied to the NSP project itself. That means that as part of
processing our draw requests from developers, contractors and subrecipients and also internally,
we need to be able to analyze those costs, have adequate backup documentation in our pile that
we're able to show how this cost is eligible, how it's related to the NSP project and then be able
to show what our basis is of defending that this is a reasonable cost.
In some of our cases we have a procurement process and we've gotten bids, so we have our
lowest responsible bid that kind of sets what the reasonable cost or reimbursement should be for
a particular scope of work, but in other cases we're working with someone such as the developer
where procurement is not required and we need to have some other basis. Whether it's looking at
some kind of a cost estimation tool, looking at comparable costs within our portfolio, but some
way to be able to evaluate those expenses and determine that they are appropriate.
When we're dealing with labor costs, those need to be backed up with time sheets that not only
show that that person was working that number of hours, but also to show that they were
working on NSP versus, CDBG, HOME, some other project and all of that you need to have
within your files or access to, let's say a subrecipients files, to show that that appropriate backup
documentation is in place, is in an auditable format.
All right. So let's talk a little bit about timelines. Unlike many of our other CPD funded
programs, the NSP program had very aggressive time schedules in place as far as getting money
obligated, but also getting expended. We're well down the road on this process, so our originally
expenditure due dates for NSP 1 and 2 are both past that -- our NSP grantees were required to
meet that 100 percent threshold. Now, keep in mind that that threshold may have been met in a
combination of spending from our actual line of credit or award and with program income that
was received.
We'll talk in a little bit about the rule on program income and expending it prior to drawing down
your line of credit fund. In some cases we have grantees who are fully expended, but they still
have funds remaining in their line of credit. For NSP 2 grantees, there is an expenditure deadline
of September of this year, and so it's important to make sure that our NSP 2 grantees are on
target, on track to be able to fully utilize those funds or those funds would be lost.
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Hunter Kurtz: Les, let's just clarify that what we're talking about there is their line of credit
funds.
Les Warner: Correct.
Hunter Kurtz: Less than their line of credit. Just because you're 100 percent expended, which I
think all the NSP 2 grantees now are, it does not mean that you have drawn all the funds that are
in your line of credit, because like you're talking about spending program may come first. We
did do a waiver that I think we're going to talk about in a little bit to help that out, but I just want
to emphasize that we're only talking about funds in their line of credit.
Les Warner: Right. And so folks need to be aware, what's my current position on this? What are
the existing funds that are in that line of credit? This is particularly specific to NSP where we
have the threat of loss of those funds if they're not expended. Under NSP 3 in 2013, grantees
were required to hit the 50 percent mark and then last year in 2014 at the 100 percent mark.
Again, many of our grantees have unexpended funds in their line of credit because they met their
expenditure deadlines with a combination of line of credit and program income funds that were
expended. It would be important to understand what your position is at this point and how the
strategy on how you're going to make sure that those funds are expended. We'll talk more in a
little bit about program income. We'll mention about the creation of RLS and some of the ways
to deal with this.
Let's talk a little bit about the property types. Essentially there are three categories of properties
and some different rules that apply for those specific types of properties. The definitions, and we
don't need to sort of historically talk about, but they evolved as the program went on. Our
definition for foreclosed properties, we have a few options. They can be 60 days delinquent
under the Mortgage Bankers of American calculations and the owner's been notified.
We could have it qualify as foreclosed if we have a property owner that is 90 days or more
delinquent on tax payments. So they would not have to have been necessarily notified, but we
would be able to document that they were at least 90 days delinquent. We also could have a
property that foreclosure proceedings had either been initiated or may have actually been
completed and with those completed properties, if the title has been transferred to an
intermediate, a holding company that is not the NSP grantee themselves, contractor, developer or
an end user, these still would qualify as a foreclosed property. In many cases, a lender would
take a property through the foreclosure process. It would be transferred from their portfolio into
another entity that was a holding company for them and so that is still considered to be a
foreclosed property. At the point that it has been sold or transferred to a contractor or developer
or the end user or you as the NSP grantee, it is no longer considered to be a foreclosed property.
For any properties that were qualifying as a foreclosed property, you'd need to make sure that
you had documentation within your file that showed how you were meeting this definition as a
foreclosed property.
Next category, which gives you a little bit more flexibility, is an abandoned property. This is
where we have either mortgage or tax or a tribal leasehold where we have no payments that have
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been made for a minimum of 90 days. We also could have a property that based on the condition.
So if we have code inspections that show that it's not habitable and there's been no corrective
action within 90 days, we can tag this as an abandoned property. We also may have some
properties that are under a court order, a receivership based on nuisance abatement or your own
state's definition of abandoned. These would also qualify as an abandoned property.
When we get into the next section, we talk about the eligible activities. You'll see that some of
our activities are restricted to one or more of these property types, which is why this becomes
important. We also have vacant property, and this could either be where we have an unoccupied
structure, but we also could have vacant land that was once developed. It can't be a green site that
has never had development, but there does not need to be any standing structure on that property.
If you were going to include a vacant property in your NSP program that did not have a structure
in it, you need to be able to substantiate that this is not a green site. That it was previously
developed and may be cleared at some point or another.
This gives you some flexibility on the types of properties that would be available for you. We're
going to talk in just a moment about the specific activities and the activity restrictions on this.
One thing, this note at the bottom, it's important to understand. We would have some properties
that would qualify as both foreclosed and maybe abandoned or a vacant property. If it meets the
foreclosed definition, then it has to be treated as a foreclosed property. We'll mention as we
move forward with foreclosed properties, we have some additional requirements about
discounting of that purchase price and the documentation that needs to be in the file. It's
important to look at all three categories and if it does qualify as foreclosed, we need to follow the
foreclosed definition on this.
A little bit about demolition under NSP. In some communities, a large amount of NSP funds
were used for demolition. If we're doing demolition alone, we have to make sure that this
property met our definition of blight. That would be well documented within our file. In your
action plan or your substantial amendment, you would see NSP grantee would have laid out what
your definition of blight was for your local community. These can be done where we're acquiring
the property and we're going to demo the site, but we also might be looking at properties that
were blighted within our community and contacting property owners and offering clearance to be
able to remove these buildings.
We don't necessarily have to take ownership of the property on that. If we're doing demolition as
part of rebuilding housing, we need to think about what the cost alternatives were in does it make
more sense to rehab this structure or is it more cost effective to tear the unit down and do new
construction. There is a policy alert that's noted here that I would recommend that you take a
look at concerning demolition.
These are just some examples around the country of units that were in communities that were a
blighting influence within those areas and the NSP program provided an opportunity to remove
some of the structures where previously there were funds to be able to do that and this made a
big impact on the viability of those surrounding structures and the chance to redevelop those
particular neighborhoods.
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Here's where we talk about the eligible uses. As you can see, and we're going to be talking
through after this about national objectives. The NSP program borrowed some elements or is
built upon some of the elements of the CDBG program. There are some elements of this that
look a little like the HOME program, but it's a different process and rules and regulations, which
is why we need to make sure folks are up to speed on the basics on this. When the NSP program
was laid out, we were five eligible uses, A through E.
We're going to talk through each one of these and as part of putting your local program design
together, you would have laid out in your action plan, in your substantial amendment, of what of
the five eligible activities you were actually going to undertake. If later on, so now you have
maybe completed your original NSP activities, but you are then working to find eligible uses for
your NSP program income, it may be that you want to take on a different activity than you did
originally, you need to make sure are those activities listed within your action plan? If not, that
would need to be amended to identify that as one of the activities that you're going to undertake.
Use A is strictly a financing mechanism. We might be providing loans, affordability subsidies,
and they might be going to individual home buyers or property owners. This might be going to a
developer to help make an NSP eligible project possible, but this is restricted to financing
mechanisms. Now, one thing I will note, first off, this is limited to foreclosed properties. We
went through our three definitions, foreclosed, abandoned and vacant. You say is more restrictive
that this is only on foreclosed properties.
The other thing I wanted to mention here is that we had some confusion earlier on where folks
though, oh, well, if I was doing, let's say a Use B where I was helping to purchase and rehab
houses and I was going to sell them, folks, [inaudible] if I want to provide something like a loan
or down payment assistance, I need to also have Use A funding set aside for that. Many of these
things we can do under the other uses, and we'll talk about that when we get to B, but Use A is
specific to foreclosed properties and it is limited to residential.
Hunter Kurtz: Can I point out real quickly that we have no one who has ever used Use A.
Les Warner: We had a lot of people that set aside money originally.
Hunter Kurtz: Right, and then they've gone to the other uses. No one has actually ever used Use
A.
Les Warner: But we have, actually, a number of folks who are thinking about going forward,
using that as part of their strategy with program income.
Hunter Kurtz: Right, but they'll be doing a different activity. It's everything you think you're
going to do under Use A, you really, if you think about it a little harder, you're going to find it's
easier to do and possible under one of the other uses.
Les Warner: Right. And because you say it's restricted to foreclosed properties only, it's the least
flexible, which is why folks aren't choosing to use that.
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Use B, you can see we're still talking about residential properties, houses, residential properties,
but now we're talking about both abandoned and foreclosed and this can be used for not only
home buyer, but rental properties and it can also be used for redevelopment. We might be
purchasing and rehabbing either single family homes or multi-family housing, but we also might
be doing reconstruction where we purchase knock down demo and then under reconstruction put
a unit back in its place. More flexibility than what we could have done under Use A and this
would include, of course, all of our soft costs, rehab and then any kind of affordability subsidy
that was needed for that end buyer on these projects. That's Use B.
Use C is something that's completely unique for us under NSP, something that we can't do under
CDBG or HOME and this was allowing us to be able to do land banking of homes and
residential properties. It is restricted to foreclosed properties only. The issues here are that they
have to be within one of our defined target areas and we need to have a 10-year plan, because we
will have to meet a national objective on each one of these properties.
It would be important, as part of a strategy, either with existing land bank properties that have
been purchased under NSP or if we were considering additional land bank purchases, that we
understand what is our 10-year reuse plan? We'll be talking more about this as we talk about
closeouts on that, that part of our closeout process is going to be looking at what are our holdings
for NSP under Use C and how are we going to meet a national objective to be able to close out
these properties? We had a number of properties that were acquired under Use C, under land
banking, but then were rehabbed, resold, but we need to have a national objective on this.
Use D is we're simply tearing down blighted structures. We're simply clearing out these
structures. We are not replacing them. It is not part of a reconstruction process. Under NSP and
NSP 2 and 3, a 10 percent cap was put on the percentage of your overall funds that could be used
for demolition. Now, there was the possibility or is the possibility of requesting a waiver to have
that percentage raised and there are a number of communities across the country who have in
place an approved percentage for demolition activities that are higher, in some cases
substantially higher, than the 10 percent fund. If you're someone that is newer to the program,
you need to make sure you understand what is the cap that is in place for your community on
demolition and what's your current status as far as funds expended on that versus what your limit
is.
Use E has some additional flexibility where we're looking at redeveloping either cleared sites or
vacant properties. Under NSP 1, you have the greatest flexibility where we could do things like
public facilities, so parks or community gardens or a homeless shelter being built on our cleared
site that's in our target area. Under NSP 2 and NSP 3, you do have a restriction in place that these
activities have to be related to housing. One thing to keep in mind that we'll mention later when
we get to program income is that you have a requirement to track your program income to the
specific, whether it's NSP 1, 2 or 3, and one of the reasons you need to be able to do that is
because you have more of a restriction on Use E for NSP 2 and 3. We need to know what rules
are going to apply for the program income that we're using.
Some things that you can't do. We can't do foreclosure prevention. In some of these areas,
foreclosure prevention is something that is needed and there are other funds that could be used
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for that, but that is not part of the NSP program. We also mentioned before if we're doing
demolition itself on structures, that we need to be able to document that they meet our definition
of blighting. Then because we talked about our eligible properties are being restricted to
abandoned, foreclosed or vacant. If we can't document that the property that we are interested in
meets one of these three definitions, it is not a property that we can assist with NSP funding.
That's part of your eligibility review and criteria and you need to make sure that that
documentation is within your file on each one of these properties.
These are just some before and after examples of structures.
Here is where we talk about national objective. NSP is a program that is an outgrowth of the
CDBG program, so much of this is similar to CDBG, but not all CDBG national objectives are
eligible under the NSP program. We mentioned that our target goes up to 120 percent, so it's
LMMI. That includes middle income households. If we were doing an area benefit, we would be
looking at LMMA for area benefit and we'd need to document that that area was needing this 120
percent of median. A different test than what we would use under CDBG.
We don't have slum and blight, which we tend to use under CDBG for clearance activities. We
have our definition of blight. We've been talking about for demolition and typically when we're
doing demolition we are looking at an area benefit where the demolition is happening in an area
where we have other NSP investments happening and we're able to show that by removing this
blighted structure from this targeted area, that we are helping to stabilize that particular area.
We have housing as a national objective and a lot of our activities are being done under housing.
We might also have a limited clientele where we have housing that is for a specific sector of the
population and that would depend on the activity and also which NSP 1, 2 or 3, that the project
was being completed under. We might have a mixed use activity where we were doing job
creation as our national objective and then we would be following our job creation criteria that
we have to show that jobs are made available or held by individuals that need our LMMI
moderate, low moderate, middle income definition on that.
Hunter Kurtz: Les, can I just point out that the job creation is new with the closeout notice that
went out about a year and a half ago. If somebody is interested in looking to that, I would
recommend contacting the field office. It's not just limited to mixed use activities. You could
also do it in a situation where, for instance, NSP 2 or 2 grantee were talking about for eligible
Use E with housing, you could -- as long as you're taking something that formerly was a house
and turning it into like a daycare center or something like that, you could do the LMMJ with that.
Not a whole lot of people have done this yet, so this is new to us. If that's something you're
interested in, I would highly recommend contacting your field office and talking to them about it.
Les Warner: Right. I think that's very helpful. Here's where we go back to our standard rules that
if you've worked under CDBG you'd be familiar with. When we are qualifying housing as
meeting our LMMH national objective, we have to show if it's a single unit structure, that that
household that occupies the unit, looking at the income, gross income of all household members,
meets our income limits for low moderate, middle income households at 120 percent. In a duplex
where we've got two units and we have to see that one of those units qualifies.
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Any time we're at three or more units, then 51 percent of the units must be occupied by LMMI
households. If we were doing a multi-family structure, we won't be applying what we typically
use under home where we're doing a cost allocation, we're looking at at least 51 percent, so we're
going to need to be able to document how rents are set, how income restrictions are set, so at
least 51 percent of these units are benefiting a qualifying family.
We mentioned a minute ago about LMMA, which is the area benefit and we're typically seeing
this when we're doing demolition and we might have done this under NSP 1 where we were
doing public improvement, in some cases where we've got economic development and land
banking issues as part of our initial eligibility, an area benefit might be one of the ways that we
meet a national objective.
As we mentioned before, the special needs projects fall under LMMC and then job creation,
meeting our national objectives and documenting that is related to showing the jobs that were
either created and held by or made available, and that goes back to CDBG national objective
language on how we define job creation and how we document that.
We have a targeting or set aside within our requirements to try to make sure that a portion of our
NSP funds actually benefit households that are lower income. Our target was set at 25 percent of
our overall award, has to create housing specific to low income residents. We're defining that as
50 percent of area median income. That means that to be in compliance with this, 25 percent of
your original grant amount and program income will have to meet this requirement. Keep in
mind that you continue to generate program income. We'll talk a little bit about post-closeout.
But prior to closeout need to make sure what's my current position on this? To be able to
closeout, you'll have to show that you met this set aside requirement. So 25 percent of the funds,
not necessarily 25 percent of the units, have to be documented on this. If you were doing a
shelter under NSP 1 on Use E, those will not count towards this, because it's not permanent
housing. Group homes, if they qualify in your community, can meet this definition. Demolition
doesn't count, because demolition is not creating housing.
Now, we might have a redevelopment project where a cost of that redevelopment was clear and
rebuilding and those costs are related to creating housing and would be part of the set aside. If
would be important for all the NSP grantees to know what's my current position on this, what
was my strategy and is my strategy to meet this set aside requirement, and going forward as you
continue to build program income and re-award that or allocate that to new projects, keeping in
mind then my set aside is growing over time and being strategic about trying to find some
projects that are going to add to this.
Some of our grantees have targeted for sale units as meeting this requirement, and so to meet the
low income targeting set aside, you have to sell a certain number of houses to a qualifying 50
percent and below buyer, you will not be able to show that you've met that national objective and
met the 25 percent set aside until you actually find that buyer and are able to complete that
transaction. Knowing what your current position is would be important to know how am I
coming along towards that goal and being able to close out.
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Hunter Kurtz: Les, I think it's also worth pointing out that that applies to renters too. You do
need to have someone in the unit to count towards the 25 percent set aside.
Les Warner: Yeah. Hopefully renters are going to be an easier challenge to find an income
eligible tenant, but yeah, that needs to be in place. We've got some folks that are really struggling
with finding buyers who are bankable.
Acquisition requirements. We mentioned earlier that if we had a property that qualified as both
abandoned and foreclosed or vacant and foreclosed, that we would need to follow that as a
foreclosed property. I mentioned that there were some additional requirements that go along with
it. If I have a foreclosed property, I need to make sure that I have an appraisal that was done
within 60 days of the final offer.
We need to know that that appraisal is valid on demonstrating what is the current market value of
that property and that is part of our showing that we are required to purchase this property at a
one percent discount from what current market value would be for that property. That's why we
have to have a timely appraisal in place. This is only for foreclosed properties. It does not apply
to vacant and abandoned units. That's something that needs to be in place.
We also have tenant protection requirements that are protecting tenants that were in a foreclosed
property. We need to see that that foreclosed owner provided appropriate notification to those
tenants before we actually utilized our NSP funds on purchasing that property. That notice went
into effect part way into the NSP program. I'm afraid I can't recall the effective date on that off
the top of my head, but there will be some properties that went through the foreclosure process
prior to the effective date of the tenant protections notice. We would need to know is this a
property that is held under the tenant protection notice and have documentation in place that
those tenants actually received appropriate notice.
The rules under the Uniform Relocation Act also apply. Property owners need to receive a
voluntary sale notice. There are sample forms as part of the HUD handbook 1378. You just
Google HUD 1378, that will get you to the URA handbook. I think you would also find that on
the HUD Exchange and there are sample voluntary sale notices.
Tenants also are covered under the Uniform Relocation Act, so if we put federal dollars into a
project that causes the displacement of a tenant, whether they are income eligible or not, they fall
under the Uniform Relocation Act requirements and you could use the Handbook 1378 which
would walk you through what are those requirements? What are your roles and responsibilities as
an NSP grantee on notification, on making sure that the tenants receive appropriate benefits. Just
part of the overlay of other federal requirements that apply.
Underwriting and feasibility. There were not specific guidelines laid out for NSP, but you
always, as the administrator of federal funding, have a requirement to make sure that you make
appropriate investments of federal dollars, that you size them based on the need, and so on being
able to do that, you need to have some kind of written underwriting standards in place. For our
rental properties and for our homebuyer properties, there is a long term affordability requirement
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and we need to make sure that these are going to be sustainable, whether it's for a homeowner
that we're making sure that we're putting them in a structure that they can actually afford the
payments and be able to afford maintenance, but also for our rental properties to make sure that
that net income that's coming off of rents after paying the expenses will be adequate to maintain
and sustain that property.
There are some tools in the NSP tool kit. There is a home subsidy layering notice that you could
look to. For home buyer projects, there are some samples under Freddy and Fannie and FHA that
lay out front end, back end ratios, loan to value ratios. For folks currently operating a home
program, home buyer project, they are now required to have underwriting standards for both
rental and home buyer, so it also might be that there will be some sources there to be able to use.
Make sure that you have some kind of underwriting criteria, policies and procedures, that you're
following, not only as part of sizing the level of NSP investment, but making sure that these are
going to be sustainable projects for our NSP buyers and our developers.
Property standards. Under NSP 1, 2 and 3, you of course have to comply with whatever your
local codes and standards would be. You may have state requirements in place. Under NSP 2, the
applicant put in energy standards within their own application and under NSP 3 there were some
mandatory green rehabilitation and new construction standards. You're required to meet Energy
Star standards. Many of our NSP grantees, when they put together their action plan, their
substantial amendments, chose to adopt voluntarily additional standards.
Whether they were energy standards, some folks chose to take accessibility standards such as
universal design or visitability standards [sic]. Make sure you know what your local, what your
state requirements are, what was required under NSP 2 or 3, but then also what was your local
program design? You need to be able to document that each of your properties, upon completion,
actually meets what this overlay of requirements were and that you've got inspections to
document that. You've got work specifications that were put in place so that you can show that
we have compliance on all of our properties where we've made an NSP investment.
This is an example. It's just really the angle that makes the house look like it grew, but this is a
nice example of an NSP project.
With our investment of NSP funds also comes a whole overlay of other federal requirements.
The first, and probably most timely on this, is our environmental review requirements. We know
that with environmental review, we're not able to take any choice limiting action until the
environmental review has been completed and the release of funds has been received. Before we
can go through procurement, before we can sign contracts, before we can acquire properties, that
environmental review has to be completed.
Many folks have done what would be called a tiered approach where they did their whole service
area for an activity under a Tier 1 and are only then required once they identify the specific
property, to do a Tier 2 to essentially document the things that they could not have reviewed
before they identified the individual property. Things like historic review might be noise issues,
proximity to underground tank storage, all sorts of things. Environmental review needs to be in
place. Most multi-family properties will be done as an individual property environment review.
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If you are moving forward here, overseeing awards to new projects under NSP, you need to
make sure that you have an environmental review process in place, that someone is responsible
for this and before these projects are able to move forward that the process has been completed
and the release of funds has been received. Uniform Relocation Act and the tenant protections
we mentioned briefly before, do apply. That also includes the acquisition requirements about
voluntary and involuntary acquisitions of property. Preplanning involved, some administrative
requirements and then maybe some budget implications if we're causing displacement for
property.
Davis-Bacon labor standards apply. Our trigger for CDBG is 8 or more units if we're talking
housing. If we're not in housing, $2,000 is our trigger for construction, so we need to be as part
of our process, determining will this project trigger Davis-Bacon? Have the appropriate wage
rates identified? Include that in our bid packages, in our review. With that also comes a
requirement on oversight on labor standards, reviewing of weekly certified payrolls, making on
site visits and conducting interviews. There needs to be a process in place.
Lead paint requirements are going to apply, so pre-'78 structures we need to make sure that we
are either stabilizing or abating paint surfaces. That needs to be part of our scope of work. We
need to have appropriate risk analysis be completed on these properties and clearance testing.
Section 3 is also applying, and that might be applying to our contractors and subcontractors, so
our Section 3 policies need to be included in our procurement process. We need to be collecting
and reporting on Section 3. That would be included in your overall NSP process.
Of course all of our Fair Housing Equal Opportunity requirements and that includes Section 504.
Section 504 has two aspects of it. One is based on employment and reporting, but also we have
under housing set aside for both mobility and sensory. If we're doing either new construction of 5
or more units or we are doing substantial rehabilitation with 15 units and substantial
rehabilitation is defined as the rehab is 75 percent or more of the replacement value for that
structure. That needs to be part of our analysis up front of is 504 triggered on this project? Is the
proposed [inaudible] in compliance with that? That also needs to be monitored for compliance by
the NSP grantee or the subrecipient.
Keep in mind, on each of these things we really have to analyze that particular project to look to
see what the implications would be based on the scope of work and make sure that those things
are planned for, that you're able to provide appropriate oversight, and these things again would
need to be called out within your written agreement. Some of these things have some
implications on long term compliance on property. Also, NSP 3 required vicinity hiring
requirements -- quite an overlay of requirements and sort of internal process to make sure that
you have a way to maintain compliance on these requirements.
Let's kind of shift gears and talk about the financial requirements that apply. We do have our
federal circular references. They're probably slightly outdated in that we have our new super
circular, but A-87 is where we lay out cost reasonableness eligibility, an analysis on eligible cost
reasonableness that we talked about. Our A-133 audit requirements and then Part 85 and Part 84
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are for government and non-profit entities, subrecipients of the financial systems that need to be
in place, and particular, procurement.
Whether it's small purchase, sealed bid, professional services, that would need to be following
the federal procurement requirements and be documented for each one of our projects. You are
required to set up your projects, track expenditures, but also report the outcomes to beneficiaries
of your projects within DRGR. You need to make sure that with your subrecipients, with your
developers, that you have systems in place to be able to collect that data, to be able to track
expenditures and get that information into DRGR in a timely manner.
A big topic that we need to spend a little bit of time on, is talking about program income. The
NSP program for many of our grantees for the long term will be producing some level of
program income and that is an implication on your financial management system, your
requirements on reporting its reuse and timing of using program income versus funds remaining
in your line of credit.
As was mentioned earlier, there was an NSP 2 waiver that was issued on February 2, 2015 and
this is specific to NSP 2 for program income. A specific list of NSP 2 grantees. Let's talk about
program income and the rule and what normally would apply. Rule normally would say that I
have to expend program income that I've received first, before I draw any money out of my line
of credit.
If I have my NSP 2 award and I'm trying to spend that money down because I know I have a
September 2015 deadline where I will lose that funding, until this waiver was in place, if I
received, let's say $200,000 in program income, I had to use that first rather than using the
money that was in my line of credit that I had budgeted and planned to use for this. We've had
communities that were experiencing difficulty in actually spending down the remaining money
in that line of credit.
For NSP 2 only -- and for a specific list of grantees -- there is a waiver in place from this
effective date that would say that I am not required to expend that program income first, that I
can use my line of credit, spend down that money first before using my program income. That
will allow those specific grants needed to make progress towards spending down their existing
funds in their line of credit rather than lose them with the deadline.
Things that are a source of program income -- any money that's coming back to you, the grantee,
or a subrecipient, is going to be categorized as program income. If we've got a property that you
acquired and rehabbed and then you're selling, if there are proceeds from that sale that are
coming back to a subrecipient or a grantee, that's program income. It holds its federal identity. It
must be expended first. If I have loans that have been made, and let's say I have a developer that
receives an NSP loan for a multi-family project and they have an amortized loan that they're
making regular payments on. That principle interest, as they pay it back to you, is considered
program income.
If we have, for our homebuyer projects, a unit that is sold or transferred under our recapture
provision prior to completing that affordability period, those funds are considered under NSP,
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are considered program income and will have to be tracked as program income. If we are earning
interest on program income while it's sitting in our account while we're waiting to find an
eligible reuse for that, that is also tabulated into our program income. Then if we have liens that
we've placed on private properties for demolition that was done and those get paid back at some
point, if the money is coming back to a grantee or a subrecipient, that's going to be considered
program income and all of those requirements will apply.
You notice we have referenced program income as being defined by money coming back to a
grantee or a subrecipient. If I have someone who has been set up as a developer, that money
coming back to them is not program income. We've had some projects where we had a
subrecipient who was serving as the developer on a project and was going to be owning, let's say
a multi-family project. If they are defined as a subrecipient, with your written agreement, then
the money coming back to them is program income and will have to be tracked and spent
accordingly.
The rules that apply with the use of that program income, every time that money comes back, it
doesn't matter how many times you loan it out, it keeps its identity as NSP funding. It will
continue to be federal dollars, so all of the other federal requirements are going to apply on that.
It doesn't matter how many years later, it will still be considered to be program income, even
after you have closed out.
Program income that's earned after you've actually closed out your NSP grant will generally
follow the NSP rules, but we're going to talk in a few slides about this. There are a couple of
exceptions, depending on who the grantee actually is. We'll talk about that here and also under
the close out guidance there's also some more detailed information on this.
Grantees can think about do I want all of the program income to come back to me directly? You
could choose to allow a subrecipient to hold onto that funding, but keep in mind that you as the
NSP grantee, retain that responsibility to make sure that it is being tracked, that it is being spent
appropriately and that all of the federal requirements that go along with program income are still
being followed. You have a policy decision to make about who is going to hold on to and
oversee that program income.
It has to be used for another NSP eligible use. It will have to be with one of the target areas. It
has to meet a national objective, as we talked about. We mentioned this issue about the set
asides. Low income housing set aside at 25 percent and the fact that as we accrue program
income, it's 25 percent of that program income also. It's a growing issue, and then all of these
other federal requirements that we've talked about do apply. We also did mention that you're able
to take 10 percent of that program income to cover your ongoing admin and planning costs.
I mentioned that program income has to be tracked separately for NSP 1, 2 and 3. That's really
because we have some variance in what the rules are for each of those program rules. For
example, we talked about Use E, that we could do a public facility under NSP 1, but NSP 2 and 3
were required to be housing. It's those sorts of requirements that follow with this, that we really
need to be able to track which of NSP 1, 2 or 3 were these funds generated from and so that it
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holds that identity. Those are going to be continued to be tracked and reported on in DRGR after
closeout.
Some of the project completion requirements that you will have to meet -- we need to make sure
that for a home buyer program, that that purchase price met the affordability test that you defined
in your action plan. For a rental property, if there was a subsequent sale, there's no limitation on
how much they can sell that property for. The limitation is on the affordability of those rental
units. We would continue to look at income eligible tenants and affordable rent for those
properties.
If we sell to an assisted household, we can't accept that sale price higher than what we actually
have invested in that property. If I required and rehabbed a house, let's say I spent $120,000 and
I'm going to sell at fair market value and fair market value is $150,000, I'm capped at that lower
figure, because my only total investment was the $120,000. For a lot of NSP grantees, they have
spent much more than what the fair market value reflects and so the maximum they could sell it
for is what the market will bear, the fair market value on that.
Part of that you can include when you're looking at tabulating what your investment is, not only
your direct cost, but also your activity delivery cost. You need to be able to track those back to
the property. You can't include maintenance costs. Once you have completed the property and
you're holding that property from ongoing maintenance costs, those are things that cannot be
included when you calculate what your maximum sale price could be.
You need to make sure that those units that are being sold are inspected for compliance with
your standards and we're going to document our national objective on home buyer unit.
Typically we are looking to see that we are selling it to an income eligible buyer and as part of
that, we're going to be reporting that in our QPR and the DRGR showing that we have an eligible
buyer and reporting that beneficiary information.
We have an ongoing affordability period, and for most of this, most folks borrowed essentially
from the home program and used those rules as their safe harbor for home buyers. This policy
alert from 2009, you may want to take a look at. As part of this for a home buyer program, you
as an NSP grantee, had to determine whether you were going to do resale or recapture. If you
weren't going to do one of those options from the home program, then you needed to pay out in
your action plan some other variance on that. I think most folks did recapture as their process. As
part of that, you would have laid that out in your policies and procedures.
For rental projects, you have an affordability period that's going to be based on your compliance
period and in most cases that's going to follow the home program based on your investment.
Depending on your investment level in a property, you may have five, 10, 15 or 20 years of
affordability requirements where you're going to be tracking to make sure that rents remain
affordable and that incomes are meeting your affordability definition that was included in your
application.
Keep in mind that if the way you are meeting your 25 set aside is designating rental units as
being for households at 50 percent and below, then we need to make sure that we continue to
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have affordable rents for those units and each time we have a new tenant, so when we have
turnover of those tenants, that we again rent it to a household that's at 50 percent and below. It's
not an issue if we have somebody who rents a set aside unit, their income is at 50 percent and
over time their income goes up.
The issue would be when that tenant moves out and we rent a new tenant, we have to verify and
make sure are they meeting our 50 percent or below requirements. If we have a sale on a rental
property during that affordability period, we need to make sure that our restrictions stay in place
and that that property will continue to provide affordable housing for income eligible buyers.
Here's where we talk about our reporting and our closeout process on that. Within 30 days of
quarter end under NSP 1 and NSP 3, you're required to file your QPRs, your quarterly reports,
within 10 days of quarter end for NSP those need to be filed. They're required to be posted, so
this is part of our transparency, citizen participation on this program, that those quarterly reports
need to be posted. I've noticed with a number of NSP grantees that some of that was posted early
on, but they've kind of let that go.
That's a requirement that we posted. Your QPR or your performance report is not required for
NSP, but of course as part of our closeout process we're going to be documenting how were our
funds used, who was benefited. Make sure that you have documents that show compliance for all
of our requirements, so some kind of a compliance review eligibility review. There are some
HUD monitoring checklists that you could use as a self-assessment. I believe you would find
those on the HUD exchange.
Let's talk a little bit about change of use. This is a CDBG term that folks may be familiar with
from CDBG. This applies to property that's owned by a public grantee in perpetuity or if we have
a subrecipient or non-profit with permission of the grantee. This is triggered when we've
expended $25,000 or more and when a property is sold or demolished. The issue here is that if
we trigged this by the $25,000 or more, then we must continue to meet either the original
national objective or another alternative national objective for this property or we have to sell the
property at current fair market value and return those sale proceeds as program income. These
are long-term when it's owned by the public grantee or subrecipient and only triggered at 25
percent and above.
If we had a property that we held -- let's say we acquired, we did asbestos removal and
demolition on a property and we had expended $80,000. We sell this vacant lot at current fair
market value, and maybe the fair market value is only $10,000 for this vacant lot. Change of use
would require that if we're not going to continue to meet a national objective that we have to pay
back those proceeds, which is the fair market value, and that becomes program income so it
retains its federal identity. There is a policy alert from March 2013 which provides more detail
about disposition and there is some flexibility in this, and I think that policy alert will give you
some very good guidance about the details on this.
Closeout notice. So we have two things. We have a closeout notice which was issued in
November 2012, but then we have our closeout guide, which is more recent from last year and
this really walks you through in really good detail of the closeout process, what the requirements
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will be. It gives you some examples of forms and templates to use and kind of guides you
through this.
The criteria to be ready to be able to closeout: all of your costs have to be paid that have been
incurred with NSP and all the work has to be completed. If you weren't in a region of the country
that has winter and you have some aspect of your project that you're holding funds for can't be
completed until spring, we aren't going to meet this closeout criteria until all of the work has
been completed and those funds have been released and paid for those NSP costs.
You also have to be able to show that you meet your set aside requirements for housing at 50
percent, benefiting folks at 50 percent and below. You need to know what's my current position
on this, be able to document that you've met your 25 percent satisfied on this. All of your other
requirements, meeting a national objective, all of our other federal compliance requirements, will
be required to be completed to be able to move forward with the closeout.
As part of that, you will prepare a final QPR. You will go through a closeout checklist. HUD will
review that checklist, work with you and at the point that you are ready, HUD will prepare a
closeout agreement which will be issued and will be signed. That will lay out what protocol,
what requirements will be going forward for that particular project.
Some things about after closeout. As we mentioned, many NSP grantees are going to have
program income coming in for, hopefully many years from NSP funded projects that will come
back in the form of program income and will continue to be funded for eligible activities within
your target areas. Your action plan will need to lay out, continue to identify what are the
activities that I'm going to undertake? Where are my target areas? As part of that, you will
continue to be able to take 10 percent from your program income to be able to support that.
All the other federal rules will apply. Generally the set aside requirement will apply, but we're
going to talk about a couple of exceptions in a moment. We have to think about post-closeout. If
I'm going to fall under the set aside requirements, how am I going to fund the projects and have a
strategy to stay in compliance with those requirements? We'll also need to continue to report on
the status of NSP affordable units during their affordability period.
Here are the exceptions about closeout. If your annual program income is less than $25,000, then
you're able to use it to administer your NSP programs or you could add it to your CDBG
program income and treat it under the CDBG rules as opposed to NSP. So it would essentially
lose its NSP identity at that point. If your NSP program income is more than 25 but less than
$250,000 on an annual basis, then your set aside requirements are waived. It makes it easier for
you as far as implementation, but all your other rules about eligible activities, target areas, other
federal requirements still continue to apply to those funds.
We also have sort of a group of NSP 2 consortium members or non-entitlement NSP 3 grantees
that don't have an open state CDBG grant. In those cases, those funds are -- after they're
received, are going to remain program income, but if we have no other HUD grants, then the
revenue that's received during five years after the program income or after the closeout, is not
going to be considered program income, but you still need to find eligible activities. You still
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need to meet a national objective. Same would go for income that's received 5 years after
closeout. It's not considered program income, but we're still holding you to finding other eligible
activities and continuing to meet a national objective for the reinvestment of those funds.
Affordability. Keep in mind for our designated NSP units the affordability requirements stay in
place. You have long-term oversight monitoring on these units. You periodically will be required
to report on the status of those using DRGR. If we have funds that are recaptured from our sold
or transferred home buyer units, those dollars are going to have to be used again for another
eligible activity. You're going to be required to do some ongoing monitoring and reporting on
your rental unit.
It is, for those of you that work with the HOME programs, it is more flexible than HOME, so we
have to show that we have affordable rent. Our income eligibility has to be shown at initial
occupancy and any time we have turnover, but otherwise it does not need to be documented on
an annual basis. Again, we can use our NSP admin funds, which we can take up to 10 percent of
our program income that we're receiving over time, to fund to cover our expenses on that.
Some other things after closeout, for land bank properties, properties have to show that within 10
years of closeouts that they're going to be obligated and committed and that they're meeting a
national objective, that they're going to continue to support neighborhood stabilization. In the
closeout memo or notice and guidance, there's further guidance about some of the flexibility
that's been provided for how you're able to meet national objectives for those properties. I would
recommend that you take a look at that and again, we talked about the 25 percent set aside and
affordability requirements that apply except for the exceptions that we actually talked about in
the last slide.
Some things about your post-closeout program -- you could go ahead, just keep funding the same
projects that you've been doing and it may be that if you've got partners that have shown that
they have capacity and the market stays in support of those activities, that may be a very good
model for you. Others are going to find that the needs have changed. The capacity of some of
your partners, that local market and may need to rethink what activities are going to undertake.
Also, looking at what's your own capacity as the grantee or subrecipients or developers that you
may have worked with. You may be going back to folks that you worked with in the past or your
may be changing your program. I would encourage folks to really evaluate what's working for
me, what's not working. Are all the factors that made it work last time I did it still in place or do I
need to amend my project design going forward.
Some of the things that have been lessons learned that have worked well for folks is making sure
that they have the right team, that they brought the capacity of the table. If they didn't have it
internally, that they paired with good developers, with subrecipients, that they were very clear on
who their target audience was, who the target market was on the chart. Knowing what was
happening in those target areas, that they're leveraging other program funds. That may be more
critical going forward, working with -- thinking about how is this going to work in the long
term? How long will I continue to receive program income? What will those levels be? How will
my investment continue to work within those areas?
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As part of that, folks found that it was really important to do a really good job of underwriting,
right sizing that investment, making sure that they didn't make these deals so tight that if
anything unexpected happened that there were problems with the stability on this and actually
having systems in place that not only you as the administrator, but also the recipient understood
what the criteria was, how it would work and folks could follow them. NSP was an opportunity
unlike many of our other programs, to put in higher levels of subsidies to get projects that maybe
otherwise couldn't be completed in your community.
This also allows you to do some deeper targeting on income and special needs populations. Also,
for folks that were able to move their programs well, they had good private lending partners who
understood their program and they had worked out how that process would work. That avoids a
lot of problems if you've got a good program design and everybody understands their role in this.
Timeliness has been a big factor for this program from day one and will continue on this. You've
got to have your environmental reviews as part of this, and that needs to be worked into your
timeline on this and planned ahead. You may continue to be in a situation where you were
competing in those target areas with other buyers and so using programs like the First Look
program to get first access to some of our foreclosed properties may be an important model to
continue to follow.
Many folks over their NSP experience found that they needed either more control over
developers or partners or they needed a way to be able to cancel or cut back or control
partnerships. I think looking back for you at what worked, what didn't work, and see if there are
some things that could be prevented by some changes in your protocol, maybe your written
agreements would be important.
As part of this, you need to be actively involved and will need to continue to be actively
involved. You may have a smaller staff and so those roles may need to be redefined, but making
sure that we've got all of our federal requirements, we've got eligible activities. We're following
the OMB circulars and program income requirements, all of that needs to remain to be in place.
Again, written procedures are written agreements with our partners become really important and
keeping an eye on and trying to work towards maintaining the capacity with our partners, our
developers, would be important.
We have other community-based partners in both CDBG and HOME. We have our community
housing development organization, CHODOS. Under CDBG we may have our community based
development organization, CBDOs; and we may need to shift how we deliver some of our
ongoing projects as some of that capacity changes. DRGR is not going away, so maintaining
some DRGR capacity is going to be important on this.
Again, looking at the end use, looking at what's happening in that market and making sure that
what we're doing going forward on reusing our NSP funds that we still have a workable program
design and everyone understands their role.
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That was a lot of information kind of top to bottom on this, but I think what we'll do now is
switch into the question phase of this webinar. I think we'll first -- I'm thinking we'll first take the
questions in the question box. Lee, do we have questions that have been submitted?
Lee Turner: We do. We do have a couple questions so I'll just jump right in. The first question
is, "Are there citizenship requirements for a potential buyer of an NSP property? If so, is it
permissible to have a legal US citizen sign onto the deed as a co-registrant or can someone with
temporary citizenship status sign the deed alone?"
Les Warner: I'm going to give an answer, but I'm going to ask Hunter and folks to chime in on
this. My understanding would be that CDBG, and I would believe that applies to NSP, requires
that you be a legal resident. That might be defined in a number of ways.
Hunter Kurtz: Les? The actual answer is that -- you guys are going to love this -- is that the
Justice Department is currently writing regulations concerning this as required by the Welfare
Reform Act of 1996.
Les Warner: Okay.
Hunter Kurtz: And if they like that language, you can send a question to the Ask a Question and
we can send you the legal response that we have received from our general counsel specifically
answering that question, that you can use if needed.
But I'll say it again, we are waiting for the Justice Department and they say they're working on it,
since 1996.
Les Warner: In the interim, what is your suggestion to this individual who's trying to figure out
do I say yes or no to this person?
Hunter Kurtz: I would say that I would refer to -- I would send that question on Ask a Question
and we will send you an answer.
Les Warner: Okay. Moving on, Lee?
Lee Turner: All right. "So if a son and a father can sign a deed together, must the son be living
in the home?"
Les Warner: Our eligibility here is based on the household and that is the household that resides
in the property. We had quite a number of properties where we have a co-signer that is a non-
residential a lot of times has been an adult child. The issue is that if it's the father that's going to
reside in the unit, we have to look at all household members and show that he is income eligible.
Hunter Kurtz: The big thing there is that if you use -- it's usually the other way around, so it's a
little easier, where it's a father or a parent cosigning on a child. What you just need to be cautious
is if they are declaring on their IRS forms that that person is a dependent, then you have to take
everyone's income into account. If they're not, if it's just a father as a cosigner, but they're not
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declaring them as a dependent, then you do not need to take back that father or mother's income
into account. It would be the reverse here in this situation.
Les Warner: Yeah. Well, I know we've had a number of -- with the grantee I worked with, that
we had elderly parents who the son or daughter actually purchased the house for the parent, but
the parent themselves was income eligible and so it worked. We could have both directions on
this.
Hunter Kurtz: Yeah.
Les Warner: Okay. Next question.
Lee Turner: Okay. Next question is, "Can NSP funds be used for both operations and capital
needs of a multi-family project?"
Les Warner: Well, so when you are funding that project, you are looking at a development
budget of what it will take to build it and you are restricted as far as being able to capitalize
reserves on this. You are really depending on the operations to be funded by the income coming
in. It has made it difficult for targeting very low income populations where the rents that are
coming in maybe don't actually generate enough, even if you had zero debt on the property,
might not generate enough revenue to pay all of your operating costs.
My understanding would be that our eligible costs for this project are the development of it, but
we don't really have a way to capitalize some kind of ongoing operating under NSP.
Hunter, do you guys want to add anything on that?
Hunter Kurtz: Nope. We agree with that 100 percent.
Les Warner: Okay. Next question.
Lee Turner: Okay. This one is a little bit of a long one. This person is asking, because they are
about to enter and NSP contract with Habitat for a single family home on a Habitat owned vacant
lot. They just finished the environmental review today and their questions are, are they correct
that Habitat's acquisition costs are not a reimbursable expense and two, was their acquisition,
which was in 2012, a choice limiting action because no environmental review was done back
then?
Les Warner: I'm going to say a couple things and also condition a couple of things. I am not an
environmental review expert, but here's the things I see on this. Some of this may be a timing
thing. When Habitat acquired the property, they might have acquired it for this NSP project and
in that case we probably have issues under environmental review. Habitat may have acquired this
property and not really related to this project and is coming forward with, hey, I'd like to do this
NSP project. We have now said, look, we need to do an environmental review so that the
acquisition wasn't actually part of this project.
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Lee Turner: Les, to clarify, they did say the plan to build on it did not arise until recently.
Les Warner: Okay. Good. Good. I'm going to take that as the acquisition happened by Habitat
for some future use, not anticipating NSP. My understanding of the environmental requirements
would be that at that point we need to take no further action, complete the environmental review
and depending on what the outcome of that environmental review, if it determines that yes, this
is an appropriate site or we need to do some mitigation of some kind, but once that has been
completed, that project would be able to move forward. It sounds like they've now completed the
environmental review. They could then provide funding for that project if it appeared to be an
appropriate NSP eligible project and all of that.
Hunter, you guys want to add anything?
Hunter Kurtz: I think one thing we want to stress on this is that we're only hearing partial details
here so this is not something that we can answer in this format with 100 percent certainty. From
what you said, I think we all agree with what you're saying.
Njeri Santana: We would recommend if they want, you know, just to feel comfortable -- this is
Njeri -- that they go ahead and submit, I guess, into the ask a question or contact the field office,
the full scope of what's going on with the project. I think that also allows us to go back and forth
with any additional questions that we may have.
Les Warner: I think it's really helpful, because a lot of these, you know, one missing detail in the
description can change a lot of this.
Njeri Santana: Exactly. Exactly.
Les Warner: Okay. Lee, next question.
Lee Turner: Sure. I am getting a lot of questions about the webinar materials and scrolling back
to certain slides. I just wanted to make a plug that these webinar materials will be available on
the HUD Exchange website in the coming week.
Okay. So now back to a content question. "A grantee has a subgrantee that has a property in a
land bank and owned by a redevelopment authority. The redevelopment authority is in the
process of finding a developer and financing to develop the property for housing. In the interim,
the redevelopment authority wants to pave the lot and temporarily use it for public parking. Is
this temporary use prior to the development of housing permissible?"
Les Warner: I am going to defer that to Hunter and his crew. I think this has come up before.
Hunter Kurtz: Yeah. It would be permissible, but you can't use NSP funding to pave the lot.
Les Warner: Right.
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Hunter Kurtz: So I mean, if you want to do something in an interim, and we recommend that
with land banking. A lot of times people use -- maybe do a community garden or something like
that. That's fine, it's just you cannot use NSP funds to do that interim use, whether it be paving a
lot for parking or building in a park. You just need to come up with another source of funding to
do that.
Les Warner: And they can't lose sight of the fact that they still have an end use and a national
objective to meet and kind of not forget, oh, this is just a parking lot. I don't have to worry about
this.
Hunter Kurtz: Yeah. I mean, it's interesting, the parking lot -- if you were hiring somebody to
manage it, we could make an argument that that might be a job creation there. That's -- think of -
- whoever asked that question might want to mull that one over a little bit and go back and look
at the close out notice that deals with the job creation national objective.
Les Warner: Okay. Next question.
Lee Turner: All right. Next question is, "Do I have to live in the state in which I am
administering the NSP program?"
Hunter Kurtz: What? Do you have to live in the state that you're administering the NSP
program?
Njeri Santana: Are they a consultant?
Lee Turner: I'm not sure what their role is.
Les Warner: There's not a residency requirement for staff. I would think there's a concern about
availability and being able to kind of have appropriate oversight, but NSP itself doesn't really
talk about for the staff that's running the program, the funds are obviously provided and held by
an NSP grant or subrecipient, but where their staff actually resides, I don't think there's any --
Paul Patterson: This is Paul. We don't have a federal requirement for that, but the local
government may have their own staff requirements where the staff have to live within the
jurisdiction, but that's above and beyond what our requirements are.
Hunter Kurtz: Sort of dovetailing off what Paul's saying is that that's true for most of our
requirements. These are the minimum requirements that states and grantees and the non-profits
are using these funds have to meet. They are more than willing and in many cases do add
additional requirements to all these and that is okay to do.
Lee Turner: Okay, great. Next question is, so if a parent is not a U.S. citizen -- oh, I think this
actually is a question that piggybacks off the previous question about citizenship. "So the parent
in this situation is not a U.S. citizen, can the son cosign who is a legal resident? Can that bypass
any regulations that would bar the undocumented father?"
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Hunter Kurtz: We need to get that question submitted to us. I can't answer that over the phone.
There's a lot of other details that we would need, so if they could submit that question to the Ask
a Question website, the HUD exchange, we'd be happy to respond. It might involve some back
and forth, that's why it's just going to take a while.
Lee Turner: All right, we will move on. If a grantee has chosen to use home rents, they have the
option to determine the utility allowance based on the type of utilities used at the projects. May
they base their calculations on the utility allowance data provided by the public housing authority
as long as it is specific as to gas versus electricity, for example, and one utility company's rates
versus another?
Les Warner: Well, the home program allows you -- there was a delay in the implementation of
the HUD utility calculator, so their methodology that they're proposing is using the public
housing utility allowance is fine. They need to know what is that tenant actually responsible for.
You might, as the NSP administrator, if you have a more efficient, energy efficient property, you
might want to look at some kind of an alternative schedule that would be more appropriate for
the actual utilities incurred by that property, but you would be fine in using what you're
proposing as I understand it.
Lee Turner: All right. Moving on. "Is a vacant brown field property that was not previously
developed eligible for NSP funding if the intended project meets NSP criteria?
Les Warner: We said that our definition under vacant is that it has to have been previously
developed. They're saying it's a brown field. I assume meaning it's been contaminated, so I guess
I'm not sure and I don't know, HUD folks, what you want to do with this.
Hunter Kurtz: Well, I just -- yeah, I guess I'm a little confused how you can have sort of a green
space that's also a brown field. I mean, if you could show that there was a factory there 50 years
ago, that's a prior use property.
Les Warner: I suppose it could be run off sort of thing.
Hunter Kurtz: If it hasn't been used for something before, then you can't -- it's not considered
vacant. Yeah, with the run off, but still, you still run into that problem that we're not calling that
a vacant lot. I don't think -- if there's not been a structure there before, then that is not -- then you
have a problem. Now, if it's a large lot and there was a factory on one side, I mean, that large lot
would qualify. You don't have to build in the footprint, but --
Les Warner: We have had some grantees that ended up doing some research and maybe in no
one's recent memory, but we found that there were some lots that at one time or another had been
actually developed and they were able to then prove eligibility. I think again, they've got to meet
that definition.
Hunter Kurtz: We agree.
Les Warner: Okay. Lee, next question.
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Lee Turner: Okay. Great. Next question. "If a grantee has an abandoned home with county tax
liens going to tax lien sale, can they use NSP fees or I guess they mean funds, for purchase and
rehab?"
Les Warner: Tell me again, this is the city or this is the county?
Lee Turner: This came from a city person, so this would be the city.
Les Warner: If the city --
Hunter Kurtz: Yeah, the city could pay the county's fees if they're acquiring the property. It gets
a little sticky if the city is paying itself the fees.
Lee Turner: Okay. Next question then. "Where can one find out which municipalities have been
allocated to NSP funds and how much has been allocated?
Hunter Kurtz: The HUD's resource exchange will have -- if you go to About Grantees, will have
a list of all the grantees of all the HUD programs and you can search through there for just NSP
if you want.
Lee Turner: All right, then to keep it rolling, next question. For the question regarding Habitat, it
seemed that the question was if NSP could be used for the acquisition for the property if the
environmental was done after the acquisition, they believe the answer would be no. Is that
correct?
Les Warner: Well, so if Habitat is asking to be reimbursed for the value of the property, I guess
my thought would be when you sell that property, that the portion of the proceeds that are related
to the value of that property, that they could be reimbursed at that point and that would be the
most appropriate way for this to be structured.
Hunter Kurtz: And Les, the thing is, those proceeds would not be considered program income.
That would be a percentage of -- whatever that acquisition cost would be, would be considered
another source of funding.
Lee Turner: We have two more questions. "If this person has blight abatement costs, which are
eligible under NSP 1, but they have not done an environmental, can they do one after the fact and
still cover the cost with NSP? The funds were -- the costs were fronted by a local funding
source."
Les Warner: Is this a property they've actually done something on or they did some kind of an
assessment, but they did not use NSP funds to actually clear the site?
Lee Turner: Right. The phrasing in the question makes it sound like they have not. Actually they
just entered a follow up, yes, they did the work already.
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Les Warner: Okay. My take on this would be that they have violated the environmental review
requirements that would say that it has to be done before you take any choice limiting actions.
My thought would be that it would not be eligible, but I will defer to the HUD folks.
Hunter Kurtz: No. We agree with you. That sounds like it's not eligible.
Les Warner: Yeah.
Lee Turner: Okay. One next question seems more of a statement, but it's a follow up again on
the Habitat question saying that they would get no sales proceeds, just the zero percent mortgage.
Les Warner: If I understand the normal Habitat design, so Habitat owned this property. You're
putting in NSP funds to do, I would assume. construct a unit or maybe to rehab an existing unit,
and Habitat is the owner while that project is ongoing. It's going to be sold then to an eligible
buyer. Habitat is going to hold a mortgage on that property. It will be amortized and those funds
are going to come back to Habitat over time.
There will be funds coming back to Habitat and that would -- I guess my thought would be that it
would be -- assuming they've been set up as a developer, that's not program income. That's going
to be the repayment and I would assume that that loan that they've made incorporates the value
of not only the value of the property, but probably the rest of their investment, including perhaps
some of the donated materials and labor that they're going to be receiving payments on.
Hunter Kurtz: And Les, if they're not a developer, if they're a subrecipient or the grantee
themselves, then you would take a percentage of if you spent -- the house sold for $100,000 and
the property value was $10,000, then they would receive 10 percent of the payment and NSP
would receive 90 percent in program income.
Les Warner: Right. There's still a way for Habitat to recoup those expenses. It's not an
immediate hand over the NSP money for that.
Lee Turner: We do have a couple more questions. Les, I know you said that you had to cut it
short. I can redirect these questions to our HUD panel that are still staying on.
Les Warner: Yeah.
Lee Turner: Great. Okay. So the next question would be, "As a lead member of a consortium
this grantee will be providing construction funding under Activity E for a rental project that will
house families and individuals at 30 and 40 percent AMI. The local jurisdiction is also providing
financing. They're using a 60 percent AMI affordability restriction and the city is using 45
percent restriction with the possibility of increasing a 60 percent in the event of foreclosure by
senior lender and their loan will be paid back at the time of conversion. Can those units be
considered LH 25 with the 60 percent affordability restriction?" I know that's pretty detailed.
Hunter Kurtz: No. You have to make -- the person living in the unit has to be at 50 percent AMI
or less. And during the period of affordability, they must be at 50 percent AMI or less. It sounds
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like what they're saying is that they're going to go from -- they're at 45 right now, but there's a
possibility that they go to 60 and the answer is no, they can't count towards the 50 percent AMI
or less with LH 25 set aside. Now, if they could ensure that during the period of affordability that
they would only -- new renters would only be at 50 percent AMI or less, then yes, if they could,
but that doesn't sound like what they're saying.
Lee Turner: Okay. Then we'll go to the next question. For NSP 1 home ownership --
Hunter Kurtz: Hey, Lee?
Lee Turner: Yes?
Hunter Kurtz: Can we see if there's anybody on the phone before we continue?
Lee Turner: We actually don't. Nobody has raised their hand yet, but I will reiterate that if you
would like to ask your question orally, if you're using your telephone to call in today, go ahead
and use the raise hand function, otherwise you're welcome to submit your question via the
written question panel. In the meantime, we'll keep going through written questions.
"For an NSP 1 home ownership question, how do you define permanent residence if the owner is
temporarily working out of state, but still had mail routed to this address. Does that count?"
Hunter Kurtz: It needs to be their primary residence. They need to have that be where they're
quote, unquote, living. If they bought the home and are renting their old home, that's fine, but
that rental income they're getting from their old home counts towards their income certification.
It needs to be where you're living. You can't rent the house out that you buy through the NSP
program. You can't use it as a summer house or a beach house or something. It has to be your
primary residence.
Lee Turner: I'm seeing one more question. "What is the difference between program delivery
cost and the 10 percent admin cap? Could you give a specific example of what would be a
program delivery cost?"
Hunter Kurtz: Program delivery cost would be a situation where you go out and you do an
appraisal for a property that you then acquire. That appraisal will count as a program delivery
cost. Admin cost would be the salary for the person who hired the appraiser to go out and do the
appraisal. It would be the cost of their computer that they use to send the email to the appraiser
or how many hours they worked or the phone bill that they have. Those would be administrative
costs. The program delivery costs would be directly related to the property. If you can tie the cost
to an address, then it is considered a development cost involved with that property.
Paul Patterson: And there is the policy alert that you can find on the HUD exchange under NSP
dealing with the difference between delivery cost and any other costs.
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Lee Turner: Great. I am seeing no other questions. There were a couple other questions
sprinkled in around where to find resources and in specific where to find the materials for this
webinar.
To reiterate, these materials will be posted on the HUD Resource Exchange and as well, I've
pulled up right now some resource links if anyone would like to take a look. Like I said, no other
questions, so what I'll do is pull up this evaluation link for everyone. We would love to have
your feedback after this webinar. This link will be on the material that we send out and you'll
also get a reminder tomorrow. We would love your feedback to make these webinars better in
the future. Please fill these out for us. HUD folks, I don't know if you have anything else to say,
but that might be it for us.
Hunter Kurtz: Just one thing to emphasize with the SurveyMonkey is do not put any policy
questions in there, because it takes a while for us to get them. If you do have any questions,
please go to the HUD exchange, the Ask a Question website and put them in there, that way we
can get back to you quickly.
Lee Turner: Great. Well, I think that does it for us today. I don't know if you have any other
closing remarks, HUD, but that would be it.
Hunter Kurtz: Yep. I think we're good. Thank you, everyone.
Lee Turner: Thanks, everyone.