HOTMA Compliance for the Discerning Stakeholder

The last scalable change to the Department of Housing and Urban Development’s program compliance was around the time of America’s bicentennial. It’s certainly a different world today. And you’re not alone in wanting to understand its impact, an analysis of Google trends shows that the Housing Opportunity Through Modernization Act of 2016 (HOTMA) has steadily increased in search popularity over the last 12 months; and speaking as a provider of compliance and training in affordable housing, it is the most frequently requested topic. This article examines HOTMA’s significance by presenting some of the important elements of change it ushers. There are also suggestions for a smooth transition, through a compliance lens for stakeholders. In all, this is a moment to leverage a required industry change to modernize your organization’s overall compliance.

HOTMA is Sweeping
A Legacy of Piecemeal Change. The evolution of HUD programs hasn’t exactly been linear. Not to mention, affordable housing has seen the rise of programs in other agencies (such as the Internal Revenue Code’s policy on Low Income Housing Tax Credits), which often rely on or borrow from HUD’s compliance requirements. Regulations for public housing and Section 8 programs have evolved in pieces over decades. Landmark dates, like the creation of Section 8 vouchers in the 1970s and the Mark-to-Market reform in 1997 addressed specific aspects. The examples of the reinstatement of the 2013 discriminatory effects standard in 2023 and the ongoing HUD Handbook updates, focus on specific topics. Even though HUD has consistently played a role in shaping regulations, HOTMA stands out for its comprehensiveness.

HOTMA’s impact goes beyond specific changes. It represents a significant shift in how the government approaches affordable housing by streamlining processes, updating calculations and potentially paving the way for faster modernization efforts. HOTMA addresses the broader framework for how programs operate. It modernizes antiquated thinking in all directions, from eligibility to reside to the methodology we must follow to make qualifying calculations. Streamlining processes is an effort to tackle administrative burdens by simplifying calculations, introducing new terminology for clarity and potentially encouraging the use of existing programs like Rental Assistance Demonstration (RAD) for faster modernization of public housing units. Comprehensively, this is what makes HOTMA sweeping.

Compliance is Mandatory. HOTMA was enacted on July 29, 2016, and is notably subdivided into three sections. Making complex regulations more confusing, each section rolled out separately. Currently, adherence to the income and asset requirements is Jan. 1, 2025. More recently, all housing providers were to have tenant selection plans and Enterprise Income Verification (for HUD Multifamily Housing) in place by May 31, 2024.

Changes to Income
Previously, deductions for medical expenses might have been capped at a lower percentage. HOTMA increases the deduction by up to ten percent, potentially making it easier for households to qualify based on income. Amounts received by the family that are specifically used to pay for out-of-pocket health and medical care expenses are excluded from income calculations. This includes payments through health insurance, workers’ compensation and certain VA benefits used for medical care.

HOTMA excludes dependent student earnings up to the first $480 of income by a full-time student under 18. This allows dependent students a small amount of income without affecting the family’s eligibility (note that the earned income of the head of household, spouse or co-head is still included). Types of payments in lieu of earnings, such as unemployment compensation, disability benefits and worker’s compensation are included in annual income calculations under HOTMA, but there are exceptions, such as child support payments. Disaster relief payments are often excluded, such as in the case of recent tragedies like the Lahaina wildfires in Hawaii. A complete list of regularly updated federally-mandated exclusions can be referenced in the Federal Register. Public Housing Authorities (PHAs) are also extended a certain latitude to exempt other income sources specific to their locality.

Changes to Assets
HOTMA introduces a new rule limiting the total net assets a household can have to qualify. Adjusted annually for inflation, households exceeding $100,000 could be ineligible, even if their income meets the requirements. There are some explicit exclusions, such as if an asset is real estate that cannot be utilized or disposed of; and other exclusions you must be aware of on your own, such as implications with the Violence Against Women Act. As we can find in many areas of HOTMA now, figures are often updated annually for inflation, to ensure calculations remain relevant over time and don’t unfairly disadvantage households due to rising costs.

HOTMA raises the threshold when imputed (estimated) income is $50,000. This allows households with a moderate amount of assets to qualify more easily. Previously, income from assets exceeding a certain threshold might have been imputed even if not received. However, HOTMA requires actual income from assets to be counted, not just estimated, if possible.

Streamlining
HOTMA allows alternative verification methods to confirm income and eligibility rather than relying on traditional pay stubs or tax returns. Utilizing bank statements showing regular deposits if income isn’t from a traditional wage source is also possible. Even the self-certification of net assets below $50,000 is a type of streamlining, too, intended to simplify what are considered nuisance administrative burdens that have no material impact on reaching the right families.

Student Financial Aid
HOTMA made several changes to student financial aid, most notably recognizing financial assistance related to Section 479B of the Higher Education Act of 1965 (HEA). The updated rules created two categories of student financial aid that apply to full- and part-time students who attend secondary and higher education. Those identified in the HEA (most commonly Pell Grants, Teach Grants or federal work-study programs) are never counted as income, even if their amounts should exceed reasonable education expenses. The second category of financial aid that is possible is much broader – anything that isn’t specifically stated in the HEA. These amounts, when exceeding costs, are counted as income. For Section 8 participants 23 and under, or without dependent children, only the portion of this aid used for costs can be excluded.

A Smooth Transition is the Product of Training
Timing and knowledge transfer are critical in affordable housing compliance. As we learned earlier, one compliance date has passed (tenant selection plans) and complete HOTMA rules are in effect this January. On top of this, in an industry where staff turnover is already as high as 40 percent, compliance training is often perceived (incorrectly) as costly. An alternative perspective allows us to leverage a required change to modernize a company’s training. We cannot write a training plan together in this article, but I hope to shape up the image for you.

Successfully managing this HOTMA change (and a critical step to establishing an “ROI calculator” for your training) requires a common technical training plan for front-line compliance staff. The same curriculum allows for the standardization of performance into one metric, notably in this case, rent flow via compliance. It also inherently demonstrates the success of the program because housing is reaching families. Since HOTMA is a sweeping change, you’ve thereby eliminated the need for segregated HOTMA training, and instead use it as a moment to educate the team of the entire affordable housing program, inclusive of HOTMA. A separate training plan for the transfer of functional knowledge becomes the unit of measurement from compliance staff to the operating budget, and thus the ability to develop an ROI calculator.

HOTMA is Sweeping and it is an Opportunity
Overall, HOTMA’s changes to affordable housing attempt to balance the lives of the families it is intended to reach, as well as the stakeholders required to make the market happen. It’s a significant overhaul and the first in decades. For those that leverage it deliberately as an opportunity, it can be a strategy for modernizing investments in compliance training at the organizational level.