HUD Revisits HOME Programs Administrative Rules with Proposed Update 

On May 29 of this year, the Department of Housing and Urban Development published a proposed rule update to its decades-old HOME Investment Partnerships program (HOME), a federal block grant that provides funding to hundreds of state and local jurisdictions for a diverse array of low- and moderate-income homeownership and rental activities. If adopted, this would be the first significant update to the HOME program in over a decade, with the most recent (and only other) rule changes enacted in 2013. 

Interested parties have until July 29 to submit public comments to HUD regarding the proposed rule; a final ruling will likely come later this year. 

The HOME program was first authorized via the Cranston-Gonzalez National Affordable Housing Act of 1990. It came during a time when there was increased interest in using federal dollars to support private development. Robert Henson, senior housing policy specialist at the National Council of State Housing Agencies (NCSHA), says that at the time, there was a lot of activity both from advocates and from within the federal government to create robust programs to better “use federal resources to catalyze other investment in these public resources for the benefit of people of low- and moderate-incomes.” 

The HOME program was an overarching federal block grant meant to fund many aspects of low-income housing, from rental assistance to rehab funding to down payment grants for first-time homebuyers. The program was “intended to complement other types of investments in affordable housing,” says Henson, hence the extremely wide scope of the program’s activities. 

This wide scope means that HOME dollars go towards everything from basic rental assistance programs to nuts-and-bolts rehab projects to down payment grant programs for first-time homebuyers. Also, a wide range of entities engage with the HOME program; in addition to all 50 states, hundreds of smaller, local entities serve as Participating Jurisdictions (PJs), each of which receives a share of HOME’s annual appropriations and administers the funds themselves. 

One unique aspect of the HOME program is that “for all practical purposes, it’s one of the very few, if not the only, homeownership production programs at HUD,” says Frank Woodruff, executive director of the Community Opportunity Alliance (formerly NACEDA). Though there are certainly some programs that assist low-income households with the various aspects of purchasing existing for-sale homes, Woodruff notes that HOME specifically allows for the development of new, for-sale housing stock intended for the low-income market. 

“Homeownership is the predominant and most common way for low-income families to build wealth in this country,” Woodruff says. “Yet rising home prices and rising costs and rising interest rates have made it hard for first-time home buyers and low- and moderate-income home buyers to get into the homeownership market. Part of the reason is that there’s a lack of supply for houses that can be purchased with a lower income level. And HOME is one of the largest HUD programs that can be used for affordable homeownership development.” 

Though HOME’s potential is certainly powerful, statutory, political and administrative limitations have kept the program in check over the years. In the early 2010s, for example, a series of investigations from the Washington Post, as well as an audit from the Office of the Inspector General, brought public scrutiny to the program after both claimed that there was insufficient oversight of how HOME dollars were being deployed. Thus, in 2013, HUD implemented the first significant rule overhaul since HOME was originally enacted. The 2013 rule “really reflected HUD’s and Congress’ appetite to see better oversight of the program,” says Henson. “It resulted in a whole host of new reporting requirements and additional oversight mechanisms.” 

Now, after what Henson calls “a decade of solid performance,” HUD has decided to revisit the program’s administrative rules and tighten up certain aspects of the HOME program to bring it more in line with modern housing needs. 

The CHDO Set Aside 
One of the most significant components of the proposed rule addresses what the HOME program calls Community Housing Development Organizations, or CHDOs. These organizations are diverse, local nonprofit entities meant to work with PJs to more effectively deploy HOME dollars in ways that benefit local communities. Though any nonprofit performing housing-related development and services for low-income people can receive HOME dollars through PJs, only a certain segment of nonprofits qualify as CHDOs. HUD sets the rules for how CHDOs are certified. 

If a nonprofit qualifies as a CHDO, it’s eligible for a special portion of a PJs HOME dollars, known as the CHDO set-aside, making CHDO certification a potentially attractive process for local development nonprofits. This set-aside requires that at least 15 percent of a PJ’s appropriation must be spent on housing that is in some way developed, sponsored or owned by CHDOs. If a PJ does not spend its CHDO set-aside within two years, the unspent portion is returned to the HOME program. 

The main point of the CHDO set-aside, says Woodruff, was to strengthen the role of “decision-makers in local communities making decisions about local housing solutions.” By tapping a diverse network of local nonprofit entities, the CHDO set aside not only levels the playing field amongst nonprofits but also “gives more types of communities access to HOME dollars, especially rural communities and smaller cities.” 

However, one unintended consequence of the 2013 rule overhaul was to overburden the CHDO certification process, significantly reducing the number of nonprofits that qualified as CHDOs. “From the CHDO side, the rules became so cumbersome that getting certified wasn’t worth the effort given the money they would receive. It became a vicious cycle where PJs couldn’t find CHDOs, CHDOs wouldn’t want to use the HOME money, PJs would tell HUD they couldn’t find CHDOs, and so HUD thinks there are no CHDOs.” For example, Woodruff points to Ohio, which went from certifying over 100 CHDOs annually to less than 20 after the rule change. 

 “I think in many ways that wasn’t necessarily HUD’s intent. But that was the practical impact. And I am encouraged by what’s in the proposed rule,” says Woodruff. 

Likely the most damaging aspect of the 2013 rule change was the diminished ability of prospective CHDOs to utilize capacity-building grants during the certification process. Before the 2013 rule change, HOME-funded capacity building grants were “commonplace,” says Woodruff, largely with the help of local Technical Assistance (TA) providers. The rule change, however, took many of these resources away, leaving TA providers with very few resources to assist organizations in becoming CHDO-certified. Woodruff says the proposed rule change would free up further capacity-building resources and incentivize more nonprofits to become CHDO-certified. 

In addition, the proposed rule gives CHDOs and PJs a greater degree of flexibility in their development activities, lowering the overall barrier to accessing HOME dollars. For example, under previous regulations, CHDOs were severely restricted in the type of outside consultancy and expertise they were able to hire, a necessary collaboration in the increasingly complicated world of low-income housing development. The new proposal relaxes those restrictions, allowing CHDOs to build teams with a wider range of expertise. 

Also, the proposed rule allows CHDOs to more easily incorporate the perspectives of low-income residents. Under the previous rule, a third of a CHDO’s Board of Directors had to be to be low-income residents. While an excellent rule in spirit it is often difficult for many boards to meet that threshold for a variety of reasons. The proposed rule allows for representation on behalf of low-income residents, meaning that instead of residents themselves, representation could be provided by housing advocates or members of legal services organizations who are more easily able to fulfill the logistical requirements of board membership. 

Stretching the Program to its Statutory Limitations 
Beyond addressing the issues with the CHDO set aside, the proposed rule also aims to work within HOME’s statutory limitations to become as effective as it possibly can within today’s challenging affordable housing landscape. 

Probably the most significant components of the proposed rule are how HUD has worked to make sure that the HOME program interfaces with the many other public and private capital sources that PJs use in tandem with HOME dollars. “HOME is sort of an outlier in many ways. It has its own set of rules,” says Henson. “You’ve got everything else—Section 8, Housing Choice Vouchers, Low Income Housing Tax Credits—all on one side, and then HOME is on an island of its own. HUD is trying to bridge the gap between the HOME island and everyone else.” 

For example, Henson points to proposed rule changes that would allow project owners utilizing both HOME and other sources of funding, such as LIHTC, to use alternative guidance, like Housing Choice Voucher rent limits and utility allowances established by a PHA, even when those may be higher than HOME’s. “This is a very simple change that will bring the HOME program into much closer sync with LIHTC, and I think will make it easier to administer those properties that have blended subsidies involved.” 

Another relatively simple but powerful tweak in the proposed rules is to allow PJs greater flexibility in inspection standards so that they don’t need to adhere to multiple inspection standards when using a blend of capital sources for a particular project. “One of the major frustrations for state PJs is the requirement that they base physical inspections on state and local building codes. And if you’re, say, Texas or California, there are hundreds, if not thousands, of those state and local codes.” This creates a potentially cumbersome regulatory environment where project owners must follow multiple inspection regimes, creating a burden on both owners and residents. 

Under the proposed rule, HUD has moved in a direction to standardize this inspection process – for example, using the National Standards for the Physical Inspection of Real Estate (NSPIRE) inspection for rehab projects with blended financing, rather than requiring PJs to go through local inspections in addition to any NSPIRE inspection they’d need to do for LIHTC compliance. “This is going to reduce the burden on PJs to do multiple inspections,” says Henson, “and it’s also really better ultimately for tenants so that you don’t have to have two different people coming to inspect your unit.” 

Henson says that there is very little beyond what is already in the current rule proposal that HUD can do to make the HOME program more effective. “I think HUD has stretched HOME as far as they possibly could while remaining fully within the statutory restrictions.” Now, Henson says, it is up to Congress to enact some of the statutory changes that HOME needs to have a major impact on the affordable housing landscape. Chief amongst those changes, he says, is the program’s funding, which has decreased since HOME’s inception, from a $2.1 billion allocation in FY 1994 to $1.25 billion for FY 2023. 

Despite those challenges, Henson says that HOME “really does offer as much bang for its buck as any federally-appropriated program does.”