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Distribution of Tax Credit Proceeds
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[Federal Register: July 30, 2003 (Volume 68, Number 146)]
[Rules and Regulations]
[Page 44843-44845]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30jy03-16]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 200
[Docket No. FR-4792-I-01]
RIN 2502-AH91
Distribution of Tax Credit Proceeds
AGENCY: Office of the Assistant Secretary for Housing-Federal Housing
Commissioner, HUD.
ACTION: Interim rule.
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SUMMARY: This interim rule amends the Department's regulations with
respect to funding for project completion. The current regulations
require that funds provided by the mortgagor must be disbursed in full
for project work, material, and incidental charges and expenses before
any disbursement of the mortgage proceeds. An exception is made for
federal, state, or local government or instrumentality grants or loans.
These grants or loans need not be fully disbursed before the
disbursement of mortgage proceeds, upon approval of the Assistant
Secretary for Housing-Federal Housing Commissioner. This interim rule
adds to the exception. This rule provides that the mortgagor's equity
from the sale of low-income housing tax credits or historic tax
credits, or both, need not be fully disbursed before the distribution
of mortgage proceeds.
DATES: Effective date: August 29, 2003.
Comment Due Date: September 29, 2003.
ADDRESSES: Interested persons are invited to submit comments regarding
this rule to the Regulations Division, Office of General Counsel, Room
10276, Department of Housing and Urban Development, 451 Seventh Street,
SW., Washington, DC 20410-0500. Communications should refer to the
above docket number and title. Facsimile (Fax) comments are not
acceptable. A copy of each communication submitted will be available
for public inspection and copying between 7:30 a.m. and 5:30 p.m.
weekdays at the above address.
FOR FURTHER INFORMATION CONTACT: Michael McCullough, Director, Office
of Multifamily Development, Office of the Deputy Assistant Secretary
for Multifamily Housing, Room 6148, Department of Housing and Urban
Development, 451 Seventh Street, SW., Washington, DC 20410-8000.
Telephone (202) 708-1142, ext. 5426 (this is not a toll-free number).
Hearing-or speech-impaired persons may access this number by calling
the Federal Information Relay Service at 1-800-877-8339 (this is a
toll-free number).
SUPPLEMENTARY INFORMATION:
I. Background
The Department's regulations at 24 CFR 200.54 describe the project
funding completion requirements with respect to FHA insured multifamily
projects. Paragraph (a) of Sec. 200.54 states that funds provided by
the mortgagor must be disbursed in full for project work, material, and
incidental charges and expenses before disbursement of any mortgage
proceeds. The existing regulations at Sec. 200.54(b) provide that,
with the approval of the Assistant Secretary for Housing-Federal
Housing Commissioner, funds provided by a grant or loan to the
mortgagor from a governmental agency do not have to be fully disbursed
to complete a project before disbursement of the mortgage proceeds. A
grant or loan from a federal agency does not include the proceeds from
the sale of low-income housing tax credits or historic tax credits.
Historic tax credit proceeds are generated from the financing of the
preservation of historic properties that receive special tax treatment
under the Internal Revenue Code. Syndication involves sale of historic
properties to investors who share in the tax benefits that accrue to
each investor in proportion to his/her investment in the property. The
investors' cash investment is used to fund the preservation costs
(i.e., the cost of rehabilitating an historic property).
Tax credits are usually syndicated and sold to investors. The
proceeds from the sale of low-income housing tax credits often amount
to between forty and fifty percent of the cost of construction of the
project. Because of the large amount of equity resulting in a
substantially reduced mortgage, rents can be fixed at levels that may
make them affordable to very low-income families. Historic tax credits
are given for up to twenty percent of the cost of rehabilitation of a
qualified historic building, thus encouraging the rehabilitation and
preservation of historic buildings.
Investors in Ginnie Mae securities anticipate a date certain for
initial distribution of mortgage proceeds. If the mortgagor's equity is
substantial and it must be fully distributed before distribution of
mortgage proceeds, as is currently required, then the distribution of
mortgage proceeds will not begin until months after the date of
closing. With delayed distribution of mortgage proceeds, the borrower
would have to pay extension fees to the Ginnie Mae investor. These
extension fees can be expensive. By allowing the pro-rata distribution
of the required borrower equity and of the mortgage proceeds, this rule
helps to meet the Secretary's goal of simplifying the use of tax
credits with the FHA mortgage insurance programs.
To mitigate the effects of the delayed distribution of mortgage
proceeds, the Assistant Secretary for Housing has issued over a dozen
waivers this year to permit the pro-rata distribution of tax credits
equity and the FHA mortgage insurance proceeds. The availability of
funds for completion of the project is assured because the borrower
equity, including tax credit proceeds, and the FHA mortgage proceeds,
are placed into the lender's escrow account from which advances of the
mortgage proceeds may be made only with the approval of the Multifamily
Hub or Multifamily Program Center. If the borrower defaults and the
lender files a claim for insurance benefits, all funds remaining in the
lender's escrow are used to offset the claim.
II. This Interim Rule
This interim rule would amend 24 CFR 200.54(b) to allow the
proceeds from syndication of low-income housing tax credits and
historic tax credits to be treated in the same manner as loan or grant
funding provided through federal, state, or local government agencies.
This amendment eliminates the need for a waiver of the regulation as
obtained in the past, thereby eliminating the additional cost to the
project resulting from the delays associated with receiving a waiver of
the regulation. As amended, Sec. 200.54(b) reads as follows:
(b) Low-income housing tax credit syndication proceeds, historic
tax credit syndication proceeds, or funds provided by a grant or loan
from a federal, state, or local governmental agency or instrumentality
under requirements of this section need not be fully disbursed before
the disbursement of mortgage proceeds, where approved by the
Commissioner in accordance with terms, conditions, and standards
established by the Commissioner.
III. Findings and Certifications
Justification for Interim Rulemaking
In general, HUD publishes a rule for public comment before issuing
a rule for effect, in accordance with its own regulations on rulemaking
at 24 CFR part 10. Part 10, however, does provide for exceptions from
that general rule where HUD finds good cause to omit advance notice and
public participation. The good cause requirement is satisfied when the
prior public procedure is ``impracticable, unnecessary, or contrary to
the public interest'' (24 CFR part 10).
[[Page 44845]]
HUD finds that good cause exists to publish this interim rule for
effect without first soliciting public comment, in that prior public
procedure is contrary to the public interest. The reason for HUD's
determination is that this rule eliminates the need for projects funded
with tax credits to seek a waiver from HUD to allow mortgage proceeds
to be disbursed before the distribution of the mortgagor's equity from
the sale of low-income housing tax credits or historic tax credits.
This change will result in savings in time and money for projects
funded with tax credits, thereby making rents more affordable in these
projects.
Executive Order 12866, Regulatory Planning and Review
The Office of Management and Budget (OMB) reviewed this rule under
Executive Order 12866 (entitled ``Regulatory Planning and Review'').
OMB determined that this rule is a ``significant regulatory action'' as
defined in section (3)(f) of the Order (although not an economically
significant regulatory action under the Order). Any changes made to
this rule as a result of that review are identified in the docket file,
which is available for public inspection in the Regulations Division,
Room 10276, 451 Seventh Street, SW., Washington, DC 20410-0500.
Environmental Review
A Finding of No Significant Impact with respect to the environment
for this rule has been made in accordance with HUD regulations at 24
CFR part 50, which implement section 102(2)(C) of the National
Environmental Policy Act of 1969. The Finding of No Significant Impact
is available for public inspection between 7:30 a.m. and 5:30 p.m.
weekdays in the office of the Rules Docket Clerk, Office of the General
Counsel, Department of Housing and Urban Development, Room 10276, 451
Seventh Street, SW., Washington, DC 20410-0500.
Unfunded Mandates Reform Act
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
establishes requirements for federal agencies to assess the effects of
their regulatory actions on state, local, and tribal governments and
the private sector. This interim rule does not impose a federal mandate
that will result in expenditure by state, local, or tribal governments,
within the meaning of the Unfunded Mandates Reform Act of 1995.
Regulatory Flexibility Act
The Secretary, in accordance with the Regulatory Flexibility Act (5
U.S.C. 605(b)), has reviewed this rule before publication and by
approving it certifies that this rule does not have a significant
economic impact on a substantial number of small entities. There are no
anti-competitive discriminatory aspects of the rule with regard to
small entities, and there are no unusual procedures that would need to
be complied with by small entities. Although HUD has determined that
this interim rule will not have a significant economic impact on a
substantial number of small entities, HUD welcomes comments regarding
any less burdensome alternatives to this rule that will meet HUD's
objectives as described in this preamble.
Executive Order 13132, Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial direct compliance costs on state and local
governments and is not required by statute, or the rule preempts state
law, unless the agency meets the consultation and funding requirements
of section 6 of the Order. This interim rule does not have federalism
implications and will not impose substantial direct compliance costs on
state and local governments nor preempt state law within the meaning of
the Order.
Catalog of Federal Domestic Assistance
The Catalog of Federal Domestic Assistance numbers for 24 CFR part
200 are 14.135 and 14.139.
List of Subjects in 24 CFR Part 200
Administrative practice and procedure, Claims, Equal employment
opportunity, Fair housing, Housing standards, Lead poisoning, Loan
programs-housing and community development, Manufactured homes,
Mortgage insurance, Reporting and recordkeeping requirements.
? Accordingly, for the reasons described in the preamble, HUD amends 24
CFR part 200 to read as follows:
PART 200--INTRODUCTION TO FHA PROGRAMS
? 1. The authority citation for 24 CFR part 200 continues to read as
follows:
Authority: 12 U.S.C. 1702-1715z-21; 42 U.S.C. 3535 (d).
? 2. Amend Sec. 200.54 by revising paragraph (b) to read as follows:
Sec. 200.54 Project completion funding.
* * * * *
(b) Low-income housing tax credit syndication proceeds, historic
tax credit syndication proceeds, or funds provided by a grant or loan
from a federal, state, or local governmental agency or instrumentality
under requirements of this section need not be fully disbursed before
the disbursement of mortgage proceeds, where approved by the
Commissioner in accordance with terms, conditions, and standards
established by the Commissioner.
Dated: June 30, 2003.
John C. Weicher,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 03-19286 Filed 7-29-03; 8:45 am]
BILLING CODE 4210-27-P