not so FAST

So HUD has published their interim final rule that may greatly benefit managers (I know - I couldn't believe it either!).

As always things are not 100% clear and some clarification is necessary. Very often managers will apply the rule according to their own understanding and then on their next MOR will learn the hard way that they were wrong (or at least their contract administrator thinks they're wrong). But for now we will take what we can get - it is not often that HUD publishes something that makes our jobs easier!

This new rule was passed by congress as part of the 2015 "Fixing America's Surface Transportation Act" or FAST. Now if you are wondering how a rule for affordable housing made its way into a transportation funding bill - then you obviously don't know much about the federal government! Because right there towards the end of a bill that then President Obama said would "put Americans to work rebuilding our crumbling roads, bridges, and transit systems", there is a small, but significant rule change that can change the way we do our annual tenant certifications. (Maybe FAST stands for Fixing Americas Stupid Tenant certification Act)

There are several issues addressed in this rule and if you have an advanced degree in Reading Confusing Government Documents then you should go ahead and read the Federal Register/Vol. 82, No 237. For the rest of us, however, there are three main rules that may have an impact. Or not. Because if you get down to it two out of three will probably not affect a whole lot of us. Let me first list the two that won't help much and then we'll get to the big one.

1. If a tenant's utility reimbursement check is $45 or less per quarter then you do not have to send out the checks every month but you can send it quarterly.

Wow! Thank you congress - what would we do without you?!

So we are dealing with a tenant whose monthly utility reimbursement is $15 or less ($45/3 = $15) in the first place. And in order to "eliminate the burdensome process of processing and mailing monthly reimbursement checks" they are allowing us to send the checks quarterly instead. Now don't get me wrong - those monthly utility checks are a pain in the neck, and kind of infuriating when you consider that with these checks HUD is in effect paying tenants to live in their apartments! But this rule is rather unhelpful in that in most cases, at least in my own experience, the utility check is going to be a lot larger than $15. And even if it isn't, there are bound to be a few tenants whose check will be more than $15 a month. And so you will most likely be sending out checks every month anyways. It will certainly be a bigger pain in the neck to send to some tenants monthly and others quarterly. Imagine having to keep track of which tenants get checks every month and which only quarterly.

In addition, this rule requires owners to "have a policy in place to assist tenants for whom the quarterly reimbursements will pose a financial hardship". Besides for requiring yet another policy (think: EIV Policy & Procedure, VAWA Policy, Transfer Policy, Reasonable Accommodation Policy, did I get them all...) this small provision will in all probability render the entire rule meaningless. First of all - what kind of policy does HUD expect? The only solution for a tenant for whom quarterly reimbursements will pose a financial hardship is to give them their checks monthly! That HUD expects some sort of "policy" is a joke. But more important if a tenant's income is so low that he is receiving a utility reimbursement check then in all likelihood even $15 a month is important to them. For such a tenant quarterly reimbursements are certainly a financial hardship and he is certainly entitled to get his (sic!) money monthly. Why should he wait? If I am correct in my assessment then this entire rule will be rendered obsolete as soon as tenants learn that all they need to do is tell the office that it is hard for them. At that point they will go back to getting their checks as they always did and as, I imagine, most tenant will be getting anyways because their checks are more than $45 a quarter.

The only time a project will benefit from this is if all or at least the super majority of tenants have a utility reimbursement check of $45 or less per quarter. This could be likely if the utility allowance is small to begin with. But even in such a case it will be necessary to constantly monitor the amounts in case it goes over.

2. If at least 90% of a family's income is from a fixed source then you only need to verify their income every third year*.

Once again - Thank you congress - what would we do without you?!

Let's first break explain this rule a bit. Every year owners (or PHAs) need to perform an Annual Recertification**, for all subsidized tenants. This kinda makes sense because a family's income often changes (hopefully it goes up) and we will need to adjust their subsidy accordingly. During the certification process, tenants need to supply their income details and then the managers need to verify it. The verification process can be a big pain because the HUD rules require you to first reach out to the tenant's employer directly. Very often the employer will be uncooperative and not respond to your request. Only after making repeated attempts to reach the employer (all of which you must document) can you then move on to the next form of verification.

This new rule allows you to bypass this arduous process by only requiring verification every third year. In the two years following a full verification (or the two years following the Move In because the MI will of course require a full verification) you do not need to verify the income. This rule, however, only applies to a tenant who has 90% of their income coming from a fixed source. So for example let's assume that 90% of a tenant's income is from social security. We know that social security increases each year by a set percentage (Referred to in the new rule as COLA - Cost of Living Adjustment). So year 1 (or at Move In) we would need to verify the tenant's entire income. But the next two years we could rely on the set increase and do not need to verify the income. See these FAQs from HUD for more info.

See the problem?

Most people do not have set incomes. The people who do are almost certainly going to be the ones that are on social security. But hey HUD - not sure if you remember that tenants on social security do NOT NEED TO VERIFY THEIR INCOME ANYWAY because we can rely on the EIV system for that! Remember EIV? That's the system that can actually tell us the income for most tenants but which HUD will not allow us to use as the primary verification. Only if that income is social security can we rely on EIV and do not need to verify further. Now I am sure there is a small number on tenants who have fixed income that is not from social security (such as pension plans or annuities) but that is certainly a very small percentage.

I know from speaking to several companies that they do not want to even bother informing their site managers about this new option because its impact is so small that it is bound to create more problems then it solves. First of all it requires owners to establish policies (arghhhh) regarding the 10% or less of the income that is not fixed. Second verification of fixed income is usually pretty easy, it is the unfixed income which is a pain. Finally, what happens if in the second year the 10% of the income goes up a little and now might be 11% - that would probably (I can only assume - HUD did not clarify this point) negate the entire rule and require owners to verify 100% of the income. Bottom line it creates a confusing situation which tends to backfire, usually at the next MOR.

The cases where this really applies is for tenants on social security and like we said - the benefit is nill because that income only requires EIV and as far as we know we still need to run that EIV report.

Which brings us to rule number 3. I like rule 3 although it does leave some questions.

3: If a family assets are less than $5,000 then you only need to verify their assets every third year.

Now this rule is actually pretty good.

We know that when calculating a tenants income we need to add the income they earn from their assets (interest, rentals, etc.). If a tenant has assets worth more than $5,000 then we need to calculated their imputed income. That means that we multiply the asset value by the passbook rate (which as of today 6/21/18 is .02%) and if that is more then the actual income from the assets, we use that number instead. In either event it would be necessary to verify those assets. For most affordable housing tenants those assets (if there even are any) are usually just a bank account. Still it can be annoying verifying them (current amount in a savings account and 6 month average for a checking), and the bank are not always so forthcoming.

What HUD is saying now is that if the income is $5,000 or less then you only need to verify it every third year. So year one (or at Move in) you would verify the assets, years 2 and 3 you would not need to and then year 4 you would start again and verify) In those 2nd and 3rd years you would have the tenants certify to the amount of assets that they have and how much income they are earning from those assets.

Being that most tenants have less than $5,000 is assets (in my experience) this rule can save owners a lot of time. Instead of chasing after banks for asset information every year, you would only need to do it every 3 years. That's a win in my book.

(There are some questions which will need to be clarified such as what if a tenant has zero assets, would that be included in this rule?)

The next logical step would be for our software companies to incorporate this new rule into their systems. Because the one downside to this is having to keep track of when we verified what. Having the software prompt us when we would need to verify and when we wouldn't would be a big help and would turn this new rule into a great help. In fact, if the software companies update their software all three of these rules may be somewhat beneficial because the biggest concern with them is that they can cause confusion and end up being a more of a pain than a help.

We at ARO will continue to monitor these rules and any changes/clarifications that may affect you.

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*This rule in the FAST act actually overlaps with a rule published by HUD in 2016 for Streamlining Administrative Regulations. See the FAQ for more on the difference between the two.

**Can I just point out here something which has been annoying me for some time. There is no word "recertification" in the dictionary, something I am reminded of every time I type the word and that annoying red line shows up. Even though the HUD manual and website and every affordable housing publication prints the word regularly, no dictionary that I can find has recognized it yet! The proper way to spell it, it seems, is re-certification.