Are HUD’s industry stakeholders ready for HOTMA?

For the past year and a half, the affordable housing industry has been navigating the roll-out of the Housing Opportunity Through Modernization Act (HOTMA). Evolving deadlines, conflicting and contradictory regulatory guidance, and mid-course policy changes have resulted in confusion, anxiety, and, in some cases, resistance and opposition from stakeholders who have an interest in the policies and their outcomes. Owners, agents, local, state, and federal oversight agencies, software vendors, industry associations, training entities, fair housing advocates, and even residents have been scratching their heads for months about what to do and when and how to do it. 

HOTMA was signed into law on July 29, 2016. This popular legislation was written to simplify qualifying, recertifying, and determining rents for the HUD and USDA affordable housing programs—not just for public housing agencies (PHAs) and owners and managers but also for the applicants and residents. And indeed, it contains many changes that should do just that.  

So how did this popular legislation become the topic of so much debate and consternation eight years later? HUD released a proposed Final Rule in 2019, but progress was stymied by COVID and other more pressing HUD initiatives. In 2022, Congress inquired about the delay, and in February 2023, HUD issued a Final Rule with an industry effective date of Jan. 1, 2024, as required by the law. However, HUD failed to provide specific guidance until September 2023.

In the September guidance, HUD went beyond the HOTMA requirements and determined to more closely align the Public and Indian Housing and Multifamily Housing programs. The guidance triggered many comments from the industry, and HUD revised the Notice in February 2024. But despite the repeated delays, changes, and expansions of the rules, HUD did not try to negotiate a later implementation date with Congress.

Lack of resources

As owners/agents, state and federal agencies, and even residents have worked to interpret and implement HOTMA, it has become apparent that HUD did not have the resources nor the capacity to undertake such a mammoth task. That undertaking would require providing regional HUD staff, Performance Based Contract Administrators (PBCAs), owners, agents, and their on-site employees with detailed guidance well in advance of the deadline and revising the HUD Occupancy Handbook 4350.3, last updated in 2013. Early in 2023, HUD arbitrarily disbanded a 30-year-old working group consisting of key industry stakeholders willing to donate their time to achieve a timely and successful rollout, saying that soliciting industry participation is unethical.

Further complicating the matter, HOTMA’s new exclusions from income and assets, documentation requirements, and how to calculate income impact all affordable housing programs that are required to use Title 24 of the Code of Federal Regulations (regulations which govern HUD) for these determinations. This includes the Low Income Housing Tax Credit (LIHTC) program and various other federal, state, and local housing programs. Absent direction from the Internal Revenue Service, the states that allocate the credits and monitor the LIHTC program were left to their own devices as to when and how to update their requirements.

Some states—most notably Texas and North Carolina—implemented these changes on Jan. 1, 2024—HUD’s original deadline, leaving owners of tax credit projects layered with HUD, Rural Development (RD), HOME Investment Partnerships Program (HOME), or other funding with one foot in the past and one in the future. Other states have issued and later revised implementation deadlines ranging from April 2024 to January 2025. USDA’s RD program has taken a wait-and-see approach with an implementation deadline of January 2025, where they plan to follow HUD’s regulations, avoid some of the problems HUD has experienced, and roll out the changes gradually.

Where are we now?

HUD must complete the following tasks:

1. In order to begin a new software rollout, HUD needs to complete development of the 2.0.3.A MAT Guide, which is probably about 90% complete. The new MAT Guide includes not only HOTMA changes but also changes that are key to ensuring a reduction of improper payments related to HUD’s Rental Assistance Demonstration (RAD) programs. Integral to the rollout, key forms need to be updated and approved. These include the 9886, 9887/9887A, the 27061H, new leases, the new VAWA Addendum, the 50058, 50059, 50059A, and the 52670 and other supporting forms.
2. At the same time, HUD needs to update the key resource for guidance related to HUD’s Multifamily Housing programs, HH 4350.3, having stated that the Supplementary Guidance Notice supersedes key components of the Handbook and subsequent notices issued since the release of the Handbook.
3. HUD needs to update the Management and Occupancy Review (MOR) process, including the HUD MOR form 9834 and needs to ensure that 2024 findings are not related to HOTMA changes and that MOR scores are not negatively affected by reviewers’ interpretation of HOTMA requirements. 
4. HUD must complete development and testing of the Housing Information Portal (HIP) system, which will replace, enhance, and augment the functionality currently performed by the Inventory Management System and Public and Indian Housing Information Center (IMS/PIC.)

Software developers providing solutions for HUD, contract administrators, and owners/agents must wait for direction from HUD before they can complete programming, initiate testing, and plan and execute an industry rollout.

What can owners/agents do now?

Owners/agents are the most challenged, having been advised, long after some had already initiated changes and training, that they may wait until the earlier of the implementation of HOTMA-compliant site software or Jan. 1, 2025, to fully comply with HOTMA requirements. However, HUD has required owners/agents to update Tenant Selection Plans and EIV Policies to comply with HOTMA but prohibited them from rolling out key changes. This has caused much confusion.

Owners/agents have also been advised that, while not recommended, they may incorporate all HOTMA changes, manually calculate the assistance payment, and use a “Rent Override” option to prompt HUD’s systems to accept the tenant certification. Stakeholders have been told that they may disregard system errors as long as the tenant file contains appropriate documentation explaining the implementation of HOTMA. As a result, residents across the country are not being treated in a consistent manner and assistance payment calculations are being determined using different methods.

Owners and agents must make choices about which changes to implement and when to implement those changes. Then, they must develop the policies needed and train staff on how to implement them.

What are owners/agents prohibited from doing now?

Until their software is fully HOTMA compliant, owners/agents must not implement their updated Tenant Selection Plans and EIV Policies and Procedures, implement new forms, apply the Section 8 asset restrictions on applicants and tenants, nor change the treatment of foster children and adults as prescribed by HOTMA.

Implementing HOTMA has many advantages. It provides owners with an array of choices about verification methods, lowering a family’s rent for income decreases, raising a family’s rent for increases in earned income, enforcing the new Section 8 asset restrictions, providing hardship exemptions for childcare and medical and disability expenses, and more. 

HOTMA was passed in 2016 and is limping towards full implementation eight years later. Owners/agents and their hard-working property managers will do what they always do—they will make it work. The benefits of these changes—to owners, agents, on-site staff, applicants and residents—remain to be realized. But it will be to the credit of property management professionals like the members of IREM when they are.