National Housing Law Project Housing Law Bulletin

On August 17, HUD's Multifamily Housing Office finally issued its notice of Request for Qualifications (RFQ) for new administrators ("Participating Administrative Entities" (PAEs)) to implement mortgage restructuring and rental assistance sufficiency plans for the new Section 8 Mark-to-Market program. 63 Fed. Reg. 44,102 (Aug. 17, 1998). The Notice also includes a sample application format for applicants to use. Implementing a statutory priority for public agencies to perform these activities, the Notice first invites proposals from public agencies, i.e., state Housing Finance Agencies (HFAs) and local housing agencies, during Phase I of the PAE selection process. After public agencies are qualified, HUD will entertain proposals from non-public agencies, i.e., nonprofit organizations and for-profit entities, including law firms and accounting firms (Phase II). Non-public agency proposals will be held by the HUD Office of General Counsel (OGC) until the conclusion of Phase I. During Phase II, HUD will also consider appeals from public agencies whose applications were previously rejected. As the deadline for proposals from both public and non-public agencies was September 16, 1998, we are providing this information so that advocates can check into what applications have been made for their jurisdiction.

In late August, HUD held a pre-submission conference in Washington, D.C., and details and questions from this meeting are posted on the FHA/Housing Multifamily Business homepage at: http://www.hud.gov/fha/mfh/pre/premenu.html.

The highlights of the Notice are set out below.

Functions of PAEs

Congress has directed that PAEs perform most of the functions required to restructure the debt and subsidies on the HUD-insured portfolio currently carrying above-market Section 8 subsidies. Among the specific responsibilities of the PAEs are:

• To determine the eligibility of owners to restructure;
• To determine comparable market rents or exception rents and operating expenses for projects being restructured;
• To confirm that a restructuring project qualifies for mandatory project-based assistance or to develop a rental assistance assessment plan to determine whether assistance should be project-based or tenant-based, including the views of tenants and local community groups;
• To determine short- and long-term rehabilitation needs of the project;
• To perform various underwriting responsibilities, including but not limited to determining the Net Operating Income of the project, the size and structure of sustainable new or modified first mortgages, and the size and conditions of the HUD second mortgage; ensuring the adequacy of funds in project accounts and other sources; and analyzing tax implications for use in assessing restructuring options;
• To negotiate with the owner on the restructured rental subsidies, debt and rehabilitation costs;
• To obtain HUD approval of the HUD funding amount and of the HUD-held second mortgage loan;
• To coordinate the closing
• To handle post-closing document distribution; and
• To facilitate the sale or transfer of certain properties to a qualified purchaser.

Selection Process

Proposals were due by September 16, 1998. HUD will subsequently make preliminary selections of state HFAs and local housing agencies with a determination of both technical qualifications and estimated workload capacity. Rejected agencies must be provided reasons and an opportunity to respond. Non-public agency proposals will be released by OGC for review and evaluation after the announcement of preliminary selections of public agencies.

HUD states that it will make final selections and estimate workload capacity for both public and non-public agencies through decisions announced on or after October 29, 1998.

Evaluation

HUD will evaluate proposals on the basis of five selection criteria:

• Demonstrated experience and plans for working directly with low-income housing residents, tenant- and other community-based organizations (15 points);
• Experience with and capacity for successful multifamily restructuring and financing (25 points);
• A history of financial and administrative stability (15 points);
• Financial strength in terms of asset quality, capital adequacy and liquidity (15 points); and
• Demonstrated ability and capacity to carry out efficiently and effectively the specific transactions and other statutory responsibilities (30 points).

Other Information

The RFQ contains additional information on how conflicts of interest are to be handled and on departmental resources for additional information. It also includes, for illustrative purposes only, a "List of FHA-Insured, Subsidized Projects with Section 8 Rents Greater than 90% of the 1997 Fair Market Rents by Year of Initial Contract Expirations" (Attachment A) to give prospective applicants an idea of the potential size of the inventory that may be subject to restructuring. Since the statutory criterion for Mark-to-Market eligibility is that the current Section 8 rent exceed "comparable market value" — and both owners and PAEs will have some role in determining market rents — in particular jurisdictions this list may be too broad or too narrow, depending on the relationship of actual market values to the 90-percent-of-FMR standard used to create the list. Hence, the RFQ contains the disclaimer that it "is not a definitive list of eligible projects."