Section 202 Supportive Housing for the Elderly Act of 2010 (as enacted) - Summary

Section 202 Supportive Housing for the Elderly Act of 2010 (S.118) – Summary

Legislation revising the Section 202 program for the elderly is now awaiting the President’s signature after passing the House (December 18) and Senate (December 21) last week. The approved bill contains fewer reforms that initially proposed but is still significant.

  • Title I makes some changes in the way HUD selects and funds new developments.
  • Title IImakes it easier to preserve existing 202 developments in need of capital improvements by allowing some transactions that increase debt service and requiring HUD to provide rental assistance to protect tenants from rent increases. It also allows more flexibility with regard to refinancing/prepayment proceeds,streamlines the approval process for these transactions, adds tenant notice requirements, and allows developer fees.
  • Title III modifies HUD’s Assisted Living Conversion grant program to allow it to fund conversions to less expensive “service-enriched housing.” It also allow tenants using housing choice vouchers in assisted living facilities to pay more than 40% of income towards rent initially, subject to HUD approval of the overage based on the services and amenities provided.

Title I – New Construction Reforms

Ş101 adds the employment of a service coordinator to selection criteria HUD must use when awarding funds for new 202 developments

Ş102 requires HUD development cost limits to be “reasonable”

Ş103 revises language regarding the owner deposit, limiting its use to operating costs shortfalls in the first 3 years of project operations. Explicitly forbids HUD from holding to cover construction cost shortfalls or inadequate initial project-based rental assistance.

Ş104revises definition of “private non-profit” to include partnerships with limited liability companies owned by a non-profit.

Ş105revises non-metropolitan project award process, requiring HUD to either hold a national competition or makes allocations to HUD regional offices.

Title II - Refinancing

Ş201Limits required HUD consent to prepayment to projects already subject to that requirement.

Minimum Affordability Term Extends the minimum required affordability term and rental assistance renewal obligation to 20 years beyond the original mortgage maturity date(currently law only required it through maturity date);

Refinancing to Higher Debt Service Allows refinancing for the purpose of funding needed physical improvements even if it results higher debt service and/or a higher interest rate, but only for projects with a current mortgage rate of 6% or less andonly ifrents to unassisted tenants do not increaseorsuch tenants are provided project-based rental assistance under a “Senior Preservation Rental Assistance Contract” (see next page). The transaction cannot raise the overall cost of providing Section 8 project-based assistance exceptin the case of where HUD also approves a mark-up-to-market contract for non-profit owners or a mark-up-to-budget contract for eligible 202 owners.

Ş202Use of Refinancing Proceeds Provides more flexibility by allowing excess to be used not only for tenants of the subject property but also to provide affordable rental housing and related social services for elderly tenants of other private, non-profit HUD-assisted housing. Among other things, it allows HUD to waive current limit of 15% of the cost of increasing the availability or provision of supportive services andexpands allowable uses to include reconfiguration or eliminate of obsolete units.

Developer/Sponsor Fee Allowed uses expanded to include payment of a developer’s fee. In the case of projects refinanced through a State low income housing tax credit program, the fee cannot exceed the fee allowed by that program. In all other cases, it cannot exceed 15% of the “acceptable development cost.” The “acceptable development cost” must include “as applicable, the cost of acquisition, rehabilitation, loan prepayment, initial reserve deposits, and transaction costs.”

Ş203Use of Residual Receipts and Replacement Reserves Eliminates current language capping the share of excess residual receipts that can be spent supportive services at 15% and authorizes HUD secretary to approve additional uses for replacement reserves.

Ş204Senior Preservation Rental Assistance Contracts Requires HUD to provide a project-based rental assistance contract with a minimum term of 20 years (subject to appropriations) to avoid displacement of elderly tenants in projects proceeding with a HUD-approved refinancing and/or prepayment. The contract must be made under the rules governing Section 8 project-based rental assistance or “under the rules of such assistance as may be made available for the project.” Projects receiving such contracts must be subject to a use agreement with a term at least equal to the longer of the senior preservation rental assistance contract or such term as required by the new financing.

Subordination/Assumption of Existing Debt In lieu of prepayment, allows HUD to approve the subordination of existing old 202 (pre-1990) debt and the continued subordination of other debt, in order to facilitate preservation of a development. Also allows these debts to be assumed by another private nonprofit in connection with a transfer of ownership.

Waiver of Flexible Subsidy Prepayment Requirement Requires HUD to waive the requirement that loans made under its Flexible Subsidy program be prepaid as part of a 202 refinancing, prepayment or transfer if a waiver is needed to complete the transaction.

Tenant Involvement HUD cannot accept an offer to prepay a 202 loan until it has determined that the owner has notified tenants of the request to prepay (including a description of rehabilitation or other use of the proceeds from the prepayment and its impacts on project rents, tenant contributions or project affordability restrictions) and provided them an opportunity to comment on the request and that the owner has responded to those comments in writing.

Title III – Assisted Living Facilities and Service-Enriched Housing

Ş301AmendsHUD’s current Assisted Living Conversion grant program which finances the conversion of subsidized elderly housing units to assisted livingto allow it to be used forconversions to less expensive “service-enriched housing” (not licensed as an assisted living facility under state law). It defines service-enriched housing as housing that provides individual dwelling units with full kitchens and baths, has a service coordinator and offersoptional supportive services to help with activities for daily livingthrough licensed providers.

Ş302Allows voucher holders in assisted living facilities to pay rent exceeding 40% of their income at the time of initial assistance “by such amount or percentage that is reasonable given the services and amenities provided and as the Secretary deems appropriate.”