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UIV has arrived!

HUD has issued its final rule (Federal Register, January 27, 2009) on Upfront Income Verification and the requirement to utilize Enterprise Income Verification (EIV) in verifying income.  The rule is effective March 30, 2009.

If you attended one of our Change 2 Update programs, we discussed UIV in the context of something we believed would be at the core of a Change 3 to the HUD Handbook 4350.3, Rev. 1.  Regulations, such as the Final Rule implementing UIV, take precedence over handbook provisions (which are commonly referred to as "guidance").

This is a significant regulatory change with substantial impact as it affects both Public Housing Authorities as well as privately owned, project based assisted housing programs -- referred to as Owners/Agents (O/A's) in the regulations.

NCHM has been anticipating this regulatory change and we're committed to keeping you informed and prepared.  Stay tuned in by checking this blog as well as our website, www.nchm.org, or emailing service@nchm.org

Disposed Assets, Disposed Income....Part II

The regulatory basis for the "disposed asset rule" comes from Part 5.603 of Title 24 of the Code of Federal Regulations.  It states as follows:

 

"In determining net family assets, PHAs or owners, as applicable,
shall include the value of any business or family assets disposed of by
an applicant or tenant for less than fair market value (including a
disposition in trust, but not in a foreclosure or bankruptcy sale)
during the two years preceding the date of application for the program
or reexamination, as applicable, in excess of the consideration received
therefor....."

 

Thus, treating small weekly donations to a religious institution as a disposed asset if they exceed $1,000 over a two year period would be correct -- since a checking account is clearly an asset, and the writing of a check for a donation would -- in dollar terms -- be "in excess of the consideration received therefor."

 

Seems pretty clear, doesn't it?  So, let's look at the other side of the coin...no pun intended.

 

Let's say that the individual making these $20.00 weekly donations out of their checking account is a resident who is dependent on Social Security.  The full amount of this individual's Social Security amount is counted as income, no matter the size of their tithe.  Even if the resident gave their entire monthly benefit as a donation, it would STILL be counted as income and have no impact on Annual Income or Adjusted Income -- the two amounts essential for eligibility, rent and housing assistance.

 

Since the "fair market value" of a checking account is its average six month balance, if the small weekly donations have an impact on the "cash value" of the asset AND a corresponding impact on rental and assistance amounts, the interpretation that an asset has been disposed of is justified. But there's another option: An interpretation that suggests donations have no fair market value and are therefore counted in full as disposed assets.  The dilemma that interpretation poses is: How can an asset with no fair market value be disposed for less than fair market value?

 

Let's sum up the scenario: (a) The full amount of the resident's Social Security monthly benefit is income; (b) If any amount of that goes into an asset account, it is counted as an asset; (c) And if the resident is donating more than $1,000 over a two year period, that is a disposed asset.  In other words, one source of income is being counted on the HUD-50059 three different ways. 

 

What concerns me is this.  This interpretation could force otherwise honest residents to not disclose small regular donations to their place of worship.  And since they likely will still have their checking account, if there isn't a substantial difference between the six month average last year and this year, there's no "red flag" for a manager -- which is the only time owners/managers can question a disposed assets self-verification (when that self-verification "does not appear to agree with other information reported by the tenant/applicant," page 5-36 of HUD Handbook 4350.3, Rev. 1).

 

And what should management do when a resident says "My small donation gives me important consideration not measurable in dollar terms?"  If you think that statement isn't germane to the issue, you're only partially correct.  It is that precise language on which the exemption for assets lost in a divorce relies in 24 CFR Part 5.603 -- language that doesn't appear in the HUD Handbook 4350.3, Rev. 1 in connection with the divorce exemption on page 5-36, by the way. 

 

The bottom line, of course, is that we have to comply with the interpretation set forth by regulatory authorities, and this one has some basis in law.  But I think the incoming administration at HUD has to look at this -- including the $1,000 threshold which was a lot more money in 1988 than it is today.

 

I welcome your thoughts.

 

Disposed Assets, Disposed Income -- Is there a difference?

The majority of housing management professionals who have had even the slightest involvement with the housing assistance program are aware of a long-standing HUD rule on the treatment of assets disposed for less than market value.  In essence, this rule penalizes an applicant or resident who "disposed" of an asset and given away more than $1,000 during a two year period.  There are exceptions for assets lost due to bankruptcy, divorce or foreclosure -- and the "disposed asset rule" doesn't apply to the BMIR program.

The intent of the rule is a fair one: To discourage individuals from essentially liquidating assets to gain program eligibility, or a lesser rent or greater assistance than would have been the case had they not "disposed" of an asset.

But did you know that HUD and other regulatory agencies are treating regular donations to a Church, Synagogue or other religious institution to be disposed assets?  This seems to be the case judging by comments made at recent COS programs.

Just to be clear, I am not talking about donating the entire proceeds of a savings account, certificate of deposit, or stock portfolio to a religious institution.  It is clear that this would constitute an asset disposed for less than market value.  No, what I am talking about is the resident who writes a personal check on their day of worship in the amount of, say, $20.00 each week.  That would be $1,040 for the year -- more than $1,000 -- therefore, it would be a disposed asset.

On one level, this is not surprising since you'll find a "donation to church" included in a disposed asset example on page 5-35 of HUD Handbook 4350.3, Rev. 1.  The only problem with that example is the amounts don't exceed $1,000 and therefore, the example notes, not to be counted as disposed assets.

In Part II tomorrow, I am going to examine this question in detail, using Title 24 of the Code of Federal Regulations as well as HUD Handbook 4350.3, Rev. 1.  And I will explore what this interpretation could mean for housing managers and residents.

"Why We Need To See The Light About Energy Efficiency"

This is the title of a cover story in the current issue of TIME magazine (1/12/09) by Michael Grunwald.  It is definitely worth reading and thinking about.  One particular paragraph caught my attention:

"[I]t's a simple concept: wasting less energy.  Or more precisely, consuming less energy to get the same amount of heat for your shower, light for your office, and power for your factory.  It turns out to be much less expensive, destructive and time-intensive to reduce demand through efficiency than to increase supply ...a nationwide push to save 'megawatts' instead of building more megawatts could help reverse our unsustainable increases in energy hogging and carbon spewing while creating a slew of jobs and saving a load of cash."

HUD has been openly concerned about energy efficiency and consumption for well over a decade, and they've taken some steps in regulation.  HUD Form 9834, used in Management and Occupancy Reviews, has questions on energy conservation measures and is allowing HUD to capture some data.  Public Housing Authorities (PHA's) have been the focus of slightly more rigorous requirements.  There will certainly be more to come.

There's no doubt that HUD is spending an enormous amount of money on energy and that an enormous amount of energy is being squandered.  This state of affairs is, to use an operative word from Mr. Grunwald's article, "unsustainable."

Some owners are already well into the development of energy efficiency plans and initiatives, but many more seem to have an attitude that they'll worry about it when HUD comes out with more stringent requirements, i.e., "Do this or else....."  I have seen a similar attitude over the years about fair housing training ("We'll get training when we get sued...").  To me, that's a bit like saying, "I'll start carrying my wallet in my front pocket after I get mugged."

I think part of the reason for this is that there is a misperception that energy conservation will involve spending lots of money.  And Michael Grunwald is correct when he writes that energy efficiency "needs an agent."

I am proud to have had a role in the development of NCHM's latest course, Energy Reduction Specialist (ERS).  As anyone who has attended NCHM programs can attest, we have never been stingy in sharing what you can start doing right now that will make a difference at your property.  Energy Reduction Specialist is no exception. 

A New Year.....

I want to wish everyone a very Happy New Year.  If you're reading this today (January 1) chances are that you went to bed early last evening and think of New Year's eve as nothing particularly special.....or you are so completely wrecked you haven't been to sleep yet.  And if you're in the latter category, please drop me a line because I would be interested in knowing if you find my writing more entertaining or enlighting in that state.  (This is a concept most bar bands seem to have embraced).

Within the next few weeks, a new administration will begin its work in Washington, DC.  Like most of you, I look forward to what may be forthcoming for our industry.  Here's what on my "wish list":

* Here's to EIV not being the 21st century version of TRACS.  When TRACS first appeared, there was so much in the way of "growing pains" -- issuances, followed by changes, followed by corrections.  The Department's move toward EIV is a positive one, I feel.  But rather than issuing something in haste, then rescinding it, I hope the incoming HUD administration will take the time to get it right. 

* Here's to an reduction, if not an end, of HUD directives leading to a location between a "rock and a hard place."  This negatively impacts the Department, Contract Administrators, Performance Based Contract Administrators, Owners, Management and residents. 

* Here's to HUD defining in guidelines or regulations what an "above average" rating means on an MOR.  And please, please, please update the HUD Handbook 4350.1.

* And here's to all of us resolving this year to take the time to listen...and to hear....each other.  The misunderstandings of regulations, guidelines, and intent that I have catalogued this year amongst all sides in the management/compliance equation are simply staggering.

May this year bring you and yours peace, health and prosperity.