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HOTMA: An Overview of Changes

5 min read

The Housing Opportunity Through Modernization Act (HOTMA) introduces significant changes to many aspects of multifamily programs through amendments to certain sections of the United States Housing Act of 1937. The goal of HOTMA is to streamline administration and ease the burden on private owners and public housing authorities (PHA). While HOTMA was signed into law in 2016, the final rule was not published until January 2023, implementing Sections 102, 103 and 104. In general, the final rule is effective Jan. 1, 2024.

The changes promulgated by HOTMA impact not only the Department of Housing and Urban Development’s public housing and Section 8 programs but also several other HUD programs with the expressed intent of creating alignment across programs. These include the regulations for HUD’s Community Development Block Grants, HOME Investment Partnerships, Housing Trust Fund, Housing Opportunities for Persons With AIDS, Supportive Housing for the Elderly (Section 202) and Supportive Housing for Persons with Disabilities (Section 811) program. However, the changes impact more than just HUD programs as other affordable housing programs defer to these regulations. For example, the Low Income Housing Tax Credit program under IRC §42, through Treasury Regulation §1.42-5, states that Tenant “income is calculated in a manner consistent with the determination of annual income under Section 8 of the United States Housing Act of 1937 (Section 8), not in accordance with the determination of gross income for federal income tax liability.” Because HOTMA changes how annual income under Section 8 is calculated, how tenant income under §42 will also change. 

Section 102 of HOTMA addresses Income Reviews and introduces changes to both definitions and processes that affect household eligibility and rent payments. Definition changes that impact household eligibility include earned income, and conversely unearned income, net family assets and how foster children/adults are considered. Definition changes that will impact rent payments include revising “medical expenses” to “health and medical care expenses,” increasing the elderly/disabled family deduction, adjusting the dependent deduction annually for inflation, increasing the allowance for unreimbursed health and medical care expenses from three percent of annual income to ten percent (phased-in over two years) and an introduction of various available hardship exemptions. 

One of the more substantive changes to household eligibility is related to assets. Section 102 includes provisions that color the definition of “net family assets” and raises the imputed asset threshold from $5,000 to $50,000 whereas Section 104 augments consideration of certain retirement and savings accounts as exclusions. Further, HOTMA allows families to self-certify when net assets are estimated to be at or below $50,000 instead of independently verifying each asset. Collectively, Sections 102 and 104 change what is considered an asset, how assets are verified and how assets affect eligibility, all culminating in realistic benefits to the family and efficiency measures for the program administrator. 

Section 104 also imposes a new restriction on the eligibility of a family to receive assistance. If the family owns real property that is suitable for occupancy or has assets of more than $100,000, then the family is not eligible for assistance. Note, while most provisions of HOTMA translate programmatically, not all programs include assistance in this context; as such, it is unclear as to the implementation and/or application of the asset limitation in other programs (e.g., §42).

Process changes introduced to limit the administrative burden include increasing the threshold that triggers an interim income recertification to a ten percent adjusted income increase/decrease and reducing the frequency of interim income recertification. Since an interim income recertification would cause a change in the tenant portion of rent, this allows families to save more of their earnings before a possible increase in their portion of rent. Income verifications are more streamlined under HOTMA. Specifically, for income reexaminations, HOTMA allows for income determinations made under other federal benefit programs to be utilized and eliminates the requirement to use Enterprise Income Verification.  

Section 103 is specific to residents of public housing and creates a new limitation on program participation for families in public housing units. For families that are determined to be over-income (OI) at annual or interim income recertification, they may remain in the unit and retain all rights and obligations as public housing program participants. After a 24-month grace period, if the PHA has adopted a policy to do so, the OI family can remain in the unit, but pay an alternative non-public housing rent and are no longer public housing program participants. If the PHA does not adopt such a policy, the OI family tenancy must be terminated within six months of final notification. Navigating this provision will be dependent on the applicable PHA policy.

These changes necessitate updates to forms and systems. For the Public and Indian Housing Information Center, this includes changes to the HUD-50058 and a transition to the new Housing Information Portal (HIP), which consists of software that is ready to submit transactions with an effective date of Jan. 1, 2024. For Multifamily Housing Programs, the HUD-50059, HUD–50059A, HUD–9887, HUD–9834 and the HUD Model Leases will be updated and Tenant Rental Assistance Certification System (TRACS) specifications to accommodate the regulatory changes. An update to HUD’s Occupancy Handbook (HUD Handbook 4350.3) is anticipated. In addition, because these changes impact programs beyond HUD, policies and procedures for implementation will be needed from state housing finance agencies, Tax Exempt Bond issuers and local program administrators. 

As the Jan. 1, 2024 deadline approaches, a reminder that is the effective date. Meaning, any income certifications executed on or after Jan. 1, 2024, must consider these changes. Because income certifications can be started up to 120 days prior to their effective date, this means that action taken as early as Oct. 1, 2023, is affected by these changes. Understanding these changes, and the program under which you are operating to best know how to effectively navigate through their implementation is key.