CHAPTER XXI.  SPECIAL PROGRAMS –

ENHANCED VOUCHER SUBSIDIES FOR HOUSING CONVERSION ACTIONS

Section	Title
	Introduction
Section A	HUD/MSHDA Responsibilities
Section B	Family Eligibility
Section C	Issuance of Enhanced Voucher
Section D	Unit Size
Section E	Enhanced Voucher Payment Standard/Rent Reasonableness
Section F	Minimum Rent Requirement
Section G	Calculating HAP Payments
Section H	Re-examination Process
Section I	Rent Increases
Section J	Miscellaneous Program Requirements
Section K	Special Conditions after the First Year of Assistance
Section L	Elite & File Procedures
Section M	Special Administrative Fee Reporting
Section N	Definitions
Section O	Applicable Forms List

Introduction

Michigan State Housing Development Authority (MSHDA) provides enhanced vouchers to qualified residents affected by owner or U.S. Department of Housing and Urban Development (HUD) actions resulting in a Housing Conversion action.  Housing conversion actions occur in developments where the owner:

·        Elects to prepay the mortgage or voluntarily terminates the mortgage insurance; generally in Section 236 or Section 221(d)(3) developments that have reached their twentieth year; or

·        Elects not to renew, therefore opt-out of; the expiring Section 8 project-based assistance contract; or

·        Receives approval for voluntary termination of a mortgage insurance contract during a specified year; or

·        Fails to comply with the terms of the Housing Assistance Payment  (HAP) Contract and HUD takes enforcement actions against the owner; including suspensions and debarments; or

·        Has defaulted on a FHA mortgage.  In these cases, HUD may follow property disposition activities, possibly closing down or selling the property.

When conversion actions occur, HUD selects the appropriate Public Housing Agency (PHA) to administer the preservation/opt-out tenant-based rental assistance. HUD first approaches a local PHA to administer the vouchers.  In Michigan, if a local PHA does not have the capacity to administer the vouchers, MSHDA will administer the vouchers.

Families residing in eligible opt-out/preservation developments on the date of the owner's prepayment/termination will be offered a subsidy (enhanced voucher) if they meet other eligibility criteria.  A family will be required to contribute a minimum amount toward rent.   

HUD appropriates the vouchers to make up for the loss of affordable housing units in the community.  HUD’s intent is to preserve (vs. displace) housing for affected residents without rewarding them (i.e. minimum rent requirement).  At the completion of the conversion, any remaining enhanced vouchers that were not distributed revert to regular Housing Choice Vouchers. 

In Michigan, the unused enhanced vouchers, which revert to regular Housing Choice Vouchers (HCV) will be distributed by MSHDA to families on the waiting list for the respective county where the conversion occurred in accordance with MSHDA’s waiting list guidelines or reassigned as deemed administratively appropriate.

Section A:  HUD/MSHDA Responsibilities for Enhanced Vouchers

HUD Responsibilities

HUD will notify potentially eligible families within affected developments, in writing, of the impending offering of preservation/opt out enhanced voucher subsidies.  HUD issues this notice via a letter to all eligible residents upon owner notification to HUD of the intent to prepay the mortgage, terminate the insurance, or opt-out of a contract.

HUD notification must occur:

HUD notification contains the following information:

After notifying MSHDA of the conversion action and receiving MSHDA’s acceptance to administer the tenant-based assistance, HUD must promptly send MSHDA the following information:

NOTE: MSHDA’s assigned Housing Conversion Actions Coordinator (HCAC) must receive all of the above information before allowing MSHDA to proceed on the housing conversion actions.

MSHDA Responsibilities

After receiving notification of the pending conversion action, the HCAC will send out a Request for Proposals (RFP) to all MSHDA Housing Agents (HA).  The HCAC, Resource Specialists (RS) and Regional Managers (RM) will review the RFP’s and make a recommendation to the Director of Existing Housing Programs.  Upon approval from the Director, the HCAC will assign the development to the selected HA. 

The appropriate RS contacts the development and organizes an informational meeting for tenants.  The RS notifies tenants in writing of the date and time of the informational meeting, which will explain the HUD conversion action.  This meeting must be attended by assigned RS and assigned HA.  The on-site management staff, Owner(s) and HUD are strongly encouraged to attend as well.   These meetings allow the development, HUD, MSHDA staff and HA an opportunity to explain the conversion action that has taken place and answer questions.  Paperwork submission deadlines for tenants are provided and explained.

The assigned RS in conjunction with the RM is responsible for reviewing the new owner’s proposed rental rates to determine if the rents are reasonable; and if not, negotiate a reasonable rental rate.

The HA is responsible for notifying potentially eligible families about the Housing Conversion Actions voucher offering and providing appropriate paperwork to apply for the voucher.  Paperwork to determine eligibility is processed, HQS inspections performed, contract signed in a timely manner, and data is entered in the MSHDA Elite System.

Section B:  Family Eligibility for Enhanced Vouchers

Preservation Prepayments – A family/individual is eligible to receive an enhanced voucher subsidy due to a preservation prepayment in a HUD Section 236 or Section 221(d)(3) development if the resident family is residing in the preservation development on the effective date of prepayment or voluntary termination of mortgage insurance and is income-eligible on that effective date:

A family not qualified in one of the categories on the effective date of the pre-payment/termination is not eligible, regardless of whether the family's income situation changes during the next 12 months. 

Unassisted and Assisted Families – Both unassisted and assisted families may be eligible for the special enhanced voucher.

Opt-Out – A family is eligible to receive an enhanced voucher subsidy due to an owner electing not to renew an expiring Section 8 project-based contract (Opt-Out) if: 

Denial of Assistance – MSHDA must deny a family an enhanced voucher for the same reasons listed for denial of rental assistance in the regular HCV program, including income ineligibility, delinquencies, classification as a lifetime sex offender, or for other criminal activity.

MSHDA must provide a family that is denied assistance an opportunity for an informal review by forwarding the Application/Program Denial/Termination Form, MSHDA 1634b.  See Chapter V on Denials in PPM.

Section C: Issuance of Enhanced Vouchers

Unassisted Families

MSHDA requests income/asset/expense verifications before and at the initial briefing session.   If tenants do not complete the MSHDA paperwork timely, use copies of the Management Company’s paperwork as long as the verifications are dated within six (6) months of the MSHDA effective date.  If tenant is placed on the program using the Management Company’s paperwork, current MSHDA verifications are still required.  The HA must process an interim re-examination if applicable.  Use the Final Notice (MSHDA 14) if necessary to obtain missing/late paperwork.

MSHDA issues the enhanced voucher for an initial 60-day term to the eligible family.  MSHDA will make every effort to issue a voucher to a family 60 days prior to the effective date of the scheduled rent increase. However, MSHDA and HUD recognize that in many cases this is not possible due to timing issues.

If a family is eligible for an enhanced voucher and refuses the offering, the family cannot later change their mind and request a HCV for any reason. 

If an eligible family chooses to remain in place, MSHDA may not enter into a HAP contract that commences prior to the effective date of the rent increase, which is 60 days after the conversion date.    In-place assistance cannot become effective prior to the conversion date. 

If a family moves to a location outside of the development involved in the conversion, the family is issued a HCV and normal issuance procedures apply including prohibition of leasing from relatives and the 40% affordability test.

HCV families who remain in place

If a family is receiving tenant-based rental assistance at the time of the conversion action, the family must meet all of the following conditions in order to receive the enhanced voucher in lieu of a HCV:

Note:  Voucher families may choose to keep their HCV and not accept an enhanced voucher. 

HCV families who move (movers):  Currently assisted voucher families deciding to move from the unit after the owner's prepayment/termination receive a HCV not an enhanced voucher. 

Section D:  Unit Size

Issue an enhanced voucher to eligible families based on MSHDA’s eligible size subsidy standards, not on the actual size of the unit the family is currently occupying.

If the family qualifies for a smaller unit than the one in which they currently reside and an appropriate sized unit is available, the family must move to the appropriately sized unit within the development that satisfies MSHDA’s subsidy standards.  Contact the RS or the HCAC for guidance.   If the development does not have an available unit, the family is encouraged to look off-site.

If an appropriate size unit is not available in the development, the family must make a good faith attempt to find a qualified unit outside of the development; however they will not be penalized if an appropriate size unit is not located.  The family is required to pay the full contract rent for the initial 60-day voucher issuance period.  To determine whether the family has made a good faith effort MSHDA will:

If the family does not locate an eligible size unit at the end of the term of the voucher despite making a good faith effort, MSHDA will execute a HAP Contract for the family in their current unit.  The following requirements must be satisfied:

If at any time during the HAP Contract period, an appropriate size unit becomes available at the development, the family must move to the appropriate sized unit or the subsidy (enhanced voucher payment) will be terminated.

In conversion situations where more than one family is over-housed, MSHDA will make the determination of how families will be selected for the next available appropriately sized unit.  This selection process may be a lottery system, a selection by date of original occupancy, or some other method pre-determined by MSHDA.  The selected method will be communicated to tenants in writing in advance of the HAP Contract signing, possibly during the briefing session. 

MSHDA will have the flexibility to make exceptions for moves related to health and age (elderly).  The RS must approve these exceptions.   

At re-examination, if it is learned that family circumstances are different from when the conversion took place and the family now qualifies for a different size unit, regular HCV rules apply.  The family would be given the appropriate size subsidy at the time of reexamination.

If the family is at the end of their first year HAP contract and an appropriate sized unit has not become available, the family can stay in the unit but must pay the difference in subsidy between the appropriate sized unit and size of the unit they occupy.  In other words, use the HCV payment standards that the family qualifies for and not the payment standard based on the oversized unit.

Section E:  Enhanced Voucher Payment Standard/Rent Reasonableness

Payment Standard (PS) for Families Remaining in Place:

For families who choose to remain in place, the PS equals the new proposed gross rent, which MSHDA has agreed to based on rent comparability analysis.  The PS equals the new gross rent for the unit after the opt-out or prepayment (provided the gross rent is reasonable based on comparable units).  If the new gross rent exceeds the MSHDA published PS, the subsidy becomes “enhanced” in order to cover the difference between the PS and the new gross rent that family normally has to pay out-of-pocket.  (NOTE: the enhanced PS [equal to the new gross rent] can exceed the published PS for the respective county). If the new gross rent is less than the current HCV PS, use the new gross rent to calculate the family subsidy.  See the family unit size limitation discussed in Section D.

If the Total Tenant Payment (TTP) exceeds the applicable PS at conversion, then the tenant is not eligible for assistance. 

Payment Standards (PS) for Families that Move:

In ALL cases where the family decides to move from the development, HCV rules apply.  (The PS equals the lesser of the new gross rent or PS).

This PS includes situations where the family must move in order to receive assistance because the proposed new rent for the family’s current unit in the preservation/opt out development is not reasonable in relation to comparable units.

Rent Reasonableness Documentation:

When an in-place family receives an enhanced voucher, MSHDA ensures the rent reasonableness of the proposed gross rent for the family.

Rent reasonableness documentation must be provided in the Rent Reasonableness Module in Elite. If the proposed rent is not reasonable, the family must move in order to receive the enhanced voucher assistance. 

Section F:  Minimum Rent Requirement

All families who stay in their current unit or move to an appropriate size unit within the same development and receive assistance with an enhanced voucher (whether previously assisted or non-assisted) are subject to a statutory minimum rent.   The minimum rent is the amount of rent the family was paying on the date of the prepayment or the voluntary termination.  For previously assisted families, the minimum rent is the TTP amount.  For unassisted families, the minimum rent equals the gross rent amount.  The minimum rent represents the lowest amount the family may pay as their family contribution.  In either case, a family pays no less than the minimum rent.  Depending on the circumstances, the family may have to pay more than the minimum rent.  The minimum rent requirement only applies if the family remains within the opt-out or preservation development.  The minimum rent also applies to any subsequent move within the same development.

Previously assisted residents:

A family assisted under the HCV program at the time of the prepayment/termination must conform to the minimum rent provision if the family chooses to remain in their present unit and meet the conditions under Section G.  In those cases a voucher family always pays at least the TTP they paid on the date of the prepayment/termination, unless the family’s income subsequently decreases to a significant extent (15 % or more) from the family’s gross income on the prepayment/termination effective date.

Previously unassisted residents:

If a previously unassisted family remains in place, the family always pays at least the TTP amount the family paid on the date of the prepayment/termination.

Significant decline in family income:

If the family income significantly declines (15% or more) from gross family income on the date of the eligibility event, the required minimum family contribution is reduced.

Example: A previously unassisted family paid $500 for gross rent on the effective date of the prepayment that equaled 35 percent (35%) of the family’s monthly-adjusted income at that time.  After receiving the enhanced voucher for ten months, the family suffered a 50% decrease in monthly gross income.  MSHDA now calculates the enhanced voucher minimum rent for the family as the percentage of monthly-adjusted income the family paid for rent on the prepayment date (35%) instead of the actual dollar amount ($500).  The enhanced voucher family in this example must now pay at least 35% of the new monthly-adjusted income for rent regardless of any further changes in family income.  This 35% calculation figure will be used for all future re-examinations and cannot be further modified. 

Section G:  Calculating HAP Payments

When a family with an enhanced voucher remains “in-place” (or moves to an appropriate size unit within the development) AND the new gross rent exceeds the applicable payment standard and is rent reasonable; the HAP equals the new gross rent for the unit minus the GREATER of:

When a family with an enhanced voucher moves from the preservation/opt-out development (except in cases where a family is moving to an appropriate size unit within the development), the HAP equals the LESSER of:

At conversion, if the TTP exceeds the PS, (i.e., zero HAP) the tenant is not eligible for assistance.  Assistance cannot be delayed until a later date.  Forward a 1634b (Application/ Program Denial) to cancel the voucher offer for the family.  To be considered at some future date, the tenant must make application when the desired waiting list is open.

If the family will not pay more than 30% of adjusted monthly income for gross rent after the rent increase, the family is not eligible to receive the enhanced subsidy.  This applies even if the family has met the income requirement.  If a family is denied for this reason, the applicant’s file should be kept for three years.  If the family’s circumstances change and they become income eligible and are still in the same unit within three years of the initial offering, they are then allowed to be assisted on the program with a regular HCV.

 

Section H:   Reexamination Process

Follow HCV annual and interim re-examination processes for families who receive enhanced voucher as stated in Chapter IX and Chapter X of the PPM.

Section I:   Rent Increases

Rent Increases and the Owner: 

In preservation properties, an owner may increase the rent 60 days after the effective date of the prepayment/termination.

In opt-out properties, an owner may increase the rent at the conversion date after the development-based HAP contract expires or is terminated.

The prepayment/termination of mortgage insurance does not terminate or modify the terms and conditions of the existing leases between the owner and residents of the development.

Rent Increases and MSHDA:

Once the family contacts MSHDA regarding a rent increase, MSHDA must:

Section J:  Miscellaneous Program Requirements

Except for the special conditions outlined in this chapter, HCV requirements also apply to enhanced vouchers.  For example (including but not limited to):

Portability:  The enhanced voucher is tenant-based assistance and the family has no obligation to remain in the development.  The family has immediate portability rights and may move outside of the jurisdiction of the administering PHA.

All out-of-state portability telephone calls should be directed to MSHDA’s Outgoing Portability Coordinator at (517) 241-3182.

Transfers between MSHDA Housing Agents (HA):  The initiating HA converts the enhanced voucher to a regular voucher and informs the receiving HA via the MSHDA Transfer Packet (MSHDA 140) that the transferring family is a participant in a preservation/opt out situation.  This procedure ensures that the voucher is converted from an enhanced voucher to a HCV voucher.  Voucher transfers from an enhanced to a HCV require the DT to change the issuance in Elite >Resident Processing >Record>S8 Items>Alter Issue Information>Alter Current Issue>then change the issuance from “Enhanced” to “Regular”.

Delinquencies:  When processing the enhanced voucher paperwork reveals that the tenant is on the MSHDA delinquency list, the amount of the delinquency must be paid in full before the voucher offer unless the HCA Coordinator approves a repayment agreement.

Turn Overs:  If the enhanced voucher turns over (i.e., a preservation assisted family leaves the program), MSHDA uses the funding/voucher as a HCV and is offered to the next applicant on the applicable MSHDA County waiting list.

Inapplicability of the PHA Income Targeting:  HCV income targeting (i.e., extremely low income) requirements do NOT apply to families admitted to MSHDA’s tenant-based voucher program as a result of a housing conversion action.  The admission does not count in determining whether MSHDA complies with HUD’s income targeting requirement.

Applicant screening:  When adding new family members, screening for lifetime criminal sex offenders and other specified criminal offenses will be completed by the HA using the Michigan State Police database. 

File Maintenance:  When an applicant refuses the enhanced voucher offering or is not eligible for assistance and denied assistance, the file should be closed out and merged with closed waiting list files. The applicant must put the refusal in writing.   

Section K:  Special Conditions After The First Year of Assistance

Enhanced Voucher Minimum Rent:  When the family continues to reside in the unit, the enhanced voucher minimum rent continues to apply after the initial lease term.

If the family income significantly decreases (more than 15%), the applicable minimum rent requirement changes from a specific dollar amount to a percentage of income. See Section F.

If a family who received an enhanced voucher subsequently moves from the development, the voucher becomes a standard HCV and the standard voucher rules apply when calculating the family share of rent. 

Enhanced Voucher Payment Standard (PS):  The enhanced voucher PS rules apply to any subsequent rent increase if the family stays in place (subject to rent reasonableness); therefore, the new gross rent equals the payment standard.  Generally, this occurs at the annual reexamination.  The PS adjusts to cover an owner's rent increase.  The family’s PS will decrease at the annual reexamination only if:

Otherwise, the special PS set at the owner's initial rent increase remains in effect for the family until the landlord increases the rent, or the family moves from the unit.  MSHDA always applies the HCV program rules if the family subsequently moves from the unit.

Section L:  Elite & File Procedures

Elite Procedure:  Preservation/Opt out cases require the following entries:

Full Application Entry:

Waiting List Draw:

Voucher Offers:

Unit Entry

Lease Tracking:

Resident Processing:

Approval Process:

File Submission:  The HA must include all of the following documents in each preservation/opt-out file when submitted to their DT:

The following forms are not required:

Authorization Review: The assigned Department Technician will:

Section M: Special Administrative Fee Reporting

The HCAC will email Requests for Proposals (RFP) to all Contracted HA’s.  In the RFP, the HA’s must indicate what type of Special Fees, if any, they would charge MSHDA for administering the Housing Conversion Action at the Development.  In addition, the HA’s must indicate what monthly base pay they will accept once tenants are placed under contract.  (NOTE:  the monthly base pay cannot exceed the maximum allowable by MSHDA).  

Section N:  Definitions

Assisted Family:  Family residing in the development at the time of the prepayment/ termination who currently receives tenant-based HCV rental assistance through a local housing agency.  

Enhanced Voucher:  Subject to the availability of appropriations, enhanced voucher assistance will be offered to eligible residents who remain in a development under the following categories of Housing Conversion actions:  Project-Based Section 8 Owner Opt-Outs, Preservation Prepayments, HUD Enforcement Actions and HUD Property dispositions.

“Enhanced” vouchers differ from regular HCV in two ways.  First, the family must contribute towards rent, at least the amount the family paid for rent as of the date of the prepayment (minimum rent requirement.)  Secondly, a higher “enhanced” payment standard is substituted in cases where the family stays in the unit and the owner’s new gross rent after the prepayment exceeds the normally applicable payment standard. 

Enhanced vouchers are tenant-based assistance.  The family selects their unit.  MSHDA approves the unit for leasing.  The family and owner execute the lease agreement.  The owner and MSHDA execute an individual HAP contract for each family. 

Gross rent:  The sum of the rent paid by the family to the owner plus any tenant paid utility allowance.  (If the proposed contract rent does not include all the utilities, use the MSHDA utility allowance schedule to calculate the new gross rent.)

Minimum Rent: The amount of gross rent a family paid as of the date of the prepayment or date of the voluntary termination by the owners. 

Movers:  Section 8 families who move from their current unit during a Preservation/Opt Out conversion action.

Opt Out: A conversion action where an owner, after at least twenty (20) years of participation, chooses to no longer participate in (opt-out of) certain programs by not renewing an expiring Section 8 or Section 236 development-based contract with HUD. 

PHA: Public Housing Agency

Preservation:   A conversion action where an owner of a Section 236 or Section 221(d) (3) funded property voluntarily elects to prepay the mortgage or voluntarily terminates the mortgage insurance with HUD, after at least twenty (20) years of participation.

Preservation Prepayment Date: The first date the owner can increase the rent after the prepayment; usually 60 days after the effective date of the prepayment.   

Rent Reasonableness: A PHA determines that based on the current conditions of the unit, the proposed rent requested by the new owners is a reasonable rent in comparison to rents charged at other comparable unassisted units.  The PHA does not base the rent reasonableness determination on any pending or planned enhancements to the property.  If the PHA determines the proposed rent is not reasonable, the owner must lower the rent or the family must move to receive/continue assistance.

Stayers: Section 8 families who remain in their same unit during and after a Preservation/Opt Out conversion action.

Target Date: The date all parties must complete the housing conversion action and have the families under HCV tenant-based HAP contracts.  

Total Tenant Payment (TTP):  The total payment or contribution made by the tenant (family) towards their monthly rent when receiving HCV rental assistance.  The TTP plus the HCV HAP equals the contract rent paid to the landlord.  

Unassisted Family:  Family residing in the development at the time of the prepayment/termination who is not a current tenant-based voucher recipient.

Section O: Applicable Forms List

(March 2006)