HUD Issues Change 4 to HUD Handbook 4350.3

On Aug. 21, HUD posted Change 4 to HUD Handbook 4350.3, REV-1, “Occupancy Requirements of Subsidized Multifamily Housing Programs.” Its accompanying transmittal is dated Aug. 6, and it states that Change 4 is effective upon issue.

Change 4 is the first formal change to the Handbook since 2009. Every chapter of the HUD Handbook 4350.3 other than Chapter 2 has been affected by Change 4. However, only a portion of the changes apply to the compliance requirements of the Low-Income Housing Tax Credit program.

Although the Handbook contains nine chapters, tax credit site owners follow only certain rules from parts of Chapters 2, 3, and 5. Under Chapter 5, which covers determining income and calculating rent, Sections 1 and 3 set out the rules you must follow for calculating and verifying income. You can ignore Sections 2 and 4 of Chapter 5. Section 2 doesn’t apply because it concerns adjusted income, which doesn’t come into play when calculating household income at tax credit sites. And Section 4 gives rent calculation rules that don’t apply to tax credit sites. Although you must charge low-income households at your tax credit site restricted rents, the tax credit program has its own rules you must follow for determining the correct rent.

Chapter 5 Changes for Determining Annual Income

• HUD clarified that for full-time students, who are 18 years of age or older and are dependents, a small amount of their earned income will be counted. You should count only earned income up to a maximum of $480 per year for full-time students, age 18 or older, who are not the head of the family, spouse, or co-head. If the earned income is less than $480 annually, count all of the income. If the earned income exceeds $480 annually, count $480 and exclude the amount that exceeds $480 [HUD Handbook 4350.3, par. 5-6 (A)(3)(d)].
• HUD also clarified that IRA, Keogh, and similar retirement savings accounts are counted as assets, even though withdrawal would result in a penalty, unless benefits are being received through periodic payments [HUD Handbook 4350.3, par. 5-7 (G)(4)(b)]. In addition, you are to include in annual income any retirement benefits received through periodic payment. And you are not to count any remaining amounts in the account as an asset [HUD Handbook 4350.3, par. 5-7 (4)(d)].

Chapter 5 Changes for Verification

• HUD added details for the types of third-party verification in the order of their acceptability. For example, under third-party written verification from a source, the Handbook requires an original or authentic document generated by a third-party source that’s dated within 120 days from the date of receipt by the owner. And examples of such tenant-provided documentation that may be used includes, but is not limited to: pay stubs, payroll summary report, employer notice/letter of hire/termination, SSA benefit letter, bank statements, child support payment stubs, welfare benefit letters and/or printouts, and unemployment monetary benefit notices [HUD Handbook 4350.3, par. 5-13 (B)(1)(b)(1)].
• Under Family Certification, an owner is allowed accept a tenant’s notarized statement or signed affidavit regarding the veracity of information submitted only if the information cannot be verified by another acceptable verification method. HUD added that in these instances, the owner must document in the file why third-party verification wasn’t available, and the owner may witness the tenant signature(s) in lieu of a notarized statement or affidavit [HUD Handbook 4350.3, par. 5-13 (B)(1)(d)].