HUD’s Office of Multifamily Programs recently released a series of frequently asked questions (FAQ) concerning the implementation of provisions of the Housing Opportunity Through Modernization Act (HOTMA) of 2016. The FAQ includes information on the phased-in medical hardship relief provision as detailed in the HOTMA final rule, HOTMA-compliant Tenant Selections Plans at Management and Occupancy Reviews, and use of the rent override function in TRACS 202D up until the updated certification system becomes operational.  

HOTMA Background

With HUD Notice H 2024-09, the agency issued a six-month delay for compliance with HOTMA for Multifamily Housing (MFH) programs, moving the deadline from Jan. 1, 2025, to July 1, 2025. The extension was implemented to address delays in finalizing software, key forms, and training materials necessary for implementing HOTMA’s significant changes to income and asset calculations.

HOTMA introduces updated rules for programs such as Housing Choice Vouchers, Public Housing, and Section 8 Project-Based Rental Assistance, with specific asset limitations applicable only to certain MFH programs. According to the notice, prior to the new deadline, HUD will monitor compliance without penalizing tenant file errors, but post-deadline noncompliance may result in findings and corrective actions.

FAQ Highlights

The FAQ provides essential information covering both procedural and technical aspects of HOTMA implementation. The FAQ can be found at www.hud.gov/sites/dfiles/Housing/documents/HOTMA_FAQ_Final_12_5.pdf. Here are some of the most important topics:

TRACS 203A adoption. TRACS 203A is an updated version of HUD’s Tenant Rental Assistance Certification System (TRACS). This version will incorporate the new requirements set by HOTMA, particularly with HOTMA’s updated income and asset calculations.

According to the FAQ, TRACS 203A is anticipated to become operational by early 2025, ahead of the July 1, 2025, compliance deadline for HOTMA. Owners are allowed to start applying HOTMA provisions ahead of schedule. This involves manually calculating tenant income and rents, and entering them into the system using the rent override feature in TRACS 202D.

If your site has started to apply HOTMA provisions ahead of schedule, and you manually calculate tenant income and rents, HUD says you will be able to make corrections to certifications completed under TRACS 202D rules when TRACS 203A has been adopted.

Management and Occupancy Reviews (MORs). MORs will assess both pre-HOTMA and HOTMA-compliant Tenant Selection Plans (TSPs). And the contract administrators (CAs) will review HOTMA-compliant TSPs according to the guidance in Housing Notices H 2024-04 and H 2023-10.

HUD says before the July 1, 2025, compliance deadline, minor tenant file errors related to HOTMA compliance will be noted as observations, provided the TSP complies with HUD Notices H 2023–10 and H 2024–04. However, if required updates to TSPs and Enterprise Income Verification (EIV) policies and procedures were not publicly available by May 31, 2024, findings may be issued during MORs.

Revised model leases and forms. The FAQ says new model leases and forms meeting HOTMA requirements will be released before the mandatory compliance date. And if owners have implemented HOTMA in any respect, they must use the model leases, once available, as prescribed by Notice H 2023–10:

• Owners must provide families with copies of the HUD-approved lease at least 60 days prior to the end of a family’s lease term.
• Owners must include a letter clearly stating that the family can either accept the modification or move, but that a response is due from the family within 30 days.
• Families must either accept the modification by signing both copies of the modification and returning one to the owner or refuse the modification and give the owner a 30-day notice of intent to vacate.
• If, within 30 days, the family indicates that the modification is unacceptable or doesn’t respond, the owner may begin the procedures for terminating tenancy.

Inflationary adjustments. HOTMA includes mandatory inflationary adjustments starting in 2025. Owners who choose to adopt HOTMA provisions early must use the updated inflationary rates for compliance. Owners who haven’t implemented aspects of HOTMA affected by inflationary adjustments will continue to use the pre-HOTMA amounts until the mandatory compliance date of July 1, 2025, or a later date prescribed by HUD.

With regard to the passbook savings rate, owners who haven’t implemented the HOTMA-required rate will continue to use the rate of 0.06 percent, which became effective on Feb. 1, 2015. However, if an owner has implemented the HOTMA-required passbook savings rate through the rent override function in TRACS 202D, the certification will follow the 2025 HOTMA rate of 0.45 percent.

Safe harbor provision. HOTMA’s safe harbor provision allows owners to use alternative methods for determining a family’s annual income and assets, simplifying the compliance process. Owners can determine a family’s annual income, including income from assets, based on income determinations made within the previous 12-month period by another federal means-tested public assistance program. This includes programs such as Medicaid, Supplemental Nutrition Assistance Program (SNAP), and others. The FAQ says owners can adopt HOTMA’s safe harbor provisions for income determinations before the July 1, 2025, compliance deadline.

Medical hardship relief. This provision is a special policy under HOTMA designed to assist families who face significant financial impacts due to changes in medical expense deductions under HOTMA’s rules. Families who received medical expense deductions before Jan. 1, 2024, may qualify for phased-in hardship relief if the updated HOTMA rules significantly reduce or eliminate their medical deductions.

The FAQ makes clear that owners don’t have discretion in implementing the phased-in medical hardship date set at Jan. 1, 2024. Medical hardship relief will be phased in for families receiving medical deductions based on reviews conducted before Jan. 1, 2024. General hardship relief remains available for other qualifying families.