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MINNESOTA <br />HOUSING <br />FINANCE <br />AGENCY <br />May, 1984 <br />SUMMARY OF THE NEW HUD RENTAL REHABILITATION PROGRAM <br />Program Theory <br />The basic theory of operation of the new Rental Rehabilitation Program is as follows: <br />;States and cities will receive two allocations of funds. One fund <br />will be used to make subsidies available to rental property owners <br />whose buildings are in need of rehabilitation. The second fund will <br />be used to make rental payment subsidies available to tenants in the <br />buildings to be rehabilitated. <br />Subsidies to property owners may be in any form, including grants, <br />deferred loans and interest subsidies. They are designed to write <br />down the cost of conventional financing for the necessary rehabil- <br />itation. Loans are to be underwritten in such away that: a) rents <br />are at "real" market levels (as opposed to HUD Fair Market Rents); <br />b) the building can continue to have a positive cash flow after• <br />rehab; and c) rents can be maintained at "affordable" levels after <br />rehab without rent control. <br />Subsidies to the tenants are designed to eliminate displacement that <br />may occur because after -rehab rents are higher than pre -rehab rents. <br />However, the tenants are under no obligation to stay in the rehabil- <br />itated building. They may subsequently move and take their rent <br />subsidies with them. <br />Given this subsidy structure, cities and states must therefore select <br />buildings which will be financially viable even if all of the sub- <br />sidized tenants leave the building. <br />This subsidy theory is an absolute departure from the Section 8 New Construction, <br />Substantial Rehabilitation and Moderate Rehabilitation programs, where the rent <br />subsidies were attached to the building for a set period of time. <br />Program Requirements <br />Within this basic theory, there are a number of specific program requirements which <br />must be followed in granting rehab subsidies to owners: <br />• The rehab subsidy cannot exceed 50% of the total cost of rehab. <br />• The amount of the rehab subsidy cannot exceed $5,000 per unit. <br />. Rental subsidies may be applied only to the cost of basic rehab items. <br />. Properties must be located within neighborhoods where median incomes <br />are less than 80% of the area median incomes. <br />26 <br />333 Sibley Street, St. Paul, Mirinesota 55101 (612) 296.7608 <br />Equal Opportunity Housing and Equal Opportunity Employment <br />