HUD to Issue Debt Service Savings Protection Clarifications for Refinanced Section 202s
Several LeadingAge members who refinanced their Section 202 properties have been experiencing problems with unexpected notifications of substantial reductions to their rental assistance contracts at contract adjustment or renewal.
The cohort of members impacted are those that refinanced their Section 202 properties according to policies articulated prior to the release of Notice H 2012-08 Section 202 Refinancing ("previously refinanced properties") to generate cash flow for additional capital repairs and/or services specifically targeted to help residents successfully age-in-place.
For many Section 202 owners/sponsors, the refinancing of their older Section 202 property was not just about reducing the original high interest rate or the financing of immediate capital repairs and improvements, but also to generate funds (often in the form of Debt Service Savings accounts) for additional capital repairs. These are repairs that could not be funded up-front, but required increased reserves over time to help pay for much-needed services for the senior residents. This was the "carrot" that brought many hesitant non-profit boards to the complicated table of refinancing.
Yet a series of policy changes for setting rents for Section 8 contracts or adjustments, along with the 2012 policy of dedicating most, if not all, residual receipts (where refinanced property debt service savings were often deposited) to offsetting HAP subsidy payments, resulted in several previously refinanced Section 202 properties being informed of plans to reduce their rents by removing the debt-service savings generated funds.
Due to a lack of any clear guidance from HUD headquarters on how to deal with debt service savings for previously refinanced Section 202 properties, HUD field offices and contract administrators had difficult in applying the new guidance to previously refinanced properties to retain the DSS.
LeadingAge New York and our members reached out to LeadingAge who advocated successfully with case-specific interventions and appeals, but the process was laborious and time-consuming, with numerous appeals and requests for intervention. LeadingAge New York and the Housing Cabinet met with Teresa Bainton, HUD New York’s Multifamily director and advocated to retain DDS for previously refinanced properties.
As a result of recent meetings and extensive communications between HUD and LeadingAge staff and membership, HUD officials indicated on Dec. 17 that guidance is being drafted to go to the HUD field offices and PBCAs. The guidance should articulate HUD intentions to keep this cohort of "previously refinanced Section 202 properties" and their refinance-enabled funding allowable for use for shared savings capital repairs and resident services programs.
LeadingAge New York believes that the coming guidance will ensure that previously re-financed funds of Section 202 with DSS are clearly identified and preserved for the future.
Contact: Ken Harris, kharris@leadingageny.org, 518-867-8835