Skip to main content

HUD Publishes a Proposed Rule Implementing HOTMA

HUD published a proposed rule implementing the provision of the Housing Opportunity Through Modernization Act (HOTMA), which was signed into law in 2016. The proposed rule contains massive changes to the requirements applicable to determining tenant eligibility and tenant rent for HUD Multi-family housing.

HUD Programs Affected

Impact on Other Major Housing Programs

There are also non-HUD programs whose regulations regarding income refer to HUD’s regulations in 24. CFR Part 5. 

Low-Income Housing Tax Credit Program(LIHTC)

The LIHTC program uses the same methodology to determine the annual income that HUD uses to determine annual income for the Section 8 program. Therefore any changes made to 24 CFR 5.609 will also carry over to the LIHTC program

    • Per Treas. Reg. §1.42-5(b)(1)(vii) “tenant income is calculated in a manner consistent with the determination of annual income under Section 8 of the U.S. Housing Act of 1937.”
    • Per IRS Notice 88-80, “the income of individuals and area median gross income (adjusted for family size) are to be made in a manner consistent with the determination of annual income and the estimates for median family income under section 8 of the United States Housing Act of 1937.”
Rural Development Multi-Family Housing
  • RD MFH programs use the methodology that HUD uses to determine both Annual Income and Adjusted Income. 
    • RD regulations found at 7 CFR 3560.153 “Calculation of household income and assets. (a) Annual income will be calculated in accordance with 24 CFR 5.609. (b) Adjusted income will be calculated in accordance with 24 CFR 5.611.”
Overview of Key Proposed Changes as part of HOTMA

​The following sections of 24 CFR Part 5 include proposed changes:

  • 24 CFR 5.603(Definitions)
  • 24 CFR 5.609(Annual Income)
  • 24. CFR 5.611(Adjusted Income)
  • 24 CFR 5.618(New – Asset Limitation
  • 24 CFR 5.657( Interim Recertifications)
24 CFR 5.603(Definitions)
  • Added definitions for the following:
  • Distributions from a trust
  • Foster Adults
  • Minor
  • Revised the definition of “net family assets”***by inserting text regarding exclusions from net family assets

**** The above definition of net family assets is only for purposes of Asset Limitation in 5.618.

24 CFR 5.609(Annual Income) 

5.609(a) Annual Income Means…
  • Much of the revision to 5.609(a) was to provide clarity; however, there are some key revisions, that should be noted:
  • Removed “[Income sources that ] Are anticipated to be received from a source outside the family during the 12-month period following admission or annual reexamination effective date;”  See section on 5.609 (c) for additional information.
  • “(2) The imputed return on assets over $50,000 based on the current passbook savings rate, as determined by HUD, if the actual income on assets over $50,000 cannot be computed. The $50,000 figure in this paragraph shall be adjusted annually in accordance with a commonly recognized inflationary index, as determined by HUD.”
5.609 (b) Income Exclusions ( Currently Income Inclusions)
  • As part of HOTMA, HUD is proposing to remove the sources of income listed in 24 CFR 5.609 (b), and (b) has instead been replaced by an expanded and clarified list of income exclusions, currently found in 24.CFR 5.609(c).The income sources listed in 5.609 (b) was never intended to be an exhaustive list of all income sources to be included in annual income, as are many income sources that should be counted as income that is not listed in this section of the regulation. HUD is proposing to remove the listing of income sources to reduce confusion as to what should be included when determining annual income. This approach enforces the logic that we have all been taught…If an income source is not specifically excluded, include it.
  • The revisions to (b) also include the removal of previously excluded income sources, the addition of new income exclusions, and modification to the text of several existing exclusions.
5.609 (c) Annulization of Income ( Currently 5.609 (d)
  • HUD’s proposed HOTMA revisions alter the method of annualization utilized at initial certification, interim recertification, and annual recertification, which are outlined below. The section also includes a de minimis error provisions, which states that the owner/agent will not be considered out of compliance with the income annualization requirements solely due to de minimis errors in calculating household income. A de minimis error is an error where the owner’s determination of household income varies from the correct income determination by no more than 5%.
  • . At initial certification and Interim recertification: annual income will be based on the income anticipated to be received in the 12-month period following the effective date of the certification.
  • At annual certification:  annual income will be determined based on the income received in the previous 12– month period. (unless owner/agent is utilizing the streamlined income determination option) If, however, there have been any changes in household income that were not addressed during an interim-recertification, the household’s income must be calculated based on current income.
  • Means-Tested Federal Assistance:  For purposes of determining gross annual income, an owner/agent may use an income determination made in the last 12 months from means-tested public assistance programs, which are currently proposed to include: TANF, Medicaid, SNAP, EITC and other programs as determined by HUD and published through Federal Register Notice. This provision only applies to gross annual income; owner/agents would still need to apply any applicable expenses or deduction to determine adjusted income for purposes of determining rent.
24. CFR 5.611 (Adjusted Income)
  • An increase in the elderly/disabled household deduction from $400 to $525 and will be adjusted for inflation.
  • For disability and medical expenses, the allowable amount of the expense will be the amount of of the expense that exceeds 10% (currently 3%)
  • Dependent Deduction will be adjusted for inflation
24 CFR 5.618 (New – Asset Limitation)
  • 24. CFR 5.618 (a)(i) The household must have net family assets that do not exceed $100,000.
    • For purposes of the asset limitation, net family assets are defined in 5.603.
  • 24. CFR 5.618 (a)(ii) The household cannot have a present ownership interest in a house.
    • Exceptions:
      • Receiving assistance on 24 CFR 982
      • Property is jointly owned with individuals who are not a part of the household.
      • Domestic Violence
      • The property is actively for sale
      • The property is not accessible, and the household includes a member that would need accessible features
      • Is not sufficient for the size of the household ( too small)
      • The geographical location provides hardship for the household
      • The home is not safe to reside in

Per proposed 5.618 (c) “Enforcement. (1) when recertifying the income of a family that is subject to the restrictions in paragraph (a) of this section, a PHA or owner may choose to not enforce such restrictions, or alternatively, may establish exceptions to the restrictions based on eligibility criteria.”

24 CFR 5.657 (Interim Recertifications)

The proposed rule also incorporates the provision in HOTMA related interim recertifications, which states that Interim certifications would be conducted when:

  • Decreases in Adjusted Income:  A household requests an IR due to a decrease in income, and it is estimated that the decrease in income is 10% or more the household’s of Annual Adjusted Income; NOTE: An owner/agent may use a lower threshold, such as 5% if this provision is included in the owner/agent’s policies and procedures; (currently, an IR must be conducted for any decrease in gross income that would affect the household’s rent portion)
  • Increases in Adjusted Income : A household experiences an Increase in  Unearned Income of 10% or more of the household’s adjusted income. NOTE: Increases in earned income are not considered when determining whether the household has experienced the 10% increase in adjusted income unless the interim certification follows a previous certification conducted due to a decrease in earnings.


Scott Precourt is the Managing Partner and Founder of US Housing Consultants.