Section 202 and Other HUD Rental Housing
Programs for Low-Income Elderly Residents
Libby Perl
Specialist in Housing Policy
September 13, 2010
Congressional Research Service
7-5700
www.crs.gov
RL33508
CRS Report for Congress
P
repared for Members and Committees of Congress
Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents
Summary
The population of persons age 65 and older in the United States is expected to grow both in
numbers and as a percentage of the total population over the next 25 years, through 2030. In
2002, a bipartisan commission created by Congress issued a report, A Quiet Crisis in America,
that detailed the need for affordable assisted housing and supportive services for elderly persons
and the shortage the country will likely face as the population ages. The Department of Housing
and Urban Development (HUD) operates a number of programs that provide assisted housing and
supportive services for low-income elderly persons (defined by HUD as households where one or
more persons are age 62 or older) to ensure that elderly residents in HUD-assisted housing can
remain in their apartments as they age. This report describes those programs, along with current
developments in the area of housing for elderly households.
HUD operates five programs that designate assisted housing developments for either low-income
elderly residents alone, or low-income elderly residents and residents with disabilities. The
primary HUD program that provides housing for low-income elderly households is the Section
202 Supportive Housing for the Elderly program. Established in 1959, it is the only HUD
program that currently provides housing exclusively for elderly residents. The Section 221(d)(3)
Below Market Interest Rate and Section 236 programs are mortgage subsidy programs that
provide housing for all age levels, but have properties specifically dedicated to elderly
households. The Public Housing and project-based Section 8 housing programs also have projects
dedicated to elderly households.
In addition to providing housing, HUD operates four supportive services programs for elderly
persons residing in HUD-assisted properties. The Congregate Housing program, Service
Coordinator program, and Resident Opportunity and Self-Sufficiency (ROSS) Service
Coordinator program each provide services such as meals and assistance with activities of daily
living to help residents remain independent. The Assisted Living Conversion program makes
grants to HUD-assisted developments so that they can convert units or entire buildings into
assisted living facilities.
Among current issues involving Section 202 housing for elderly residents is the need to
rehabilitate and modernize aging structures. While some owners may prepay their Section 202
loans and refinance in order to obtain funds for improvements, owners of the oldest Section 202
developments financed with low interest rate loans (those funded prior to 1974) cannot refinance
under current law. In the 111th Congress, language in both the FY2009 Omnibus Appropriations
Act (P.L. 111-8) and the FY2010 Consolidated Appropriations Act (P.L. 111-117) made changes
to current law regarding the refinancing of Section 202 loans. The change is meant to make it
feasible for owners of older Section 202s to refinance their loans and use proceeds to improve the
properties. However, HUD has not released guidance yet on how the provisions would be
implemented. The change is similar to provisions in the Section 202 Supportive Housing for the
Elderly Act (S. 118), a bill that was introduced on January 6, 2009, as well as provisions in H.R.
4868, the Housing Preservation and Tenant Protection Act, which was approved by the House
Financial Services Committee on July 27, 2010.
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Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents
Contents
Introduction ................................................................................................................................ 1
HUD Housing Programs ............................................................................................................. 2
The Section 202 Supportive Housing for the Elderly Program ............................................... 2
History of the Section 202 Program: 1959 to 1974........................................................... 3
History of the Section 202 Program: 1974 to 1990........................................................... 4
History of the Section 202 Program: 1990 to the Present ................................................. 6
The Section 202 Program’s Grant Process ....................................................................... 7
Section 202 and Low-Income Housing Tax Credits ......................................................... 8
Section 221(d)(3) Below Market Interest Rate Program....................................................... 10
The Section 236 Program .................................................................................................... 11
Public Housing ................................................................................................................... 12
Project-Based Section 8 Housing......................................................................................... 14
Supportive Services and Assisted Living Programs.................................................................... 15
Congregate Housing............................................................................................................ 16
Multi-Family Housing Service Coordinators ....................................................................... 17
Resident Opportunity and Self-Sufficiency (ROSS) Service Coordinators Program ............. 17
Assisted Living Conversion ................................................................................................ 18
Funding and Current Issues ....................................................................................................... 20
Funding .............................................................................................................................. 20
Refinancing Section 202 Loans ........................................................................................... 23
Legislation .......................................................................................................................... 24
The Section 202 Supportive Housing for the Elderly Act (S. 118).................................. 24
Legislation Enacted in the 110th Congress...................................................................... 26
Preservation of Federally Assisted Housing ......................................................................... 26
Children Living in Housing Developments for Elderly Residents ........................................ 27
Tables
Table 1. HUD Rental Housing Programs for Low-Income Elderly Households .......................... 14
Table 2. Supportive Services and Assisted Living Programs ...................................................... 20
Table 3. Funding for Selected Programs, FY2001-FY2011 ........................................................ 22
Contacts
Author Contact Information ...................................................................................................... 29
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Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents
Introduction
In 1999, Congress created a bipartisan commission to study the housing needs of the senior
population as it ages. The commission’s final report, entitled A Quiet Crisis in America, warned
of the nation’s growing senior population and the lack of affordable housing and supportive
services programs to meet future demand.1 The percentage of individuals age 65 and older is
beginning to make up a larger percentage of the total U. S. population, and is expected to
continue to grow through 2030.2 Between 2000 and 2030, the number of persons age 65 and older
is expected to grow from 35.0 million to 71.5 million, and from 12.4% of the population to
19.6%.3 In particular, the “oldest old,” those individuals aged 85 and older, are becoming a larger
share of the elderly population, raising concerns about the availability of supportive services in
addition to affordable housing. The bipartisan housing commission estimated that the aging of the
population will result in the need for an additional 730,000 units of affordable housing by 2020.4
The Department of Housing and Urban Development (HUD) operates a number of programs that
provide both housing and supportive services for elderly households.5 HUD defines “elderly
person” as a household composed of one or more persons in which at least one person is age 62
or older at the time of initial occupancy.6 Five HUD programs provide affordable rental housing
that is designated for low-income elderly households. Of these five, only one, the Section 202
Supportive Housing for the Elderly program, provides housing exclusively for elderly persons.
The other four programs provide housing for all age groups, but allow some properties to be
devoted primarily to housing elderly residents. The Section 236 and Section 221(d)(3) programs
insured loans to private developers during the 1960s and early 1970s so that they could build low-
income housing, some of which included buildings dedicated to elderly residents (neither
program makes new loans, although some buildings still have active mortgages). The Public
Housing and project-based Section 8 programs also dedicate some buildings primarily for use by
elderly households.
In addition to housing, HUD funds four supportive services programs for elderly residents in its
subsidized properties. These programs are the Congregate Housing program, the Service
Coordinator program, the Resident Opportunity and Self-Sufficiency (ROSS) Service
Coordinator program, and the Assisted Living Conversion program. Each program works to allow
elderly persons living in HUD-eligible properties to remain in their apartments through assistance
and services.
1 The report by the Commission on Affordable Housing and Health Facility Needs for Seniors in the 21st Century was
released to four congressional committees on June 30, 2002: the House and Senate Appropriations Committees, the
House Financial Services Committee, and the Senate Banking, Housing and Urban Affairs Committee. The report is
available at http://govinfo.library.unt.edu/seniorscommission/pages/final_report/finalreport.pdf.
2 Wan He, Manisha Sengupta, Victoria A. Velkoff, and Kimberly A. DeBarros, 65+ In the United States: 2005, U.S.
Census Bureau, December 2005, http://www.census.gov/prod/2006pubs/p23-209.pdf.
3 Ibid., pp. 12-13.
4 A Quiet Crisis in America, p. 22.
5 Although other terms such as “Older Americans” may be preferred, this report uses the term “elderly” to refer to those
individuals eligible for HUD-assisted housing for persons age 62 or older because it is the term used by HUD and has a
meaning specific to HUD’s housing programs.
6 12 U.S.C. § 1701q(k)(1).
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This report provides a summary of the HUD programs that provide multi-family rental housing
for low-income elderly households and their related supportive services programs. It also
discusses funding and current issues in the area of assisted housing for low-income elderly
persons. However, the report does not include a comprehensive look at all housing programs that
serve elderly households. Major sources of assistance that are not discussed include HUD’s
Section 8 voucher program,7 HUD’s mortgage insurance and reverse mortgage programs,8 and the
Department of Agriculture’s rural housing programs that provide assistance to elderly
households.9
HUD Housing Programs
The Section 202 Supportive Housing for the Elderly Program
The Section 202 Supportive Housing for the Elderly program is the only HUD program that
currently provides housing exclusively for elderly households, with approximately 263,000 units
available for elderly households (this does not include Section 202 units for persons with
disabilities).10 Established as part of the Housing Act of 1959 (P.L. 86-372) and last authorized in
FY2003 (P.L. 106-569), the current version of the Section 202 program makes capital grants and
project rental assistance available to developers so that they can build housing that is affordable
to very low-income elderly households. The program was not always structured this way,
however, and it has changed several times since its inception. During the 50 years that the Section
202 program has existed, the system of providing financing for developments has changed from
loans to grants, the tenant population it targets has moved from moderate-income elderly
households to very low-income elderly households, and the program has gone from serving only
elderly households to serving elderly and disabled households, and then back to serving elderly
households exclusively. The history of Section 202 is important because many projects developed
in the early years of the program continue to operate under the rules in place at the time they were
built.
The history of the Section 202 program can be divided into three distinct phases based primarily
on changes to its financing structure and the income eligibility of tenants. From 1959 to 1974, the
program provided housing units affordable to moderate-income elderly households and
households with an adult member with a disability by extending low-interest construction loans to
nonprofit developers. Between 1974 and 1990, the program continued to extend loans to
7 For more information on Section 8 vouchers, see CRS Report RL32284, An Overview of the Section 8 Housing
Programs, by Maggie McCarty.
8 For more information on reverse mortgages, see CRS Report RL33843, Reverse Mortgages: Background and Issues,
by Bruce E. Foote.
9 For more information on the Department of Agriculture’s rural housing programs, see CRS Report RL33421, USDA
Rural Housing Programs: An Overview, by Bruce E. Foote.
10 Barbara A. Haley and Robert W. Gray, Section 202 Supportive Housing for the Elderly: Program Status and
Performance Measurement, U.S. Department of Housing and Urban Development, Office of Policy Development and
Research, June 2008, p. 22, http://www.huduser.org/Publications/pdf/sec_202_1.pdf (hereinafter, Section 202
Supportive Housing for the Elderly: Program Status and Performance Measurement). Although the Section 202
program no longer provides housing for persons with disabilities, between 1965 and 1992, Section 202 housing was
developed for both elderly and disabled households. The total number of Section 202 units available for both elderly
households and households with an adult member who has a disability is around 303,000 units. Ibid.
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developers, but added project-based Section 8 rental assistance to subsidize tenant rents so that
developers could afford to rent units to low-income elderly and disabled households (those with
incomes at or below 80% of area median income) or, beginning in 1981, very low-income
households (those with incomes at or below 50% of area median income).11 Finally, beginning in
1990, HUD replaced the Section 202 loan program with capital grants and a different form of
rental assistance referred to as PRAC (project rental assistance contracts). These units are
available to very low-income elderly households.
History of the Section 202 Program: 1959 to 1974
When the Section 202 program was established in 1959, its purpose was to provide housing for
moderate-income elderly tenants—those with too much income for Public Housing but
insufficient income for market-rate housing.12 Through the program, the government loaned funds
to private nonprofit developers so that they could build housing for elderly families and
individuals. Unlike most of its loan programs, HUD made the Section 202 loans directly to
developers rather than insuring loans from private lenders.13 The interest rates on the loans were
low—approximately 3%—and had a duration of up to 50 years.14 The developers, assisted by
low-interest mortgage payments, could set rents in their buildings at levels that were affordable to
elderly households with moderate incomes. At the time, there were no income eligibility
restrictions on the properties. Between 1959 and 1968, developers constructed 45,257 Section
202 units in 335 projects, with an average of 135 units per building, most of which were
efficiency apartments.15
In 1962, HUD began setting rents for Section 202 properties on a community-by-community
basis. The new rents were meant to be affordable for lower-middle-income elderly households,
and they varied across the country.16 In 1968, HUD set income eligibility limits for all Section
202 developments at the higher of 135% of Public Housing limits or 80% of area median
income.17 To make units affordable for low-income elderly tenants (those with incomes at or
below 80% of area median income), Congress enacted a rental subsidy program called the Rent
Supplement program (described later in this report) as part of the Housing and Urban
Development Act of 1965 (P.L. 89-117).18 Those tenants receiving rent subsidies made up a
relatively small percentage of total tenants during the early years of the Section 202 program,
however.19
11 In 1981, the Housing and Community Development Amendments (P.L. 97-35) required that Section 202 units be
made available primarily to very low-income households.
12 U.S. Department of Housing and Urban Development, Housing for the Elderly and Handicapped: The Experience of
the Section 202 Program from 1959 to 1977, January 1979, p. 29 (hereinafter, Housing for the Elderly and
Handicapped).
13 Barry G. Jacobs, Kenneth R. Harney, Charles L. Edson, and Bruce S. Lane, Guide to Federal Housing Programs
(Washington, DC: Bureau of National Affairs, 1982), p. 77.
14 Housing for the Elderly and Handicapped, p. 18.
15 Ibid., p. 17. See also United States Senate Special Committee on Aging, Section 202 Housing for the Elderly: A
National Survey, committee print 98-257, 98th Cong., 2nd sess., (Washington, DC: GPO, 1984), p. 7.
16 Housing for the Elderly and Handicapped, p. 29.
17 Ibid., p. 18.
18 The Rent Supplement program primarily provided rent subsidies for tenants living in Section 221(d)(3) housing, but
Section 202 residents were eligible as well.
19 Housing for the Elderly and Handicapped, p. 97.
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The eligible tenant population for the Section 202 program changed in 1964 when non-elderly
“handicapped” individuals and families were added to the definition of “elderly families” as part
of the Housing Act of 1964 (P.L. 88-560).20 Yet very few tenants who were considered non-
elderly handicapped participated in the Section 202 program between 1964 and 1974. Although
data were not kept, HUD surveyed property owners and estimated that through 1977, less than
1% of tenants were non-elderly handicapped.21
In FY1970, the Section 202 program was not funded for the first time since its enactment. The
Nixon Administration did not propose any new funds for the program and Congress did not
appropriate them. The Administration’s rationale was, at least in part, that the large size of the
Section 202 loans had a negative effect on the size of the federal budget.22 This was due to the
fact that the program showed only expenditures and not the offsets made when developers paid
back the Section 202 loans.23 Between 1970 and 1974, the Section 202 program did not fund any
new construction projects. Instead, housing for elderly households was constructed using the
Section 236 mortgage subsidy program, established as part of the Housing and Civil Rights Act of
1968 (P.L. 90-448, discussed later in this report).
Of the Section 202 properties funded prior to 1974, there are approximately 245 buildings,
representing more than 33,000 units, that still have active loans.24 These properties continue to
accept tenants according to the rules in place at the time they were developed. Section 202
developments that applied for HUD funds prior to 1962 are not subject to income limits, while
those constructed after 1962 but prior to July 1972 are subject to the income limits approved by
HUD at the time.25 In addition, in the years since many pre-1974 Section 202 developments were
constructed, HUD has provided rental assistance for approximately 38% of the units, primarily
through the Loan Management Set Aside (LMSA) program. LMSA was a special allocation of
project-based Section 8 assistance contracts available for units in troubled multifamily projects
with FHA-insured or HUD-held mortgages.
History of the Section 202 Program: 1974 to 1990
In 1974, the Housing and Community Development Act of 1974 (P.L. 93-383) both reactivated
the Section 202 program and instituted a number of changes. The primary change was to make
project-based Section 8 rental assistance available to building owners. Project-based Section 8
rental assistance is a rent subsidy that, at the time, made up the difference between 25% of tenant
income and market rate rent as established by HUD (tenant payments were later raised to 30% of
income), and was available only to low-income tenants. Although the law did not restrict Section
202 units only to those households that qualified for project-based Section 8 rental assistance, the
availability to owners of the rental subsidy meant that more low-income tenants began to live in
20 For more information about housing for persons with disabilities, see CRS Report RL34728, Section 811 and Other
HUD Housing Programs for Persons with Disabilities, by Libby Perl.
21 Ibid., p. 36.
22 Senate Committee on Aging, Subcommittee on Housing for the Elderly, Examination of Proposed Section 202
Housing Regulations, hearing before the 94th Cong., 1st sess., June 6, 1975, p. 2.
23 M. Powell Lawton, Planning and Managing Housing for the Elderly (New York: John Wiley & Sons, 1975), p. 38.
24 CRS analysis of HUD data downloaded in August 2010.
25 HUD Handbook 4350.3: Occupancy Requirements of Subsidized Multifamily Housing Programs, June 2007, chapter
3, paragraph 3-23, http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4350.3/index.cfm (hereinafter, “HUD
Handbook 4350.3”).
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Section 202 projects, a change from the program’s previous tendency to serve mostly moderate-
income elderly families.26 Contracts for project-based Section 8 rental assistance payments
between HUD and Section 202 owners were initially set for up to 20 years and were renewable.27
Loans for the construction of Section 202 housing continued to be available to developers when
the program was reactivated; however, P.L. 93-383 changed the interest rate, raising it from 3% to
the U.S. Treasury’s cost of borrowing, while the duration of the loan term dropped from 50 years
to 40 years. Another change was in the distribution of Section 202 loan funds. Prior to 1974,
Section 202 developments were largely concentrated in urban areas.28 However, the Housing and
Community Development Act directed that 20% to 25% of funds go to nonmetropolitan areas.29
By 1988, the share of Section 202 units located in cities with populations less than 10,000 rose to
11.5%, compared to 2.7% through 1974.30 A final change to the Section 202 program in P.L. 93-
383 was the requirement that Section 202 developments support state and local plans to provide
services such as transportation, homemaker services, and counseling and referral services to
elderly tenants.
In 1981, the tenant income guidelines for Section 202 units that received project-based Section 8
rental assistance were changed as part of the Omnibus Budget Reconciliation Act of 1981 (P.L.
97-35).31 The law required that HUD units receiving project-based Section 8 rental assistance,
including Section 202 projects, be made available primarily to very low-income households—
those with incomes at or below 50% of area median income. The law specified that, of the units
receiving project-based Section 8 rental assistance prior to 1981, 10% could be occupied by
households with incomes between 50% and 80% of the area median income (those households
considered low income), while only 5% of new units could be occupied by families with incomes
between 50% and 80% of the area median. These percentages were later changed to 25% and
15%, respectively.32
Between 1974 and 1988, an estimated 128,636 additional units of Section 202 housing were built
using construction loans and project-based Section 8 rental assistance.33 The average size of
developments declined from 153 units in developments built between 1959 and 1974 to 92 units
in developments built between 1975 and 1984, and then to 56 units in developments built
between 1985 and 1988.34 Only 5.4% of the units built between 1974 and 1985 were efficiencies,
26 Housing for the Elderly and Handicapped, pp. 105-106.
27 An exception for contracts up to 40 years was made for developments built or rehabilitated by loans from state or
local agencies.
28 Housing for the Elderly and Handicapped, p. 38.
29 P.L. 93-383, section 213(d).
30 House Committee on Aging, Subcommittee on Housing and Consumer Interests, The 1988 National Survey of
Section 202 Housing for the Elderly and Handicapped, 101st Cong., 1st sess., December 1, 1989, p. 29.
31 See Section 323.
32 The Supplemental Appropriations Act of 1984 (P.L. 98-181) changed the requirement for units assisted prior to 1981
from 10% to 25%, and the Housing and Community Development Act of 1987 (P.L. 100-242) changed the requirement
for units assisted after 1981 from 5% to 15%. See 42 U.S.C. § 1437n(c).
33 Leonard F. Heumann, Karen Winter-Nelson, and James R. Anderson, The 1999 National Survey of Section 202
Elderly Housing, American Association of Retired Persons, January 2001, p. 9, http://assets.aarp.org/rgcenter/il/
2001_02_housing.pdf (hereinafter, The 1999 National Survey of Section 202 Elderly Housing).
34 The 1988 National Survey of Section 202 Housing for the Elderly and Handicapped, p. 27.
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compared to more than 60% prior to 1974; however, between 1985 and 1988 the percentage of
efficiencies rose again, to 18.9%.35
History of the Section 202 Program: 1990 to the Present
In 1990, the Cranston-Gonzalez National Affordable Housing Act (P.L. 101-625) again changed
the financing scheme of the Section 202 program. The law replaced loans to developers with
capital advances. The capital advances do not accrue interest, and developers need not pay them
back as long as the properties are made available to very low-income elderly households for at
least 40 years.
The change in financing was prompted by concern about the costs involved in paying back
Section 202 loans. Under the Section 202 loan program, developers often used project-based
Section 8 rental assistance to service their loan debt in addition to using it to supplement tenant
rents—its intended purpose.36 At the time P.L. 101-625 was enacted, it was estimated that
approximately 75% of Section 8 project-based rental assistance was used by developers to service
their loan debt, leaving only 25% for operating expenses and improvements.37 Under the new
program of capital grants, it was thought that developers would no longer need to use rental
assistance to make loan payments, allowing HUD to make lower project-based rental assistance
payments, requiring less budget authority.38
Both the method of providing project-based rental assistance and the way in which development
cost limitations for Section 202 projects are determined also changed as a result of P.L. 101-625.
Rental subsidies are no longer provided through the Section 8 program, meaning that rents are not
based on Section 8 fair market rents (FMRs).39 The new project rental assistance—referred to as
PRAC—is meant to ensure that owners have the capacity to determine the needs of residents for
supportive services, coordinate those services, and identify sources of funding to deliver the
services.40 Although the duration of the new project rental assistance contracts was initially 20
years, HUD’s current practice is to extend new rental assistance contracts for three years. In
addition, P.L. 101-625 provided that project development costs be calculated on the basis of
factors specific to constructing Section 202 projects rather than using FMR standards, as had been
the case. These new factors include the prevailing costs of construction, rehabilitation, and
acquisition of property; the costs of special design features for elderly residents; and the costs of
adding congregate space.41 The new system is meant to ensure that all areas of the country have
adequate funds to develop and maintain Section 202 housing; under the old system of FMRs,
35 Ibid.
36 Senate Committee on Banking, Housing, and Urban Affairs, The National Housing Act, Senate report to accompany
S. 566, 101st Cong., 2nd sess., S.Rept. 101-316, June 8, 1990, p. 133.
37 Ibid.
38 Ibid., p. 34.
39 FMRs are generally set at the 40th percentile of rents paid in an area, although in some high-cost areas, FMRs are set
at the 50th percentile.
40 S.Rept. 101-316, Report of the Senate Committee on Banking, Housing, and Urban Affairs, to accompany S. 566, the
National Affordable Housing Act, 101st Cong., 2nd sess., June 8, 1990, pp. 133-134. The provisions in S. 566 regarding
Section 202 were adopted in P.L. 101-625. See H.Rept. 101-943.
41 Cranston-Gonzalez National Affordable Housing Act, conference report to accompany S. 566, 101st Cong., 2nd sess.,
H.Rept. 101-943, October 25, 1990, p. 484.
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those areas of the country with low FMRs often could not afford to develop Section 202
projects.42
Another significant change in P.L. 101-625 was the removal of housing for persons with
disabilities from the Section 202 program. Congress began to initiate the split between housing
for elderly and disabled households in 1978 when the Housing and Community Development
Amendments (P.L. 95-557) required that, beginning in FY1979, at least $50 million of the
amounts available for loans under the Section 202 program be devoted to housing for non-elderly
“handicapped” individuals.43 Later, as part of the Housing and Community Development Act of
1987 (P.L. 100-242), Congress further specified that 15% of total Section 202 funds should be
devoted to housing for persons with disabilities. In P.L. 101-625, Congress directed that
beginning in 1992, housing for persons with disabilities be provided through a completely
separate program called the Section 811 Supportive Housing for Persons with Disabilities
program.44 As with the Section 202 program, developers of Section 811 housing receive capital
grants and project rental assistance to construct, rehabilitate, or acquire housing for very low-
income individuals with disabilities. The advent of Section 811 has not completely eliminated
Section 202’s role in serving disabled households, however; Section 202 developments
constructed before 1992 continue to provide housing for persons with disabilities according to the
rules that existed at the time of construction.
Between 1993 and 1998, the Section 202 program created approximately 27,632 units of housing
for elderly households,45 and between 2000 and 2006, another 35,281 units were constructed.46 In
this phase of the Section 202 program, developments have become smaller, with an average of 50
units per project through 1998, and 42 units per site in those developed between 2000 and 2006.47
These newer Section 202 developments have virtually no efficiency units.48
The Section 202 Program’s Grant Process
HUD awards Section 202 grants to private nonprofit groups and to for-profit general partnerships
where the sole general partner is a nonprofit organization. The grant process consists of two parts,
one of which involves a formula and the other a competitive process. In the first step, HUD uses a
need-based formula to allocate the total amount of Section 202 funds available for capital grants
and project rental assistance in a fiscal year to each of the 18 HUD multifamily hubs.49 Of the
funds available, HUD allocates 85% to metropolitan areas and 15% to non-metropolitan areas.
42 S.Rept. 101-316, p. 134.
43 Housing provided for persons with disabilities through the Section 202 program is sometimes referred to as “Section
202(h)” housing, referring to the subparagraph that was added to the Section 202 statute by P.L. 95-557.
44 For more information about the Section 811 program, see CRS Report RL34728, Section 811 and Other HUD
Housing Programs for Persons with Disabilities, by Libby Perl.
45 The 1999 National Survey of Section 202 Elderly Housing, p. 9.
46 Section 202 Supportive Housing for the Elderly: Program Status and Performance Measurement, p. 20.
47 Ibid.
48 Ibid., p. 29.
49 HUD lists the multifamily hubs in its annual Notice of Funding Availability (NOFA). They are Atlanta, GA,
Baltimore, MD, Boston, MA, Buffalo, NY, Chicago, IL, Columbus, OH, Denver, CO, Detroit, MI, Fort Worth, TX,
Greensboro, NC, Jacksonville, FL, Kansas City, MO, Los Angeles, CA, Minneapolis, MN, New York, NY,
Philadelphia, PA, San Francisco, CA, and Northwest/Alaska. The FY2009 NOFA is available on HUD’s website,
http://www.hud.gov/offices/adm/grants/nofa09/sec202esec.pdf (hereinafter, FY2009 Section 202 NOFA).
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These funds are then further subdivided among the 52 local program offices within each hub.
Each of these local area offices receives funding sufficient to support at least 20 units in
metropolitan areas and five units in nonmetropolitan areas.
The formula for allocating Section 202 funds to the HUD field offices looks at “relevant
characteristics of the elderly population” in each field office’s jurisdiction, including the
population of elderly renters.50 HUD also considers the number of one-person elderly renter
households that have incomes at or below 50% of the area median income, together with one of
three “housing conditions.” These three housing conditions are paying more than 30% of income
toward rent, occupying a unit without a kitchen or plumbing, or occupying an overcrowded unit
(defined as accommodating 1.01 or more persons per room).51
In the second step in the grant process, applicants apply for the funds that have been allocated to
their areas. HUD then evaluates grantee applications and uses a point system to assign up to 102
points per application.52 Points are awarded in the following categories:
• up to 25 points are awarded for the applicant’s capacity to provide housing,
including experience in providing housing to minorities;
• up to 13 points are awarded for the need for funding in the applicant’s target area;
• up to 45 points are awarded for the approach to providing housing, including the
quality and effectiveness of the proposal, the involvement of elderly persons in
designing the proposal, and the proximity and accessibility of the site to
transportation and services;
• up to 5 points are awarded for the applicant’s ability to secure funding from other
sources; and
• up to 12 points are awarded for development of an evaluation plan to measure
performance of the project.
In FY2009, $455 million was distributed to grant recipients in 45 states to construct or convert
more than 3,000 units of housing for elderly households.53
Section 202 and Low-Income Housing Tax Credits
Financing affordable housing, including housing for elderly residents, may require multiple
streams of funding in order to support the design, construction, and ongoing operating costs of a
project. In addition to federal funds provided through HUD programs, affordable housing
developers may use mortgage revenue bonds, tax credits, and local housing trust fund resources,
among other sources, to develop housing for low-income and special-needs populations. While
HUD funds might once have been sufficient on their own to develop an affordable housing
project, that is not always the case today. This is true for Section 202 developers, who may bring
50 24 C.F.R. § 791.402(c).
51 FY2009 Section 202 NOFA, p. 6.
52 Ibid., p. 62. Two of the points are bonus points awarded for projects that are part of renewal communities,
empowerment zones, or enterprise communities.
53 The list of grantees is available at http://portal.hud.gov/portal/page/portal/HUD/documents/
202_and_811_Grant_Summaries.pdf.
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Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents
together multiple sources of funding to develop a project. One of the primary sources of funding
available for developing affordable housing is the Low-Income Housing Tax Credit (LIHTC).
The LIHTC was enacted as part of the Tax Reform Act of 1986 (P.L. 99-514) and provides
incentives for the development of affordable rental housing through federal tax credits
administered by the Internal Revenue Service (IRS). The IRS allocates tax credits to states based
on population, and states award the credits to developers to use as a source of financing for the
development of affordable rental housing.54
In 2000, in order to help Section 202 (and Section 811) developers bring together multiple
financing sources, Congress enacted a law that makes the interaction of Section 202 funds and
LIHTCs more feasible by changing the way in which federal funds are treated. The value of
LIHTCs are determined, in part, based on the cost of developing a property—referred to as the
qualified basis.55 The costs of constructing, acquiring, and rehabilitating a property (among other
costs56) are included in calculating the qualified basis, but the amount must then be reduced by
any federal grants received by the developer, which in turn reduces the value of the tax credits.
Therefore, if a nonprofit developer were to receive a Section 202 capital grant, its value would be
subtracted in calculating the qualified basis, which could result in minimal LIHTCs. The
Homeownership and Economic Opportunity Act (P.L. 106-569), enacted in 2000, allowed for-
profit limited partnerships, where a nonprofit organization is the sole general partner, to be
eligible Section 202 owners. The changed law allows a nonprofit Section 202 grantee to loan the
Section 202 capital grant to the limited partnership. Under this arrangement, the Section 202
funds are no longer a “federal grant” to be subtracted in calculating the qualified basis, potentially
increasing the value of LIHTCs.
The change in the law to allow for-profit limited partnerships to own Section 202 housing
developments has not immediately made mixed financing arrangements common, however. The
transactions are complicated and may require extensive expertise in housing finance to make
them work. HUD acknowledges that “most developers seek to avoid the use of federal grant
financing in most LIHTC projects.”57 In addition, the treatment of Section 202 PRAC in tax credit
transactions has been unclear. Although the IRS has created exceptions to the rule that federal
grants do not count toward the qualified basis of a property for certain categories of rental
assistance, Section 202 PRAC has not been among the exceptions. The programs that have been
exempted from the requirement include project-based Section 8 rental assistance payments and
public housing capital and operating funds,58 the Native American Housing Block Grant
54 For more information on the LIHTC, see CRS Report RS22389, An Introduction to the Design of the Low-Income
Housing Tax Credit, by Mark P. Keightley.
55 Specifically, a property’s qualified basis is determined as follows: (1) the cost of constructing, acquiring, or
rehabilitating the property is calculated, (2) this amount is reduced by federal grants received by the developer, and (3)
the resulting value is then multiplied by the percentage of space in the housing development that is devoted to low-
income use. This percentage is the lower of either the “unit fraction”—the ratio of low-income units to all units in the
building—or the “floor space fraction”—the ratio of square footage in low-income units to total square footage. 26
U.S.C. § 42(c). The qualified basis is then multiplied by the value of the tax credits—these are roughly either 9% or
4%—to determine the total annual value of the tax credits.
56 In addition to the costs of materials, construction, and/or rehabilitation, among the costs included in determining
qualified basis are contractor fees, developer fees, engineering fees, and the cost of drawing up architectural
specifications. Among the costs that are not included are the cost of land and fees associated with long-term financing.
See Joseph Guggenheim, Tax Credits for Low Income Housing (Glen Echo, MD: Simon Publications, 1996) p. 37.
57 See HUD website, “Calculating the Qualified Basis,” http://www.hud.gov/offices/cpd/affordablehousing/training/
web/lihtc/calculating/qualifiedbasis.cfm.
58 26 C.F.R. § 1.42-16.
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Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents
Program,59 Rent Supplement and Rental Assistance Payments programs,60 and the Shelter Plus
Care and Single Room Occupancy programs.61 Despite language in the Homeownership and
Economic Opportunity Act of 2000 indicating that Congress intended Section 202 (and Section
811) assistance to be included in calculating qualified basis (rather than subtracted from it), the
IRS has not issued a ruling that would be necessary to make this possible.62
Another possible limitation in developing mixed finance projects using federal grants, such as
Section 202 together with the LIHTC, was removed with passage of the Housing and Economic
Recovery Act of 2008 (P.L. 110-289). Under LIHTC law, developers may qualify for tax credits
worth roughly 9% or 4%.63 Under previous LIHTC law, the higher 9% credit was available for
new construction that was not federally subsidized, while the 4% credit was available for either
federally subsidized new construction or existing buildings. The statutory definition of “federally
subsidized” included below market federal loans (the structure used by limited partnerships to
loan Section 202 capital grants).64 The fact that developers of federally subsidized buildings did
not qualify for the higher tax credit made financing projects with the LIHTC less lucrative.
Developers either had to accept the lower 4% credit or set up a system through which federal
grants were loaned to the project at a market rate of interest.65
However, P.L. 110-289 removed the phrase “below market federal loans” from the definition of
federal subsidy in the LIHTC statute. This allows for the eligibility of new construction
developed with below-market federal loans placed in service after the effective date of P.L. 110-
289. The 9% credits are very competitive,66 however, and it may still be difficult for Section 202
developers to obtain them.
Section 221(d)(3) Below Market Interest Rate Program
In 1961, Congress enacted the Section 221(d)(3) Below Market Interest Rate (BMIR) program
(P.L. 87-70) to help public agencies, cooperatives, limited dividend corporations, and nonprofit
sponsors create housing for low- and moderate-income families.67 The BMIR program has not
59 Rev. Rul. 2008-6.
60 Rev. Rul. 2002-65.
61 Rev. Rul. 98-49.
62 P.L. 106-569 amended the Section 202 statute to state that “[n]otwithstanding any other provision of law, assistance
amounts provided under this section may be treated as amounts not derived from a Federal grant.” See Section 832. On
September 17, 2003, the IRS issued a letter stating that it was reviewing the applicability of the LIHTC section of
federal grants to PRAC under the Section 202 program. The letter is available at http://www.irs.gov/pub/irs-wd/04-
0061.pdf.
63 These credit rates are not set exactly at 9% and 4%—they vary depending on the current interest rate used in the
Department of the Treasury credit rate formula. For more information about this issue, see CRS Report RS22917, The
Low-Income Housing Tax Credit Program: The Fixed Subsidy and Variable Rate, by Mark P. Keightley.
64 The statute also specifically exempted funds received under CDBG, HOME, and Native American Housing and Self
Determination Act programs from the definition of federally subsidized, so those projects have been eligible for the 9%
credit all along.
65 See U.S. Department of Housing and Urban Development, “Mixed Finance Development for Supportive Housing for
the Elderly or Persons with Disabilities: Final Rule,” Federal Register, vol. 70, no. 176, September 13, 2005, p. 54202.
66 See, for example, Liz Enochs, “Affordable Housing Equity: Developers Share Tips for Converting Projects That Fail
to Win 9% LIHTCs into 4% Deals,” Affordable Housing Finance, July 2007, http://www.housingfinance.com/ahf/
articles/2007/jul/AFFORDABLE0707.htm.
67 The Section 221(d)(3) program also contained a market interest rate component, but unlike the BMIR program, it
(continued...)
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Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents
provided funds for new developments since 1968, but properties with active mortgages continue
to operate. The program, like the Section 202 program at the time it was created, was meant to
serve those families with incomes too high for Public Housing, but too low for market-rate
rents.68 The program was, and continues to be, run by the Federal Housing Administration (FHA).
Through the program, private lenders extended FHA-insured loans with interest rates of 3% and
durations of up to 40 years to developers of multi-family rental housing projects of at least five
units.69 Lenders then sold the mortgages to the Federal National Mortgage Association (Fannie
Mae).70 The program continued until 1968, when the Section 236 program replaced it as a vehicle
for producing multi-family housing for low-income families. Section 221(d)(3) BMIR properties
are still active, providing approximately 1,154 units in projects dedicated to the elderly.71 Units
are open to households with incomes of up to 95% of the area median income.72
The Rent Supplement program was enacted as part of the Housing and Urban Development Act
of 1965 (P.L. 89-117) to subsidize the rent payments of low-income households living in Section
221(d)(3) BMIR housing developments. FHA entered into contracts with building owners to
make up the difference between 25% of tenant income (later raised to 30%) and the fair market
rent as determined by HUD.73 Generally, up to 20% of units in a building were eligible for Rent
Supplement payments, although the Housing and Urban Development Act of 1969 (P.L. 91-152)
made up to 40% of units eligible for subsidy payments if the HUD Secretary determined it was
necessary.74 Most, but not all, of these contracts have been converted to project-based Section 8
rental assistance.75
The Section 236 Program
In 1968, Congress determined that the Section 221(d)(3) program and the Section 202 program
were of limited usefulness in developing large numbers of assisted housing units. The Section
221(d)(3) program depended on Fannie Mae to purchase loans, and only limited funds were
available for this purpose.76 And the Section 202 program’s system of direct loans had a large
negative effect on the budget. As a result, the Housing and Urban Development Act of 1968 (P.L.
90-448) established the Section 236 program to provide housing for low- and moderate-income
(...continued)
was not designed to ensure affordability. John R. Gallagher, Nonprofit Housing Rent Supplement Program Under
Section 221(d)(3) of the National Housing Act (Washington, DC: Urban America, Inc., 1968), p. 4.
68 Senate Committee on Banking and Currency, Housing Act of 1961, Senate report to accompany S. 1922, 87th Cong.,
1st sess., S.Rept. 281, May 19, 1961.
69 Leonard Garland Gaston, “The 221(d)(3) Below Market Interest Rate and Rent Supplement Housing Program”
(Ph.D. dissertation, Ohio State University, 1969), p. 120.
70 John R. Gallagher and John J. O’Donnell, Nonprofit Housing Under Section 221(d)(3) of the National Housing Act
(Washington, DC: Urban America, Inc., 1966), p. 20.
71 U.S. Government Accountability Office, Federal Housing Programs That Offer Assistance to the Elderly, GAO-05-
174, February 2005, p. 11, http://www.gao.gov/new.items/d05174.pdf (hereinafter, Federal Housing Programs that
Offer Assistance to the Elderly).
72 HUD Handbook 4350.3, chapter 3, paragraph 3-6.
73 12 U.S.C. § 1701s(d).
74 12 U.S.C. § 1701s(j)(1)(d).
75 HUD FY2010 Budget Justifications, p. N-1, http://www.hud.gov/offices/cfo/reports/2010/cjs/hsg2010.pdf.
76 House Committee on Banking and Currency, Housing and Urban Development Act of 1968, House report to
accompany H.R. 17989, 90th Cong., 2nd sess., H.Rept. 1585, June 25, 1968.
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Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents
families, including facilities dedicated to elderly persons and persons with disabilities. The
program was intended to replace the Section 221(d)(3) and Section 202 programs,77 and for a
time it did. The program produced approximately 400,000 new units in 3,601 developments by
1976.78 But after January 1973, when President Nixon imposed a moratorium on the new
construction of subsidized housing, the program did not receive new funds, although it has
continued to subsidize existing developments.
The Section 236 program assisted both private for-profit and nonprofit owners of rental housing
projects for low-income and moderate-income households by providing FHA insurance for
mortgages for construction or substantial rehabilitation of buildings, and by subsidizing the
mortgage payments. Under the program, project owners borrowed funds from private lenders at
the market interest rate, and the government then made (and continues to make) subsidy
payments to the owners, called Interest Reduction Payments (IRPs), so that owners effectively
pay an interest rate of only 1% on their mortgages. By paying the low 1% interest rate, owners are
expected to be able to charge tenants affordable rents. Each Section 236 unit has both a basic rent
and a market rent: the basic rent is the payment amount needed to operate the project at a 1%
mortgage interest rate, and the market rent is the amount needed to operate the project at the
actual mortgage interest rate.79 Tenants pay the higher of the basic rent or 30% of their income
(initially, tenants paid 25%), but rent cannot exceed the fair market rent amount.80 Households
with low incomes—at or below 80% of area median income—are eligible for Section 236
housing. Approximately 66,000 units, 23% of all Section 236 units, are reserved for elderly
residents.81
In order to help make Section 236 housing more affordable to low-income households, some
projects receive rent subsidies through a program called Rental Assistance Payments (RAP).
Congress enacted the program in 1974 (P.L. 93-383) to ensure that tenants did not have to pay
more than 25% of their income toward rent. Building owners were able to receive RAP for up to
20% of the units in a project (subject to increase or decrease at the discretion of the Secretary). In
addition, Section 236 owners were eligible to receive Rent Supplement payments, originally
developed for the Section 221(d)(3) BMIR program and made available to the Section 236
program in the Housing and Urban Development Act of 1968 (P.L. 90-448). Both RAP and Rent
Supplement payments have largely been converted to project-based Section 8 rental assistance.82
Public Housing
Public Housing is the original federally-assisted housing program for low-income families,
created as part of the Housing Act of 1937 (P.L. 75-412). The program provides housing for very
low-income households (those with incomes at or below 50% of the area median income) and
requires tenants to pay 30% of their income toward rent. Public Housing projects have long
77 Ibid.
78 General Accounting Office (now the Government Accountability Office), Little Accomplished in Insuring that
Proper Rents Are Charged Under the Section 236 Rental Assistance Housing Program, CED-76-146, October 5, 1976,
p. 2, http://archive.gao.gov/f0402/100542.pdf.
79 12 U.S.C. § 1715z-1(f)(1). The Section 236 market rent is different from Section 8 fair market rent.
80 Charles L. Edson, “Sections 235 and 236—The First Year,” Urban Lawyer 2, No. 14 (1970), p. 22.
81 Federal Housing Programs that Offer Assistance to the Elderly, p. 11.
82 HUD FY2009 Budget Justifications, p. K-3, http://www.hud.gov/offices/cfo/reports/2009/cjs/hsg1.pdf. The
exceptions in the RAP program are state-aided, uninsured projects.
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Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents
dedicated buildings to elderly tenants. The Housing Act of 1956 (P.L. 84-1020) authorized the
Public Housing Administration (a predecessor to HUD) to provide units specifically for low-
income elderly individuals (prior to this, HUD’s definition of elderly families did not include
single individuals), which increased the number of elderly households living in Public Housing.
Congress did not intend to separate elderly residents from younger tenants.83 Rather, units for
elderly residents were to be integrated with those of non-elderly families. Despite this desire not
to segregate elderly tenants, by 1960 the first elderly-only Public Housing development had been
created.84 Today, approximately 76,000 Public Housing units are designated exclusively for
elderly residents.85
Beginning in 1961, persons with disabilities were included in the definition of “elderly families”
for purposes of the Public Housing program. Combining elderly residents and residents with
disabilities in Public Housing has been controversial. During the early years of Public Housing
for elderly persons, residents with disabilities made up only a small proportion of residents.
However, the number of residents with disabilities in Public Housing for the elderly began to
increase in the 1980s and early 1990s for at least two reasons. First, individuals with mental
illnesses were less likely to be institutionalized as a result of the availability of outpatient mental
health care, and were therefore in need of affordable housing.86 A second factor was passage of
the 1988 Fair Housing Act Amendments (P.L. 100-430). The amendments added “handicapped”
individuals to the class of individuals protected from discrimination in the provision of housing.
The definition of “handicapped” included individuals with alcohol and drug addictions.87 As a
result of the increase of younger residents with disabilities in Public Housing, often with mental
illnesses and addictions, Public Housing Authorities faced a greater number of incidents of
disruptive behavior, and some elderly residents reported feeling unsafe.88
Due to the conflicts between tenants with disabilities and elderly residents, Congress in 1992
allowed Public Housing Authorities (PHAs) to designate buildings as elderly only, disabled only,
or elderly and disabled only.89 In 1996, The Public Housing Opportunity Extension Act of 1996
(P.L. 104-120) streamlined the process for designating buildings as elderly-only. If a PHA wants
to change the composition of a building to only elderly residents, it must submit a plan to HUD to
ask for approval. If the plan is approved, PHAs cannot evict non-elderly residents with
disabilities, although PHAs may help residents relocate if they want to move. The law also
requires that, if a PHA is unable to rent an available unit to an elderly household within 60 days,
it must make the unit available to near-elderly tenants (where the head of household or spouse is
age 50 or older). If the unit cannot be rented to near-elderly families, then it must be made
available to all families.
83 House Committee on Banking and Currency, Housing Act of 1956, House report to accompany H.R. 11742, 84th
Cong., 2nd sess., H.Rept. 2363, July 15, 1956.
84 Frances Merchant Carp, A Future for the Aged, Victoria Plaza and Its Residents (Austin: University of Texas Press,
1966).
85 Federal Housing Programs That Offer Assistance to the Elderly, p. 11.
86 See General Accounting Office (now the Government Accountability Office), Housing Persons with Mental
Disabilities with the Elderly, GAO/RCED-92-81, August 1992, pp. 10-11, http://archive.gao.gov/d33t10/147294.pdf.
87 Congress intended the definition of handicap to be interpreted consistently with the Rehabilitation Act of 1973 (P.L.
93-112), which includes drug addiction and alcoholism as physical or mental impairments. 28 C.F.R. § 41.31.
88 Housing Persons with Mental Disabilities with the Elderly, p. 17. See, also, remarks of Representative Peter Blute,
Congressional Record, daily edition, vol. 142 (February 27, 1996), p. H1274.
89 The Housing and Community Development Act of 1992, P.L. 102-550. The provisions are codified at 42 U.S.C. §
1437e; the regulations are at 24 C.F.R. §§ 945.101-945.303.
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Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents
Project-Based Section 8 Housing
Between 1974 and 1983, the Section 8 new construction and substantial rehabilitation programs
made rental assistance available to developers that were creating new and rehabilitated rental
housing for low-income families.90 The rental assistance was meant to act as an incentive so that
developers would build or rehabilitate affordable housing. In some cases, rental assistance was
attached to units of housing that were developed using other assistance streams. For example, as
mentioned earlier in this report (in the section entitled “History of the Section 202 Program: 1974
to 1990”), units of Section 202 housing developed between approximately 1974 and 1990
received Section 8 rental assistance in addition to direct loans from HUD. However, Section 8
rental assistance was also made available for units not developed through any other specific
program.
From the inception of the Section 8 program, owners were able to develop properties dedicated
for use by elderly households and households with an adult member who has a disability. Today,
elderly residents and residents with disabilities continue to live together in project-based Section
8 housing. Although owners may give a preference to elderly families (P.L. 102-550),91 unlike
Public Housing, most Section 8 properties may not completely exclude residents with disabilities.
The statute requires that owners continue to reserve some units for tenants with disabilities; the
number is either the number of units occupied by residents with disabilities in 1992 or 10%,
whichever is lower. If owners are unable to rent units to elderly families, they may give
preference to near-elderly families with an adult member who has a disability. After the Section
202 program, project-based Section 8 housing provides the most housing dedicated specifically to
elderly households. Of the number of units that continue to receive project-based rental
assistance, approximately 200,000 are dedicated to elderly households.92
Table 1. HUD Rental Housing Programs for Low-Income Elderly Households
Units Designated for
Elderly Households
Program
Income Eligibilitya
Tenant Rent
Onlyb
Section 202
262,704
1959 to 1962
No income limits.
Set by owner based on funds
required to support building
operation.
1962 to 1968
Income limits set on a
Set
by
owner.
community-by-
community basis.
1968 to 1974
Higher of 80% of area
Set
by
owner.
median income or 135%
of Public Housing income
limits.
90 The new construction and substantial rehabilitation programs were created in P.L. 93-383 and abolished in P.L. 98-
181. For more information on Section 8 housing, see CRS Report RL32284, An Overview of the Section 8 Housing
Programs, by Maggie McCarty.
91 42 U.S.C. §§ 13611-13620.
92 Federal Housing Programs that Offer Assistance to the Elderly, p. 11.
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Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents
Units Designated for
Elderly Households
Program
Income Eligibilitya
Tenant Rent
Onlyb
1974 to 1981
80% of area median
For units with project-based
income.c
Section 8 rental assistance, the
greater of 30% of adjusted
income or 10% of gross income.
1981 to present 50% of area median
The greater of 30% of adjusted
income.d
income or 10% of gross income.
Section 221(d)(3) 95% of area median
Rent is set building-by-building
1,154
BMIR
income.
and approved by HUD.
Section 236
80% of area median
The greater of 30% of adjusted
65,877
income.
income or “basic rent” as
calculated by HUD.
Public Housing
80% of area median
The greater of 30% of adjusted
76,638
income.
income or 10% of gross income.
Project-based
50% of area median
The greater of 30% of adjusted
200,455
Section 8 Rental
income.d
income or 10% of gross income.
Assistancee
Source: Prepared by CRS based on HUD Handbook 4350.3, chapter 3, paragraph 3-6, and chapter 5,
paragraphs 5-25 through 5-30; Federal Housing Programs that Offer Assistance for the Elderly, Government
Accountability Office, February 2005, p. 11; and Barbara A. Haley and Robert W. Gray, Section 202 Supportive
Housing for the Elderly: Program Status and Performance Measurement, U.S. Department of Housing and Urban
Development, Office of Policy Development and Research, June 2008, p. 38.
a. Income limits are subject to exceptions. This table provides information on the majority of housing units for
each program.
b. The units are those in use as of 2005. The number of units does not include units for non-elderly residents
with disabilities and includes only those units specifically designated for elderly residents (elderly residents
may also reside in units not specifically designated for their use).
c. Although it was not mandated that Section 202 projects serve tenants with low incomes beginning in 1974,
the availability of project-based Section 8 rental assistance for low-income tenants meant that eligibility for
most Section 202 units was the same as that for the Section 8 program—80% of area median income.
d. In 1981, P.L. 97-35 required that the majority of units receiving project-based Section 8 rental assistance
must be made available to very low-income households.
e. Note that the Section 8 project-based units do not include Section 202 units that receive Section 8 rental
assistance.
Supportive Services and Assisted Living Programs
Four federal programs are available to provide services for elderly residents who live in HUD-
subsidized buildings. The programs are the Congregate Housing program, the Service
Coordinator program, the Resident Opportunity and Self Sufficiency (ROSS) Service Coordinator
program, and the Assisted Living Conversion program. Three of the four programs—Congregate
Housing, Service Coordinator, and Assisted Living Conversion—base their services on whether
residents are considered to be either frail elderly or at-risk elderly. In the ROSS program, services
are available whether residents are frail or not. Whether individuals are frail elderly or at-risk
elderly depends on their ability to engage in activities of daily living (ADLs). ADLs consist of
five or six categories of activities considered necessary for an individual to maintain independent
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Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents
functioning and their own personal care; the number of categories of activities varies slightly by
program. The five common categories of activities included in all three programs are
• eating, which includes cooking and serving food;
• dressing;
• bathing, which includes getting in and out of a tub or shower;
• grooming; and
• home management, which includes housework, shopping, and laundry.93
The Congregate Housing program contains one additional ADL focused on an individual’s ability
to move, and includes getting in and out of chairs, walking, going outdoors, and using the toilet.
Residents who are age 62 or older and unable to perform at least three ADLs to some degree are
considered frail, while those who are unable to perform one or two ADLs are considered at risk.94
However, each of the three programs specifies that residents must be able to participate in ADLs
at some minimal level. For example, residents must be able to feed, dress, and wash themselves;
be able take care of their personal appearance; and be mobile (including use of a wheelchair). In
the Congregate Housing and Assisted Living Conversion programs, residents qualify for
assistance on an individual basis, while in the Service Coordinator program, entire buildings are
eligible for services if a high enough percentage of residents is frail or at risk.
Congregate Housing
The Congregate Housing Services program, enacted as part of the Housing and Community
Development Amendments of 1978 (P.L. 95-557), was the first federal program to make funds
available so that HUD housing facilities could provide services for elderly residents. The purpose
of the program was to prevent senior residents of Section 202 and Public Housing developments
from moving to nursing homes by providing meals and other supports like housekeeping, case
management, personal care, and transportation. In 1990, the Cranston-Gonzalez National
Affordable Housing Act (P.L. 101-625) expanded eligible developments to include those assisted
under project-based Section 8 rental assistance contracts, and those assisted through the Section
221(d)(3) and Section 236 programs. Cranston-Gonzalez also specified that Congregate Housing
funds could be used to renovate properties to make them accessible to elderly residents with
mobility problems, and to hire service coordinators to assist residents.
Since 1995, no new Congregate Housing contracts have been awarded, but HUD continues to
fund contracts that were already in existence through funds appropriated to the Service
Coordinator program (described below).95 Current regulations provide that HUD will pay up to
93 For the Service Coordinator and Assisted Living Conversion programs, ADLs are listed at 24 C.F.R. § 891.205. The
HUD Notices of Funding Availability for the Assisted Living Conversion program refer to 24 C.F.R. § 891.205, while
the NOFA for Service Coordinators uses an identical definition to the one in 24 C.F.R. § 891.205. ADLs for the
Congregate Housing program are listed at 24 C.F.R. § 700.105.
94 The at-risk category applies only to the Service Coordinator program.
95 Although the President’s budget for FY1996 did not propose funds for the Congregate Housing program, it did
propose that projects similar to the Congregate Housing program would be funded through a new initiative called the
Housing Certificates for Families and Individuals Performance Funds program. Congress did not appropriate funds for
the program.
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Section 202 and Other HUD Rental Housing Programs for Low-Income Elderly Residents
40% of Congregate Housing costs, grant recipients must pay 50% of costs, and elderly
participants must make payments that total at least 10% of total program costs.96 Not all project
residents are eligible for Congregate Housing services. They must be frail: defined as deficient in
at least three ADLs.97 Eligible project residents are identified by a committee appointed by
grantees and made up of three individuals, at least one of whom is a medical professional, who
are competent to determine the abilities of elderly residents.98
Multi-Family Housing Service Coordinators
Service coordinators in HUD developments for elderly persons and persons with disabilities work
with residents to provide a wide range of services. These include the arrangement of
transportation; meal services; housekeeping; medication management; visits from nurses,
dentists, and massage therapists; haircuts; and social activities. Service coordinators became
eligible for funding through the Section 202 program starting in 1990 (P.L. 101-625). HUD
developments funded through the Section 221(d)(3) and Section 236 programs were made
eligible for service coordinator funding in the Housing and Community Development Act of 1992
(P.L. 102-550).99 In 2000, the law was further amended to allow service coordinators to assist
those elderly residents and residents with disabilities living in the vicinity of the HUD-subsidized
buildings in which the service coordinators work (P.L. 106-569).
Funding for the Service Coordinator program is awarded on a competitive basis. Owners of
eligible properties may apply for funds on an annual basis through HUD’s grant process.100 To
qualify, at least 25% of residents in a development must be considered frail elderly, at-risk
elderly, or disabled non-elderly.101 Applicants must also show that they have no other funds
available to pay for a service coordinator. Grants are made for three years and are renewable.
Resident Opportunity and Self-Sufficiency (ROSS) Service
Coordinators Program
The ROSS program was established in the FY1999 HUD Appropriations Act (P.L. 105-276) to
assist Public Housing residents making the transition from welfare to work, and to provide
service coordinators and supportive services for elderly residents and residents with disabilities
living in designated Public Housing developments.102 The ROSS program for those making the
transition from welfare to work was referred to as the ROSS Family Self-Sufficiency program,
whereas the program for elderly residents was referred to as the ROSS Elderly/Persons with
96 24 C.F.R. § 700.145.
97 24 C.F.R. § 700.135.
98 HUD Handbook 4640.1: Congregate Housing Services Program Operating Procedures, November 6, 1996, chapter 2,
paragraph 2-8, http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/4640.1/46401c2HSGH.pdf.
99 See Section 676.
100 Note that Section 202 developments that receive PRAC rental assistance are not eligible for service coordinator
funds. Instead, they may request an increase in their rental assistance payments to support a service coordinator.
101 This requirement is present in HUD’s Notice of Funding Availability for Service Coordinators. The most recent
NOFA can be found on HUD’s website, http://www.hud.gov/offices/adm/grants/nofa09/scmhsec.pdf.
102 See the program’s first Notice of Funding Availability, Federal Register, vol. 64, no. 153, August 10, 1999, p.
43543.
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Disabilities program.103 In the FY2008 grant year, HUD combined the ROSS Elderly/Persons
with Disabilities program with the ROSS Family and Homeownership Program to become one
grant program: ROSS Service Coordinators.104
The ROSS program is much like the Service Coordinator program. Its service coordinators may
arrange for meals, transportation, housekeeping, health and nutrition programs, case management,
job training, and assistance with personal care.105 ROSS funds are made available annually to
PHAs, tribes, and nonprofit organizations through a competitive grant process. Awards are based
on factors that include (1) the applicant’s capacity and resources to implement services using a
service coordinator; (2) the need for service coordinators and supportive services in the
community, together with identification of service providers to meet the need; (3) the applicant’s
ability to leverage additional resources; and (4) the development of a system to measure the
grantee’s performance.106 The ROSS program requires grant recipients to provide a 25% cash or
in-kind match to the federal grant, and initial grants are made for three years. Beginning in
FY2008, unlike previous grant years, recipient grantees may only use funds to pay for service
coordinators, not for the services themselves.
Most recently, in FY2009 HUD made $28 million available for Service Coordinator contracts;107
this includes all service coordinators, not just the Elderly/Persons with Disabilities program.
When ROSS last separated funding for elderly residents and residents with disabilities, in
FY2007, $16.7 million was awarded to grantees.108
Assisted Living Conversion
The HUD Appropriations Act of FY2000 (P.L. 106-74) created the Assisted Living Conversion
program to allow HUD-subsidized facilities for elderly residents to modify their apartments and
common areas to accommodate elderly persons and persons with disabilities who need additional
assistance in order to remain in their units.109 HUD-funded buildings developed under the Section
202 program, Section 236 program, and Section 221(d)(3) program, or units supported by project-
based Section 8 rental assistance, are eligible to apply for funds. Owners may use funds to
convert some or all units in a building for use as assisted living units.
HUD’s definition of an assisted living facility contains three parts: (1) the facility is licensed and
regulated by the state in which it is located, (2) it provides supportive services to assist residents
103 Prior to the ROSS program, grants were available from HUD to Public Housing Authorities to fund service
coordinators beginning in FY1994 (P.L. 103-124), and congregate housing and supportive services beginning in
FY1996 (P.L. 104-134).
104 See FY2008 Resident Opportunity and Self-Sufficiency Programs Webcast Presentation, May 13, 2008,
http://www.hud.gov/offices/adm/grants/nofa08/grpross.cfm.
105 HUD FY2009 Notice of Funding Availability for ROSS, pp. 15-20, http://www.hud.gov/offices/adm/grants/nofa09/
rossscsec.pdf.
106 Ibid., pp 20-30.
107 U.S. Department of Housing and Urban Development, Notice of Funding Availability (NOFA) for HUD’s Fiscal
Year 2009 Resident Opportunity and Self-Sufficiency (ROSS)—Service Coordinators Program, p. 3,
http://www.hud.gov/offices/adm/grants/nofa09/rossscsec.pdf.
108 U.S. Department of Housing and Urban Development, “HUD Awards $50 Million to Aid Seniors and Families Who
Live in Public Housing,” press release, March 4, 2008, http://archives.hud.gov/news/2008/pr08-027.cfm.
109 The statute governing the Assisted Living Conversion program is at 12 U.S.C. § 1701q-2.
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in carrying out activities of daily living, and (3) it has separate housing units for residents,
together with common rooms.110 There is no uniform state definition for what constitutes an
assisted living facility, and the level of care required by state law varies.111 Requirements for
physical standards such as unit size and the presence of a kitchen also vary from state to state.
Recipients of assisted living conversion grants must comply with state or HUD requirements
regarding physical standards, whichever are more stringent. To be eligible for Assisted Living
Conversion funds, HUD requires that facilities contain a central kitchen and lounge and/or
recreational areas available to all residents.112 HUD also requires that assisted living facilities
meet certain program requirements and construction requirements. Program requirements include
staff ability to respond to a crisis 24 hours a day, supervision of nutrition and medication for
dependent residents, and the availability of three meals per day.113 Construction requirements
include bathrooms that are accessible to persons with disabilities and a 24-hour emergency
response system in each unit.114
Owners of eligible properties may apply for assisted living conversion funds through HUD’s
annual NOFA process. Grant recipients may use the funds to make units accessible by installing
grab bars, widening doors, installing accessible appliances and counters, and adding emergency
alert systems, among other modifications.115 Grant recipients may also use funds to renovate
common spaces for kitchen, dining, or recreational use, and to provide furniture, appliances, and
equipment for those areas.
110 12 U.S.C. §1715w(b)(6).
111 For more information on state requirements, see Robert Mollica, Kristin Sims-Kastelein, and Janet O'Keeffe,
Residential Care and Assisted Living Compendium: 2007, U.S. Department of Health and Human Services, November
30, 2007, http://aspe.hhs.gov/daltcp/reports/2007/07alcom.htm.
112 See FY2009 Notice of Funding Availability for the Assisted Living Conversion Program, p. 3, http://www.hud.gov/
offices/adm/grants/nofa09/alcpsec.pdf.
113 Ibid., pp. 11-15.
114 HUD Handbook 4600.1: Residential Care Facilities—Nursing Homes, Board and Care Homes, and Assisted Living
Facilities, January 17, 1995, chapter 13, paragraph 13-7.
115 Ibid., p. 27283.
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Table 2. Supportive Services and Assisted Living Programs
Developments that Qualify
Programs
for Services
Eligibility
Congregate Housing
Section 202
Frail elderly and non-elderly persons
Section 221(d)(3)
with disabilities.
Section 236
Project-based Section 8 Rental Assistance
Service Coordinator
Section 202
All residents if at least 25% of
Section 221(d)(3)
residents are frail elderly, at-risk
Section 236
elderly, or non-elderly persons with
disabilities.
ROSS Public
Housing
All
residents.
Assisted Living Conversion
Section 202
Frail elderly and non-elderly persons
Section 221(d)(3)
with disabilities.
Section 236
Project-based Section 8 Rental Assistance
Source: Prepared by CRS on the basis of 42 U.S.C. § 8011(k)(6) and (7); Notice of Funding Availability for
Service Coordinators, Federal Register, vol. 72, no. 48, March 13, 2007, pp. 11691; P.L. 105-276; 12 U.S.C. §
1701q-2.
Funding and Current Issues
Funding
The Section 202 program has been proposed for funding reductions under the administrations of
both President Bush and President Obama. From FY2007 through FY2009, the Bush
Administration proposed to reduce the combined funding level for the programs that provide
housing and services for elderly households (primarily the Section 202 program, but also Service
Coordinators and the Assisted Living Conversion Program)—by 26% in FY2007, by 22% in
FY2008, and by nearly 27% in FY2009. However, in each of these fiscal years Congress did not
reduce funding for the program.
In FY2010, President Obama proposed to maintain funding for Section 202 and related programs
at $765 million. However, in FY2011 the Administration proposed that no new units of Section
202 housing be funded in order to give HUD time to “redesign” the program.116 The proposal
would have resulted in reduced funding in FY2011: $274 million compared to $825 million in
FY2010. As of the date of this report, neither the House-passed appropriations bill (H.R. 5850)
nor the Senate Committee-passed bill (S. 3644) follow the President’s proposal.
See Table 3 for Section 202 funding levels from previous years, as well as funding for the
multifamily Service Coordinator and Assisted Living Conversion programs. For more
information about current year appropriations, see CRS Report R41233, The Department of
Housing and Urban Development (HUD): FY2011 Appropriations, coordinated by Maggie
McCarty.
116 U.S. Department of Housing and Urban Development, FY2011 Budget Summary: Investing in People and Places,
pp. 20-21, http://hud.gov/budgetsummary2011/full-budget-2011.pdf.
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The Administration’s Proposal to “Redesign” the Section 202 Program
The FY2011 HUD budget proposed several ways in which the Section 202 program could be
modernized in order to better reflect the way in which affordable housing units are financed and
developed. HUD budget documents described the Section 202 program as follows:
Simply put, 202 ... currently exhibit[s] some of the worst elements of two different
approaches to housing finance: project sponsors no longer receive enough funding per grant
for the [202 program] to be a “one-stop shop” to capitalize and sustain a project, yet they are
subject to bureaucratic oversight commensurate with such a model. This regulatory structure
also makes it difficult for project sponsors to work with other financing streams, such as low
income housing tax credits, even as the average grant size requires accessing other capital
sources. As a result, project development is slowed and, coupled with outdated geographic
allocation [formula], limited resources are spread too thin to reach scale at either the project
or national programmatic levels.117
While HUD currently takes into account an applicant’s ability to secure other sources of financing
in the competition for Section 202 grants, the FY2011 HUD budget proposed that applicants for
Section 202 grants be required to secure funding from other sources. HUD budget justifications
also outlined other proposals for Section 202 housing; one of these issues is the capacity of
Section 202 grantee organizations to develop housing. Due to the complex financing
arrangements often needed to complete Section 202 housing, HUD contended that standards for
grant applicants should be raised to ensure that developers have sufficient expertise and
experience in developing affordable housing.
The Administration also proposed to change the way in which Section 202 funds are awarded to
grantees. Currently, HUD uses a need-based formula to allocate the total amount of Section 202
funds available for capital grants and project-based rental assistance in a fiscal year to each of the
18 HUD multifamily hubs. Of the funds available, HUD allocates 85% to metropolitan areas and
15% to non-metropolitan areas. This method ensures funding for a minimum number of units for
each multifamily hub. However, sometimes the number of units, particularly in rural areas, may
be so small as to be difficult to sustain. (For example, in the FY2009 competition some non-
metropolitan allocations were sufficient to support only five units of housing.118) HUD proposed
to change the distribution of funds by allocating units according to demand for housing rather
than geography, and to establish minimum project sizes so that developments are economically
sustainable.
HUD also proposed that supportive services play a greater role in Section 202 housing through a
partnership between HUD and the Department of Health and Human Services (HHS) to provide
integrated housing and supportive services through programs such as the HHS Program of All-
Inclusive Care for the Elderly (PACE).119 In PACE, elderly individuals who meet a nursing home
level of care receive Medicare- and Medicaid-financed health care and supportive services at a
central location while continuing to live in their homes. According to HUD’s proposal,
117 Ibid., p. 20.
118 U.S. Department of Housing and Urban Development, Notice of Funding Availability (NOFA) for HUD’s Fiscal
Year 2009 Section 202 Supportive Housing for the Elderly, August 20, 2009, pp. 7-9, http://www.hud.gov/offices/adm/
grants/nofa09/sec202esec.pdf.
119 For more details, see HUD’s FY2011 Section 202 Budget Justification, http://hud.gov/offices/cfo/reports/2011/cjs/
Housing_For_The_Elderly_2011.pdf.
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developing common space for a PACE site within a Section 202 development would be an
eligible project cost. The PACE site would be open to residents in the community as well as those
who live in the Section 202 development.
Table 3. Funding for Selected Programs, FY2001-FY2011
(dollars in millions)
Section 202a
Service Coordinators
Assisted Living Conversion
Fiscal
President’s
President’s
President’s
Year
Requestb Appropriation Request Appropriation Request Appropriation
2001 629.0
677.0
50.0
49.9
100.0c 49.9
2002 683.5
682.6
49.9
50.0
49.9
50.0
2003 699.4
678.5
44.0d 49.6 30.0 24.8
2004 690.2
698.7
53.0
29.8
30.0
24.8
2005 690.2
648.3
53.0
49.6
30.0
24.8
2006 657.6
634.7
53.0
51.1
30.0
24.6
2007 459.4
638.7
59.4
51.1
24.8
24.6
2008 477.9e 636.3f 71.0 59.8 24.8 24.8
2009 433.4g 648.4h 80.0 90.0 25.0 25.0
2010 650.0
688.1i 90.0 90.0 25.0 40.0
2011 181.9
—
89.1
—
0
—
Source: Prepared by CRS on the basis of FY2000-FY2011 HUD Budget Justifications, the President’s budget
proposals for FY2001-FY2011, P.L. 111-8, and P.L. 111-117.
a. Unless otherwise noted, Section 202 includes funds for new capital grants, new project rental assistance,
and renewals of project rental assistance contracts.
b. The President’s budget requests do not specify a total amount for Section 202 capital grants and rental
assistance. CRS arrived at the amounts proposed for Section 202 by subtracting the proposed funding for
Service Coordinators, the Assisted Living Conversion Program, and the Working Capital Fund (if any) from
the total proposed for the Housing for Special Populations or Housing for the Elderly Account.
c. In FY2001, the President’s budget proposed two different sets of funds for assisted living for a total of $100
million. Of that amount, $50 million would have been allocated to the Assisted Living Conversion Program
and $50 million would have been devoted to making 20% of units in new assisted living facilities insured
under HUD’s Section 232 program available for low-income individuals.
d. The President’s FY2003 budget proposed to fund the Service Coordinator program at $53 million, in part
through the use of recaptured funds, but would have appropriated $44 million in new funds.
e. The President’s request for Section 202 in FY2008 would have included $25 million for a demonstration
program to help Section 202 grantees leverage additional resources. This is included in the $477.9 million
figure.
f.
The FY2008 appropriation included funds for planning grants.
g. The President’s FY2009 Section 202 request included $15 million for a demonstration program to help
Section 202 grantees leverage additional resources and $2 million to provide technical assistance for grant
applicants. Both of these amounts are included in the $433.4 million requested for Section 202.
h. The FY2009 appropriation included funds for planning grants, technical assistance, and a delegated
processing demonstration project.
i.
The appropriation for FY2010 is an estimate; it includes funds for planning grants.
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Refinancing Section 202 Loans
Many of the housing developments built during the loan phase of the Section 202 program (from
approximately 1959 to 1990) are getting older and may be in need of repair and modernization.
One way in which property owners may obtain funds for improving their properties is by
refinancing their original Section 202 loans. Some of the older buildings may have a good deal of
equity available, and owners may also be in a position to take advantage of lower interest rates.
Congress initially addressed the prepayment and refinancing of Section 202 loans in 1984 (P.L.
98-181) by allowing prepayment as long as property owners continue to operate their properties
on terms at least as favorable to tenants as the terms under the original loan agreement up through
the original date of loan maturity. In 2000, the American Homeownership and Economic
Opportunity Act (P.L. 106-569) added that if there is a rental-assistance contract in place, the
property owner must continue to operate under the terms required by the rental-assistance
contract through loan maturity.
The Section 202 statute places restrictions on when Section 202 property owners may pay off
their Section 202 loans through refinancing. First, most owners of Section 202 properties must
have HUD approval to prepay their Section 202 loans.120 In addition, P.L. 106-569 added the
requirement that the new loan must result in a lower interest rate and reduced debt service
payments. For owners of Section 202 properties that were financed prior to 1974, when interest
rates were set at about 3%, it is difficult, if not impossible, to meet the requirement of a lower
interest rate and reduced debt service. As a result, these owners have not been able to refinance
their Section 202 loans.
To make refinancing available to owners of Section 202 projects developed prior to 1974, the
FY2009 Omnibus Appropriations Act (P.L. 111-8) and the FY2010 Consolidated Appropriations
Act (P.L. 111-117) included language that broadened the refinancing provisions of the Section
202 program.121 However, the refinancing provisions do not specifically amend existing law, so
they are in effect only for the duration of the fiscal year that the appropriations law is in effect
Under P.L. 111-117, owners are to be able to refinance loans with interest rates at or below 6% in
order to address a property’s physical needs (and would not necessarily be required to refinance
into a loan with a lower interest rate and reduced debt service). These refinancing transactions for
loans with interest rates at or below 6% also have several other requirements:
• the transactions have to meet a cost benefit analysis to be established by HUD;
• the transactions cannot result in increased costs for project-based Section 8 rental
assistance except under certain circumstances; 122
• with the approval of HUD, owners can raise tenant rents in order to meet
increased debt service and operating costs if insufficient project-based Section 8
120 Some Section 202 loans made during the late 1970s and early 1980s may be prepaid without HUD approval.
121 See Section 234 of “General Provisions—Department of Housing and Urban Development” in Division I of the
FY2009 Omnibus Appropriations Act and Section 229 of the FY2010 Consolidated Appropriations Act.
122 Rents may increase pursuant to mark-up-to-market and mark-up-to-budget transactions under the Multifamily
Assisted Housing Reform and Affordability Act (MAHRA). For more information about MAHRA, see CRS Report
R41182, Preservation of HUD-Assisted Housing, by Maggie McCarty and Libby Perl. The relevant section of the
report is entitled “Section 8 Expiring Contracts, Renewals, and the Multifamily Assisted Housing Reform and
Accountability Act (MAHRA).”
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rental assistance is available to meet these costs. However, HUD’s approval of
increased tenant rents would be “the basis for the owner to agree to terminate the
project-based rental assistance contract,” triggering tenant eligibility for
enhanced Section 8 vouchers;
• when tenants who receive enhanced vouchers as a result of refinancing terminate
their occupancy, those units would become eligible for project-based Section 8
rental assistance; and
• owners have to enter into a use agreement to maintain affordability of units for
20 years beyond the maturity date of the original Section 202 loan.
On July 27, 2010, HUD released a notice with policies and procedures governing the refinancing
of Section 202 loans extended prior to 1975.123 According to the notice, improvements to the
property must reach the level of “substantial rehabilitation,” defined in HUD’s Multifamily
Accelerated Processing Guide. Under this definition, owners must either (1) replace at least two
major building components,124 or (2) incur costs that exceed the greater of 15% of the building’s
fair market value after rehabilitation or $6,500 per unit, adjusted by the HUD high cost
percentage.125 The notice also sets out the cost-benefit analysis that HUD will undertake in
evaluating requests to refinance.
In addition to language in the FY2009 and FY2010 appropriations laws, legislation has been
introduced in the 111th Congress that contains similar refinancing language, and that would
permanently amend the Section 202 statute. For more information about this legislation (S. 118
and H.R. 4868), see the next section of this report.
Legislation
The Section 202 Supportive Housing for the Elderly Act (S. 118)
A bill that would make some changes and additions to current law governing the Section 202
program has been introduced in the 111th Congress. The Section 202 Supportive Housing for the
Elderly Act of 2009 (S. 118) is similar to two bills that were introduced in the 110th Congress—
H.R. 2930 (which was passed by the House) and S. 2736. The version of the bill introduced in the
111th Congress would address the financing of new Section 202 projects as well as how existing
properties are refinanced. S. 118 would also change the definition of assisted living facilities in
the Assisted Living Conversion Program.
Most provisions of S. 118 have been included in the Housing Preservation and Tenant Protection
Act (H.R. 4868), a bill that was introduced in the House on March 17, 2010, and approved by the
Financial Services Committee on July 27, 2010.
123 U.S. Department of Housing and Urban Development, Notice H 2010-14, Policy and Procedure for Prepayment
and Refinancing of Section 202 Projects Funded prior to 1975, July 27, 2010, http://portal.hud.gov/portal/page/portal/
HUD/program_offices/administration/hudclips/notices/hsg/files/10-14hsgn.doc.
124 The Guide defines major building components as “roof structures; wall or floor structures; foundations; and
plumbing, central heating and air conditioning systems, or electrical systems.”
125 U.S. Department of Housing and Urban Development, Multifamily Accelerated Processing Guide, revised March
15, 2002, Section 5-12, http://www.hud.gov/offices/hsg/mfh/map/mapguide/mapguide.pdf.
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In the area of financing for new Section 202 developments, S. 118 would provide that, upon
expiration of a contract for Section 202 rental assistance, HUD will adjust the contract to account
for reasonable project costs as well as the increased costs of project reserves, service
coordinators, and supportive services. The bill would also make a change to the definition of
“private nonprofit organization.” Under current law, nonprofits must have governing boards that
are responsible for operation of the Section 202 project. In order to fulfill this requirement,
national nonprofit organizations often create stand-alone nonprofit sponsors. S. 118 would allow
national nonprofit sponsors to form local advisory boards rather than separate nonprofits to fulfill
this requirement. Another provision in S. 118 would give Section 202 project owners the
authority to give a preference to homeless elderly applicants by either requesting the preference in
their initial application for HUD funds or making their request after funds have been awarded.
S. 118 would also address the refinancing of existing Section 202 properties. A similar proposal
for refinancing Section 202 mortgages was included in the FY2009 and FY2010 appropriations
acts, described in the previous section, “Refinancing Section 202 Loans.” The change would
allow owners of older Section 202 developments (those funded prior to 1974) to refinance in
order to address the property’s physical needs. Under current law, owners may refinance their
Section 202 mortgages if the refinancing “results in a lower interest rate on the principal of the
loan for the project and in reductions in debt service” (i.e. reduced principal and interest
payments).126 Owners that refinance are required to maintain affordability through the term of the
original Section 202 loan. S. 118 would extend the term of affordability to 20 years beyond the
term of the original Section 202 loan. Unlike the FY2010 Consolidated Appropriations Act (P.L.
111-117), in which only those owners with loans that have interest rates at or below 6% must
extend the affordability term by 20 years, S. 118 would extend the term for all owners that
refinance.
The bill also outlines the ways in which owners would be able to use proceeds from a refinancing.
Current law describes how savings that result from a refinancing can be used for various purposes
and requires that at least 50% be used in a manner that is advantageous to tenants.127 S. 118 would
amend this section of the law. While S. 118 would allow owners to use proceeds from a
refinancing in a manner that is advantageous to tenants, it would also allow owners to use
proceeds to provide affordable rental housing and social services for elderly persons generally,
without a requirement that they be tenants of the property being refinanced. Examples of the ways
in which owners could use refinancing proceeds that are listed in S. 118 include supportive
services without limitation (the current law limit is 15% of savings resulting from refinancing),
payment of developers’ fees, and payment of equity to the owner. Additionally, a provision in S.
118 would limit HUD’s ability to put conditions on the amount of proceeds that Section 202
owners may realize from a sale or refinancing, or the way in which owners use the proceeds.
HUD would only be able to impose conditions on the amount or use of proceeds if there was an
existing contract between HUD and the project owner that authorized the conditions.
Another change to existing law contained in S. 118 would be a new “preservation project rental
assistance” program for owners with Section 202 units that were built prior to 1974, when most
units did not receive rental assistance.128 The rental assistance would be available if owners chose
126 12 U.S.C. § 1701q, note.
127 Ibid.
128 However, some pre-1974 properties later received rental assistance through the Rent Supplement program and the
Loan Management Set Aside program.
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to refinance in order to prevent displacement of tenants. This differs from provisions in the
FY2010 Consolidated Appropriations Act, where tenants are to receive enhanced Section 8
vouchers when owners refinance.
The bill would also create a mortgage sale demonstration program in which up to five states could
participate. HUD would sell portfolios of Section 202 loans to state Housing Finance Agencies
(HFAs) in participating states. The purpose of the program would be to demonstrate the
“efficiency, effectiveness, quality, and timeliness of asset management and regulatory oversight
...” by state HFAs. S. 118 would require the HUD Secretary to conduct a study of the
demonstration program and release a report with findings and recommendations.
S. 118 would also change the definition of “assisted living facility” in the Assisted Living
Conversion Program. Under current law, an assisted living facility is owned by a private nonprofit
organization, is licensed by the state (or locality), makes available certain supportive services, and
provides separate dwelling units for residents. The bill would change the definition so that private
nonprofit organizations may meet the requirements either through state or local licensure or by
providing certain supportive services through “recognized and experienced third party service
providers” at the request of residents. The new definition would continue to require nonprofit
ownership and provision of separate dwelling units.
Another section of S. 118 would create a National Senior Housing Clearinghouse within HUD to
disseminate information about available rental units for elderly tenants and characteristics of
those rental units. The Clearinghouse would include not only units in Section 202 facilities, but
also units subsidized through the Section 8 program, the Low-Income Housing Tax Credit, the
Assisted Living Conversion program, and other programs that subsidize units dedicated for use
by elderly households. Information would be made available to prospective residents through a
website and a toll-free number.
Legislation Enacted in the 110th Congress
The Housing and Economic Recovery Act of 2008 (P.L. 110-289), which was enacted on July 30,
2008, included a provision to direct HUD to delegate to state housing finance agencies (HFAs)
the ability to process Section 202 capital grants. Under this provision, those grantee organizations
that are awarded Section 202 capital grants, and that also intend to use Low Income Housing Tax
Credits to develop their properties, may have their state HFA review and process the capital grant
instead of HUD. Because HFAs are the agencies that administer tax credits, delegating the
processing of the Section 202 capital grant to the HFA, together with the tax credit, is thought to
be more efficient. As part of the delegated processing, HFAs may recommend project rental
assistance in excess of the amount awarded by HUD, though an increase is subject to HUD
approval.
Preservation of Federally Assisted Housing
The housing finance and rental assistance programs discussed in this report all operate through
private for-profit or nonprofit entities. In the Section 202, Section 221(d)(3), and Section 236
programs, HUD entered into agreements with private owners to maintain affordable housing for a
period of years, ranging from 20 years to 50 years. Similarly, HUD has entered into rental
assistance contracts with many owners to provide rental support for the units for a period of time.
The affordability terms agreed to by property owners participating in these programs, sometimes
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referred to as “affordability restrictions,” began to come to an end in the 1980s. When the
restrictions on these properties end, there is a risk that they will become unaffordable to low- and
moderate-income tenants, and that those tenants will be displaced. Efforts to maintain the
affordability of the remaining HUD-assisted properties as their affordability restrictions come to
an end are often referred to as “assisted housing preservation.”
Affordable housing units may be converted to market-rate housing under several circumstances.
First, when HUD-subsidized mortgages or direct loans reach maturity or when owners decide to
prepay their mortgages, they may decide to convert the units to market-rate rentals. A second
possibility is that owners receiving project-based Section 8 rental assistance could lose or
terminate their contracts. A third concern is that owners of older buildings will not have enough
funds to modernize or renovate deteriorating facilities, and units will be unavailable because they
are not habitable. The possibilities vary depending on the type of mortgage subsidy program or
rental assistance contract. Below is a brief summary of how HUD assistance can come to an end.
For more information about the issue of HUD-assisted housing preservation, see CRS Report
R41182, Preservation of HUD-Assisted Housing, by Maggie McCarty and Libby Perl.
• Loan Maturity—Owners of Section 202, Section 221(d)(3), and Section 236
financed properties may convert units to market-rate rents upon mortgage
maturation provided there is no rental assistance contract attached to the unit. For
units receiving Section 8 assistance, the assistance continues until the end of the
contract (although the contract may be renewed after loan maturation), at which
point tenants receive Section 8 vouchers. In the case of RAP and Rent
Supplement, the rental assistance contracts generally end at loan maturity.
Tenants receiving assistance under Rent Supplement do not receive Section 8
vouchers, while RAP-assisted tenants are eligible for vouchers.
• Loan Prepayment—Many, though not all, owners of Section 221(d)(3) and
Section 236 properties can prepay their HUD-insured mortgages without HUD’s
permission and end affordability restrictions. However, income-eligible tenants
receive Section 8 vouchers.
• Opt Out of Rental Assistance Contracts—When owners opt out of Section 8
contracts, assisted tenants receive Section 8 vouchers. Tenants receiving
assistance under Rent Supplement do not receive Section 8 vouchers, while RAP-
assisted tenants are eligible for vouchers.
Children Living in Housing Developments for Elderly Residents
According to Census estimates, in the year 2000 approximately 2.4 million grandparents were
raising grandchildren, and of that number 19% of the grandparents were poor.129 The number of
grandparent caregivers has risen over the course of the decade according to a 2010 report from
the Pew Research Center, reaching 2.6 million in 2008.130 Of the grandparents caring for
grandchildren in 2008, nearly 18% were estimated to be poor.
129 Tavia Simmons and Jane Lawler Dye, Grandparents Living with Grandchildren: 2000, U.S. Census Bureau,
October 2003, pp. 1, 9, http://www.census.gov/prod/2003pubs/c2kbr-31.pdf.
130 Paul Taylor, Gretchen Livingston, and Kim Parker, et al., Since the Start of the Great Recession, More Children
Raised by Grandparents, Pew Research Center, September 9, 2010, http://pewsocialtrends.org/assets/pdf/764-children-
raised-by-grandparents.pdf.
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The HUD guidelines governing the Section 202, Section 221(d)(3), Section 236, and certain
project-based Section 8 assistance programs specifically prohibit the exclusion of children from
these developments (“owners may not exclude otherwise eligible elderly families with children
from elderly properties ...”).131 Guidelines governing Public Housing developments are less
specific, although the guidance states that “there is nothing in the definition of elderly family that
excludes children. Many elderly families today consist of grandparents with custody of
grandchildren. This is an elderly family.”132
Even if developments designed for elderly residents do allow children, however, they might not
be equipped to serve families with both elderly members and young children. For example, most
units in elderly housing developments are either efficiencies or have only one bedroom, and may
not have the space to accommodate family members. In addition, elderly developments might
lack common spaces where children might play, or the after-school programs that are often a part
of HUD-subsidized complexes for families.
In order to address the growing number of grandparents raising grandchildren, Congress enacted
the Living Equitably—Grandparents Aiding Children and Youth (LEGACY) Act in 2003 as part
of the American Dream Downpayment Act (P.L. 108-186). The LEGACY Act provides for the
funding of housing units in the Section 202 program for elderly residents raising grandchildren or
other relatives age 19 or younger. Congress did not fund the LEGACY Act until FY2006, when it
appropriated $3.96 million for an Intergenerational Families Demonstration Project. On April 25,
2008, HUD released a Notice of Funding Availability (NOFA) to solicit grant applications for
LEGACY Act funds.133 In December 2008, HUD announced two awardees, both of which
received capital grants and rental assistance: one project consisting of 10 units will be located in
Chicago, while the other, consisting of nine units, will be in Smithville, TN.134
The LEGACY Act also called for HUD, together with the Census Bureau, to produce a study of
the affordable housing needs of grandparents raising grandchildren. In April 2008, HUD released
a Report to Congress on Intergenerational Housing Needs and HUD Programs.135 The report
describes the number, characteristics, and housing conditions of grandparent-headed households
and households with other relatives raising related children. The report estimated that 265,000
grandparent-headed households and 225,000 households headed by other relatives would qualify
for assistance under the LEGACY Act.136
131 HUD Handbook 4350.3, chapter 3, paragraph 3-23, http://www.hud.gov/offices/adm/hudclips/handbooks/hsgh/
4350.3/43503c3HSGH.pdf.
132 HUD Public Housing Occupancy Guidebook, June 2003, Section 2.2, p. 25, http://www.hud.gov/offices/pih/
programs/ph/rhiip/phguidebooknew.pdf.
133 See Notice of Funding Availability for FY2007 Demonstration Program for Elderly Housing for Intergenerational
Families, Federal Register, vol. 73, no. 81, April 25, 2008, pp. 22759-22776.
134 See HUD’s funding announcement, http://www.hud.gov/offices/hsg/mfh/eldfam/announcement.pdf.
135 The report is available at http://www.huduser.org/Publications/pdf/intergenerational.pdf, and the data tables are at
http://www.huduser.org/Publications/pdf/intergenerational_tables.pdf.
136 Ibid., p. 6.
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Author Contact Information
Libby Perl
Specialist in Housing Policy
eperl@crs.loc.gov, 7-7806
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