In May, 2000, HUD Issued Notice H 00-8, Guidelines for Continuation of Interest Reduction Payments ("IRP") after Refinancing. This preservation initiative has proven successful in providing owners and acquirers with additional resources to support comprehensive recapitalization and preservation of aging Section 236 properties. Given the newness of the program and inherent complexity in such transaction types, owners contemplating retention of the Section 236 IRP should expect intensive review and collaboration by the HUD field office, HUD Headquarters, the new lender, Section 8 Contract Administrator, and other involved state or local governments.

In the opening statement of Notice H 00-8, HUD indicates that it would consider making changes to the IRP Decoupling processing guidelines upon gaining more experience with these transaction types and understanding the tools that are critical to successful recapitalizations under this program. Since issuance of HUD Notice H 00-8 in May, 2000, HUD has revised and clarified certain provisions of the Notice which has resulted in some significant program changes that improve the viability of these IRP Decoupling Transactions.

Originally introduced an Emergency Initiative in June 1999 to provide incentives for owners to maintain Section 8 project-based assistance at properties in strong markets, The Mark Up to Market Program has become a critical preservation tool for both owners and HUD. The Mark Up to Market Program became permanent under Section 524(a)(4)(A) of the Multifamily Assisted Housing Reform and Affordability ("MAHRA") Act in FY 2000, solidifying HUD’s commitment to preserving it’s dwindling privately-owned affordable housing stock. Under this program, owners now have the ability to obtain the comparable market-rate rent levels for all units covered under a project-based Section 8 contract and distribute the increased cash flow resulting from such rents. These incentives provide owners with an effective tool to recapitalize and preserve their properties as affordable housing.

With the publication of Notice H 2000-21 and updates in the Section 8 Renewal Guide, HUD has defined a variation of Mark Up to Market (MUM, as it has become known in the lexicon) by modifying MUM for transfers specifically to non-profits (MUM-T). Because eligibility criteria for MUM-T are significantly more liberal than for MUM-profit, owners seeking to realize value may be encouraged to sell to non-profits and non-profits may be more able to buy.

With the publication of Notice H 2000-211, HUD has extended the application of marketbased principles into non-profit owned older assisted (236 and 221d3) properties that need capital improvements. Higher rents that enable owners to fund capital improvements can be achieved via Mark Up to Budget (MUB, as it has become known in the lexicon). Notice H 2000-21 as updated in Chapter 15 of the Section 8 Renewal Guide recognizes that a non-profit owner is an owner too, and that all properties, not just for-profit properties, need capital improvements and sound operating cash flow. As with several other recent HUD initiatives, this is a step in a series of moves in the right direction, and an important new avenue for non-profit owners of these properties.