(a) For any amount of the CMF Award used for Affordable Housing Activities, 100 percent of such Eligible Project Costs must be attributable to Affordable Housing, meaning that the Affordable Housing complies with the affordability qualifications set forth in this subpart for Eligible-Income Families. Further, as a subset of said 100 percent, greater than 50 percent of the Eligible Project Costs must be attributable to Affordable Housing that comply with the affordability qualifications set forth in this subpart for Low-Income, Very Low-Income, or Extremely Low-Income Families, or as further set forth in the applicable NOFA and/or Assistance Agreement.

(b) Affordable Housing must be Permanent Housing.

(c) All the occupants of the Affordable Housing must not be full-time students unless they are:

(1) Married students who file a joint tax return;

(2) Students who receive assistance under Title IV of the Social Security Act;

(3) Students enrolled in a job training program;

(4) Students who are single parents with children who are their dependents, as defined in IRC sec. 152;

(5) Students who previously were part of a foster care program; or

(6) Meet other criteria specified by the CDFI Fund.

To qualify as Affordable Housing, each rental Multi-family housing Project financed with a CMF Award must have at least 20 percent of the units rent-restricted to any combination of Low-Income, Very Low-Income, or Extremely Low-Income Families and must comply with the rent limits as set forth in the applicable NOFA and Assistance Agreement in any CMF funding round. The CDFI Fund may require a greater percentage of the units per Project to be income-targeted and/or require a specific targeted income commitment in any given CMF round, as set forth in the applicable NOFA and Assistance Agreement.

(a) Rent limitations. The gross rent limits for Affordable Housing are further specified in the Assistance Agreement.

(b) Nondiscrimination against rental assistance subsidy holders. The Recipient shall require that the owner of a rental unit cannot refuse to lease the unit to a Section 8 Program certificate or voucher holder (24 CFR part 982, Section 8 Tenant-Based Assistance: Unified Rule for Tenant-Based Assistance under the Section 8 Rental Certificate Program and the Section 8 Rental Voucher Program) or to the holder of a comparable document evidencing participation in a HOME tenant-based rental assistance program because of the status of the prospective tenant as a holder of such certificate, voucher, or comparable HOME tenant-based assistance document.

(c) Initial rent schedule and utility allowances. The Recipient shall ensure that utility allowances and submetering rules are consistent with regulations concerning utility allowances and submetering in buildings that are subject to gross rent restrictions as set forth in the Assistance Agreement and under IRC sec. 42(g)(2), as applicable.

(d) Periods of affordability. Housing under this section must meet the affordability requirements during the Affordability Period. The affordability requirements apply without regard to the term of any loan or mortgage or the transfer of ownership and must be imposed by deed restrictions, covenants running with the land, or other recording instruments. Upon receipt of a written approval from the CDFI Fund, a Recipient may use a different recording instrument as provided for in the Assistance Agreement. The affordability restrictions are allowed to terminate upon foreclosure or transfer in lieu of foreclosure. To the extent allowed under State law, in the event of a sale of property at foreclosure, transfer in lieu of foreclosure, short sale or other types of disposition, proceeds available to pay off a mortgage financed with a CMF Award shall be treated as Program Income.

(e) Standard lease terms and conditions. All tenants occupying rental CMF Units shall be required to enter into a written lease or rental agreement setting forth the terms and requirements which are, but not limited to, compliance with applicable State and local law.

(f) Tenant income determination. (1) At the time of each initial lease and occupancy, the tenant income shall be determined to ascertain income eligibility. During the Affordability Period, the existing tenant income shall be re-examined in a manner as set forth in the Assistance Agreement. Tenant income examination and verification are ultimately the responsibility of the Recipient. Tenant income shall include income from all Family members. The Recipient must require the Project owner to obtain information on rents and occupancy of Affordable Housing financed or supported with a CMF Award in order to demonstrate compliance with this section.

(2) One of the following two definitions of “annual income” must be used to determine whether a Family is income-eligible:

(i) Adjusted gross income as defined for purposes of reporting under Internal Revenue Service (IRS) Form 1040 series for individual Federal annual income tax purposes; or

(ii) Annual Income as defined at 24 CFR 5.609 (except that when determining the income of a homeowner for an owner-occupied Rehabilitation Project, the value of the homeowner's principal residence may be excluded from the calculation of “Net Family Assets,” as defined in 24 CFR 5.603).

(3) The CDFI Fund reserves the right to deem certain government programs, under which a Family is a recipient, as income eligible for purposes of meeting the tenant income requirements under this section.

(g) Over-income tenants. (1) CMF Units continue to qualify as Affordable Housing despite a temporary noncompliance caused by increases in the incomes of existing tenants if actions satisfactory to the CDFI Fund are being taken to ensure that all vacancies are filled in accordance with this section until the noncompliance is corrected.

(2) The maximum rent for tenants whose incomes no longer qualify is either 30 percent of the Family's annual income, or the amount payable by the tenants under State or local law, whichever is less; however, tenants whose income exceeds the Eligible-Income level are not required to pay rent in excess of the market rent for comparable, unassisted units in the neighborhood.

(3) If the income of a tenant of a CMF Unit no longer qualifies, the Recipient may designate another unit within the Project as a rent-restricted replacement unit that meets the affordability qualifications for the same income category as the original unit, as further set forth in the Recipient's Assistance Agreement. If there is not an available replacement unit, the Recipient must fill the first available vacancy with a tenant that meets the affordability qualifications for the same income category of the original unit as necessary to maintain compliance with the CMF requirements and the Assistance Agreement.

(a) Purchase with or without Rehabilitation. (1) A Recipient that uses the CMF Award to finance or support the Purchase of Housing by a qualified Homebuyer must ensure that the Housing and Homebuyer meet the affordability requirements of this subpart as follows:

(i) Single-family housing. The Housing must be a Single-family housing.

(ii) Purchase price limits. The Single-family housing does not exceed the purchase price limits for the area under the HUD FHA Section 203(b) Mortgage Insurance Program, or any other index designated by the CDFI Fund as set forth in the applicable Assistance Agreement; the related mortgage must be originated based upon an assessment of whether the Homebuyer can repay the loan based on terms and conditions that are transparent and understandable to the Homebuyer, and the mortgage is affordable to the Homebuyer over the life of the loan.

(iii) Qualifying Homebuyer. The Single-family housing must be purchased by a qualifying Homebuyer.

(iv) Eligible-Income requirements. A qualifying Homebuyer must have a household income at no greater than Eligible-Income. To determine whether a Homebuyer qualifies as Eligible Income (or at any other income level specified in the Assistance Agreement) under this section, the Recipient must use the Homebuyer's adjusted gross income as defined under Internal Revenue Service (IRS) Form 1040 series for individual Federal annual income tax reporting purposes, or other methodology for determining income eligibility as provided in the Assistance Agreement. Homebuyers of one- to four- unit Single-family housing may rent the additional unit(s) as Permanent Housing if at least one unit is maintained as the principal residence of the Homebuyer.

(v) Periods of affordability. Single-family housing under this section must become the principal residence of the Homebuyer at the time of Purchase and is subject to the affordability requirements during the Affordability Period and as further set forth in § 1807.402(a)(1)(vi). The Affordability Period does not apply to additional units rented as Permanent Housing, as described in § 1807.402(a)(1)(iv).

(vi) Resale. To ensure that the CMF Awards are being used for qualifying Families during the Affordability Period, recoupment, replacement, and/or resale strategies must be established and imposed by the Recipient. A recoupment, replacement, and/or resale strategy must ensure that:

(A) In the event the qualifying Family sells the Housing in five years or less from the date of Purchase, the Housing must be sold to an Eligible-Income Family meeting the qualifications set forth in § 1807.402. Otherwise, the CMF Award investment must be recouped by the Recipient and the Housing replaced with a replacement unit to satisfy the affordability requirement for the remainder of the Affordability Period. If the Housing is replaced, the replacement unit must be sold to an Eligible-Income Family and must also meet the qualifications set forth in § 1807.402.

(B) In the event the qualifying Family sells the Housing any time after five years from the date of Purchase but before the end of the Affordability Period, the Housing must either be sold to a new Eligible-Income Family or, if the Housing is not sold to an Eligible-Income Family, the CMF investment must be recouped as Program Income in a proportional amount from net sale proceeds, as further set forth in the Assistance Agreement. If the Housing is not sold to an Eligible-Income Family after the five-year anniversary of the Purchase date and the Recipient recoups a proportional amount of the CMF Awards as Program Income, the Recipient is not required to replace the sold Housing with a replacement unit.

(2) The Recipient may design and implement its own recoupment, replacement, and/or resale strategy, subject to the requirements of § 1807.402(a)(1)(vi) to maintain compliance with the CMF requirements and the Assistance Agreement. Deed restrictions, covenants running with the land, or other similar instruments may be used as the mechanism to impose a strategy. The Recipient shall report to the CDFI Fund the event of resale and/or recoupment and redeployment of the CMF Award, or an equivalent amount, in the manner described in the Assistance Agreement or other guidance issued by the CDFI Fund.

(3) The affordability restrictions are allowed to terminate upon occurrence of any of the following termination events: foreclosure, transfer in lieu of foreclosure, or assignment of an FHA-insured mortgage to HUD. The termination of the affordability restrictions pursuant to any of the aforementioned terminating events will result in the Housing no longer being subject to a recoupment, replacement, and/or resale strategy as previously imposed by the Recipient. The Recipient may use purchase options, rights of first refusal or other preemptive rights to purchase the Housing before foreclosure to preserve affordability. The affordability restrictions shall be revived according to the original terms if, during the original Affordability Period, the owner of record before the termination event obtains an ownership interest in the Housing.

(b) Rehabilitation not involving purchase. Single-family housing that is currently owned by a qualifying Family, as set forth in § 1807.400, qualifies as Affordable Housing if it meets the following requirements of this paragraph (b):

(1) The estimated value of the Single-family housing, after Rehabilitation, does not exceed the purchase price limits for the area, as used in the HUD FHA Section 203(b) Mortgage Insurance Program, or any other index designated by the CDFI Fund. The underlying mortgage(s) should be affordable for the Homebuyer;

(2) The Single-family housing is owned by a qualifying Family as set forth in § 1807.400 and is the only principal residence of the Family at the time of Project Commitment and remains the principal residence of the Family throughout the Affordability Period as described in paragraph (b)(3) of this section;

(3) Single-family housing under this paragraph (b) must meet the affordability requirements during the Affordability Period upon Project Completion or meet the recoupment, replacement, and/or resale provisions of paragraph (a)(5) of this section; and

(4) Single-family housing under this paragraph (b) currently owned by a qualifying Family may be rehabilitated to convert a portion of the Housing into one to three permanent additional units, each with a separate means of ingress/egress, kitchen, sleeping area, bathing area, and bathroom facilities, independent of the primary dwelling. The additional units may be rented as Permanent Housing as long as the primary dwelling remains the principal residence of the Family. While the Affordability Period applies to the primary dwelling, it does not apply to the additional units discussed in this section.

(c) Ownership interest. The owner must meet the definition of Homebuyer and the ownership in the Single-family housing assisted under this section must meet the definition of Homeownership as defined in § 1807.104.

(d) New construction without Purchase. Newly constructed Single-family housing that is built on property currently owned by a Family that will occupy the Single-family housing upon Project Completion, qualifies as Affordable Housing if it meets the requirements under paragraph (a) of this section.

(e) Converting rental units to Homeownership units for existing tenants. Rental CMF Units may be converted to Homeownership units by selling, donating, or otherwise conveying the units to the existing tenants only under an existing documented rent-to-own program to enable the tenants to become Homebuyers in accordance with the requirements of this section. The Homeownership units are subject to a minimum period of affordability equal to the remaining rental Affordability Period, as further specified in the Assistance Agreement.

A CMF Award used for Economic Development Activities must stabilize, sustain, or revitalize communities and neighborhoods to meet the requirements set forth herein. For each individual CMF Award round, the Recipient may use no more than 30 percent of its CMF Award for Economic Development Activities, if such use is approved in its applicable Assistance Agreement.

(a) Eligible uses. A Recipient may use its Economic Development Activity Fund to finance and/or support Economic Development Activities through any Eligible Use pursuant to § 1807.301 except for Affordable Housing Fund.

(b) Minimum use Term. Community Service Facilities or physical structures resulting from Economic Development Activities must be used for allowable Economic Development Activities for a minimum of three years commencing with Project Completion.

(c) Concerted strategy. Economic Development Activities must complement and be undertaken as part of a Concerted Strategy that includes, but is not limited to, education, employment, transportation, financial services, commercial goods and services and other opportunities in a Low-Income Area or Underserved Rural Area.

(d) In Conjunction with Affordable Housing Activities. Economic Development Activities must be:

(1) Located in a Low-Income Area or Underserved Rural Area;

(2) Undertaken in conjunction with any affordable housing that is subject to or authorized by local, State or Federal laws; and

(3) Reasonably available, physically proximate, and benefit residents of such affordable housing. For a Metropolitan Area, the Economic Development Activities must be located within the same census tract or within one mile of such affordable housing. For a Non-Metropolitan Area, Economic Development Activities must be located within the same county, township, or village, or within 10 miles of such affordable housing.