Capital Needs Assessment e-Tool Requirement for PRACs Suspended

Regulation | August 08, 2018 | by Colleen Bloom

A HUD memorandum dated Aug 3 suspending use of the CNA etool for PRAC budgeting purposes has been sent to Multifamily Field Offices.  Until further notice, HUD directs PRAC projects needing to submit a rent increase to follow previous guidance in HUD Handbook 4350.1, Chapter 7: Processing Budgeted Rent Increases.

The August 3 memorandum "CNA eTool for PRAC requirement" reads:

Housing Notice 2016-18 was issued to guide the process and timeline for CNA eTool implementation across the Office of Multifamily Housing. The original effective date was November 1, 2017, which was delayed to February 1, 2018. The Office of Asset Management and Portfolio Oversight (OAMPO) required eTool implementation for three groups of properties: 10-year update CNAs for assets with insured mortgages; Partial Payment of Claims or Loan Modifications; and Section 202-811 properties with PRAC assistance.

In the Housing Notice, it is noted that while the first two OAMPO groups will be submitted by the servicing lender, CNAs for Section 202-811 properties will be prepared and submitted to HUD by a needs assessor as no servicing lender exists. HUD does not have the technological capacity for needs assessors to submit CNAs on behalf of PRAC projects, and despite attempts at a workaround, the process for PRACs to submit CNAs using the CNA eTool has been inefficient and cumbersome. 

Therefore, OAMPO is suspending the requirement for PRACs to utilize the CNA eTool until such time as technological updates can be made that would enable needs assessors to submit the CNA eTool on behalf of PRAC projects. PRAC projects needing to submit a rent increase in the interim should follow previous guidance in HUD Handbook 4350.1, Chapter 7: Processing Budgeted Rent Increases.

If you should have questions, please contact Jennifer Larson at Jennifer.L.Larson@hud.gov or 202-402-7141.

LeadingAge welcomes member questions and feedback on the impacts of this memo and efforts to obtain rent adjustments.

 

THE FOLLOWING GUIDANCE IS SUSPENDED UNTIL FURTHER NOTICE

PRAC properties, as of February 1, 2018 need to have a comprehensive needs assessment (CNA) created and submitted using HUD's new electronic format and online submission process when seeking to increase their deposits to Reserve for Replacement accounts by more than $500 or 5% annually. HUD recorded a webinar providing an overview of HUD's Capital Needs Assessment (CNA) e-Tool and specific requirements for its use in Project Rental Assistance Contracts (PRACs).

Mandatory use of the CNA e-tool went into effect as of November 1, 2017, for all FHA-insured program application. For the PRAC programs, however (including Section 202 or 811 with PRAC assistance, but not an insured mortgage transaction), CNA’s prepared by a needs assessor on or after February 1, 2018, must use the new electronic format.

HUD's Office of Asset Management and Portfolio Oversight (OAMPO) clarified that, for PRAC properties, the only routine submission point for a CNA would be as part of a request to increase the reserve for replacement deposits, made in conjunction with a budget based rent increase. Minor R4R increases of less than 5% or $500 do not require a CNA.

The recorded February 8 webinar provides an overview of HUD's Capital Needs Assessment (CNA) e-Tool and requirements for its use in Project Rental Assistance Contracts (PRACs). This training includes a high-level overview of the e-Tool's functionality, but focuses primarily on the role of PRAC owners in determining when the CNA e-Tool is required, reviewing the e-Tool provided by an independent assessor, and submitting the e-Tool to the Asset Management office

Notable Quotables:

The following statements are taken directly from the presentation, and represent key points or considerations.

The CNA, prepared by a qualified 3rd party needs assessor:

  • describes the condition and durability of a multifamily property
  • includes a year by year schedule of projected critical and non-critical capital needs and costs
  • covers a period of 20 years
  • is reimbursable from R4R
  • is obtained from the needs assessor by the owner
  • must be reviewed by the owner for content and quality (as detailed in depth in the HUD training), then
  • is submitted to HUD by the owner

Capital needs assessments are strongly recommended for all PRAC properties because adequate reserves are key to ensuring sustainability of the property for the long-term, as discussed further in the LeadingAge white paper PRAC Preservation Needs and Options . Members having difficulty with the e-tool or obtaining necessary increases to reserves are encouraged to communicate such problems to LeadingAge

 

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