HUD Inspector General Reports Major Financial Recoveries and Oversight Improvements

HUD’s Proposed Rule to Eliminate Affirmative Fair Housing Marketing Plans: A Critical Analysis

Introduction The Department of Housing and Urban Development (HUD) has proposed eliminating the requirement for Affirmative Fair Housing Marketing Plans (AFHMPs), a cornerstone of fair housing enforcement for decades. This proposed rule, published on June 3, 2025, represents a significant departure from established fair housing practices and raises serious concerns about the federal government s commitment to ensuring equal housing opportunities for all Americans. HUD s justification for this elimination rests on six primary arguments, each of which fails to withstand careful scrutiny and analysis. Background on Affirmative Fair Housing Marketing Plans AFHMPs have long served as essential tools in combating housing discrimination by requiring property owners and managers to actively market housing opportunities to groups that are least likely to apply. These plans ensure that information about available housing reaches all segments of the community, not just those who traditionally have had better access to housing information networks. Analysis of HUD s Justifications 1. Claims of Inconsistency with Fair Housing Act Authority HUD argues that its authority under the Fair Housing Act and Executive Order 11063 is limited to the "prevention of discrimination, claiming that AFHM regulations go beyond this scope by requiring outreach to minority communities through targeted publications and outlets. The agency characterizes this as impermissible "racial sorting. This argument fundamentally misunderstands both the nature of discrimination and the historical context of fair housing enforcement. Information disparities have long been one of the most prevalent and effective forms of housing discrimination. When certain groups systematically lack access to information about housing opportunities, the discriminatory effect is equivalent to being explicitly excluded. The failure to provide equal access to housing information is, in itself, a discriminatory act, not merely a neutral information gap. AFHMPs address this reality by ensuring that housing information reaches all communities, particularly those that have been historically excluded from traditional marketing channels. 2. Constitutional Challenges Under Equal Protection HUD contends that AFHM regulations violate the Equal Protection Clause by requiring applicants to favor some racial groups over others. This characterization is both inaccurate and misleading. AFHMPs do not create preferences or favor any particular group. Instead, they ensure equitable access to information by targeting outreach to communities that are "least likely to apply for specific housing opportunities. This principle applies regardless of the racial or ethnic composition of those communities. For instance, housing developments located in predominantly minority neighborhoods are required to conduct affirmative marketing in white communities since white residents would be least likely to apply for housing in those areas. The regulation is race-neutral in its application it focuses on reaching underrepresented groups regardless of their racial identity. This approach promotes inclusion rather than exclusion and advances the constitutional principle of equal protection under the law. 3. Delegation of Legislative Power Concerns HUD s third argument that the Fair Housing Act s authorization of AFHM regulations constitutes an unconstitutional delegation of legislative power represents perhaps the weakest aspect of their legal reasoning. Congress explicitly mandated that affirmative efforts be made to eliminate housing discrimination. As the administrative agency responsible for implementing congressional intent in this area, HUD possesses both the authority and the responsibility to determine the most effective means of carrying out this mandate. The development of specific regulatory mechanisms to achieve Congress s stated goals falls squarely within HUD s legitimate administrative authority and represents appropriate implementation of legislative intent rather than overreach. 4. The "Color Blind Policy Justification HUD frames its opposition to AFHMPs as part of a "color-blind policy approach, arguing that it is "immoral to treat racial groups differently and that the agency should not engage in "racial sorting. This argument mischaracterizes the function and operation of AFHMPs. These plans do not sort individuals by race or treat different racial groups unequally. Rather, they ensure that all groups have equal access to housing information by specifically reaching out to those who are least likely to receive such information through conventional marketing channels. Critically, AFHMPs require marketing to the general community in addition to targeted outreach. This comprehensive approach ensures broad access to housing information while addressing historical information disparities that have contributed to ongoing patterns of segregation. 5. Burden Reduction for Property Owners HUD argues that "innocent private actors should not bear the economic burden of preparing marketing plans unless they have actively engaged in discrimination. This position suggests that property owners should be exempt from fair housing obligations unless they can prove intentional discriminatory conduct. This reasoning effectively provides cover for property owners who prefer that certain groups remain unaware of housing opportunities. The "burden of creating inclusive marketing strategies is minimal compared to the societal cost of perpetuating information disparities that maintain segregated housing patterns. The characterization of comprehensive marketing as an undue burden ignores the fundamental principle that equal housing opportunity requires proactive effort, not merely passive non-discrimination. This represents a retreat to a "wink and nod approach to fair housing enforcement that falls far short of the Fair Housing Act s aspirational goals. 6. Prevention vs. Equal Outcomes HUD s final argument contends that AFHM regulations improperly focus on equalizing statistical outcomes rather than preventing discrimination. This argument creates a false dichotomy between prevention and opportunity creation. AFHMPs exist not to guarantee equal outcomes but to ensure equal opportunity by providing equal access to housing information. When information about housing opportunities is not equally available to all segments of the community, the opportunity for fair housing choice is compromised from the outset. True prevention of discrimination requires addressing the structural barriers that limit housing choices, including information disparities. The Broader Implications HUD s proposed elimination of AFHMP requirements represents a concerning retreat from decades of progress in fair housing enforcement. The proposal effectively returns to an era when discrimination, while technically prohibited, was facilitated through information control and selective marketing practices. The reality of housing markets is that access to information varies significantly across communities. Property owners and managers possess considerable discretion in how they market available units. Without regulatory requirements for inclusive outreach, there are few incentives to ensure that information reaches all potential applicants. Anyone with experience in affordable housing development and management understands that information flow can be deliberately targeted and shaped. This targeting can either expand housing opportunities for underserved communities or systematically exclude them. Marketing strategies can be designed to minimize applications from certain groups while maintaining technical compliance with non-discrimination requirements. Conclusion The six justifications offered by HUD for eliminating AFHMP requirements fail to provide compelling reasons for abandoning this critical fair housing tool. The arguments reflect a fundamental misunderstanding of how housing discrimination operates in practice and ignore the crucial role that information access plays in maintaining or dismantling segregated housing patterns. Rather than advancing fair housing goals, the proposed rule exacerbates existing disparities by removing a key mechanism for ensuring that all communities have equal access to housing information. The elimination of AFHMPs would represent a significant step backward in the ongoing effort to achieve the Fair Housing Act s vision of integrated communities and equal housing opportunities for all Americans. The current proposal suggests an agency leadership more committed to reducing the regulatory burden on property owners than to expanding housing opportunities for underserved communities. This represents a troubling departure from HUD s mission and responsibilities under federal fair housing law. Moving forward, policymakers, housing advocates, and community leaders must carefully consider whether this proposed rule serves the public interest or merely provides cover for practices that perpetuate housing segregation through more subtle but equally effective means.

HUD Inspector General Reports Major Financial Recoveries and Oversight Improvements

Federal watchdog agency identifies nearly $500 million in recoveries while addressing critical housing challenges across America. The U.S. Department of Housing and Urban Development s Office of Inspector General (HUD OIG) has published its semiannual report to Congress, highlighting significant financial recoveries and systemic improvements across federal housing programs during the six-month period that ended on March 31, 2025. Record Financial Impact and Enforcement Actions The HUD OIG s oversight activities generated significant financial returns for taxpayers, with audit and investigative efforts yielding nearly half a billion dollars in recoveries and recommendations. Audit activities alone led to collections of $387.4 million, while identifying an additional $42.3 million in funds that could be better utilized and questioning $8.1 million in costs. Investigative efforts produced equally impressive outcomes, with over $61 million in recoveries and receivables. The enforcement actions were thorough, leading to 36 arrests, 58 indictments, and 92 administrative sanctions, including 60 debarments from federal programs. Among the most notable prosecutions, a landlord received a 17-year prison sentence for fraudulently obtaining federal rental assistance while violating the Fair Housing Act. Similarly, a businessman was sentenced to 17 years for orchestrating a reverse mortgage fraud scheme that specifically targeted elderly homeowners. Addressing Systemic Housing Quality Concerns The report highlights ongoing challenges in maintaining adequate housing conditions within HUD-assisted properties. Inspections revealed that 65% of the observed housing units had deficiencies, with 63 life-threatening issues identified. These findings underscore the continued struggle to ensure that federally subsidized housing meets basic safety and health standards. Under the Rental Assistance Demonstration (RAD) program, initial inspections of converted properties experienced significant delays, with 50% lacking timely management and occupancy reviews. The OIG has recommended improvements to the timing and completion processes of inspections to address these critical gaps. One investigation led to a civil lawsuit against a management company for lead paint safety violations impacting over 2,500 apartments, highlighting the serious health risks faced by residents in certain assisted housing properties. Fraud Risk Management Needs Enhancement The report highlights fraud risk management as a vital area needing attention, especially within large public housing authorities. An audit of the New York City Housing Authority (NYCHA) showed a lack of a comprehensive fraud risk strategy, despite some existing anti-fraud measures. The authority s approach was described as mainly reactive instead of proactive. This finding has led the OIG to recommend evaluating fraud risk management practices at other large public housing authorities across the country, indicating that NYCHA s challenges may reflect broader systemic issues. Progress in Resolving Past Recommendations Collaboration between HUD and the OIG has produced positive outcomes in addressing previously identified issues. During the reporting period, HUD resolved 135 open recommendations, bringing the total number of outstanding recommendations down to 693. This trend shows a consistent decrease in unresolved audit findings. However, although not part of the report, it should be noted that the recent and planned cuts to HUD staff may slow the pace of corrective activity. Since October 2022, the OIG has identified 283 non-monetary benefits resulting from its recommendations, including 77 guidance enhancements, 64 process improvements, 112 increases in program effectiveness, and 30 enhanced accuracies. These improvements highlight the broader impact of oversight activities beyond direct financial recoveries. Challenges in FHA Program Oversight The Federal Housing Administration continues to face challenges in managing counterparty risks with mortgage lenders and servicers. The OIG found that Carrington Mortgage and MidFirst Bank misapplied FHA foreclosure requirements in over 18% and 14% of cases, respectively. Additionally, other lenders, including CMG Mortgage and loanDepot.com, demonstrated deficiencies in their quality control programs for FHA-insured loans. These findings underscore the necessity for improved oversight of the private entities on which HUD depends to effectively deliver housing assistance programs. Disaster Recovery and Grants Management HUD s administration of disaster recovery grants continues to encounter monitoring challenges. Although grantees under the National Disaster Resilience Program faced delays in completing activities, they remain on track to achieve their overall goals. The OIG has recommended enhanced action plans and improved documentation of collaboration with partners. In broader grants management, the OIG identified compliance issues with federal transparency requirements, noting that prime award recipients did not consistently report subawards as mandated by the Federal Funding Accountability and Transparency Act. Technology and Cybersecurity Improvements HUD s information security program has achieved maturity level 3, but it has not yet reached full effectiveness. Penetration testing uncovered significant weaknesses in data protection and website security, prompting recommendations for comprehensive enhancements to safeguard sensitive information and systems. Whistleblower Protections and Transparency The OIG continues to underscore the significance of whistleblower protections in ensuring program integrity. During the reporting period, 10,214 hotline intakes were processed, with 6,631 referred to HUD program offices for action. The Public and Indian Housing office received the highest number of referrals at 5,250, highlighting ongoing concerns in this program area. Notably, the report found no attempts by HUD to interfere with OIG independence, and no instances of whistleblower retaliation were reported, indicating a healthy oversight environment. Looking Forward The semiannual report illustrates both the ongoing challenges that federal housing programs face and the effectiveness of independent oversight in addressing these issues. With nearly $500 million in financial impact and numerous process improvements, the HUD OIG s work continues to yield substantial returns on taxpayer investment while ensuring that federal housing assistance reaches those who need it most safely and effectively. The findings emphasize the crucial role of strong oversight in preserving the integrity of programs that offer housing assistance to millions of Americans while pointing out areas where ongoing attention and enhancement are vital for program success.

HOTMA Compliance Deadline Extended to January 1, 2026 for HUD Multifamily Housing Programs

On May 30, 2025, the Office of Multifamily Housing Programs issued a new Housing Notice extending the mandatory compliance date for the Housing Opportunity Through Modernization Act of 2016 (HOTMA). The previous deadline of July 1, 2025, has now been extended to January 1, 2026, for all owners participating in HUD multifamily project-based rental assistance programs. What This Means for Owners and Agents Full HOTMA compliance is required for all tenant certifications dated on or after January 1, 2026. This includes adherence to both the mandatory provisions and any discretionary policies implemented by owners. Owners and agents may voluntarily adopt HOTMA compliance earlier by utilizing the rent override function in the Tenant Rental Assistance Certification System (TRACS). Interim Compliance Guidance Until a property fully implements HOTMA, HUD advises the following: Continue to follow your current Tenant Selection Plan (TSP) as approved by HUD or your Contract Administrator. Maintain adherence to existing Enterprise Income Verification (EIV) policies and procedures. Ensure any early implementation steps are consistent with TRACS capabilities and accurately documented in tenant files. Key Takeaways New HOTMA compliance deadline: January 1, 2026 Optional early adoption is available through TRACS Existing policies remain in effect until full HOTMA compliance is achieved LIHTC Impact Owners and operators of LIHTC projects should contact the relevant Housing Finance Agency (HFA) for information on the effective date in their respective states. If you have any questions regarding the HOTMA implementation timeline, updating your policies, or the use of TRACS features, please contact our office. We are here to help ensure a smooth transition to full HOTMA compliance.

A. J. Johnson Partners with Mid-Atlantic AHMA for December Training on Affordable Housing - June 2025

In June 2025, A. J. Johnson will partner with the MidAtlantic Affordable Housing Management Association for three live webinar training sessions for real estate professionals, particularly those in the affordable multifamily housing field. Following the LIHTC webinars, AJ will review testable areas and in-person administration of the Housing Credit Certified Professional (HCCP ) exam. The following sessions will be presented: June 10: Intermediate LIHTC Compliance - Designed for more experienced managers, supervisory personnel, investment asset managers, and compliance specialists, this program expands on the information covered in the Basics of Tax Credit Site Management. A more in-depth discussion of income verification issues is included, as well as a discussion of minimum set-aside issues (including the Average Income Minimum Set-Aside), optional fees, and use of common areas. The Available Unit Rule is covered in great detail, as are the requirements for units occupied by students. Attendees will also learn the requirements for setting rents at a tax-credit property. This course contains some practice problems but is more discussion-oriented than the Basic course. A calculator is required for this course. June 11: Advanced LIHTC Compliance - This full-day training is intended for senior management staff, developers, corporate finance officers, and others involved in decision-making concerning how LIHTC deals are structured. This training covers complex issues such as eligible and qualified basis, applicable fraction, credit calculation (including first-year calculation), placed-in-service issues, rehab projects, tax-exempt bonds, projects with HOME funds, Next Available Unit Rule, employee units, mixed-income properties, the Average Income Minimum Set-Aside, vacant unit rule, and dealing effectively with State Agencies. Individuals who take both training days will be provided with study materials and a practice exam to assist in preparation for the HCCP exam, which will be administered on June 12. June 12: Review of testable areas and administration of the Housing Credit Certified Professional (HCCP ) exam (In-person exam in Richmond, VA). After two days of intensive and comprehensive LIHTC training, AJ will review program requirements and administer the HCCP exam in person. June 24: Developing Smoke-Free Policies for Multifamily Housing - A smoke-free policy in your apartment community will help protect your property and residents from smoke damage and reduce the risk of fires. You will save money on turnover expenses because apartments will cost less to clean, repair, and repaint. Living in a smoke-free environment promotes healthier hearts and lungs. What are the other benefits of smoke-free housing? Your family, guests, pets, and building staff will all find the air more pleasant. This 2.5-hour training will assist owners in understanding the steps necessary to go "smoke-free. It will include (1) a discussion of the legal issues related to prohibiting smoking, (2) the advantages of smoke-free housing, and (3) the steps to implementing such a policy, including details on what to include in the policy. This session is a must for any property looking to go smoke-free and will provide much-needed reinforcement and guidance for those who already have. These sessions are part of the year-long collaboration between A. J. Johnson and MidAtlantic AHMA and is designed to provide affordable housing professionals with the knowledge needed to effectively manage the complex requirements of the various agencies overseeing these programs. Persons interested in any (or all) training sessions may register by visiting either www.ajjcs.net or https://www.mid-atlanticahma.org.