Rent Adjustment Program

The OCAF (Operating Cost Adjustment Factors) is a factor that is established by HUD each year in the federal register and is applied to the existing contract rent (less the portion of the rent that is paid for debt service).

OCAF Values are determined by HUD annually and are published in the Federal Register. The OCAFs are usually published in February of each year. Properties with contracts expiring after February 11th are subject to the new OCAF values.

The Auto OCAF was created to streamline the rent increase process. The Auto OCAF will automate the process of an OCAF rent increase for Section 8 contracts in Amend Rent years. Owners/Agents will no longer need to calculate and supply the OCAF worksheet as part of the Amend Rents package.

Submission Requirements for OCAF Rent Increases:

• OCAF Worksheet or Signed Auto OCAF letter (sent to Owner/Agent via email, 150 days before funding expiration);
• Utility Allowance Analysis (if applicable);
• Verification of Annual Project Debt Service (ex. monthly mortgage statement, Loan Amortization Schedule) Debt Service = Principal + Interest + MIP – IRP Subsidy (if applicable).

Need to know how to fill out an OCAF Worksheet? Click here.

Options that allow an OCAF/Auto OCAF to be submitted:

• Option 1 – During amend rents only years, eligible for auto OCAF (unless a new RCS is needed);
• Option 2 – During contract renewals years & eligible for auto OCAF in amend rents only years (unless a new RCS is needed);
• Option 3 – During amend rents only years, eligible for auto OCAF;
• Option 4 – During contract renewals (accompanied by a budget per the lesser of test) & eligible for auto OCAF in amend rents only years;
• Option 5 – During contract renewals (if applicable – see POA or Use Agreement)   *(Option 5A, Demos with restructured loans only, Eligible for Auto OCAF for Life of Use Agreement)(Options 5B are not eligible for an auto-OCAF).

The budget-based rent adjustment is a great way for properties to increase their rent levels to support property expenses. A budget-based rent increase (BBRI) request should be prepared in accordance with the requirements of HUD Handbook 4350.1, Chapter 7.

Submission Requirements for Budget-Based Rent Increases:

• A cover letter that:
  1. Summarizes the reasons why a rent increase is needed;
  2. Gives the date the increase will be effective;
  3. Describes the project’s physical condition and any improvements that have been budgeted for.
• Budget Worksheet – HUD-92547-A – Schedule of Charges and Project Information (must be signed);
• Statement & documentation explaining the basis for any increases in expense line items if increase 5% or more and $500 or greater (comparing proposed budget to Current FY’s actuals and the previous year’s Audited figures);
• Executed copy of Owner’s Certification Regarding Purchase Practices and Reasonableness of Expenses (Appendix 3);
• A signed request for increase in Reserve Deposit – See Appendix 6 (if requested);
• Notice to Tenants (if applicable) in accordance with 24 CFR 245.310 & Owner’s Certification As to Compliance with Tenant Comment Procedures;
• Utility Allowance Analysis (if applicable).

Options that allow a BBRI to be submitted:

• Option 2 – During contract renewals & amend rents only years;
• Option 4 – During contract renewals (accompanied by an OCAF worksheet per the lesser of the test) & amend rents only years (accompanied by an RCS);
• Option 5 – During contract renewals & amend rents only years (if applicable – see POA or Use Agreement);

Processing an Amend Rent Adjustment at Comparable rents may occur if the Option 1 or Option 2 contract is at its fifth-year anniversary. At each fifth-year anniversary, the contract rent for each unit size is set at comparable rent, as shown by the Rent Comparability Study.

Submission Requirement Comparable Rent Adjustment

• Rent Comparability Study in accordance with Chapter 9 of the Section 8 Renewal Guide);
• Complete Utility Analysis, (HUD 2015-04);
• Signed and Dated Owner’s RCS Cover Letter;
• Signed and Dated Owner’s RCS Checklist.

• AAFs (Annual Adjustment Factors) are developed by HUD on the basis of Consumer Price Index (CPI) data on changes in residential rent and utility costs and data from Random Digit Dialing (RDD) rent-change surveys of the HUD regions.
• HUD publishes the AAFs annually in the Federal Register;
• The AAFs are shown in two schedules:
  • Highest Cost Utility Included (Highest-cost utility is included in contract rent);
  • Highest Utility Excluded (Tenant pays for the highest-cost utility);
• An AAF rent increase is effective for contracts commencing on the later of:
  • The annual contract anniversary date for which the adjustment is requested, or
  • The first contract month begins at least two months after the owner has submitted all required materials to the CA (but no later than two months before the next annual contract anniversary date).

Submission Requirements for AAF Rent Increases:

• AAF Forms —(See Notice H-2002-10):
  • Appendix 1 if Pre-Adjustment gross rent exceeds the existing Fair Market Rent
    Or
  • —Appendix 2 if Pre-Adjustment gross rent does not exceed the existing Fair Market Rents (also for all LMSA & PD section 8 contract types).
• Owner’s Certification Form – Appendix 3;
• Unit Turnover Report – Appendix 4;
• AAF RCS Adjustment Worksheet – Appendix 5 (if pre-adjustment gross rent exceeds the existing Fair Market Rent);
• Rent Comparability Study (RCS) – (if applicable);
• Utility Allowance Analysis (if applicable).

HUD provides utility allowances to properties receiving subsidy assistance where all or some utilities are paid directly by the residents. Utility allowances (UA) represent the owner’s best estimate of the average monthly utility cost of an energy-conscious resident based on an analysis. To determine the UA for the property, owners are required to perform a yearly analysis of their project’s utilities.

Housing Notice 2015-04, entitled “Methodology for Completing a Multifamily Housing Utility Analysis,” was issued on June 22, 2015. Please select and read the below memorandum for a summary of the important changes outlined in the Notice. Owner/agents must perform their upcoming utility analysis using the methodology outlined in the Notice for properties with contract anniversary dates that fall after 180 days of publication of this Notice, December 19, 2015.

The recently published Housing Notice can be found on HUDClips under Notice 2015-04.