[Code of Federal Regulations]
[Title 24, Volume 3]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 24CFR572.125]

[Page 178]
 
                 TITLE 24--HOUSING AND URBAN DEVELOPMENT
 
  CHAPTER V--OFFICE OF ASSISTANT SECRETARY FOR COMMUNITY PLANNING AND 
        DEVELOPMENT, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
 
PART 572_HOPE FOR HOMEOWNERSHIP OF SINGLE FAMILY HOMES PROGRAM (HOPE 3)--Table of Contents
 
   Subpart B_Homeownership Program Requirements_Implementation Grants
 
Sec. 572.125  Replacement reserves.

    (a) Purpose. A single replacement reserve may be established for the 
homeownership program only if HUD determines it is necessary to prevent 
severe financial hardship to families caused by the failure of a major 
system or component of the property that would render the unit 
substandard. Initially, the reserve must be justified by the applicant 
and approved by HUD as part of the program budget in the application or 
an amended application.
    (b) Need for reserve account. In determining the need for a 
replacement reserve, the applicant or recipient must demonstrate that 
the financial status of eligible families is insufficient to meet the 
needs for which the reserve is established, and that the amount proposed 
for the reserve is reasonable, taking into account the following 
factors:
    (1) The size of the implementation grant and the amount of matching 
contributions;
    (2) The availability of insurance, and the home maintenance and 
repair capabilities of the families; and
    (3) The condition and age of the properties and each of their major 
systems and components (including at least the heating, plumbing, and 
electrical systems, the roof, foundation, windows, exterior walls, and 
common area, if any).
    (c) Drawdown of reserve funds. Replacement reserve funds may only be 
drawn down under the Cash and Management Information System when 
specifically needed to assist a homeowner. At time of program closeout, 
all funds approved for a replacement reserve may be drawn down to fund a 
reserve account. The account may not exceed six years estimated 
replacement cost needs for the properties transferred under the 
homeownership program.
    (d) Administration of the reserve account. The recipient must 
identify the entity that will administer the replacement reserve account 
at time of program closeout. The entity responsible for administering 
the account must be bonded and approved by HUD. The account must be 
interest bearing, if possible, and interest earned thereon must be used 
for the purposes for which the account is established. Unused funds at 
the end of the term of the account must be treated as program income in 
accordance with Sec. 572.135(d).