HUD Implements New Passbook Rate To Be Effective February 1, 2015

On October 31, 2014, HUD issued a new HUD Notice, Housing Notice 2014-15 “Passbook Savings Rate Effective February 1, 2015 and Establishing Future Passbook Savings Rates”.

Currently, the HUD passbook rate is 2%.  Effective February 1, 2015, the HUD passbook rate will be reduced to 0.06%.

What does this figure mean?  When calculating income from assets that have a cash value total in excess of $5,000, HUD requires owners use the greater of “actual income from assets” or the cash value multiplied by the passbook rate.  When you multiple the total cash value of the assets by the passbook rate, this figure is called the imputed income from assets.

Some of you might be thinking, “I sure wish my assets were earning that kind of interest rate!”  Generally speaking, most asset accounts do not earn that high of an interest rate, despite the HUD passbook rate having been established at 2% for over a decade.  Owners using this “arguably inflated” rate to impute income were following the HUD regulation; however, in doing so, they were incorporating imputed asset income figures on the Form 50059 that were probably much higher than what would realistically be earned by the individual.  This affects the rental calculations.

HUD Notice 2014-15 should help to resolve this issue in 2015 and future years.  The Notice provides guidance that will supersede instruction provided in HUD Handbook 4350.3, Rev-1, Change 4, Section 5-7(F).

Most TRACS software has a set up screen for owners to enter in the current HUD passbook rate, as a standard setting.  Make sure you coordinate how and when to update the rate in your software to ensure you do not pre-maturely utilize the lower rate before the February 1, 2015 effective date.  You will also have to be sure that all certifications effective February 1, 2015 or later, that have been completed ahead of time, are appropriately corrected, to reflect the correct rate once you update your software.  Contact your software vendor if you have specific questions on how to update this information.