12 U.S.C. § 4104 — Annual authorized return and preservation rents

(a) After an appraisal under section 4103, the Secretary^* must set the annual authorized return on the housing at 8 percent of its “preservation equity^*.” This section does not define “preservation equity”; section 4119(8) does.
(b) The Secretary must also set aggregate preservation rents for each appraised project. These rents are used only to compare the project with Federal cost limits under section 4105. Actual owner^* or qualified-purchaser rents are set under sections 4109, 4110, or 4111. (1) For incentives for extending low-income affordability restrictions^*, the rent is the project’s gross potential income needed to cover: (A) the annual authorized return; (B) rehabilitation-loan debt service; (C) federally assisted mortgage debt service; (D) operating expenses; and (E) adequate reserves. (2) For incentives for a sale, the rent is the project’s gross income needed to cover: (A) acquisition-loan debt service; (B) rehabilitation-loan debt service; (C) federally assisted mortgage debt service; (D) operating expenses; and (E) adequate reserves.
(c) This section and an implementing plan of action or use agreement do not stop an owner from obtaining a new loan, refinancing an existing project loan, or distributing its proceeds. But with refinancing: (1) the owner must provide adequate rehabilitation based on a capital-needs assessment satisfactory to the lender or bond-issuance agency; (2) a budget-based rent increase must include new-financing debt service, commercially reasonable debt-service coverage, and lender-required replacement reserves; and (3) for units without project- or tenant-based rental subsidies, refinancing-related increases may not exceed 10 percent per year. (A) A tenant already living there at refinancing must not, for that tenancy, pay rent and utilities above the greater of 30 percent of income or the amount paid immediately before refinancing. (B) This protection does not apply if the tenant does not give the owner proof of income. Paragraph (3) does not limit increases caused by higher operating costs.