(a) Funding Availability. Direct Loan funds may be made available through a NOFA or other similar governing document that includes the method for applying for funds and funding requirements.
(b) Oversourced Developments. A Direct Loan request may be reduced or not recommended if the Department's Underwriting Report concludes the Development does not need all or part of the MFDL funds requested in the Application because it is oversourced, and for which a timely appeal has been completed, as provided in 10 TAC §1.7 of this title (relating to Appeals Process) or 10 TAC §11.902 of this title (relating to Appeals Process for Competitive HTC Applications), as applicable.
(c) Funding Sources. Direct Loan funds are composed of annual HOME and National Housing Trust Fund (NHTF) allocations from HUD and associated Program Income, repayment of TCAP or TCAP RF loans, HOME Program Income, NSP Program Income (NSP PI or NSP), and any other similarly encumbered funding that may become available, except as otherwise noted in this chapter. Similar funds include any funds that are identified by the Board to be loaned or granted for the development of multifamily property and are not governed by another chapter in this title, with the exception of State funds appropriated for a specific purpose.
(d) Eligible and Ineligible Activities.
  (1) Eligible Activities. Direct Loan funds may be used for the predevelopment, acquisition, New Construction, reconstruction, Adaptive Reuse, rehabilitation, or preservation of affordable housing with suitable amenities, including real property acquisition, site improvements, conversion, demolition, or operating cost reserves, subject to applicable HUD guidance. Other expenses, such as financing costs, relocation expenses of any displaced persons, families, businesses, or organizations may be included. MFDL funds may be used to assist Developments previously awarded by the Department when approved by specific action of the Board. Eligible Activities may have fund source restrictions or may be restricted by a NOFA.
  (2) Ineligible Activities. Direct Loan funds may not be awarded to a Development:
    (A) Layered with Housing Tax Credits that have elected the income averaging election under Section 42(g)(1)(C) of the Internal Revenue Code that have more than 15% of the Units designated as Market Rate Units;
    (B) In which the Applicant will not be directly leasing Units to residents, except as specifically described in the NOFA;
    (C) Applicants applying for HOME or NSP funds may not commit any choice limiting activities as defined by HUD in 24 CFR Part 58 prior to obtaining environmental clearance, and will be subject to termination of the Direct Loan award if such action is undertaken. For an Applicant applying for NHTF funds, choice limiting activities prior to full execution of a Contract with the Department are not prohibited, unless the Development also has sources requiring environmental review under 24 CFR Part 50 or Part 58, but the eligibility of costs associated with these activities will be impacted in keeping with 24 CFR §93.201(h) and all applicable federal regulations. Furthermore, certain activities which prohibit environmental mitigation may cause the Development to be ineligible and will cause the termination of the Direct Loan award.
(e) Ineligible Costs. All costs associated with the Development and known by the Applicant must be disclosed as part of the Application. Other federal funds will be included in the Final Direct Loan Eligible Costs located in Table 1 of the Direct Loan Calculator as part of the required per-unit subsidy limit calculation. Costs ineligible for reimbursement with Direct Loan funds in accordance with 24 CFR Parts 91, 92, 93, and 570, and 2 CFR Part 200, as federally required or identified in the NOFA, include but are not limited to:
  (1) Offsite costs;
  (2) Stored Materials;
  (3) Site Amenities, such as swimming pools and decking, landscaping, playgrounds, and athletic courts;
  (4) The purchase of equipment required for construction;
  (5) Furnishings and Furniture, Fixtures and Equipment (FF&E) required for the Development;
  (6) Detached Community Buildings;
  (7) Carports and/or parking garages, unless attached as a feature of the Unit;
  (8) Commercial Space costs;
  (9) Personal Property Taxes;
  (10) TDHCA fees;
  (11) Syndication and organizational costs;
  (12) Reserve Accounts, except Initial Operating Deficit Reserve Accounts;
  (13) Delinquent fees, taxes, or charges;
  (14) Costs incurred more than 24 months prior to the effective date of the Direct Loan Contract, unless the Application is awarded TCAP RF, and if specifically allowed by the Board;
  (15) Costs that have been allocated to or paid by another fund source (except for soft costs that are attributable to the entire project as specifically identified in the applicable federal rule, or for TCAP RF if specifically allowed by the NOFA), including but not limited to, contingency, including soft cost contingency, and general partner loans and advances;
  (16) Deferred Developer Fee;
  (17) Texas Bond Review Board (BRB) fees;
  (18) Community Facility spaces that are not for the exclusive use of tenants and their guests;
  (19) The portion of soft costs that are allocated to support ineligible hard costs;
  (20) Other costs limited by Award or NOFA, or as established by the Board;
  (21) Interest on Construction Loans; and
  (22) Acquisition that occurred before the Application Acceptance Date and environmental clearance for HOME and NSP projects. For NHTF, acquisition that occurred prior to Contract signing.

Source Note: The provisions of this §13.3 adopted to be effective January 2, 2024, 48 TexReg 8334