At its March 6 meeting, the TDHCA Governing Board formally adopted the new Housing Finance Corporation (HFC) Compliance Monitoring Rule, finalizing the agency’s framework for monitoring multifamily HFC developments under House Bill 21.
For TAAHP members, this marked the end of a long and highly technical rulemaking process that required early coordination, direct engagement with TDHCA, and sustained member input. While the final rule did not reflect every recommendation made by industry stakeholders, the final outcome included important clarifications and a more workable path forward for HFC users.
Watch the Board discussion on this item here.
TDHCA announces Emergency Rulemaking
How TAAHP Engaged
Because HB 21 is highly prescriptive, this rulemaking was always going to hinge on the implementation details. Definitions, audit structure, fee treatment, and reporting requirements were never minor drafting issues. They were the substance of how this new compliance framework would function in practice.
In fall 2025, TAAHP’s Compliance Committee formed the Tax Exemption Compliance Reporting Subcommittee, chaired by Stephanie Naquin of Novogradac, to help organize member feedback and focus on the most significant implementation issues in the proposed rule. The group met regularly, gathered structured input from members, and developed a focused issues matrix that helped shape formal comments and direct engagement with TDHCA. TAAHP also worked closely with the Texas Apartment Association and Texas NAHRO throughout the process.
That work helped shape the November 14 roundtable with TDHCA staff on HFC compliance implementation, the first forum of its kind between TAAHP and the agency in several years. At that roundtable, stakeholders discovered that the version of the rule submitted to the Texas Register did not match the version previously approved by the Board. As a result, TDHCA reposted the rule and reopened the public comment period before bringing it back for final adoption.
At the March 6 Board meeting, Roger Arriaga walked through that history and thanked TDHCA staff for their collaborative approach throughout the process. He also made clear that TAAHP’s testimony that day was not intended to revisit every issue already covered in the joint written comment. Instead, it focused on key concerns created by later changes to the proposed rule in response to other commenters.
TAAHP’s final written comments to TDHCA, submitted jointly with the Texas Apartment Association and Texas NAHRO, can be read here.
TDHCA’s Overview of the Final Rule
TDHCA Multifamily Compliance Director Wendy Quackenbush opened the item by summarizing the final rule and the changes made after public comment. She noted that the reposted rule was published for comment from December 26, 2025 through January 26, 2026, and that the Department received comments from 10 entities. She said those comments helped staff update and fine tune the rule to better align with the purpose and requirements of HB 21.
Ms. Quakenbush highlighted several major revisions in the final version, including:
- updates to the definition section to better clarify “auditor” and “rent”
- removal of extraneous language to better align the rule with statutory definitions
- a reduction in the extension request period from 120 days to 60 days
- a cap on the annual service fee at $35 per restricted unit applied to the sample size of units, with a minimum of $500 per development
Ms. Quakenbush also read additional revisions into the record based on feedback from the bill sponsor. Those changes included revised language related to the first audit deadline for developments acquired prior to May 28, 2025, as well as the removal of another contested provision from the rule text.
Issue #1: How the Rent Definition Would Apply to Existing HFC Deals
TAAHP’s main concern at the Board meeting was how the final rent definition would apply to pre-May 2025 HFC developments. As Stephanie Naquin explained, HB 21 broadened the definition of rent to include not just lease rent, but also recurring required fees charged as a condition of occupancy, while still excluding optional fees. TAAHP did not challenge that statutory change. The concern was applying it to existing HFC properties that were developed and operating under older regulatory agreements and assumptions.
Many HFC properties have long charged recurring fees such as trash, water, sewer, cable, and internet. During rulemaking, there had been some expectation that common utility-type charges might be treated differently from development-specific or amenity-style fees. The proposed rule reflected some of that distinction, but the final rule removed that carveout, meaning required tenant fees are now included in rent.
That created an immediate compliance concern for older deals. A property that had historically complied with a rent cap based on lease rent alone could now appear out of compliance if required fees were added into the calculation. TAAHP argued that pre-May 2025 HFCs should not be retroactively judged under a new interpretation that emerged at the end of the rulemaking process, especially since those deals were not all structured under the same rent-limit framework.
TAAHP asked the Board to clarify that the broader rent definition should apply prospectively to newer deals, or at minimum, that pre-enactment HFC users should not face noncompliance findings in reporting year 2025. While the Board did not fully exclude these fees from rent, it did agree to an important transition measure: no HFC user will be found noncompliant on this issue for reporting year 2025.
Beginning in reporting year 2026, however, HFC users should expect to adjust their practices to comply with the final rule. That could mean making fees clearly optional, lowering lease rent so required fees plus rent stay within the limit, or eliminating certain fees altogether. Stephanie also noted that some pre-May 2025 regulatory agreements may not contain explicit rent limits, which could reduce the impact for certain properties, but it is still an issue HFC users should review now.
Issue #2: Preserving Department Discretion on Extensions
TAAHP’s second major concern involved the rule’s extension language under §10.1203(1)(B), specifically the change from a proposed 120-day extension period to a final 60-day extension period for audit submissions. TAAHP’s concern was not simply the number of days, but whether the rule’s wording accurately reflected the statute. As Darren Smith explained, Section 394.9027(g) says the Department may extend the audit deadline for good cause shown, “as determined by the Department.” In TAAHP’s view, that language is important because it preserves TDHCA’s discretion to decide what is reasonable based on the circumstances.
TAAHP emphasized that these audits are complex and often depend on third parties, including auditors and others outside the HFC user’s control. For that reason, TAAHP argued that the rule should not be read to impose a hard 60-day cap if additional time is justified. Stephanie Naquin clarified that TAAHP was not asking for automatic extensions or trying to weaken the June 1 deadline. The concern was narrower: the rule should not be interpreted more strictly than the statute itself.
The Board ultimately adopted the rule with the 60-day extension language in place. However, the discussion produced an important clarification. Board members acknowledged that the statute itself does not set a fixed extension limit and that TDHCA retains discretion to grant additional time where warranted. In other words, while the rule contemplates an initial 60-day extension request, the Department may still approve further extensions on a case-by-case basis. That clarification did not resolve all concerns about the wording, but it did help confirm on the record that the Department’s statutory discretion remains intact.
Final Takeaways & Next Steps
While the rule did not reflect every recommendation advanced by industry stakeholders, the Board addressed the most significant implementation concerns by creating a 2025 transition year on the rent issue, confirming on the record that TDHCA retains discretion on extensions, and adopting several technical revisions before final approval.
With the rule now adopted (with modification forthcoming), HFC users should begin preparing for implementation. That includes reviewing recurring fees that may now be treated as part of rent, evaluating whether those fees should be made optional or otherwise restructured, and ensuring that audit preparation timelines are realistic under the June 1 deadline. The Tax Exemption Compliance Reporting Subcommittee will request the final version submitted to the Texas Register, circulate it to the group, and discuss any follow-up items as needed.