By: Tushar Gurjal, Senior Policy Manager

July 27, 2026 — On July 13, NAHRO submitted comments on the Office of Management and Budget’s (OMB’s) proposed rule titled “Regulation for Federal Financial Assistance.” NAHRO’s primary request in its comment letter was for OMB to withdraw the proposed rule as it would produce erratic and unreliable funding streams that would disrupt the provision of federal rental assistance, lower or eliminate the provision of new affordable housing, and increase rental and homeownership prices across the country. NAHRO’s comment letter was divided into four sections. The first section included a note about using artificial intelligence; the second section detailed certain procedural concerns with the proposed rule; the third section articulated NAHRO’s general concerns with the proposed rule; and, finally, the fourth section listed several of NAHRO’s specific concerns with the proposed rule.

A Note on Artificial Intelligence and Procedural Concerns with the Proposed Rule

The first section of NAHRO’s comment letter cautioned OMB not to use large language models to summarize comments it received nor to rely on large language models to respond to comments. The Administrative Procedure Act (APA) requires that agencies consider the relevant matter presented in a comment. Large language models frequently produce inaccurate output with frequent “hallucinations.” Utilizing large language models to review or respond to comments may violate the APA as considering inaccurate summaries or responding to comments inaccurately may mean that the agency is not considering the relevant matter presented.

The second section of NAHRO’s comment letter discussed several procedural concerns with the proposed rule. First, OMB should have given more than 45 days to comment because 45 days does not afford enough time to properly analyze the rule. Second, since the rule was a regulation that would bind HUD, OMB should have followed statutory language requiring at least 60 days for written comment for HUD rules in the 2026 appropriations bill. Third, the proposed rule did not provide an adequate required regulatory impact analysis. The regulatory impact analysis should have provided an agency-by-agency breakdown of costs, benefits, and alternatives to the proposed rule, but failed to do so. Finally, the comment letter stated that housing agencies that have Housing Choice Voucher programs or Public Housing are not subject to the requirements of the proposed rule but are rather subject to their annual contributions contracts.

General Concerns with the Proposed Rule

The third section of NAHRO’s comment letter articulated NAHRO’s general concerns with the OMB proposed rule. The letter noted that one of the primary concerns with the proposed rule was the use of vague terminology. Vague terminology is problematic because it does not give fair notice of prohibited conduct to grantees while it allows arbitrary enforcement of broad, ill-defined terms. The rule requires that grantees” demonstrably advance the President’s policy priorities,” effectuate “the national interest,” not “. . . take actions that could significantly damage the reputation of . . . the Federal agency making the award, or the Federal Government,” or bar spending funding on activities that further “diversity, equity, inclusion, and accessibility” policies or practices. The comment letter noted that these terms were broad, it was not clear what the prohibited conduct was, and with such broad language, individual officials would be applying their personal judgment in decision making causing erratic and arbitrary decision making. This creates unstable, inconsistent federal funding streams hindering the provision of federal rental assistance and impeding the supply of new affordable housing units.

There were several other general concerns with the proposed rule in the comment letter. First, the proposed rule would create unreliable funding streams that developers would not be able to rely on that would impact the creation of new affordable housing. Second, the comment letter noted, the rule should be guidance instead of a regulation as a regulation would bind federal agencies in ways that could be harmful without any real quantitative analysis of the impact of the rule. Third, it is not clear that OMB has the statutory authority to create this sweeping regulation.

Specific Concerns with the Proposed Rule

The fourth section of NAHRO’s comment letter articulated several specific concerns with the proposed rule. These concerns included the following:

• Alignment with Administration Priorities (Proposed § 200.202) – the proposed rule states that a federal program must be designed to “[a]lign with administration policies and priorities,” but this may conflict with how Congress authorized a program.
• Grantee and Proposal Selection (Proposed § 200.205) – the proposed rule states that grants must be aligned with “the national interest” and selected by “senior appointees.” NAHRO is concerned this would politicize the discretionary award process and create instability in HUD funding streams.
• Ability to Terminate or Suspend Funds (Proposed § 200.211 and Proposed §§ 200.340-343) – the proposed rule states that discretionary grants must be in the “national interest.” NAHRO notes that while many components of the Public Housing program and the Housing Choice Voucher program are likely not discretionary grants, things like Housing Assistance Payment (HAP) set-aside funds, special administrative fees distributed at the Secretary’s discretion, or Public Housing shortfall funding may be discretionary grants and be subjected to the vague “national interest” requirement.
• Requirements for Pass-Through Entities (Proposed § 200.332) – Termination for Reputational Damage – the proposed rule forbids subrecipients from taking actions that could damage the “reputation” of the federal agency or the federal government. Any final rule should clarify that landlords participating in HUD programs or tenants are not subrecipients.
• Specific Conditions (Proposed § 200.208) – New Terms and Conditions – the proposed rule would allow for a federal agency to add or remove specific conditions to a grant during the grant period. NAHRO was concerned that this rule would allow HUD to add any new requirements to core programs (e.g., new reporting requirements, new requirements to sign recovery agreements, or requirements not to issue new vouchers) absent congressional authorization. NAHRO was also concerned this would hamper new development as developers would not want to use federal funding streams knowing that new terms and requirements could be added at any time.
• Statutory and National Policy Requirements (Proposed §200.300) – Limits on Diversity, Equity, Inclusion, and Accessibility – the proposed rule prohibits entities from using federal awards for diversity, equity, inclusion, and accessibility activities, but does not define these activities. NAHRO was concerned this may impact activities that housing agencies may take like providing financial literacy classes, wait list preferences for people experiencing homelessness or veterans, giving scholarships to children in families receiving federal rental assistance, or helping children access libraries or reading programs.
• Prohibition of Using Federal Awards to Promote or Support Theories of Disparate-Impact Liability (Proposed § 200.218) – the proposed rule forbids federal agencies from using disparate-impact liability in all contexts relevant to federal awards and recipients and sub-recipients must note adapt disparate-impact liability standards in administering program or activities supported by a federal award. NAHRO was concerned that this might prohibit HUD from issuing any disparate impact guidance to housing agencies which may make it harder for housing agencies to comply with disparate impact case law which still remains valid. Additionally, housing agencies may be prohibited from using any federal funds to defend themselves in disparate impact cases.
• English Language (Proposed § 200.111) – the proposed rule states that “[a]ll Federal financial assistance announcements, applications, and Federal award information must be in the English language and must be in terms of U.S. dollars.” It is not clear if this provision is only applicable to federal agencies or if it would prohibit the use of other languages in communications in programs like Public Housing or the Housing Choice Voucher program.
• Domestic Preference for Procurements (Proposed § 200.322) – Expansion of Build, America, Buy America – the proposed rule states that to the greatest extent practicable and consistent with law, federal agencies must “maximize the use of goods, products, and materials produced in the United States.” While a worthy goal, NAHRO was concerned that it is currently impossible to tell which, if any products, are currently made entirely in the United States. This language could expand HUD’s current Buy America Preference requirement beyond the products it currently covers and may take away HUD’s ability to provide waivers for this requirement in some contexts. This will drastically limit the supply of new units constructed in the country.
• Conference (Proposed § 200.432) – Pre-approval for Conferences – the proposed rule states that “[t]he costs for attending conferences are allowable only if participation in the conference is expressly approved by the Federal agency and included in the terms and conditions of the Federal award.” NAHRO was concerned that HUD lacks the staff capacity to constantly alter annual contributions contracts and grant terms to allow for every conference attended by a housing agency staff member. Attending conferences is especially important now as HUD is in the process of implementing sections 102 and 104 of the Housing Opportunity Through Modernization Act of 2016 (HOTMA).
• Memberships, Subscriptions, and Professional Activity Costs (Proposed § 200.454) – Preapproval for Membership Organizations – the proposed rule requires written approval from a federal agency for membership in professional, civic, business, and technical organizations. NAHRO was concerned that this provision will prevent housing agencies from joining membership organizations that help them to efficiently and effectively use federal funds.
• Lobby (Proposed § 200.450) – Voter Registration – the proposed rule prevents nonprofits from establishing, administering, or contributing to voter registration drives. Housing agencies may sometimes contact nonprofits to conduct voter registration drives as these nonprofits will be well positioned to know electoral rules and follow them. As this service helps communities participate in civic life, NAHRO recommends that nonprofits be allowed to continue to do this.

NAHRO’s full comment letter can be read here.

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